Four directions on a moral signpost - ethics, integrity, honest, and respect

Moral compass: It takes skill, not just guidelines, to create an ethical company

Ethics is often associated with the abstract realm of philosophers. But there’s nothing abstract about the risks for business leaders.

Ethical missteps can expose companies to a host of reputational, regulatory, and legal risks.

In response, companies develop ethical guidelines or codes for decision-makers and set up boards to govern guideline usage.

For example, companies under growing pressure to fight bias are developing protocols to enable customer service representatives to treat all complaining customers fairly.

Another example is companies that are revamping their guidelines to embed diversity, equity, and inclusion commitments at all stages of the recruitment process, using algorithms to aid the selection process.

Why ethical guidelines don't guarantee an ethical culture

However, a significant challenge arises when leaders need to apply abstract ethical guidelines to concrete, pressing dilemmas.

The practical application of ethical guidelines requires skill, not merely noble intentions.

How can decision-makers learn to skilfully put a company’s ethical guidelines into action to improve ethical standards?

We examined how healthcare leaders used ethical guidelines to make critical decisions in ambiguous situations with limited resources.

That’s a competency that business leaders across all industries need to master to manage ethical risks.

By meticulously analysing the equitable distribution of resources and establishing advanced ethical guidelines, healthcare leaders have set a benchmark in ethical decision-making.

How to apply guidelines to ensure ethical behaviour

We spent several months observing healthcare leaders in action. Their experience of making life-or-death decisions provides valuable lessons on how to address ethical dilemmas.

Leaders in other sectors can apply these lessons to high-stakes, everyday decisions such as hiring and customer service.

Our research shows three practices — sense-making, sense-giving, and sense-breaking — enable decision-makers to apply ethical guidelines skilfully across multiple complex scenarios.

1 Sense-making

Sense-making involves using the language of the ethical guidelines to create a narrative of what’s going on in a specific decision-making situation.

For example, the decision-makers we studied — healthcare managers and doctors — asked pertinent questions driven by the ethical guidelines when examining patients’ requests for expensive new drugs. Is there an exceptional need? Is it a genuine request? Does the expected benefit justify an exception?

In one case study that we observed, decision-makers had to determine whether a teenage patient had exceptional needs that would unlock funding for a new drug.

At first glance, the patient’s needs appeared unique. He suffered from a severe, rare genetic disorder for which the requested drug was licensed.

However, upon closer examination of the available information, such as doctor reports on the patient’s other symptoms, and reflection on past cases, decision-makers sensed that the patient would likely benefit more from psychological support than from the requested drug.

Moreover, after several careful readings of published scientific reports on the drug’s effectiveness, they noted that the expected, quantifiable clinical benefit would be much smaller than they had initially thought.

The lesson here is that decision-makers need to develop a nuanced narrative of what to do by iteratively interpreting and synthesising diverse sources of information. This approach provides the scaffolding to help people align a decision with the organisation’s ethical guidelines.

2 Sense-giving

Sense-making is not enough when people face complex 'right versus right' dilemmas, where ethical ambiguity is high.

What the guidelines mean in relation to a particular case can become an open question. We found that decision-makers address such ambiguity through sense-giving.

This is a process in which each person takes a position on how the guidelines apply to the case at hand and, through open debate, tries to persuade others to side with them.

This is a perfect recipe for surfacing disagreements, and that’s exactly the point. Group members leverage collective wisdom to generate diverse viewpoints and navigate ethical ambiguity.

Why firms need a moral compass as well as ethical guidelines

Consider the following example involving a request for a life-saving drug. A doctor ardently argued to reject the request, based on limited evidence of the drug’s clinical effectiveness.

Another doctor passionately counter-argued that “we are in the business of saving lives” and suggested approval. A healthcare manager respectfully disagreed with both and reminded everyone that, based on the ethical guidelines, other patient groups who have complex health needs should be included in the fairness equation.

Through open debate, decision-makers effectively revealed various aspects of the ethical dilemmas they faced, such as the unfairness of exceptions that might unjustly limit equally deserving people’s access to healthcare resources.

During sense-giving, there is a risk of entering a spiral of endless conversations and potentially persisting differences.

Decision-makers can manage this risk through two main tactics.

First, they can build consensus by extracting evidence from authoritative sources and letting the evidence drive the deliberation process.

Second, they can bring clarity to the dilemma faced by imagining plausible responses from external stakeholders (in our case, the public). For example, decision-makers can use common sense as a device for building consensus by asking: “Would a person on the street find logic in this argument?”

3 Sense-breaking

In even more complex 'outlier' cases, the letter of the ethical guidelines appears to contradict the spirit of the guidelines.

This calls for a reflective and flexible approach, whereby the rationale and the language of the guidelines are adapted to the specifics of the case. We call this process sense-breaking.

In sense-breaking, decision-makers may temporarily deviate from strictly following the guidelines, acknowledge their emotions, revisit the purpose of the guidelines, and draw on their personal sense of what is morally right.

Sense-breaking exposes the potential limitations of any generic ethical guideline to certain outlier cases and, therefore, constitutes an opportunity for further reflection and learning, including the potential to modify the guideline itself.

In one example that we observed, decision-makers were debating a very rare request for brain surgery. While debating the evidence, they agreed that, based on the scientific literature, the procedure would probably not work.

Strictly following established clinical protocols and ethical guidelines meant that decision-makers had to reject the request.

Most of these healthcare leaders, however, went silent as they intuitively felt that such an outcome would be wrong. Eventually, one broke the silence by saying: “We can’t be so rule-bound and just walk away!”

The group eventually agreed to approve the request by flexibly adapting the guideline principle. At a subsequent meeting, they were informed that the patient had successfully undergone the surgery and was in a stable condition.

The lesson: sense-breaking is, undoubtedly, a balancing act that comes with risks.

On the one hand, it requires flexibility and divergence from conventional thinking, asking leaders to combine their personal moral sense with analytical insights derived from the ethical guidelines. On the other hand, decision-makers know that they must stay aligned with the core ethical principles of the framework and not be swayed by their emotions and personal moral judgements.

The process is delicate, but when it is handled in the spirit of collegial, ethical deliberation, sense-breaking helps to develop novel solutions to unique ethical dilemmas.

How to create more ethical business operations

As these examples show, simply designing an ethical framework is not a panacea for managing ethical issues.

People need to master the ethical expertise — sense-making, sense-giving, and sense-breaking — needed to apply ethical guidelines and avoid stark ethical missteps in daily work.

For example, in February 2021, a staggering 40 human content moderators for Meta independently reviewed a contentious Facebook post and, after applying Meta’s hate speech policy, decided that the post should remain on the platform.

After an independent ethics board scrutinised Meta’s decision the company was forced to remove the post. The board found that moderators had crudely applied the policy, primarily because they were “instructed … to apply the letter of the policy and not to evaluate intent”.

It appears that when judging the case, moderators put more emphasis on creating a trail of compliance with Meta’s ethical guidelines and less on making sense of what was going on.

If the company’s human moderators had fully developed their ethical expertise, especially their ability to engage in sense-giving and sense-breaking practices, the company might have avoided the public backlash that the post caused.

Four Ways to Develop Your Company's Ethical Expertise

So how can leaders develop that ethical expertise and apply their guidelines to implement ethical business practice? Here are four ways to strengthen people’s ethical expertise, based on our research:

1 Prioritise ethical expertise as a skillset and mindset.

Ethical expertise is a form of mastery that blends analytical skills with the ability to remain open to emotions and differing viewpoints in order to take a nuanced approach to ethical dilemmas.

Ethical experts master sense-making, sense-giving, and sense-breaking skills and learn to consult and control their intuition.

These leaders can distinguish between the spirit (the right thing to do) and the letter (the correct thing to do) of ethical guidelines.

Ethical experts also adopt a critical and collaborative mindset that enables them to recognise the intrinsic value of developing and comparing different ethical standpoints.

2 Train for ethical expertise, not rule compliance

To develop employees’ abilities to navigate ethical dilemmas, organisations should focus not only on adherence to ethical guidelines but also on enhancing critical thinking skills and emotional intelligence.

Engage decision-makers in scenario-based simulations and role-play exercises to allow them to encounter ethical situations filled with varying degrees of ambiguity.

Such exercises can be structured by incorporating targeted questions to uncover nuances in a situation, generate diverse applications of the guidelines, and nudge decision-makers to adopt alternative perspectives, such as considering the view of an outsider.

By working through different scenarios in a structured way, decision-makers learn to discern when sense-making narratives are coherent and when additional deliberation and recourse to common sense (sense-giving and sense-breaking) may be necessary before making decisions.

Organisations can further enhance training by compiling a repository of past ambiguous cases for reference that provide tangible lessons.

Caring and sharing: Firms should create an environment where employees feel safe to share their views

Additionally, using generative AI tools for creating new scenarios or serving as a dialogue partner can help a decision-maker refine their ethical expertise.

3 Develop mechanisms to share ethical expertise

Business leaders should foster an environment where team members are motivated to both develop and share their ethical expertise.

The main challenge here is that, due to its tacit nature, ethical expertise tends to remain confined within individuals or parts of the organisation where people have the opportunity to gain experience in applying ethical guidelines in multiple scenarios.

This hinders widespread dissemination. To address this challenge, business leaders can set up structured shadowing programmes.

These programmes should pair employees with recognised ethical experts within the organisation, allowing the employees to learn through direct observation and interaction. That was a practice we observed in the organisations we studied.

Moreover, leaders can create forums or teaching groups where ethical experts can share their experiences and insights on navigating real-life ethical dilemmas.

This initiative can not only facilitate peer learning but also elevate the status of ethical expertise across the organisation. This can deliver long-term benefits.

4 Foster open debate

Leaders need to create an environment where employees feel safe expressing their opinions and emotions without fear of judgement or dismissal.

For example, companies can organise discussions to include dedicated time for debate, focusing on results while allowing emotions to contribute to, but not control, the conversation.

This is particularly important in complex or edge scenarios where the morally right outcome may not always derive from strictly following the organisation’s guidelines.

During the debate, employees should be encouraged to rely on their initial intuitive reactions (sympathy or antipathy toward a request, for example) and then subject these reactions to rational evaluation.

Leaders must also define and communicate clear escalation pathways for addressing unresolved issues, to ensure that employees responsible for applying ethical guidelines know how and when to escalate concerns.

Leaders need to view ethical guidelines as a compass that employees need to skilfully use alongside their ethical expertise rather than as a key that effortlessly unlocks a door.

Ethical expertise needs to be nurtured and grown throughout the organisation.

Prioritising the development of ethical expertise will help everyone to bring the organisation’s ethical guidelines to life and prevent unethical behaviour.

This article was originally published in MIT Sloan Review.

Further reading:

The 10 questions successful leaders use to spot a scandal before it happens

Five reasons CEO succession planning boosts business performance

How should managers lead in a crisis


Jacky Swan is Professor of Organisational Behaviour. She teaches Organisational Behaviour on the Executive MBA (London) and Accelerator MBA and Leading Global Organisations on the Executive MBA and Global Online MBA (London).

Hari Tsoukas is a Distinguished Environment Research Professor. He teaches Leadership and the Art of Judgement on the Executive MBA and Global Online MBA.

Davide Nicolini is Professor of Organisation Studies and Director of the Innovation, Knowledge & Organisational Networks Research Unit.

Learn more about Leadership on the four-day Executive Education course Developing Executive Leadership at WBS London at The Shard.

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