Volkswagen and Wells Fargo show why it’s so hard to train executives in ethics

Volkswagen surrendered on ethics.
Volkswagen surrendered on ethics.
Image: Reuters/Lucy Nicholson
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Following revelations that Volkswagen executives were taking part in a global conspiracy to cheat emissions tests, the reaction was universal: What were they thinking?

Oliver Schmidt, the VW executive in charge of emissions compliance, was arrested by the FBI in Florida Jan. 7. He is one of six VW executives facing criminal charges related to the scandal, announced by federal prosecutors yesterday, the same day the company pled guilty to conspiracy charges, agreeing to pay more than $20 billion in the US alone in fines and settlements with car owners.

In hindsight, it’s hard to see how there would be any outcome for VW that wouldn’t end in disaster for the company and its executives. Surely they knew what they were doing was illegal, and at some point they would be caught. Weren’t they taught better?

Business schools and corporations attempt to train executives to make ethical decisions,  but getting the lessons to stick is hard, according a recent article in the Harvard Business Review by Eugene Soltes, a professor of Harvard Business School.

One of the most glaring problems, writes Soltes, an expert in white collar crime, is that the issues are framed as ethical dilemmas in class, and the answers can be obvious. But it’s much harder to identify the ethical questions in the real world, where multiple factors are at play, the pressures to perform are high, and the executives may not have time to think through all the consequences of their actions.

Classroom exercises are usually designed to create opposing views of a decision, and ask the participants to debate it, Soltes writes. But in business settings, there are often no dissenting voices, particularly if superiors have made the decision and expect their subordinates to fall in line.

At Wells Fargo, executives created an incentive system for cross selling that pushed low-level employees to create fake employees for customers. Employees who challenged the system were punished or fired, while those who transgressed were rewarded. The system was so engrained in the bank’s culture that its executives continued to promote it, even as thousands of employees caught cheating were fired.

After the financial crisis of 2008, which was the consequence of years of questionable decision making, business schools began to rethink how they teach ethics and values. Harvard Business School appointed ethics expert Nitin Noria dean in 2010, and introduced a new curriculum designed to get students out into the world to practice leadership and judgment.

While those changes may help the next generation of business leaders, it does little for the current crop. Soltes recommends companies continually train executives in ethical decision making, so, like athletes who stay in peak condition, they’re prepared to make the right decisions when needed.