Competition sometimes has undesirable consequences. These could include ‘tolerance’ of moral transgressions that further the economic interests of the organization. New research suggests that in highly competitive markets, where the pressure to outperform is intense, leaders might be less likely to discipline ‘bad’ employees who are ‘good’ for the bottom line.
Why do unethical practices become ‘normalized’ in some organizations? Why do errant employees sometimes go unpunished for long periods of time? These are questions that many people will have asked in the wake of the phone hacking scandal at News of the World and the recent interest-rate-rigging scandals at major banks.
One explanation is that in highly competitive markets leaders turn a blind eye to unethical behaviours that serve the commercial interests of the business — in other words, that ethical leadership is contingent on the ‘macro-level’ environment and context. The fact that leaders in competitive markets are often under intense pressure to ‘deliver’ lends weight to this theory — and so does recent empirical research.
Three new studies, a survey of organizational leaders, a field experiment, and a controlled laboratory experiment, look at how the broader context in which leaders operate shapes their responses to the moral transgressions of employees. The survey finds a link between increased market competition and an ‘instrumental focus’ in organizations, and the experiments find a causal relationship between increased market competition and unethical leadership.
More precisely, the research shows that fierce market competition makes leaders:
The research, some of the first to investigate the inter-organizational factors influencing leaders’ attitudes to the unethical behaviour of employees, adds to literature that reveals the ‘unhealthy effects’ of competition. (Previous studies have shown a negative relationship between interpersonal rivalry and ethical behaviour — finding, for example, that purchasing agents who face high pressure to perform are more likely to resort to deception.)
It does not mean that inter-organizational rivalry will always lead to less ethical decision-making — but it does provide further fuel for the debate on the morality of unbridled free-market competition.
The research suggests that highly competitive markets need close monitoring. Industry regulations and codes of conduct could help create working environments less conducive to ‘instrumental’ decision-making.
There are implications beyond the field of public policy, though. The research also suggests that organizations should:
Prophets vs. Profits: How Market Competition Influences Leaders’ Disciplining Behavior of Moral Transgressions. Pieter T. M. Desmet, Niek Hoogervorst & Marius Van Dijke. Academy of Management Proceedings (2013). Online article forthcoming.
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