When Volkswagen’s emissions test scandal erupted, it was quite clear that such activity could not have taken place without coordination among many individuals across the organization. While clearly not all would have been directly complicit, it is fair to ask “why did no one speak up?” This challenge is explored in this thoughtful article in the Financial Times by Bernd Irlenbusch, professor of business ethics at the Business School of University of Cologne.

The problem is that most corporate non-financial risk strategies start from the premise that employees are rational. With this assumption, managers can rely on employee engagement surveys and corporate ethics policies in order to manage conduct risk. As the author argues, this is simply not the case. Elements such as intuition, emotion, and biases have a powerful influence on behavior.

Research shows, in fact, that over time, employees will adapt their ethical and moral compass to match that of their environment. Our own experience at Starling has shown that employees are highly influenced by their peers – particularly those peers whom they trust most deeply. The result is that employees can become desensitized to unethical behavior – particularly when their peers actively exhibit such behavior. These biases are only amplified when outside pressures come into play. “Research shows that moral biases … are moderated by situational factors such as time pressure, monetary incentive structures, the influence of a leader and social norms that shape the corporate culture.”

Given that employees can not be relied upon to act rationally and behavior is clearly social in nature, Starling has developed tools that allow managers to identify behaviors and predict how they are likely to spread, contagion-like through their firms. Armed with this information, managers can identify where potential risks are most likely to occur and develop targeted solutions to mitigate the imact.

Read the article here (paywall): Volkswagen and the moral business behaviour lessons