Ethical Leadership and Organizational Integrity in Public Sector Credit Card Systems

Introduction: Ethics in Crisis

The collapse of Enron and the financial crisis of 2007–2008 share a common driver: the desire to boost profits to a point where ethical behavior was compromised. In the case of Enron, the quest for greater profits led to financial engineering and the misuse of special purpose vehicles. Originally designed legitimately for financing receivables on corporate balance sheets, these vehicles were repurposed to hide losses and generate phantom profits. The financial crisis of 2007–2008 was driven by real estate professionals appraising homes at unrealistic and unsustainable values, banks offering unaffordable mortgages to homebuyers, and then packaging and selling these toxic mortgages to investors to increase profits.

When the financial crisis began in 2007–2008, the central question was not whether unethical behavior had occurred, but rather who was most unethical and who should be blamed first. As Brimmer states, "More than simply a legal or moral responsibility, ethics need to become an organizational priority" (2007). At the time these decisions were made, they may have seemed right and just based on past experiences, but they resulted in devastating consequences not only for the actors involved but for those around them. In the case of the financial crisis, the fallout affected the entire world. These crises underscore that ethical lapses in organizations have ripple effects far beyond a single company or industry.

The ethical climate of an organization determines not only how goals are met and obstacles overcome in the present, but also how sustainable the current way of doing business will be in the future. An ethical environment in an organization can lead to several tangible benefits: increased focus on the job due to fewer distractions caused by unethical practices; increased responsibility among employees, meaning management can focus on real issues; increased productivity, because employees take less time off and fewer sick days due to higher job satisfaction; and decreased employee turnover, which in turn reduces lapses in production (LRN 2007).

Importance of an Ethical Climate

However, while ethical behavior can increase harmony and operational functions, unethical behavior can be cancerous to an organization, making it toxic not only to internal stakeholders but also creating fallout that can harm society and foster a culture of mistrust and employee apathy. Organizations can improve workplace ethics by implementing several key strategies: managers must serve as ethical role models; hiring processes should screen for the right employees; a code of ethics must be established; employee education must be provided; ethical behavior must be supported and rewarded; ethical compliance positions must be added to organizational structure; and an open atmosphere must be created to make whistle-blowing unnecessary (Kreitner and Kinicki 2013). Ethical behavior is an organizational responsibility that can not only improve the bottom line but also positively affect employees, customers, and society.

Our upbringing, education, and social environment develop our biases or schemas that impact our decisions, drive outcomes in organizations, and shape both our individual character and how others perceive us. Several biases can affect our moral decision-making: blind-spot bias, confirmation bias, and the mere exposure effect (Handel 2007).

Bias Impacting Moral Decision-Making

Blind-spot bias is the tendency to view our own biases as less pronounced than those of others, often leading us to think we are above average compared to our peers. Confirmation bias is our tendency to accept information that matches our preconceived values and historical views while devaluing or ignoring information that challenges those views. The mere exposure effect is the tendency to accept something simply because we are familiar with it. Bias can prevent people from seeing the full effect of their decisions and can lead to irrational outcomes even when the decision-maker's intent was righteous. Bias can be overcome by challenging stereotypes, seeking education, and involving a diverse group in the decision-making process.

The State issues credit cards to its employees for business use. However, when these cards are used for personal purposes and the employee does not repay promptly, a moral and ethical dilemma arises. One such dilemma played out in a state agency where a manager used the state credit card to purchase groceries by mistake and then took over six months to reimburse the state.

Credit Card Accountability: A Case Study

Complicating matters, the person responsible for making credit card payments for the entire agency reported directly to the offending manager. This individual was placed in an ethical dilemma: remain loyal to her boss and wait patiently for payment, or escalate the matter to his manager and risk retaliation. This situation caused significant stress on an employee who had been with the state for over thirty years.

Eventually, the manager did make reimbursement to the state. However, because the employee persisted in seeking payment, she received a lower performance review. The stress of the situation led her to retire a short time later. This ethical dilemma exposes a systemic flaw in how the state's credit card reimbursement program is run, creating potential unintended consequences and the potential for fraud and misguided employee loyalty.

A System of Responsibility to Minimize Unethical Credit Card Use

Instilling personal responsibility and ethical behavior in an organization's business credit card system requires ensuring that the right people are empowered and that strict centralized enforcement is in place. At a company where I worked, business credit cards were each employee's personal responsibility from issuance to payment. First, business credit cards were only given to credit-worthy individuals. A person had to apply for a company credit card the same way as a personal credit card; if you did not qualify, you did not receive one. All charges to the credit card were the employee's responsibility for payment.

The process was straightforward: employees filed for reimbursement on a company website. Once approved by the reimbursement department, funds were wired to the employee's personal checking account or issued as a check. Critically, all charges on the employee's credit cards remained the employee's responsibility for payment. If payment was not made within thirty days, the employee's manager received notice of non-payment. After sixty days, a written warning was issued to the employee. After ninety days, the employee was terminated and the final paycheck was adjusted for payment. This system enforced personal ethical behavior in business credit card usage and significantly reduced employees abusing company credit cards, thereby reducing ethical dilemmas.

In using this type of company credit card system, the organization deployed aspects of the character or virtue test. This ethics test refers to individual views of self-evaluation, and from the organization's point of view, it asks whether the action represents "the reputation or vision of the kind of enterprise it wants to be" (Hamilton 2012).