Understanding the Causation of Ethical Breakdowns

Ethics is a set of moral principles that govern a person's behavior. Most people acquire such a set of principles from their family and their teachers early in life. All too many, however, seem to forget their moral moorings when pursuing career goals.  

“I want to take you on a journey of ethics,” said Lloyd Tsuruda, Director of Compliance at Diamond Healthcare, at the beginning of his presentation on ethics in the business world as part of the Williamsburg Place Lecture Series. When it comes to ethics, “we work in an area of vulnerability. These vulnerabilities can affect our jobs, our careers, and our profession—in order to protect our profession we have to keep mindful of ethics.”

Tsuruda has had personal experience with those vulnerabilities. He once worked in a large company with people who didn’t make ethical decisions and various leaders of that company ended up in jail. In that case, ethics failed at the top, but that’s where it should begin.


Professional ethics consists of a lot of things: normative standards, integrity, principles, business practice, compliance, conduct, and more. “A lot of this comes from our values,” Tsuruda said. Those values must be lived by the leadership and go beyond mere declarations. 

“As an ethical leader you must be visibly ethical,” Tsuruda said. “It’s not just words.” The entire team takes heed and colleagues or clients won’t follow your example if you’re all talk. If you propagate ethical values but then ignore them, your organization will suffer an “ethical breakdown.”

A famous example was the faulty fuel system design of the Ford Pinto in the 1970s which led to the notoriously unethical cost-benefit analysis that it was cheaper to pay off the victims than redesign the vehicle. 

When we think of unethical practices like that, we often have a real shady character in mind—a kind of movie villain. In his lecture, Tsuruda presented the statement of former federal prosecutor Serina Vash, who once said, “When I first began prosecuting corruption, I expected to walk into rooms and find the vilest people. I was shocked to find ordinary, good people I could well have had coffee with that morning. And they were still good people who’d made terrible choices.” 

Tsuruda then presented five ethical barriers that may keep employees from making the right choices. They may feel it is unsafe to speak up, they are confronted with conflicting goals, or they value performance over principles. The other two are omission and hypocrisy. These are very common, everyday barriers. Maybe you won’t speak up about inappropriate behavior because your boss might get angry or you fear retaliation. Maybe you get a commission for the number of sales you make, nevermind exactly how they are made. Maybe you’re making a business proposal but deliberately leave out inconvenient facts pertinent to the proposition. 

If the unethical behavior starts to perfuse the entire organization, it can lead to its downfall. Fortune named Enron "America's Most Innovative Company" for six consecutive years. At the end of 2001, however, it was revealed that Enron's reported financial condition was sustained by institutionalized, systematic, and creatively planned accounting fraud. Enron had to declare bankruptcy and various executives of the company went to prison. 

Tsuruda also presented the Wells Fargo scandal which involved employees falling into the performance-over-principles trap. In February 2014, Wells Fargo was named the world's most valuable bank brand for the second consecutive year. In September 2016, Wells Fargo was issued a combined total of $185 million in fines for creating over 1.5 million checking and savings accounts and 500,000 credit cards that its customers never authorized. In November 2016, Wells Fargo agreed to pay $50 million to settle a racketeering lawsuit in which the bank was accused of overcharging hundreds of thousands of homeowners for appraisals ordered after they defaulted on their mortgage loans. The top self-declared ethical value of Wells Fargo read “We place customers at the center of everything we do.”

In the healthcare sector, ethical behavior is paramount because the well-being and sometimes even the life of a patient can depend on it. Healthcare risk areas are sales, billing, prescription authorization, medical records, and Title VI (prohibiting discrimination on the basis of race, color, or national origin). If revenue takes precedence over the well-being of patients, an ethical breakdown becomes possible, especially if legal requirements are ignored in the process. 

Tsuruda finished his presentation with recently revealed details of the sinking of the Titanic in 1912. Documents discovered a few years ago, showed that a safety officer named Maurice Clarke who surveyed the ship hours before its departure from England had asked for more safety equipment, including more lifeboats. His request was ignored by the ship's owners who were bent on making sure it left for New York on time. Clarke was told to keep quiet and even threatened with dismissal after he suggested the Titanic should have 30 not 20 lifeboats, which could have saved hundreds of lives when the ocean liner hit an Atlantic iceberg, causing the deaths of 1500 people, in large part because of a lack of lifeboats. The 20 existing lifeboats aboard the Titanic met the legal requirements at the time.

In the aftermath of the sinking, inquiries in Britain and the US reached largely similar conclusions: the regulations on the number of lifeboats that ships had to carry were out of date and inadequate. Had the owners considered the safety of their clients first and heeded the warning of the cautious safety officer instead of showing off their “unsinkable” maritime marvel, the loss of life could have been much smaller. 

“Sometimes just meeting the legal requirements isn’t enough,” Tsuruda said.