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Ethical Standards are No Small Matter for McKinsey
HomeStrategyEthical Standards are No Small Matter for McKinsey
After major scandals driven by ex-McKinsey employees like Jeff Skilling (Enron debacle), Rajat Gupta (former 3x McKinsey managing director) and Anil Kumar, McKinsey is on their toes trying to prevent another disgrace. The ethical standards of prospective candidates and employees has never been under a more searing spotlight.
Other top consulting firms have a similar mindset, as their success depends on an unimpeachable reputation for integrity. Will you measure up?
I recently put out a note about a trend around the world where candidates record their telephone-based case interviews with McKinsey, BCG and Bain. They doing it knowing full well it is wrong to do so. Moreover, they are sharing it with us and their network, and asking for comments.
We believe that you should not do this, since it is illegal to record someone without his or her permission. A few people wrote back to me and said they did not know it was illegal or it is not illegal in their country, that’s why they did it.
This highlighted a great misunderstanding some candidates have about what is ethics, how to approach ethical decisions and how to determine if you measure up to be considered a person with high ethical standards, the kind of person McKinsey and other leading consulting firms seek.
My concern is, as it stands now, some of you will not measure up unless you spend sufficient time understanding what is ethics, how to think about ethics, how to make ethical decisions and what changes you need to make to build an unquestioned reputation for high ethical standards.
However, I believe ethics can be taught and mistakes can be fixed with the appropriate guidance.
First, it is important to understand that ethics usually applies to three types of actions. Actions not covered by law, actions for which the law is not enforced or actions for which the law is clearly wrong.
Therefore, when someone tells me, “Michael, I made this recording because it is legal in my country”, what I hear is that the individual is very unethical. This is because even though the person would not like to be recorded without permission and knows it is wrong, they have gone ahead and done it.
Ethics generally covers actions which are not covered by law. For this act where the law does exist, but is not appropriate and we rely on our ethical judgment, the person has demonstrated poor ethical judgement.
This does not make the person evil or bad. Wonderful people sometimes do unethical things.
Many people believe that ethics is an absolute concept, that you know what is ethical with absolute certainty, you know what is not ethical with the same certainty, it is clear as night and day.
In the West we have a tendency to think with absolute certainty that our beliefs are ethical and correct. However, the best way to think about ethics is that it is evolving, what is ethical is often a hypothesis and sometimes there is no right answer.
Judging people for ethical breaches
When judging people for ethical breaches, we have to understand the context. Depending on the person you are analyzing you have to apply more severe or less severe definition of ethics. Imagine someone who grew up in a challenging part of central Africa, surrounded by warlords. The social construct they are part of is obviously not as ethical as that of someone who grew up in Vancouver, the home of Greenpeace. For someone growing up in the strife-torn context in central Africa, we would expect him or her to not be as ethically conscious as someone who was raised in Vancouver.
If both people breach the same ethical value, we should look at the situation and ask, what were their unique circumstances, what was normal for them and did they do what was abnormal for them. That is why our legal system allows judges to apply discretion when casting judgement. It recognizes the importance of context.
A lot of times when we judge people for ethical breaches, we put them on the same level. We think that a person who was raised by a loving family in the United States and went to a great school should have the same punishment as someone who was an orphan in a rural northern China and hardly had exposure to anything good his entire life.
You cannot measure people this way because their actions are shaped by their social network and their environment. We must compensate for this context.
Ethical dilemmas & trade-offs
I will now give you some examples of different ways to think about ethics.
Let’s assume you are walking down a street and you see a burning building. You see a baby in that building and you want to save that baby. The only way to save that baby is to jump on the car parked on the street and put some kind of garbage can on a car to reach the window where baby is, but to do this you will need to damage the car. Would you damage the car to save the baby? Most people would.
Would it change your mind if I told you that the car belonged to someone who needed a very important treatment for a life threatening illness and they needed the car because they were going to sell the car next morning to pay for the treatment?
Clearly, that is a tough decision to make. Do you save the baby now knowing full well that you could kill this person because they won’t get the money for treatment? A lot of people will choose to save the baby. Not because they know with any certainty that they can find an alternative means to pay for the treatment without the car, they may not even be committed to look for one, but because if they don’t save the baby they appear to be evil or unethical in the present moment.
A lot of times when people do things that are ethical, they are not doing it because it is ethical, they are doing it because they are trying to avoid being labeled as being evil or unethical. The flip-side of this is that a lot of actions that we see as being unethical, we see without context.
Just because something looks unethical does not mean it is. You can only make that judgement call when you know the trade-off.
We need to think about trade-offs. There is always a trade-off. A lot of discussions about ethics do not consider trade-offs. That is the problem with an absolute view of ethics.
This is typically a western view. We assume we know with absolute certainty what is right and wrong. We like lecturing other nations. We assume that if we decided that x was the “right thing” to do in 2014, then every other nation who does not come to that same conclusion at the same time as us is wrong. To lecture others is to assume your rate of development in testing and accepting ethical concepts is the norm. Other nations may take longer to get there but who is to say the speed of arrival is the main issue. Is it not the quality of the implementation when it does arrive that matters?
Knowledge of the trade-off will help you make better decisions. A lot of times we hide the trade-off so that when we are judged for the action publicly, saving the baby for example, we end up looking better. No one knows about the guy who was trying to sell his car to get treatment, so we end up not looking bad.
If they knew, they may end up judging us less positively. A lot of times we make ethical decisions because there is an incentive attached to it. This is one example of a way to rethink ethics.
Let’s look at another example. Let’s assume that you run a company and you have a supplier who lost all other clients and is now totally dependent on you. You want to lower your purchasing price from the supplier. You are buying chairs for $200 and you want to lower the price to $150. The supplier proved to you that if he lowers the price to $150 he goes out of business, but on the other hand if he does not lower the price you need to lay off employees to pay for the chairs.
What would you do in this situation? Would you say, “I will do the right thing and lay off people. I will not put someone out of business”? What if you knew that the reason this supplier will go out of business if prices go to $150 is because he hires mostly family members and he overpays them. What would you do knowing this new information?
There is no right answer. But there is a rule. Do things ethically provided it does not put you in a situation where you will cause harm to yourself or anyone else. When I say harm, I mean what the average person will consider being sufficiently harmful to justify sacrificing your values, such as putting yourself or your family in physical danger.
Now let’s look at example of an extreme situation of being too ethical, whereby being too ethical can be damaging to you and others. Let’s look at the massive, and justifiable, debate taking place in the United States about raising minimum wage. Let’s further assume we wanted to do the ethical thing – generously raise the minimum wage.
Economics will dictate that is wrong for a couple of reasons, including the following:
First, by increasing money supply inflation will spike. The price of goods will eventually go up because there is more money in the system. Even though people are getting paid more, things will end up costing them more to buy, therefore, cancelling the impact of the salary increase. Therefore, in the medium term, the salary increase will not really matter. The system will adjust itself.
Second, what does it do to the system on which capitalism is built? You should reward people not only for how hard they work but for skills they bring to the job.
If you raised the minimum wage across the United States, you will undertake what is called populist economic measure. You will do something to make people happy because the social construct to which you belong dictates that it is an ethical thing to do. Yet, you are going to cause extreme damage to the system, because you just giving away money without any return. Therefore, you can take extreme ethical stances that actually cause more harm than good.
Personally, I would like to see the minimum wage raised. However, I know this would not solve the problem since the minimum wage is driven by many factors which need to be fixed.
Lastly, here is an example of an ethical decision where there is no right answer.
Let’s assume you are a mother of two sons. Let’s further assume you are from the middle of India. There are a lot of kids in your community and your family is very poor. You’ve got one child who is incredibly promising academically. He is truly brilliant. He aces all the exams. He will probably end up at McKinsey and then as a CEO of some Fortune 500 company. You are almost certain he is going to change the world and take family out of poverty. You have another child who is probably not going to end up at any college anywhere in the world.
Both need a kidney, but only one can get it. Which one will you give it to, assuming you are the only available donor?
This is an extreme ethical situation whereby you know on the one hand the child who is probably not going to go to some good university is not going to have financial resources in the future to take care of himself so you should probably give the kidney to him. The one who is going to make it in the world probably will have financial resources but it is likely he will not make it unless he gets a kidney from you.
If you give the academically weaker child a kidney, the rest of the family will most likely suffer. If you give academically stronger child a kidney, the entire family will most likely be better off, but the academically weaker child will suffer.
There is no right answer. You have to determine what is acceptable.
Addressing 3 myths about ethics
Let us conclude our discussion with addressing 3 myths about ethics.
Myth #1: It is ethical as long as it is legal. These are different concepts. When someone says I did not know it is unethical since it is legal in my country, it is clear they misunderstand ethics. Ethical decisions are required when the legal system fails or there are no laws covering action in question, or related laws are wrong. When legal system is not there, not enforced or wrong you should be guided by your ethical standards.
You can be grossly unethical while obeying the law. You can be extremely ethical while disobeying the law.
Myth #2: If you are ethical, you are by default a nice person and usually a pushover. Being ethical does not mean you are a pushover. People can be tough and demanding, and yet still be values driven in every possible way. Being ethical does not mean you have to be nice to people. Personality and your value system are completely different concepts.
Myth #3: Following the rule the softest pillow is a clear conscience is a sure path to ensure high ethical standards. It only matters if you have a clear conscience if your conscience is attuned to what is actually right. If it is calibrated to things that are incredibly cruel, you will have fundamental problems making judgement calls.
The social construct you belong to determines what you consider to be a clear conscious. You are your friends. When you are deciding whether you are ethical, or not, look no further than at your friends and all those dumb things they do that you find acceptable. By condoning their behavior you are desensitizing yourself to those elements you know to be wrong. You should think twice about whether those are things you should be a part of.
The social network you choose to belong to shapes your values, or lack thereof. When clients ask me if they are ethical I usually tell them I cannot answer this with any certainty. I say this if I do not know their significant others well enough. Your significant other is the most influential member of your social network. At the end of the day, when it really comes down to it, your decisions will be heavily driven by what your significant other considers right. Never ever forget that.
I say this because 95% of people who breach ethical values almost always cite personal circumstances. Here are few examples:
“I would not normally do this but my husband and I discussed this and…”
“My partner recently lost his job and we decided…”
“I would normally never do this, but due to personal reasons…”
You can fill in the rest. The last one is very telling. Somehow, many assume that a personal reason is a license to be unethical. It never was and never will be. Let’s hope you chose your significant other well.
QUESTION(S) OF THE DAY: What is your advice to readers who realize that their social network negatively impacts how ethical they choose to be or even could be? Please let us know in the comments.
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