How to treat misbehavior – a framework for employee alignment 1


Could misbehavior be prevented through human-centric organizations?

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The financial crisis of 2008

The worst financial crisis in global history according to Ben Bernanke, former head of the Federal Reserve, had a worldwide impact and led to dropped housing prices and increased unemployment rates. “The years before the crisis saw a flood of irresponsible mortgage lending in America” states the Economist. “Years of low inflation and stable growth—fostered complacency and risk-taking.” Housing loans were given out to people with poor credit histories, who struggled to repay them. These loans were then passed to bigger banks which engineered financial products to find a way to finance the risky investments. The banks pooled those risky loans and basically bet on the overall rise of housing prices in America. Their bet was wrong! This set a chain reaction in motion that lead to worldwide restrictions of banking procedures. For example the International Financial Reporting Standards (IFRS) were introduced and needed to be implemented in European banks. This not only meant additional costs and work for the banks, but also more external control and rules which limits their flexibility.

 

What is misbehavior?

The dictionary defines ‘misbehavior’ as inappropriate or bad behavior.

In an organizational context that would mean someone is behaving not in line with the set and most likely agreed rules. In other words an employee is behaving against or outside the existing standard procedures.

 

Negative reinforcement

When an employee is acting against the set rules it is usually seen as a violation of agreed principles. Therefore the misbehavior is punished, since it is implied that this would prevent the employee and others from repeating the ‘wrong behavior’ in the future.

 

What are the results?

The ‘misbehavior’ of a few leads to disadvantages for the many. This is based on the fact that after disciplining the ‘bad’ employee, additional rules are implemented. As the banking crisis example has shown, risky behavior of a few employees in America leads to restrictions for banks in Europe. Not only is the individual punished, but everybody else is punished as well by shouldering the costs and facing more regulations.

 

Are rules necessary?

How to make sure that an employee works in line with the expectations of the organization? When working for someone else there can be a conflict of interests, also known as the agency problem.

The uniqueness of each person leads to perceiving the world differently for every human. This means every individual reacts to the same experience in a different way. The interest of the organization, however, is to control and predict behavior. In that way the company can be steered into a certain direction and its interests can be granted. That is why behavior not in line with the organizations expectation is punished. But that is not the only solution for dealing with ‘misbehavior’.

 

Positive inspiration

The alternative to punish ‘misbehavior’ of the individual and subsequently making the situation worse for others as well is to show other possible reactions and ways of handling the situation. Many times a person does not know how to react better to a situation. This is when individuals adapt the behavior of their peers. This was also the case for the American banks which gave out risky loans. They just copied the behavior of other banks to yield greater returns in times of low interest rates. The misbehavior of one inspired others to get involved in the same game without questioning it, because of the fear to be left behind.

 

What are the benefits?

Instead of being punished a better way of solving the situation is shown. Better because that way would be ethically, socially and economically correct. Better also because the ‘misbehavior’ of an individual is not negatively reinforced. The advantage is that creativity and innovation are not limited. Instead employees are encouraged to take risks and try new things; to step out of the standard processes and procedures. Better also since the many benefit as well. They do not suffer. Contrarily their situation is improved through the positive behavior of the few.

 

Purpose, vision and values

Individuals stepping out of standard procedures and processes are arguably behaviors that reduce control and prediction from the perspective of the organization. So how can an organization encourage and ensure that employees are creative and try new ways, but step out into the ‘right’ direction? In other words how to make employees work in the scope and interest of an organization?

 

Failing forward

Let’s first emphasize that from failure, meaning that employees try new ways which do not work, it can be learned the most. Stepping out into directions that might not be profitable should be recognized as learning opportunities. The initiative of individuals should be rewarded, so that they are encouraged to try again next time, as long as their actions are in the scope of the organization. Now the answers for defining a scope of activities for an organization are provided.

 

1. Purpose

The key is communication and explanation of what the purpose of the organization is. Why does it exist? This will give employees a sense of what is the underlying reason of their work. This works better than simply stating facts, because it touches on emotions. Watch Simon Sinek explain how great leaders inspire action in his TED Talk:

 

2. Values

What are the values of the organization? Clear values provide the scope for appropriate behavior. At the same time it leaves flexibility for individual actions and behaviors, within the appropriate scope.

Harry Kraemer, Jr. teaches principles of value-based leadership, which are self-reflection, balance, true self confidence, and genuine humility.

 

3. Vision

What is the vision of the future? What story is the organization telling that unites its employees? A clear image of what the future will look like provides orientation for actions in the present. Again it leaves flexibility for how the vision can be reached. The flexibility of the vision and the values provides the basis for employees to get creative. With defined goals and measurable milestones the way how the vision is reached can be made more concrete.

Dan Ariely explains the importance of making progress as well as acknowledgement which gives employees the feeling of meaning:

 

These three aspects of purpose, values and vision give members of the organization a solid guidance for their actions and behavior. It provides positive inspirations, so that punishing and negative reinforcement becomes obsolete.

 

Human-centric organizations

How can it be assured that the actions of the individual benefit the interest of the many? The solution is to put the human into the center of all business activities. What does that mean? Let’s get back to the example of the financial crisis and see how banks could have avoided it by being human-centric.

 

Purpose

Interacting with customers on a personal level, listening to their stories and understanding their individual needs, builds an emotional connection. This personal exchange provides a sense of why a banker is doing his/her job. It could have prevented banks from giving out risky loans to families, because the banker understood that the customer was not able to pay back the loan based on the individual background of that person. This would have led to an appropriate mortgage offer based on how much the customer could potentially pay back. Further, new financial products were created, which bet on certain developments, to finance the risky investments. A personal connection to the human taking the mortgage would have prevented gambling with their money, since bankers would have understood that customers are concerned about losing money and trusted into the banker’s expertise.  Why gambling with the money of the family dad with three kids?

 

What is the purpose of banks?

In case you are wondering, the natural purpose of a bank is to “allocate funds from savers to borrowers in an efficient manner”.

However, the banking crisis showed that the interests of neither savers nor borrowers were considered. Instead the banks acted only in their own interests, which was in this case to increase their profits.

Doesn’t that sound like a typical Principal-Agent dilemma?

 

Values

In case the customers would have been too risky in the eyes of the bank, meaning that the chance of them paying back the interests are low, the bank could have relied on values like honesty and transparency. It could have stated its application process for a mortgage and respectfully told the customers that they do not qualify. Perhaps solutions that would be more appropriate could have been offered based on the value of flexibility. The value of integrity and humbleness would have prevented banks to engage in the rat race of chasing higher return rates in a time where stable growth was given.

 

An interesting fact is that Deutsche Bank, while facing a civil settlement with the American Department of Justice over $14 billion for their involvement in “artificially propping up the U.S. housing market in the lead up to the Great Recession”, launched their 2015+ strategy focusing on values like integrity, discipline, sustainable performance and client centricity. Coincidence?

 

Vision

The vision of banks is basically defined by its purpose, by the economic role they hold. However, this does not mean that there is no room for diversification and creating a unique selling proposition (USP).

Since banks cannot change WHY a bank does what it does, they can still work on HOW they provide their services and products (WHAT). The values section provided already some possible insights for this. Further, a performance based on respect towards their customers, employees and business partners could be a start. Doing business in a sustainable way, so that the bank itself is profitable and at the same time can fulfill its purpose, is an option. Focusing on only offering specific products and services is another.

 

Solution for a better world?

Human-centric companies act social, ethical and sustainable by considering the human affected by the decisions they make. In that way they can build a responsible basis for sustainable growth and profitability, while treating humans with respect. This ensures that the individual acts in the interest of all. At the same time employees get guidelines, not rules, for appropriate behavior. Eventually, punishments and restrictions become obsolete. It involves more work than simply stating what is forbidden, but it could lead to a better world. Not just for the individual, but for everyone.

 

 Is your company ready to become human-centric?

 


HumanBusiness helps your organization to become human-centric.

 


 

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About Businesshumanizer

My name is Jens and I write about organizational evolution to inspire a way of organizing work that is human-centric. Find me at www.humanbusiness.eu

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