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Moral Disengagement: How Ethical Fading Impacts Business Financial Planning

ethical fading financial planning

When crafting a financial plan, most business leaders consider the monetary factors involved in their company’s growth — revenue, salaries, inventory costs, pricing, etc. However, business financial planning isn’t solely affected by profit and loss. Ethical fading in business can influence the quality of your decisions — and therefore, the longevity of your company — just as much.

So what is ethical fading and why does it matter? We’ll explore these questions, then explain how you can prevent ethical fading in business financial planning.

What Is Ethical Fading?

Ethical fading is a phenomenon in which people lose sight of the ethics behind their choices. It’s a type of self-deception that occurs when people are strongly focused on other elements of their decisions. Since our mental capacity only allows us to focus on one thing at a time, human beings naturally start to ignore anything that’s not at the top of their minds — even if it leads them to choices that go against their morals, such as fraud.

One well-known example of ethical fading comes from the pharmaceutical industry. Motivated by profits, former drug firm CEO Martin Shkreli raised the price of a life-saving drug by nearly 4000% overnight after making generic versions inaccessible. The company’s heavy-handed efforts to boost revenue made them completely blind to the ethical implications, as well as the reputational damage their choices could cause.

Though Shkreli’s case is an extreme illustration of this phenomenon, ethical fading happens subconsciously more than you may think. For instance, when focused on saving time, an employee may log into their work account using public Wi-Fi on their personal device, despite knowing it’s a cybersecurity risk. Similarly, an Instagram influencer may buy followers to boost their public image, ignoring the fact that they’re deceiving their audience and potential partners.

When our desires prevail over our righteousness, ethical fading subconsciously occurs.

Ethical fading can be considered a type of moral disengagement, which occurs when you justify unethical actions by imagining that certain ethical standards don’t apply to you. Despite making unethical choices, you may still view yourself as a moral person. As a result, even when you review your decisions in hindsight, it may be difficult to identify where you went wrong.

Why Does Ethical Fading Matter?

When making business decisions, ethical fading can create a gap between your intentions and your behavior. Your decisions may go against your company values, which can lead to an inconsistent brand and derail you from your business goals. For instance, if your management team becomes wholly profit-driven, they may decide to lay off employees to cut costs without considering their livelihoods or their contributions to your team — even if your company preaches employee care. This can lead to long-term issues with the quality of work your company produces, employee morale, and even your reputation on the market.

Ethical fading can also lead to moral dilemmas, which are a key cause of groupthink. This can lead your entire team to make irrational decisions — and those that don’t agree may not speak up. Employees who experience this emotional dissonance are likely to become dissatisfied and uncommitted to their jobs. On top of that, if former employees post on sites like Glassdoor that your organization doesn’t adhere to ethics or practice what is preached, it’ll be harder for you to hire new, quality employees. This can contribute to a downward spiral that ultimately destroys your workplace culture.

On the flip side, an ethical workplace that offers employees a sense of purpose beyond profit — for instance, through a corporate social responsibility program — can inspire employees to stay engaged, even for a lower salary.

Naturally, ethical fading is a business financial planning issue. While focusing on profit can help you reach short-term financial goals, balancing your mindset with ethics is key to maintaining sustainable business growth. Ethics helps you recognize how some losses now can lead to greater profits in the future — and vice versa.

Understanding ethical fading is essential for anybody currently involved in business, no matter the field. Of course, one good way to learn about ethical fading and other more-nuanced business topics is through further education. Whether you’re pursuing a more general MBA or one that’s more specialized, understanding ethical fading can help you immensely. For example, if you want to:

How To Prevent Ethical Fading

Ethical fading is preventable. While the human brain isn’t designed to focus on multiple things at once, you can optimize your decision-making processes to make time for ethical considerations. There’s no need to trade in your business results for morality (or vice versa).

With these tips, you can reduce ethical fading in business financial planning.

Take a Breather

While our brain chemistry can make it difficult to weigh ethics against another deciding factor, frequent breaks can help you boost your focus. Rather than making one decision after the next — which can lead to decision fatigue and decrease your reasoning ability — take a moment to yourself. If you’re running a subscription company, you can decide if using fine print to lock every customer into annual contracts is an ethical path to guaranteed income, or if you should take another route with your business financial planning.

As a manager or business owner, slowing down your approach can help you avoid spur-of-the-moment decisions — especially when approaching individuals with legitimate ethical concerns. 

Review the Situation at Hand

Ethical fading in financial planning often occurs when decision-makers make choices without consulting others. Much like diverse perspectives can help you avoid offensive marketing concepts, hearing from all sides can help you see how an ethical investment — like recyclable packaging or an on-brand donation — is beneficial.

When running a business, remaining open to new perspectives keeps you conscious of opportunities to succeed without overriding your morals. 

Educate Employees on the Company Code of Ethics

A code of ethics can help your employees act with more integrity in the workplace. With a set of moral principles guiding them through choices, employees can better reframe their decisions from an ethical perspective.

Since ethical fading in financial planning occurs when team members lose sight of their moral beliefs, this document can make ethical considerations a key step in the decision-making process.

When writing your code of ethics, include your company mission, purpose, and values to align employee mindsets. Then, create a set of standards for both conduct and decision-making. Be sure to clearly distinguish what your company considers right and wrong.

Contact Information


Toby Burris
Montclair State University
Student Recruitment Manager

973-655-6015
onlinemba@mail.montclair.edu

Do you have questions about the online MBA? You may find it helpful to watch a webinar hosted by Student Recruitment Manager, Toby Burris.

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