Navigating the Dark Patterns of Business Ethics with Guido Palazzo
Episode Summary
In this compelling conversation, Sam Sivarajan sits down with Guido Palazzo, a Professor of Business Ethics, to unpack the complex world of ethical decision-making in organizations. Together, they examine how well-intentioned people can make harmful decisions under pressure, the profound impact of corporate culture on ethical behavior, and why context often matters more than personal values when it comes to moral choices.
Professor Palazzo draws on real-world scandals, including the infamous Wells Fargo account fraud case, to illustrate how organizational pressures can create "ethical blindness" that leads good people astray. The discussion emphasizes the critical role leaders play in fostering cultures that not only permit but actively encourage ethical conversations and decision-making processes.
Key Takeaways
- Good people can make bad decisions under pressure - ethical failures often stem from situational factors rather than character flaws
- Context trumps personal values in many decision-making scenarios within organizations
- Corporate culture significantly influences ethical behavior - the environment shapes choices more than individual moral compasses
- The Wells Fargo scandal exemplifies ethical blindness - showing how institutional pressure can normalize harmful behavior
- Leaders must normalize discussions about ethics - making moral considerations a regular part of business conversations
- The "fake it till you make it" mentality can lead to fraud - especially problematic in high-pressure startup environments
Episode Chapters
00:00 Introduction to Ethical Decision-Making
03:06 Guido Palazzo's Journey into Ethics
05:52 The Dark Pattern: Understanding Ethical Blindness
11:41 Context Over Character: The Wells Fargo Scandal
32:10 Fake It Till You Make It: The Silicon Valley Spirit
35:47 Creating a Bright Pattern: Ethical Decision-Making by Design
52:04 Staying Morally Grounded: Do No Harm, Take No Shit
Memorable Quotes
"The evil is banal."
"You have to be the best."
"Do no harm, take no shit."
Tags
business ethics • ethical decision-making • corporate culture • leadership • moral judgment • ethical blindness • Wells Fargo scandal • financial services • organizational ethics • dark patterns
This episode offers valuable insights for leaders, managers, and anyone interested in understanding how ethical decision-making works in practice within organizational contexts.
Transcript
Hi everyone, I'm your host Sam Sivarajan. Welcome to the Future Ready Advisor. Today's guest is Guido Palazzo, Professor of Business Ethics at the University of Lausanne, Switzerland, and the author of the thought-provoking new book, The Dark Pattern. Guido is one of the world's leading voices on ethical behavior in business, why good people end up making bad decisions, and how organizations can design systems that support moral judgment
rather than undermine it. Our conversation today goes beyond compliance checklists or obvious misconduct. It's about how the context we operate in, deadlines, incentives, culture, can invisibly distort decision-making. For financial advisors and executives where trust is the currency and judgment is key, this conversation couldn't be more relevant. Guido, welcome to the show.
Guido Palazzo:Thanks for having me, Sam.
Sam Sivarajan:I'm looking forward to this conversation. As I said, I think it's very timely given the context, as we say, of the world events. But maybe perhaps let's begin with your story. You didn't start out as an ethicist. What drew you into the world of organizational ethics and ultimately inspired you to write The Dark Pattern?
Guido Palazzo:Well, I have studied business and I studied business like many people without really knowing why I studied business. I wanted to be an archaeologist and historian, but there were no jobs in that domain, so I studied business. But luckily, as I was studying, I could take some courses in the philosophy faculty as electives in my business studies. And that's where I fell in love with philosophy.
Sam Sivarajan:you
Guido Palazzo:I finished my business studies by doing the exams based on the notes of my friends. And I went to all these seminars on Aristotle and John Rawls and Habermas. I, yeah, I was inspired by philosophy. And I wrote my PhD in political philosophy. And that is where the business came back into the game because I started to work on the impact of globalization on democracy and realized that we suddenly had...
Sam Sivarajan:Mm-hmm.
Guido Palazzo:suddenly that was the 1990s, early 2000s. We had these multinational companies, but we didn't have a multinational government. So there was this vacuum opening up in which all kind of human rights abuses occurred in the supply chains that produced for Western countries. And there was no one reflecting on these human rights violations because business ethicists still thought that...
new economy age in the early: Sam Sivarajan:Mm-hmm.
Guido Palazzo:And here I wrote finally this book, The Dark Pattern, with my colleague Ulrich Hofrage on why these things happen.
Sam Sivarajan:And unfortunately, it seems that you have lots of raw material for your books and no end of new material coming up, et cetera. So, and unluckily for us. So maybe this answers my question then, but why do you believe this book and this message are especially relevant today? And I want to take it from just purely the business context, but perhaps, to expand it to more broadly society itself.
Guido Palazzo:Luckily for me.
Guido Palazzo:The idea of the book, which is most of the time when bad things are done in organizations, it's not bad people doing it, but good people who are somehow in a high pressure context that distorts their perception of reality. So they do the wrong thing, but they cannot see it anymore. So this kind of idea is not new. As a student in philosophy, I stumbled over this idea when reading Hannah Arendt's book Eichmann in Jerusalem.
Sam Sivarajan:Mm-hmm.
Mm-hmm.
Guido Palazzo:where she analyzes this bureaucrat as officer Eichmann who organized the Holocaust as a boring average bureaucrat. And since then, social psychology has confirmed the basic idea of her book that the evil is banal. It doesn't need evil people. It can be done by ordinary people. that the idea is not new. Why it is more urgent today is maybe that some key drivers
Sam Sivarajan:Mm-hmm. Mm-hmm.
Mm-hmm.
Guido Palazzo:of scandals of moral collapse of organizations have become more sharp. Think about one of the forces that drives them in our model, is ideology. Shared-value ideology is more more pressuring companies to look less and less for long-term impact of what they do. We focus a bit here on the financial industry, but...
Sam Sivarajan:Mm-hmm.
Guido Palazzo:That's exactly where these things emerge and then have an impact on all other industries. Today you get fired as a CEO if you make profit, but not enough. shares are traded in fragments of seconds. So this world in which decisions are ever more abstract and ever shorter in time consideration drive a lot of these scandals.
Many scandals just start on spreadsheets. They are software engineers or traders or people who just don't think about consequences when they make their decisions.
Sam Sivarajan:Is that a form of tunnel vision you mean that they're seeing not the downstream consequences of their decisions or they're so focused on, you know, whether it's incentives or recognition, et cetera, that they've turned blind to, you know, the impact on other stakeholders, for instance.
Guido Palazzo:I guess the idea that we use in the book and we have developed before that, the idea of ethical blindness, so the inability to see that what you do is wrong temporarily, not forever, but just in this moment when you make the decision, that is the result of eternal vision. And that eternal vision is created through a strong context in which managers make decisions.
And this context is what we spell out in nine building blocks, which then we call the dark veteran. Just to give you two or maybe three elements that create this tunnel vision, you give people incentives. And then they focus on those incentives. two KPIs at Boeing, when they built a 737 MAX, was speed and cost. So the engineers were supposed to develop the airplane as fast.
Sam Sivarajan:you
Guido Palazzo:and as cheap as possible. Boeing was firing engineers for not cutting costs fast enough. that the incentives create a tunnel vision. Then you give people, that's another element of the dark pattern, you give them goals they cannot achieve, totally unrealistic goals, which then creates this pressure of always running behind what you cannot achieve. And then you add third element of the pattern, toxic leadership. See, you have a terror regime, you have fear. You know that if you don't achieve those goals, something terrible will happen to you.
Sam Sivarajan:Mm-hmm.
Mm-hmm.
Mm-hmm.
Guido Palazzo:the tunnel vision in the end that you don't see the ethics anymore and you are surprised by yourself afterwards when you get arrested for instance. Why could I not see it? Well, because you are under so much pressure of social psychological elements that push you into a world perception that is totally distorted but you cannot see this anymore.
Sam Sivarajan:And as you are talking, it strikes me and I'm obviously oversimplifying it, but is there some element in these kind of corporate cultures that there is a single-minded focus on one metric, for instance, or one KPI, when in fact you exist in a multi-dimensional world, you have always multiple stakeholders, you have multiple goals, et cetera, but creating one metric.
creates, helps create this tunnel vision and focus and that, and to expand on that, there's almost this cause and effect approach, right? That if you do X, Y will happen when it is far more complex than that. Are those part and parcel of what you've seen and observed in the corporate landscape?
Guido Palazzo:Absolutely, and you can look at this from two levels. First, the organizational level where you have this maybe too narrow incentive. Think about the collapse of Credit Suisse. We could talk for hours just about that. This is mainly driven by a bank that is so focused on the bonus, where everyone thinks just about bonus payments and even sues the bank if they think their bonus is not big enough. Absurd situations.
Sam Sivarajan:Mm-hmm.
Right.
Guido Palazzo:where at one point they do whatever it takes for this bonus and they are caught in one criminal behavior after another. So you have the incentives, yes, but you also have on the meta level of the system, the entire system, the focus on shallow value maximization. We call this element of the dark pattern the rigid ideology. We business schools, we teach that shit since decades. We tell students,
Sam Sivarajan:active for you.
you
Guido Palazzo:as a manager you must focus on maximizing shorter value. Your moral values they are for your other roles as a churchgoer, as a mother, a father, but not for the office. So we tell them to focus on the maximization of profit. And if you maximize something mathematically it always comes at the price of everything else. You cannot maximize two things. You can just maximize one thing. You can balance or
Sam Sivarajan:Hmm.
I call it.
Guido Palazzo:Yeah, it balances various goals, but that is not maximization. So the logic of maximization prevents you from thinking about any other stakeholder. And that is what we see in these companies that have a scandal. They are too focused on the share value. Boeing was a great engineering company until they started to apply the strategy of Jack Welch to maximize shareholder value by two measures, mainly. One is
Sam Sivarajan:Mm-hmm.
Mm-hmm.
Guido Palazzo:brutally cost cutting. he fired 25 % of the workforce at GE, Jack Welch. And when one of his team members became CEO at Boeing, he did the same. He fired 25 % of the workforce in four years. That's one thing. And you buy back your own shares. That increases the share price without any kind of substance behind it. Just because there are fewer shares around now. So if you do this over the years, your share value goes up and up and up.
Sam Sivarajan:Mm-hmm.
Right.
Guido Palazzo:you stop being an engineering company at one point. And you might not even see that this point has been transgressed, this red line where what you produce is no longer good quality because you're so focused on just one thing, shared evaluation and civilization. Yes.
Sam Sivarajan:I thought it was too late, of course, right?
Now, one of the central ideas in your work, and we've talked a little bit about it, is that context is stronger than values. And so, I suspect that for many in financial services, that's an uncomfortable idea because we do pride ourselves in our values and being objective, irrespective of the circumstance. Can you unpack that thought a little bit and what it means for how we might design and lead ethical organizations?
Guido Palazzo:Think about the Wells Fargo scandal. So the biggest American retail bank caught in a huge scheme of fraud where more than 100,000 salespeople commit fraud on their own customers by using their electronic signature to open 3.5 million bank accounts without the customer knowing about it. So why would they do this? Why would you cheat on your customers? And they focused this on their most vulnerable customers. So elderly people.
Sam Sivarajan:Mm-hmm.
Guido Palazzo:people under financial stress and immigrants who didn't speak English well. And our initial reaction to that is to think, well, what a bunch of assholes. But you cannot, because we attribute bad practices, behavior to character, but you cannot explain Wells Fargo by looking at the character of people. I why would a bank hire a hundred thousand fraudsters? What kind of HR department is that? Or why would...
Sam Sivarajan:Mm-hmm.
Mm-hmm.
Guido Palazzo:fraudsters think, well, I have to work for Wells Fargo because that's the best place for me to unleash my criminal energy. That doesn't make sense as an explanation. If you look into the statements of people who worked as salespeople at Wells Fargo afterwards when the scandal erupted, you find statements like that. On Sunday evening, I had stomach pain because I was thinking about Monday morning. I would drink the hand sanitizer.
Sam Sivarajan:Right.
Guido Palazzo:in the toilet to calm down. At the end, I was at one litter, another testimony. The worst one for me is someone saying, I was fighting as a soldier in the 91 Gulf War and it far worse. Imagine that. Imagine that. What a shocking, shocking experience. So these people, they're not fraudsters. They're put under so much pressure. How does the bank do that? Well, it gives them goals they cannot achieve. You have to have fulfilled a quota of sales every day.
Sam Sivarajan:Mm-hmm. Mm-hmm. Mm-hmm.
Yeah. I remember reading that. Yeah.
Mm-hmm.
Guido Palazzo:If you don't achieve that, the superiors were expected to go to the salespeople who were not achieving their goals four times a day in an open space office at 11, at one, at three, at five, yelling at them, humiliating them in front of everyone else, telling them to work for McDonald's if they couldn't achieve their quota, not daring to go home in the evening without achieving their quota. But these quotas were consciously determined in a way that they were not achievable.
Sam Sivarajan:Mm-hmm.
Guido Palazzo:But even if people would achieve them, there's one salesperson who talked about her experience later, who said, well, I was achieving 110 % of my quota, 110%. And my superior said, this is not enough. You need to achieve 120%. So you are in a context where, and every day after the shift ends, they send around an email to everyone, the ranking of sales. So you would find maybe yourself at the bottom of that ranking.
Sam Sivarajan:Mm-hmm.
Right.
you
Guido Palazzo:visible for everybody. You are humiliated. You are humiliated. You have fear. You don't know how to achieve your goals. And then you see your colleagues left and right cheating on their customers. You see their superiors condoning it or even asking for it. You see those people being promoted and going in other branches of the bank as team leaders. And then you ask yourself why.
Sam Sivarajan:Shaming, effectively, yeah.
Guido Palazzo:Why am I humiliated every day and they get all the rewards? I will do the same because that seems to be the rule here. So you develop a routine that comes from how your context designs something as taken for granted, normal, appropriate and the right thing to do. And you do this in a way that is creeping in. You don't create a fake bank account.
Sam Sivarajan:Right.
Guido Palazzo:bank account for a customer, the first thing you might do is in the evening you open a fake bank account on your own name, just to achieve your quota or on one of your family members' names. You do little things that are for you maybe not okay, but still somehow you can rationalize them. And only much later you start to open bank accounts for customers without their knowledge. So it's a slippery slope on which these things develop and then your culture gets destroyed. And we see...
Sam Sivarajan:Mm-hmm. Mm-hmm. Mm-hmm.
Yep.
Guido Palazzo:Until today, Wells Fargo is struggling to get back on track. Their culture is still so bad that again and again these things happen so that Senator Elizabeth Warren recently argued we have to revoke their license to operate. They seem to be unteachable.
Sam Sivarajan:Yeah, I think your point about slippery slope is quite valid. And I remember reading in your book, when the whistleblower came and talked about these practices, et cetera, they were actually punished. The whistleblower was punished, not the manager, et cetera. And then there was even the whole Wells Fargo mantra at this time was eight is great, meaning cross-selling. So eight products for every customer.
Guido Palazzo:Thank
Yes.
Sam Sivarajan:And I think in your book, I read the passage that as the senior executives were being patted on the back, they were already talking about they were going to move to 10, right? That the whole reason they picked eight, which was orders of magnitude above what the marketplace was just because it sounded good, right? Eight is great, but why not go to 10? So your point about slippery slope works both ways. It's not just about meeting targets. Those targets keep moving up and up and up.
Guido Palazzo:Yes.
It rhymed. It rhymed.
Yes.
Sam Sivarajan:And you are then left as an individual working within this type of system or this type of context, always struggling to keep up, right?
Guido Palazzo:Yes, and the point that you make is there's these other dimensions that you rightly said. They were much better than all their competitors. I've read that they were four times better than the average industry performance in sales, in cross sales. But no one ever asked how is that possible? I mean, it's more or less the same kind of salespeople, more or the same kind of products, the same kind of systems. No one ever asked how can you be four times better than all the others?
Sam Sivarajan:Mm-hmm.
Guido Palazzo:Today we know why, why is no one seeing these red flags? That is what always drives me crazy.
Sam Sivarajan:Well, I think it's a very interesting point you make and that just reminds me of Bernie Madoff and his returns, right? was unbelievable until we realized why it was unbelievable, right? But the red flags are there. And I suspect that what you're alluding to is that there's almost a willful blindness of the people around that don't want to see it, right? Don't want to question it.
Guido Palazzo:Yes, yes.
Exactly.
Sam Sivarajan:or the ones that actually do are silenced or pushed into the corner so they actually, you don't actually hear it until much later, right?
Guido Palazzo:Yes, and the same for Boeing, for instance. Why do shareholders not ask, how can you build these wonderful airplanes with always fewer people, always smaller budgets because you buy back shares and you don't can use your profit for innovation anymore? No one asked these questions. Because as you said at the beginning, there's this short term thinking. And in the short run, that all works very well.
Sam Sivarajan:Right.
Well, I think we need a little bit. I mean, again, in your book, I remember reading about Boeing engineers that said that they would never fly or have their family fly in a Boeing airline. Right. And I think we need to bring back perhaps something like what the old Romans did. They made their architects stand under the bridge that they just created as a test to say, OK, you know, how much short term thinking did you put into place as you built this? Right.
Guido Palazzo:Yes.
Sam Sivarajan:Now, I like your description of context and I wholeheartedly agree. But it is a provocative idea, especially when we think about character being innate and that you're the born with it or not. But we have thinkers like Edmund Burke or Alexis de Tocqueville that I think would probably agree with your statement. Burke had wrote that...
Men are qualified for civil liberty in exact proportion to their disposition to put moral chains upon their own appetites. The less there is within, the more there must be without. And I'm quoting, Tocqueville warned that society is endangered not by the great profligacy of a few, but by the laxity of morals amongst all.
So what do these ideas tell us about the importance of internal restraint of culture, habit, and moral discipline in building systems that don't rely solely on external enforcement? I think you talked a little bit about building moral strength, et cetera. So how do leaders, especially in high-trust sectors like financial services,
shape environments that encourage this kind of inner ethical strength that they're not it's not a mindset that the rules don't say I forbid it then I can do it kind of mindset.
Guido Palazzo:Both these philosophers lived in a time where, and de Tocqueville wrote about this in detail, where civil society was super strong, very vibrant, where people were doing a lot of things together, where they shared lot of habits and routines and beliefs, and that world is gone. So we are now in a world of pluralistic approaches to what is right and wrong. We are, in a way, no longer able to
Sam Sivarajan:Mm-hmm.
Guido Palazzo:create this cohesion that they had. So the inner values, they don't help anymore to tame and frame our behavior. And on the top of that, in previous times, companies were, they were embedded in society. So if you would fire people, that would be your folks that live next door, right? Two streets further down. If you fire people now, that's on the other end of the world. It's abstract.
Sam Sivarajan:Mm-hmm. Mm-hmm.
Guido Palazzo:you don't feel anything about anymore. And the more, yes, there's no shame, is no moral obligations felt anymore because it's not your community. It's an abstract supplier. You squeeze a supplier. And the consequences of that squeezing for the supplier somewhere else in the world are probably horrible, but you don't see that. And you don't know these people and therefore you don't care. So you have more and more
Sam Sivarajan:There's no shame, mean. There's no shame, necessarily.
Mm-hmm. Mm-hmm.
Guido Palazzo:transactional way of dealing with each other that drives this moral disengagement in your decisions. You just don't care. You cannot develop these feelings that create this obligation towards your fellow human beings. So there's one thing. And if you have that kind of organizational culture, well, then people are just fighting for themselves. Think about Lehman Brothers.
the only bank that went bankrupt in the financial crisis. And as we know today, they went bankrupt because they took too high risks. Richard Fult, the CEO, was leading the company like a general with a war language. He would tell his traders, cut the throat of your enemy. And the enemy was not JP Morgan or Goldman Sachs. The enemy was the trader next door. Because at the end of the year, you would go through this rank and yang system and
Sam Sivarajan:Mm-hmm.
Mm-hmm.
Mm-hmm.
Guido Palazzo:might be fired. He would go down to the trading floor and shred the tie of the second best trader and tell him second best is not good enough here. You have to be the best. So in this culture where you organize everything like hunger games or as Jeff's killing from Enron once said, you eat what you hunt. So it's really, it's hunting, it's killing, it's me against the others and the others are my colleagues.
Sam Sivarajan:Mm-hmm.
Mm-hmm.
Guido Palazzo:And then it becomes so transactional that ethics doesn't count. You struggle to survive in the system. And if you survive, you fight with all means available. That might include breaking the rules. I sometimes, when I teach business ethics in companies, I ask them, the managers in the room, what do you think is the industry with the highest level of regulation? There's so much regulation that even the
Compliance people sometimes tell me I don't understand these rules I have to explain to my managers. And of course the answer is financial industry. And then I show them a slide where I went to a website of the SEC with fines for banks. I randomly picked a bank HSBC, could have taken any other bank. Over a 10 years period, every year millions and billions in fine for a long list of legal violations. Again, that's the industry with the highest level of regulation.
Sam Sivarajan:Mm-hmm.
Mm-hmm.
Guido Palazzo:But regulation compliance doesn't help if you don't have the culture, if you don't have the leadership that pushes for the right behavior. Because otherwise breaking the law becomes just an element in your budget. Yes.
Sam Sivarajan:cost of business, it's a cost of business, right? But I mean, you paint a pretty dark picture here. So that sounds like a one way trip to the bottom, race to the bottom, isn't it? I mean, if all you do is it's a dog eat dog world, you pit yourself against each other and it becomes a cost of business, where is the light at the end of the tunnel or is there one?
Guido Palazzo:think the answer is it doesn't have to be like that. We can have successful organizations, can be successful leaders without being total assholes, without not caring about the world, without organizing our teams like Hunger Games. It is possible to lead otherwise. And maybe we business school professors have to do some soul searching because we teach these things. We teach the world is a jungle. We teach competition.
Sam Sivarajan:Mm-hmm.
Guido Palazzo:If you study business, you learn about Michael Porter's Five Forces, which is just the idea that a company is surrounded by enemies and you fight back against them. So that is how we teach them. You cannot trust other people. That's why we need all these governance structures. Humans are opportunistic. We teach these things and then these young people go out in the world and manage like that. It's a self-fulfilling prophecy. We don't teach cooperation in business schools.
Sam Sivarajan:Right.
Guido Palazzo:As far as I know, I don't know any course in my own school about cooperation. We teach competition. We teach home economic course. And that leads to a distorted view of what managers are supposed to do and then add to that our very strange idea about innovation that we see now unfolding in Silicon Valley. This idea that innovation means disruption. In order to advance with new ideas, you must smash everything. If you don't,
Sam Sivarajan:Mm-hmm.
Mm-hmm.
Guido Palazzo:break things, you don't move fast enough. That is Mark Zuckerberg. We smash everything and that is how we bring the new into the world, which is total nonsense because innovation is a social process. It needs to be carefully embedded in people's habits. It's not about smashing stuff. But if you have this mindset of smashing stuff, you take those rude people as leaders who just take any risk, go for it and smash stuff. And smashing stuff at one point also includes the rule of law.
Sam Sivarajan:Mm-hmm.
Guido Palazzo:And that is where it becomes problematic.
Sam Sivarajan:Well, and we see that now, right? And I think that this is all kind of coming to roost. I mean, we're living in a time of social media virality, performance culture, an obsession with visibility, tied to what you're talking about, this idea that we have to break with the past, we have to smash everything. Success, this is the way that we're defining success as individuals, as companies. I mean, we're celebrating this kind of language, right? As success.
Guido Palazzo:Yes.
Sam Sivarajan:How does that distort our ethical compass or as you nicely put it in your book, encourage this ethical drift that we've had in our society and in our way of thinking and looking at the world?
Guido Palazzo:Well, if we look at the direction we take right now in society with this increasing influence of social media, the impact of AI on decisions, you have several effects. First of all, I guess it will reinforce this assumption of transactional management because look at Amazon. mean, Jack Welch would evaluate managers once per year and then fire them if they were not performing.
With AI, you can now in real time follow the performance and ask every day, why did you not perform today? Right? So you are under the constant pressure of always working to the limit. If you are a worker in the warehouse of Amazon, you have an armrest that in real time guides you through this place and calculates in seconds how much time you should need to fill a basket. If you stand in the corner for three seconds longer than
Sam Sivarajan:Right.
Guido Palazzo:the system tells you, then you are asked why. So it's a kind of Taylorism 2.0 that we develop now in terms of how we manage humans on all levels, managers, workers. so I would think it would be more of what I just described. We measure, we select, we kick out based on all these numbers that give us a fake illusion of objectivity. And then you have the social media impact as a second driver.
Sam Sivarajan:Yep.
Guido Palazzo:where in some new industries like the AI business or the crypto business, success depends on how visible and celebrated you are on social media. But the more you are celebrated, the more you must promise stuff, the higher the pressure to deliver. Because in all these scandals, there's one thing that always happens. mean, because the dark pattern you can probably find in many companies, but not all of them have a scandal. When does the scandal happen? Well, if they can no longer...
Sam Sivarajan:Mm.
Mm-hmm.
Guido Palazzo:continue their success story. Something is stuck, but they cannot say it because there's the climate of fear. You have to do something about it. So you find solutions. And the more you present yourself as this superstar in social media with your own crypto thing or whatever it is, the higher the pressure to deliver. If you cannot deliver anymore, the fall is much faster. So you must deliver. And that leads to all these
Sam Sivarajan:Yep.
Guido Palazzo:fake stories that we see right now emerging in crypto and in AI.
Sam Sivarajan:Well, it just reminds me, I mean, I'm sure you're following or it be in your neck. can be a story in your next book with this, story of builder.ai, this large firm that had raised hundreds of millions of dollars with the idea that they've created an AI system that can code anything that you want, et cetera. And it turned out after years of kind of people chasing them, et cetera, that
they actually employed 500 or 700 human engineers in India that were behind the scenes creating this code, right? That they said was going to be created. So I think your point is that eventually it catches up and perhaps that is an element of the dark pattern that you're talking about and it's in your book that we talk about Theranos or...
others, know, that maybe the original intention is there's a belief that we will have this product, we will have it there. But today it's not. But so we're going to kind of, you know, blur the lines a little bit and do this fudging as a temporary measure. And then what becomes temporary becomes permanent, and then you can't get yourself out of it.
Guido Palazzo:Yes, this fake it till you make it spirit of Silicon Valley. So if we look at the case you mentioned where you replace AI with engineers, there was this funny headline in the newspaper, by the way, which said AI turned out to be 700 engineers in India. Or you are Elizabeth Holmes with this miraculous blood testing machine that she claimed to have developed with a drop of blood from your fingertips, you can do 250 tests.
turned out to be fake as well. But it's not fake in the sense that nothing worked, right? So she could make some things work and there was science behind it. So I am convinced that she thought, she was not thinking I'm committing fraud. She was thinking I'm not yet there. And investors want startups to over promise because if they're not over promising investors are not interested. want the next Steve Jobs, the next Messiah, right?
So if you are not having a big story, you don't get the money. But the big story is fake till you make it. So you start your journey and at one point you realize maybe you cannot make it. But that is then too late to tell your customers, your business partners, your investors. You are beyond the point of return. So when does this fake it till you make it move from believing in your product into fraud?
But that's a gray zone. And I don't think we can say that there's a particular part, even if they start to commit fraud, like take these Indian engineers or take the fact that Elizabeth Holmes was using Siemens machines for the blood testing because hers didn't work. She might still have believed, I have to do this now because we are not yet there and I have to get the money from the investors. So it's the Silicon Valley spirit of over-promising that sometimes turns into fraud.
Sam Sivarajan:Right.
Yeah.
Right.
I guess that leads to a related question. They're just delivering what the market wants. In this case, as you're talking about, is an unjustified belief in the investors that this kind of story or this kind of technology or this kind of ability exists right now or is on the horizon when it might not be. And so what is it that's creating that kind of, call it market or
demand for that kind of story that people like Elizabeth Holmes or this builder AI are looking to provide an answer or a solution to.
Guido Palazzo:Well, there's too much money around, so investors don't know where to put their money. So they are looking for big ideas for someone who could be the next Steve Jobs or the next Mark Zuckerberg. And they don't care whether nine out of 10 of the investments fail as long as one of them becomes the next Facebook. Right. So there is this willingness of investors to believe fairy tales because one of the fairytales could be a good one. Right. Could be the right one. You don't know.
Sam Sivarajan:to suspend disbelief, right?
Guido Palazzo:And all these startup entrepreneurs, they are trained to tell fairy tales.
Sam Sivarajan:So one of the most compelling and hopefully uplifting ideas in your book after going through the dark pattern is the need to create a bright pattern, an environment that supports ethical decision-making by design. There's a powerful quote in your book that I really like that said, ask yourself, what would I decide if I had no fear? So what are the key ingredients to create that kind of culture?
Guido Palazzo:You can look at this from two perspectives, the perspective of the person and the perspective of the organization. Let's start with the person. Why do we have fear in organizations? Because we think that if I do not succeed with what I'm given as a task or an objective, there are terrible consequences. And if I now depend on that job, on that career, on that team, on this company, and I'm convinced that if I lose that,
Sam Sivarajan:Mm-hmm.
Guido Palazzo:I'm nobody anymore or my life is over, my career is over. If I have that conviction, I will do what it takes to fulfill the expectation of my leaders. One of the main reasons people advance after they have been caught in scandals afterwards, when they asked about it, they very often say, I thought I had no choice. I thought I had no choice. If you depend on this one thing and you have no choice,
Sam Sivarajan:Mm-hmm.
Guido Palazzo:Of course, your fear to lose it is huge. But if I have the freedom to choose, if I can move out of this company, just can walk away and do something else, then you cannot yell at me and threaten me and use me as a leader because I can walk away. That's so important. And in the most extreme cases that I investigated in the book, the France Telecom case where almost 100 people killed themselves.
Sam Sivarajan:Mm-hmm
Mm-hmm.
Guido Palazzo:in a horrible change management process. These people were pushed to a point where they thought, well, if I lose that job, I lose every reason to live. Right. So that's the most extreme form of it. As soon as you have options in life, you lose fear. You are independent. You can make autonomous decisions. That's one thing. The other thing is that companies, all companies I've seen, they want to promote
Sam Sivarajan:Mm-hmm.
Well.
Guido Palazzo:psychological safety. They want to promote a speak up culture. But I rarely see in a company where this really works. Because it's not enough to tell people you can speak up. What goes around as stories that people have in mind is always stories where someone spoke up and then they were kicked out, humiliated, pushed back or ignored. Right. And as long as those stories dominate, I will not speak up because I will think it's risky or it's useless. So I will not do it.
Sam Sivarajan:All right.
Mm-hmm. Mm-hmm.
Yep.
Guido Palazzo:Creating this climate in which people speak up requires a cultural change. requires, for instance, an engagement of leaders in moral conversations. Novartis, had a huge pharmaceutical company, which had a huge corruption scandal, and then they rebuilt their culture and set up their ethics system differently afterwards. They found out that people speak up if they observe in their environment that
talking about ethical issues is normal. So a leader must normalize conversations about ethics, about dilemma situations, about values, picking a scandal in the news and ask the team, do you think this could happen here? If not, why not? If yes, what can we do? So normalize this conversation. And that creates a climate in which people will feel, well, I can talk about an ethical issue because we do these things here. It's normal.
What I see in a lot of what I hear from compliance people when they send traders and other employees of banks into ethics trainings, that these people then calculate, look, this is the amount of money I lose now because I have to sit in a training. That's the wrong spirit. This is not how you normalize ethics. This is how you create this transactional culture in which ethics has no room. And in a transactional culture, people don't speak up.
Sam Sivarajan:Mm-hmm.
Yeah.
Guido Palazzo:It's impossible, why? Because I know it's the end of my career, it's the end of my bonus, it's the end of everything, so I will not speak up. Normalize ethical conversations. One reason why managers don't do that is they think if they talk about ethics, their team considers them weak managers. Right? Because if I talk about a dilemma or value, they will think I'm weak, but the opposite is the case. Leaders who talk about ethics are considered strong leaders, credible leaders.
Sam Sivarajan:Yep.
Guido Palazzo:trust for leaders by their teams. But it's a cultural shift we need.
Sam Sivarajan:You make an important and interesting point. think that in highly compliant or highly regulated industries like pharmaceuticals for Novartis or the financial industry, there is these mandatory compliance trainings, et cetera, where there is online, there is a click, you're asking questions. But to your point, and the example that you use with the trader, it could feel a little bit artificial. It could feel like, OK, I'm going through the motion.
etc. How do you move past that? did, maybe if you can dig a little bit deeper into the Novartis scandal and you know how they affected this to move beyond it, how do you go past a tick-the-box type of mindset or approach to kind of teaching ethics in the workplace?
Guido Palazzo:When I'm invited by company to give a workshop on the dark patcher and so on, scandals and how to avoid them, the things we discussed today, my first question is always, the top management in the room when I come? And if the answer is no, I tell them then it's not important and then I don't come.
The signal in a company must be that the top leaders devote time to ethics. That is what happened at Novartis, for instance. If you don't devote time to it, why would the others? It's not important in this case. The signal is very clear. It's not important. I've worked with companies where the CEO was sitting three times in my workshop with three different types of groups of people of the organization. This is a very, very strong signal that he thought this is so important.
I have to be here. I have to send that signal to my team. That is how it works. If you don't do that as a top leader, then forget about ethics.
Sam Sivarajan:Yeah.
Can you share the story from your book where I think you were talking about being in one of these events and that they were recognizing one of their top salesmen and what you had said and what happened? Because I think that illustrates your point quite vividly.
Guido Palazzo:I was once invited to do an ethics workshop for a big pharmaceutical company and I was given the afternoon of the first day and in the morning of that training day or their surgery meeting day they were giving awards to their best salespeople and when the best salesman of the year went on stage the compliance people next to me got nervous and I asked him what's wrong and they said well this guy is known for cutting corners wherever he can. We haven't caught him yet but everyone knows that.
So the situation was obvious. In the morning, the signal would be, as long as you're successful, we don't care about whether you are compliant. In the afternoon, I will talk about ethics and the importance of values and blah, So it's a double bind situation. You give contradictory messages to the team. So we went to the CEO during the lunch break and he was new in the company. He didn't know about these things. And I told him, look, you have to fire that person.
because if you don't, you send a very clear message. In both cases, you send a very clear message. But if you don't fire the person, the message you send is, as long as you are successful, you have only way with regards to compliance. And you fired the guy two weeks later. So for me, there's always this, it's a test, right? Do you fire your best salesperson because of ethics? If you don't, well, that's also a message. But if you do,
Sam Sivarajan:Carte blanche
Guido Palazzo:It's very clear that you send the message to your team, I want you to be successful, but not at any price.
Sam Sivarajan:Well, and I think to your point, it's a very powerful message, a message that cannot be achieved by sending them to monthly or quarterly compliance courses and ethics training, et cetera. Because as you say, there's an unwritten understanding that what is said and what is done are two different things. In this case, in the example that you cite, there's a clear alignment between walking the talk, right? Instead of simply saying, you know,
Guido Palazzo:Yes.
Sam Sivarajan:nudge nudge, wink wink, know, ethics are important, but you know, so are sales, right?
Guido Palazzo:And there's this funny, not funny, but this interesting story about Crédit Suisse where some top leaders were caught having their secretary doing their obligatory compliance online training for them. So it's, of course it's not allowed, that's a sign of the culture. It's a sign of the culture.
Sam Sivarajan:So Guido, many of our listeners are senior financial advisors or financial executives who've built successful practices or businesses. What practical steps can you suggest that they take to reinforce ethical habits, not just for themselves, but perhaps across their teams?
Guido Palazzo:As I said, the first thing is develop this climate where it is normal to speak about ethics and you do this by you as the top leader being the one who starts in dust is regularly and encourages the others to do the same. Then celebrate people speak up, tell everyone how tough that was to be confronted with this difficult problem that the person brought to you and how important it was that the person did it. Celebrate it, create the stories that go around that everyone knows.
I can go to this person and speak up. It's safe and they will do something about it. Then create a culture in which people do not fight but collaborate. Allyship, right? If you want to speak up, if you are harassed, your colleagues should stand up for you and support you. That is the culture we need. If you do these things, you are the one set the tone on ethics. You celebrate the people who speak up. You promote allyship.
Sam Sivarajan:Mm-hmm.
Guido Palazzo:in the organization as an important cultural feature, then you should be pretty protected against the dark pattern because people will speak up early on and stop bad practices before they spread.
Sam Sivarajan:Great point. So in a world where everything is measurable, least we believe that everything is measurable and that quarterly performance is king.
How do financial advisors and executives protect space for long-term thinking about their clients, about culture, and about their own role as stewards of trust? Because I think you made the point that you're often pushed into making these decisions in a very short time period, et cetera, which doesn't give you the time to reflect and think, you know, get outside of this tunnel vision situation that we bring ourselves into.
Guido Palazzo:A while ago there was an interesting experiment done with leaders where they had to take a position in an ethical dilemma where they could take an unethical decision. And there were two groups. One was doing this under time pressure and one was doing it with time. And people doing it with time made less unethical decisions than those under time pressure.
What I think is super important, if you want to be a leader who leads with integrity, you need to take the time for these topics. Even if you can calculate how much money you lose by not trading at that moment or whatever it is you do, take the time to think about these things for yourself and share with the others these topics. Read. Read as if your life would depend on reading good books, because that is the foundation for
not being too narrow and develop the tunnel vision.
Sam Sivarajan:Now on those lines and to broaden the scope a little bit of our discussion and if you permit me a moment of philosophical reflection. So the historian Livy reportedly once reflected on Rome's decline writing that Rome was originally when it was poor and small, a unique example of austere virtue.
Then it corrupted, it spoiled, it rotted itself by all devices. So little by little, we've been brought into the present condition in which we're able neither to endure the evils from which we suffer nor the remedies we need to cure them. Now, that feels eerily relevant to today. I mean, whether it's the business environment or a broader social environment.
So are we too in a moment where we can't endure either the status quo or the changes required to fix it? And how do you interpret that tension and what's the ethical path forward?
Guido Palazzo:You can think about this again on the level of the organization and the level of the system. To give you an illustration on the organizational level, think about diesel gates. So this Volkswagen scandal where they manipulated the car software to imitate compliance with US law on diesel emissions. What we very often do not know or read about in the news is that this software was not written by Volkswagen, it was written by the supplier Bosch.
Sam Sivarajan:Mm-hmm.
Mm-hmm.
Guido Palazzo:And at Bosch, were hundreds of software engineers fitting in a spreadsheet with more than 7,000 entry points. And they were working on their little things. And after one year, they realized what we do is illegal when they looked at the whole. So they had a choice to make. But the choice is terrible. it's exactly going in the direction of what Livio said about Rome. If you talk about it, you're doomed. If you not talk about it,
Sam Sivarajan:Mm-hmm.
Guido Palazzo:You're doomed. there's no way out. You cannot go to the public and say, we have done something illegal. So what we normally do in this situation where the old habits and the new solutions are contrasting, we continue with the routines. And we hope that no one will find it out. No one will see it. On the system level, you have the same. mean, we are destroying the planet through overconsumption.
Sam Sivarajan:Good.
Guido Palazzo:That is the main drive of the ecological crisis. But what happens in an economic crisis? What happened after September 11? What happened after COVID or during COVID? What do politicians tell people? They tell them go shopping. Because in the short run, we must keep the machine going. Otherwise, we are in a deep crisis. But this short-term solution accelerates to long-term problems.
Sam Sivarajan:Mm-hmm.
Right.
Guido Palazzo:the consumption, over consumption will accelerate the fall of the whole system. So we are again in the situation where we know we cannot, we have to stop what we do, but we also know we cannot. So that's Livy And in the end, the system collapses.
Sam Sivarajan:but we can't.
Guido Palazzo:So I hope we will not end up like the Roman system, the Roman Empire. We will find this moment of where we leave the wheel and reinvent our societies.
Sam Sivarajan:Look, and part of it is I think that we have to have discussions like this and more. I think there's almost this implicit faith and hope that somehow technology is going to solve this. And, you know, the technology doesn't exist today, but.
we, in my mind, we use it as an excuse to not change our behavior today, right? Because somewhere sometime down the future with an unknown technology that is going to solve all our problems. And look, it might, but that seems rather ludicrous for us to say, we'll take that chance when, you know, that may not actually pan out, right?
Guido Palazzo:Right.
Techno-utopianism is a very dangerous bet, yes.
Sam Sivarajan:Now that we had our moment of reflection, let's bring this back to the individual and today. So for financial advisors, CEOs, or simply citizens trying to do the right thing in a system that often nudges the other way, what practices or questions can help them stay morally grounded? I mean, how do we resist this ethical drift when the current is so strong?
Guido Palazzo:Well, you can summarize the way we should lead in one short sentence. And that sentence is, do no harm, take no shit. So do no harm through your decisions. And do not accept that others impose on you decisions that are unethical or illegal. And do not impose on your team the same. So if you stay aware for the ethical dimension of your decisions,
You have done already a great job. Do not consider leadership a kind of transactional thing that you measure in achievements and quota and success and bonus. That is not leadership.
Sam Sivarajan:Mm-hmm.
No, I like that. And to add to that, I think you said something earlier about fear is created in the absence of choices. And so if you are leading or if you're making decisions where at every instant that you have to make a decision, there is choices that you've opened up that you don't narrow down the decision frame into as narrow as possible.
I think you open yourself up to options and choices and as a result, reduce the likelihood of fear and increase the likelihood of making better ethical decisions.
Guido Palazzo:All
Sam Sivarajan:Finally Guido, if you had one message for financial professionals, especially those in leadership positions who want to lead with integrity even in complex environments, is there a message that you would give them?
Guido Palazzo:I would invite them to watch a movie. That movie is The Devil's Advocate. I've watched this movie, I guess, 15 times because I show it to my students every year and whenever I show it, I look forward to the next time. Without spoiling it, it's the story of a lawyer who is defending a school teacher who has harassed a little girl and at one point during the trial, he realizes that the guy is guilty.
So goes to the bathroom, he asks for a break, he goes to the bathroom and he looks into the mirror. And in the mirror he sees his future. So he sees his future, what would happen if I now defend the guy and help him to escape punishment? And he sees himself rising in the ranks of a famous law firm in New York, making one more compromise after another, thereby destroying
his relationship with his girlfriend and his morality in the end. And he sees this in the mirror. So the whole film, sorry for the spoiler, the whole film is just an imagination of the guy in the bathroom. And when he sees his future, he goes back and says, I cannot defend my client anymore. So he understands that the first step will lead to...
Sam Sivarajan:Mm-hmm.
Guido Palazzo:terrible consequence because the next step will be easier. Like Clayton Christensen the Harvard professor once said, it's easier to stick 100 % to your values than 98 % because every small compromise makes the next one creep in much easier. So that would be my recommendation.
Sam Sivarajan:Mm-hmm.
Right.
That's very powerful. And I remember the movie. Now I have to go watch it again. Guido, this has been a very interesting and engaging discussion. We're now coming to the end of our podcast. So we're going to shift into rapid fire questions that I ask all my guests. So if you're ready, number one, what is one leadership lesson you've learned that still guides your work today?
Guido Palazzo:Yeah.
If you want your people to speak up to you, speak up to your own leaders.
Sam Sivarajan:That's very powerful. Number two, what advice would you offer to advisors or leaders trying to build more values-based practices?
Guido Palazzo:think there's a muscle, that's what Aristotle said. If you don't use it, it gets weak. So use it.
Sam Sivarajan:I love that. great. And finally, so one book thinker or idea that's influenced your own ethical outlook.
Guido Palazzo:Hannah Arendt, I would recommend her book Adolf Eichmann, Eichmann in Jerusalem. Very powerful book.
Sam Sivarajan:Guido, thank you for such an insightful and timely conversation. If our listeners want to learn more about your work or pick up the dark pattern, where should they go?
Guido Palazzo:You can buy it everywhere in Europe and in the USA, in every bookshop. I always tell people, check it out on Amazon, but buy it in your local bookshop.
Sam Sivarajan:Perfect. Guido, thank you again for joining us today on the Future Ready Advisor.
Guido Palazzo:Thanks for having me.
