Financial scandal

Cheating business minds: How to break the cycle

July 20, 2012: 11:42 AM ET

It's no cakewalk, but there are several ways to curtail the spread of unethical corporate culture. Here's how it works.

FORTUNE -- In certain situations – when the rewards are high and the risks are low -- our brains tell us that it's okay to cheat. We figure out a way to rationalize behavior that may not otherwise align with our values.

Given that business leaders, especially at banks, have lately been in the news for their poor choices, Fortune took a look at what goes on in the mind of a cheater. There are powerful psychological forces behind rule-breaking for financial gain. But the next step -- harnessing those powerful reward pathways in the brain to encourage ethical behavior -- is incredibly difficult.

"Unfortunately, we know a lot of these rationalization behaviors that people engage in. We're not quite as good yet about figuring interventions," says David Mayer, a management professor at the University of Michigan's Ross School of Business. Still, there are some ways to avoid or fight the temptation to cheat.

The best way to handle a high-pressure, unethical situation is to never get involved in one at all. That's easier said than done, but leaders can work on the front-end to communicate solid business values to employees and shareholders. "If you advertise that you are trying to be ethical, you're going to wind up hiring more ethical people. It's kind of that field of dreams thing: if you build it, they will come," says Mark Frame, a psychology professor at Middle Tennessee State University who specializes in workplace psychology.

MORE: Your cheatin' mind: How biz leaders explain away poor choices

Companies often think they have communicated their values when, in fact, they remain unclear to the rank and file. None of the banks in court now have mission statements that say they want to cut corners for quick cash. Yet the short-term responsibility to shareholders, promotions based on money earned fast, and the cutthroat work environment in the run up to and during the financial crisis set up a competing reward system that stood in contrast to the businesses' stated moral code. More

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