Why do people make unethical decisions?

We all know that changing people is difficult—some will never change—but what organizations can do is provide education that encourages employees to become confident and self-aware of their own behavior.

The goal is not just to train them on rules but to help them understand their behavioral patterns and recognize unconscious mechanisms that may lead them toward unethical decisions. Once employees become aware of their internal drivers, they will be able to better control them—learning how to pause in questionable situations, activate their self-regulation mechanism, and apply critical thinking.

The role of critical thinking in ethical decision-making

Critical thinking is not inherently an ethical decision-making tool, but it plays a crucial role in bringing unconscious biases to the level of conscious awareness.

The purpose of critical thinking is to help decision-makers question their their own and others’ biases, motives, and perspectives. It allows us to pause, be objective and open-minded, and analyze situations based on facts rather than personal assumptions.

As Anaïs Nin wisely said:
“We do not see things as they are, we see things as we are.”

Our perceptions are shaped by our experiences, emotions, and beliefs. That is why self-awareness is essential – only by recognizing our internal filters can we make decisions based on reality rather than distorted interpretations.

Through critical thinking, employees learn to stop, reflect, and make ethical choices based on conscious judgment rather than automatic reactions.

What is the goal of critical thinking?

• Questioning one’s own and others’ beliefs, motives, and assumptions.
• Creating space for objectivity and openness.
• Analyzing situations based on hard evidence, rather than subjective impressions.
• Understanding what actually happened, rather than what our brain automatically assumes.

This process enables employees to avoid impulsive reactions, recognize their unconscious responses, and make well-thought-out decisions. It also teaches them to be authentic and transparent—to express their thoughts and emotions honestly, without distortion.

How do employees become competent in ethical decision-making?
When implementing such training programs in organizations, employees go through different learning stages:

1. Unconscious Incompetence – They don’t know that they don’t know.
   At the beginning of the training, employees are unaware of their unconscious behavioral patterns.
2. Conscious Incompetence – They know that they don’t know.
   Through education and deeper understanding of ethical values, they recognize their weaknesses and areas for improvement.
3. Conscious Competence – They know they can make an ethical decision, but with conscious effort and focus.
   By practicing what they have learned, employees can make ethical decisions, but it still requires deliberate attention.
4. Unconscious Competence– They know they can make ethical decisions without overthinking.
   With support from ethical leadership and a strong organizational culture, ethical decision-making becomes natural and automatic.

How to foster internal motivation for ethical behavior?

This model shows that the goal is not to force employees to follow rules just because they are imposed on them, but rather to inspire them to develop intrinsic motivation to adhere to ethical values.

This means that organizations should not just tell employees “how they should behave”, but rather create an environment where employees themselves understand the importance of ethics and compliance, without external pressure.

When employees make ethical decisions because they believe in their value, rather than just because the code of ethics requires it, the organization achieves a true culture of integrity.

This is not just a mechanism for ethical behavior – it is a method for implementing it sustainably and effectively.

This question becomes even more pressing in light of the The Global Business Ethics Survey 2023, conducted by the Ethics & Compliance Initiative. The results are alarming: Key Findings:

1. Employees continue to face exceptionally high levels of pressure in order to compromise workplace standards or even the law
2. Workplace misconduct is at an all-time high.
3. Reporting of observed misconduct is at a record high.
4. Retaliation against employees who report misconduct is on the unacceptable rates.
5. Only a few employees say they work in a strong ethical culture.
6. Companies are not taking the steps that have been proven to significantly reduce their risks.
   These findings make it clear that formal Compliance programs alone are not enough. Organizations cannot rely solely on rules and policies— a deeper shift is required at the levels of culture, leadership, and personal accountability.

Leaders are the key to creating an ethical culture
Organizational culture does not emerge by chance. It is a reflection of the values and beliefs of both current and past leaders, embedded over time into structures, policies, procedures, and reward systems.

“If you want to transform your organization’s culture, you must first transform its leaders.”
Richard Barrett, vodeći autor na području vrijednosno vođenog leadershipa, ističe da organizacijska transformacija započinje osobnom transformacijom lidera. Ako se lideri ne mijenjaju, organizacija neće evoluirati i kultura će ostati ista.

Understanding internal values and motivations
Why do people make unethical decisions—even when they know the rules?

One answer lies in unconscious value limitations – deep-rooted psychological drivers that influence behavior but often go unrecognized. Barrett highlights that values are:

• A reflection of our internal needs.
• Guidelines for decision-making and behavior.
• An expression of what is missing in our lives.

When employees become become aware of their values and the internal motivations driving them, they can consciously regulate their behavior. Otherwise, their decisions are controlled by subconscious impulses, leading to ethical lapses.
This moment of realization “the AHA momentom” – occurs when individuals recognize their unconscious behavioral patterns and gain the opportunity to change them.

Developing a self-regulation mechanism
Since personal values do not change easily, the goal is not to force employees to alter their personalities. Instead, they should be trained to pause automatic reactions and make conscious ethical choices. Key tools in this process include:

1. Self-reflection and recognizing ethical dilemmas – Employees must develop the ability to stop and think when faced with ethical gray areas.
2. Developing a self-regulation system– Engaging in slow thinking (System 2 Thinking) to analyze situations logically rather than reacting impulsively.
3. Applying critical thinking to ethical decision-making – While critical thinking is not inherently ethical, it can be adapted to support ethical choices.
4. Authenticity and personal accountability – – When employees take responsibility for their thoughts and actions, they develop a stronger commitment to their organization and improve overall performance.

Leaders and managers must build a culture of trust
Trust within an organization does not develop overnight, nor can it be established through mere declarations about ethics and integrity. Instead, it grows through the consistent and authentic actions of leaders and managers, who must demonstrate that they genuinely uphold the values they promote.

Leaders and managers must be steadfast in their convictions and act in alignment with the values they advocate. If they emphasize honesty but turn a blind eye to unethical practices—or worse, justify them when it suits business objectives—employees will quickly notice the contradiction. When trust erodes, so does organizational culture. People do not follow words—they follow actions.

Beyond their personal consistency, leaders must build mutual trust within leadership teams. If distrust, insecurity, or secrecy prevails among executives, the same dysfunctional pattern will permeate the organization. Employees will hesitate to share ideas, report concerns, or make ethical decisions if they see that their leaders lack unity and transparency.

When leaders live by their principles, act consistently, and trust one another, they cultivate a culture of trust. In such an environment, employees feel safe to express their perspectives, make ethical choices, and contribute to a healthy, high-performing workplace.

Confidence and growth through a coaching approach
To support the ethical growth of employees, leaders and managers must first develop themselves.
This involves:

• Self-confidence and emotional intelligence – Awareness of one’s emotions and the ability to regulate them are crucial for sound decision-making.
• A coaching mindset – Instead of simply issuing directives, leaders should ask meaningful questions, listen actively, and seek to understand their employees’ challenges.
• Clear and effective communication – Summarizing key points, guiding employees through options rather than dictating solutions, and recognizing their strengths and needs.

Barrett underscores a fundamental truth of leadership:

“I can only control what I am aware of. What I am unaware of controls me.”

Raising awareness—both personal and organizational—is the cornerstone of leadership development and, ultimately, cultural transformation.

A culture of integrity begins with personal change

A strong ethical culture is not built through policies and regulations alone—it emerges from the everyday decisions and actions of the people within an organization. True change does not come from external pressures but from within, through the personal development of leaders, managers, and employees who are willing to take responsibility for their choices and become more aware of their impact on others.

If we want to build a culture of integrity, leaders must take the first step. They set the standard through their actions, foster trust, and encourage ethical decision-making. When leaders and managers understand their own values, develop self-regulation skills, and apply critical thinking in ethical dilemmas, they become role models for the entire organization.

Organizations do not change by themselves—they are shaped by the people within them. If we want to create workplaces where ethics and integrity are priorities, we cannot rely solely on rules and procedures. Employees must be equipped with the tools to recognize risks, navigate ethical challenges, and act in alignment with their core values.

Because ethics is not just about following rules—it is about how we live, work, and create lasting value for ourselves, our organizations, and society as a whole.It is time for Compliance programs to go beyond regulatory checklists—they must serve as a roadmap for personal accountability, ethical awareness, and conscious decision-making.

When we talk about Compliance, we often think about rules, procedures, and regulations. However, Compliance is not just a set of formal rules—it is deeply connected to human behavior.
Many organizations invest significant resources in developing policies and procedures, implementing strict controls, and ensuring that employees are well-informed about the rules. But what happens when people—whether consciously or unconsciously—ignore these rules, justify breaking them, or adapt them to serve their own interests? This is where behavioral risk comes into play—a crucial yet often overlooked aspect of an effective Compliance program.

The Illusion of Compliance: True Alignment or Just a Framework?

One of the biggest misconceptions in organizations is the belief that a strong Compliance program is sufficient as long as policies are well-defined and aligned with regulations. However, the real question is not how well-written the policies are, but how well employees actually follow them in practice.

Human behavior is unpredictable, and rules on paper mean nothing if we do not take into account the reasons why employees sometimes choose to disregard them. Ignoring behavioral risks can create an illusion of Compliance—a situation where everything appears orderly and aligned on the surface, yet beneath it lies a significant risk of misconduct, ethical breaches, and even legal consequences.

What Are Behavioral Risks?

Behavioral risks refer to the psychological, social, and organizational factors that influence unethical decision-making. They explain why individuals, despite knowing the rules, make choices that are not in line with ethical standards and regulatory requirements.

Some of the key factors that contribute to behavioral risks include:

• Pressure – High targets, tight deadlines, and job insecurity can push employees to make risky decisions.
• Normalizing Unwanted Behavior – When employees see their colleagues ignoring the rules without consequences, they may follow suit.
• Rewarding results instead of ethics – If success is measured solely by financial outcomes, employees may overlook ethical standards to achieve their goals.
• Lack of accountability – When rules are not consistently enforced, employees may start to think: “If no one is checking, does this rule even matter?”

What Happens When Behavioral Risks Are Ignored?

If behavioral risks are not recognized and managed, Compliance becomes a mere formality—something implemented to satisfy regulatory requirements, but without bringing about real cultural change within the organization.

Organizations that fail to address behavioral risks may face serious consequences, such as:

• The gradual acceptance of high-risk behavior as “normal” within the company.
• Employees rationalizing and justifying unethical decisions.
• A rise in fraud, bribery, and other forms of misconduct.
• Unexpected crises and reputational damage due to unforeseen ethical failures.

Rules and procedures are essential, but without an understanding of human behavior, organizations remain blind to the real risks within their structures.

How to manage behavioral risks?

For a Compliance program to be effective, organizations must shift the focus from just rules to understanding the decision-making process and the factors that influence ethical choices. Rules are important, but they alone are not enough—what truly matters is enabling employees to develop a self-regulating mechanism , that helps them recognize risks in time, reassess their choices, and make the right ethical decisions in uncertain situations.

Here are some key steps that can help achieve this:

• Identify high-risk behaviors – Analyze past incidents, industry trends, and internal risk assessments.
• Measure organizational culture – Use employee surveys, ethical climate assessments, and behavioral analytics to understand how Compliance is perceived in reality.
• Address causes, not just symptoms – Instead of relying solely on enforcement and penalties, organizations must examine factors such as workplace pressure, incentive structures, and leadership culture.
• Promote ethical decision-making – Compliance training should not focus only on rules and procedures but also on helping employees understand the decision-making process, the factors influencing ethical choices, and how to develop a self-regulating mechanism. Employees should learn to recognize moments when they are at risk of making unethical decisions, identify pressures that might lead them astray, and develop the ability to pause, reassess, and choose the right course of action.

Rules provide a framework, but the true strength of a Compliance program lies in employees’ ability to independently recognize and stop potentially risky decisions before they escalate into a problem.

Compliance Needs a Shift in Approach

Effective Compliance is not just about preventing unethical behavior—it is about creating an environment where ethical behavior becomes the norm.

True alignment with Compliance does not come from obligation, but from an internal conviction that ethical decisions are the right ones. When employees follow the rules not because they are forced to, but because they truly believe in their importance, a Compliance program evolves beyond regulatory requirements—it becomes the foundation of a sustainable and ethical business culture.