Why most of the wrong things are done by good people? The side-effects of unrealistic or unidimensional goals

Behavioral ethics series #7: creating successful companies attuned to the values and challenges of the 21st century

“Morals go out of the window when the pressure is on. When the responsibility is there, and you have to meet budgetary numbers, you can forget about morals. Circumstances overrule morals.”

Steven Hoffenberg, former CEO (1945–)[i]

In the previous text, I described how our perception of power may impair our ethical judgments.

Together with the pressure of authority, peer pressure, and the self-imposed pressure due to our professional role, they comprise the first layer of pressures contributing to ethical blindness.

The second layer of pressures that may impact our ethical behavior comes from the organizational context. Evidence shows that company’s practices and culture may foster unethical behaviors through three main ways by:

  1. Setting unrealistic or unidimensional goals that lead people to reach them at any cost as well as promote a “tunnel vision” of their role;
  2. Fostering excessive internal competition reinforced by a “winner-take-all” performance evaluation system that encourages individuals to do everything to survive and not being seen as a failure; and,
  3. Using a language full of euphemisms or metaphors of war or games, which tends to mitigate the feeling that wrong things impacting real people are being made.

In this article, I discuss the side-effects of goal setting. In the next ones, I will detail the other two.

Setting hard-to-reach goals for employees and executives is a standard practice in today’s business world. It has, however, many shortcomings.

To begin with, unrealistic goals can worsen productivity rather than improve it. When employees realize that their goals are not feasible, they tend to become discouraged rather than more motivated.

Overly ambitious goals can also lead employees to take excessive risks in order to achieve them. In this case, the individual can perceive him or herself in a kind of game where it is worth risking everything instead of simply accepting a “sure loss.”

In addition, setting unrealistic goals may backfire by inducing executives to do anything to reach the numbers for the sake of not losing their jobs or harming their careers. Substantial research corroborates this claim that the pressure to hit unattainable targets dramatically increases the likelihood of unethical behaviors.[ii]

One study, for example, found that high-performance goals led to a hypercompetitive, individualistic mindset coupled with adversarial social behaviors.[iii]

In another paper, based on a laboratory experiment with 154 participants, the researchers found that those with unmet goals were more likely to engage in unethical behavior, particularly when they fell just short of reaching their goals.[iv]

A third study analyzed the impact of establishing consecutives goals, a common practice in which the completion of an existing goal is followed by the assignment of a new one.[v] In this case, the researchers found that setting consecutive high-performance goals is likely to increase unethical behavior through the depletion of our self-regulatory resources.

They summarize their findings by saying that, “when organizations consistently set aggressive performance targets for employees and appear to care more that the numbers were achieved than how the numbers were achieved, they may be creating an environment in which employees will both be highly depleted and highly tempted to cheat in order to reach the goal.”[vi]

This is exactly what happened with Wells Fargo, the US bank subject to a huge scandal in 2016.

Well Fargo enjoyed a remarkable reputation until its wrongdoings came to light. It emerged largely unscathed from the 2008 financial crisis and ranked first in market capitalization among all US banks. In 2015, Wells Fargo ranked seventh on Barron’s list of most respected companies and 22nd of Fortune’s world’s most admired firms.[vii]

Scratch below the surface, though, and the reality was not so shiny. The bank developed a system in which employees were assigned excessively ambitious goals for cross-selling, a business tactic in which existing customers are sold additional products. These goals included opening new accounts and selling credit cards.

According to one report, district managers discussed daily sales for each branch and for each employee four times a day, some going as far as setting daily and hourly sales targets.[viii] If the branch did not reach its targets, the shortfall was added to the next day’s goals.

One department head, for instance, used to tell employees to “do whatever it takes” to sell.[ix] Goals were constantly updated, while shaming and threats of terminations by managers in case of missing sales goals were commonplace.[x]

Wells Fargo’s cut-throat sales culture tied compensation to hitting unattainable targets. Employees were only rewarded by their ability to meet sales targets without considering how those goals were met.[xi] Because they could not keep up with these goals, many simply started creating fictitious accounts and credit cards on behalf of their customers.

In an amazing demonstration of the power of a toxic culture, unethical behavior has become widely spread: the bank disclosed in 2016 that no less than 5,300 employees from 6,000 branches opened about 1.5 million unauthorized deposit accounts as well as falsified 565,000 credit card applications over several years.[xii] One year later, an external review uncovered an additional 1.4 million unauthorized accounts, boosting fake-accounts estimate to staggering 3 million.[xiii]

Still in 2017, Wells Fargo’s board of directors published the results of an independent investigation based on interviews with more than 100 former and current employees and on the analysis of more than 35 million documents.[xiv] The report identified the bank’s sales incentives programs and performance management measures as the primary drivers of the wrongdoings.

According to the document, “the root cause of sales practice failures was the distortion of the bank’s sales culture and performance management system, which, when combined with aggressive sales management, created pressure on employees to sell unwanted or unneeded products to customers and, in some cases, to open unauthorized accounts.”

Bad leadership was also to blame. The investigation concluded that “senior leadership failed to appreciate that their sales goals were too high and becoming increasingly untenable. Over time, even as senior regional leaders criticized the increasingly unrealistic sales goals, the bank’s senior management tolerated it as a necessary by-product of a sales-driven organization.”

Wells Fargo fired its then-CEO along with 5,300 employees and entered into a $185 million settlement with federal regulators. It also committed to completely change its culture and incentive system by eliminating sales goals for retail bankers as well as redesigning branch-level incentives to emphasize customer experience.[xv]

Another relevant case linking ethical problems to unrealistic goals took place at the Brazilian branch of Santander, a Spanish bank. In March 2017, prosecutors filed a public civil suit against the financial institution asking for a compensation of BRL 460 million (around US$150 million) for collective moral damages.

According to the prosecutors, the bank has adopted an organizational model based on stressful management and moral harassment aimed at reaching excessively high financial goals.[xvi] In their view, these practices harmed employees’ health and ended up in losses to the public treasury. Specifically, they estimated that sick leaves of people who fell ill due to the bank’s management system have cost around US$30 million to the government’s social security system.[xvii]

According to the lawsuit, Santander used to adopt unduly high targets that were constantly increased as well as used to keep employees under threat of dismissal in the case of not meeting the goals. This, in turn, would have also harmed consumers by making them victims of “compulsory” cross-sales or other illegal practices.[xviii]

In order to validate their claim, Brazilian public prosecutors carried out a survey with employees from several Santander branches. In one of the branches, for example, 88% of the employees said they were subject to unrealistic productivity targets, 77% reported that those who do not meet the targets have been threatened with dismissal, 66% felt under excessive pressure and were intimidated by their managers for hitting the numbers, 55% said that trying to meet their goals was harming their health and social life, and 100% reported feeling anxious about their work as well as felt constantly nervous, tense, and worried.

The more ambitious the goals, therefore, the greater the likelihood of misconduct. This is particularly dangerous when employees receive ambiguous messages from the organization, such as “I want you to reach your goals at any cost” and “I want you to always act according to our code of ethics.”

When these messages conflict, reaching the numbers tends to prevail, even if through questionable behaviors. Thus, it is essential for leaders to clearly signal to employees the real priority of the organization.

Another problem related to the incentive system arises when an organization establishes unidimensional goals solely based on meeting specific financial indicators, such as a certain return on investment, sales margin, revenues growth, etc.

Having only a specific number to reach leads individuals to a sort of “tunnel vision” which tends to make them insensitive to the ethical implications of their actions.[xix] As summarized by a research on corporate corruption, “The exclusive focus on financial results is an important characteristic of unethical cultures”.[xx]

A good example comes from Brazilian oil company OGX, one of the six companies that used to belong to the extinct empire of mega-entrepreneur Eike Batista (in 2011, Mr. Batista became the seventh richest person in the world with a fortune of US$30 billion).

Around 90% of OGX executives’ total compensation was linked to the company’s stock price, a speculative indicator by definition.[xxi] As a consequence, instead of focusing on managing the company, its executives focused on managing market expectations in order to maximize their earnings.

Obviously, this had also become an invitation to unethical behaviors. Regulators uncovered that bad news about the company were omitted while executives sold their stocks at inflated prices.[xxii] In addition, managers used to disclose exaggerated projections of future oil revenues for the sake of exercising their stock option plans.[xxiii]

Although the oil company collapsed in 2013 without generating any economic value throughout its history, dozens of its top executives pocketed millions of dollars during the brief period in which its stocks remained artificially high. To put a figure on it, at least 10 senior executives of OGX pocketed between $35 million and $100 million, while dozens of others received between $1 million and $35 million.[xxiv]

In a unidimensional incentive system, executives tend to only focus on the specific number they should meet in order to be well assessed. This, in turn, tends to lead them losing sight of the whole.[xxv]

The end starts to justify the means, and they begin to tell themselves that “my role is just to hit that number; everything that does not relate to my goal is off my radar.”[xxvi] A 2016 survey of 2,825 executives from 62 countries corroborates this claim: 42% of respondents said that they would justify unethical behaviors in order to meet financial targets.[xxvii]

A study based on interviews with experts who had first-hand contact with employees of fraudulent organizations reached the same conclusion. According to the authors, corrupt companies share an underlying assumption that the end justifies the means manifested by the value of “results orientation.”[xxviii]

The focus on outcomes instead of on how things are done undermines employees’ moral standards, allowing them to engage in corruption without feeling guilty. As one interviewee pointed out, “Well, I have to deliver these numbers, and nobody is interested in how I do it; it is just important that I reach them.”[xxix]

The singular focus on hitting financial targets, a prevalent practice today in most companies, is a result of the old “carrot and stick” mentality. This obsolete mindset assumes that the only thing that motivates human beings is a monetary reward.

A wealth of research demonstrates, however, that our most powerful source of drive comes from intrinsic motivation, our natural tendency to expand our skills and look for challenging situations simply because something is enjoyable and interesting — rather than because of an outside incentive or pressure to do it, such as a reward or threat of punishment.[xxx]

The excessive focus on extrinsic motivators, such as bonuses, rewards, and other monetary incentives, destroys people’s intrinsic motivation. This “crowding-out effect” occurs because the work starts to be perceived as something inherently bad, that always requires a reward.[xxxi]

Simplistic incentive systems based on one-dimensional goals often produce serious negative side-effects, including poorer performance and more unethical behaviors. It is critical, therefore, to reflect on how people will respond to the incentives created by pay-for-performance schemes.

To sum up:

§ Setting unrealistic or unidimensional goals is one of the three pressures related to the organizational context that may contribute to ethical blindness.

§ Setting aggressive performance targets may backfire. It can demotivate employees, lead them to take excessive risks, and dramatically increase the likelihood of unethical behaviors.

§ Another problem related to incentive systems arises when companies set unidimensional goals solely based on meeting specific financial indicators such as a certain sales margin, or return on investment.

§ Having an exclusive focus on financial results leads individuals to a sort of “tunnel vision” which tends to make them insensitive to the ethical implications of their actions.

§ The singular focus on hitting financial targets results from the old “carrot and stick” approach to management. This obsolete mindset assumes that the only thing that motivates human beings is a monetary reward.

§ A wealth of research demonstrates that the most powerful source of drive comes from intrinsic motivation, which is activated by enhancing our psychological needs of autonomy, competence and purpose.

§ Last but not least, the excessive focus on extrinsic motivators such as bonuses tends to destroys human beings’ intrinsic motivation instead of complement it.

Behavioral ethics series:

# 1: What is behavioral ethics and why this subject is important for all business leaders.

# 2: The first key finding of behavioral ethics: We overestimate our ethical behavior.

#3: Why do we overestimate our ethical behavior? Limited rationality and cognitive biases.

#4: Why do we overestimate our ethical behavior? Stages and dynamics of our decision-making process.

#5: Why most of the wrong things are done by good people? The pressures of our daily work life.

#6: Why most of the wrong things are done by good people? The perils of power.

Prof. Dr. Alexandre Di Miceli is a professional speaker, business thinker and founder of Virtuous Company, a top management consultancy that provides cutting edge knowledge on corporate governance, ethical culture, leadership, diversity, and company purpose.

He is the author of “The Virtuous Barrel: How to Transform Corporate Scandals into Good Businesses” as well as of the best-selling books on corporate governance and business ethics in Brazil, including “Corporate Governance in Brazil and in the World”, “Behavioral Business Ethics: Solutions for Management in the 21st Century”, and “Corporate Governance: The Essentials for Leaders”.

He thanks Prof. Dr. Angela Donaggio for her valuable comments and suggestions.

[i] Source: Soltes (2016: 272). Steven Hoffenberg was the former chairman and CEO of Towers Financial Corporation, a factoring company who became one of the largest Ponzi schemes in history. In 1997, he was sentenced to 20 years in prison for defrauding around $475 million of thousands of investors. Soltes, E. (2016). Why they do it: inside the mind of the white-collar criminal. PublicAffairs.

[ii] Barsky (2008) developed a conceptual model explaining how setting performance goals can induce unethical behavior. In addition, Ordoñez et. al (2009) reviewed the downsides of goal-setting. The authors drew a parallel between goal-setting and prescription strength medications. They say that, if overprescribed, goal-setting can lead to serious side-effects, including a “narrow focus that neglects non-goal areas, a rise in unethical behavior, distorted risk preferences, corrosion of organizational culture, and reduced intrinsic motivation”. Barsky, A. (2008). Understanding the ethical cost of organizational goal-setting: A review and theory development. Journal of Business Ethics, 81(1), 63–81. Ordóñez, L. D., Schweitzer, M. E., Galinsky, A. D., & Bazerman, M. H. (2009). Goals gone wild: The systematic side effects of overprescribing goal setting. The Academy of Management Perspectives, 23(1), 6–16.

[iii] Poortvliet and Darnon (2010). Poortvliet, P. M., & Darnon, C. (2010). Toward a more social understanding of achievement goals. The interpersonal effects of mastery and performance goals. Current Directions in Psychological Science, 19(5), 324–328.

[iv] Interestingly, the authors also observed that this relationship held for goals with and without economic incentives. Source: Schweitzer et al. (2004). Schweitzer, M. E., Ordóñez, L., & Douma, B. (2004). Goal setting as a motivator of unethical behavior. Academy of Management Journal, 47(3), 422–432.

[v] Welsh e Ordóñez (2014). Welsh, D. T., & Ordoñez, L. D. (2014). The dark side of consecutive high-performance goals: Linking goal setting, depletion, and unethical behavior. Organizational Behavior and Human Decision Processes, 123(2), 79–89.

[vi] Ibid: 86. Actually, there is scientific evidence that the mere fact of imposing performance goals on employees is enough to negatively affect their moral standards and increase the propensity for unethical behavior. As an example, Schweitzer et al. (2004) show how an easy-to-reach goal without any pecuniary reward proved sufficient to increase the dishonesty of participants in an experiment, compared to a situation in which individuals were only encouraged to “do their best”.

[vii] Barron’s 2015 ranking: https://www.barrons.com/articles/apple-tops-barrons-list-of-respected-companies-1435372737; Fortune’s 2015 ranking http://fortune.com/worlds-most-admired-companies/2015/wells-fargo-22/

[viii] Darden Ideas to Action. Wells Fargo and the Public’s Withdrawal of Trust. 06/09/2017. By Luann J. Lynch and Carlos Santos. Available at https://ideas.darden.virginia.edu/2017/06/wells-fargo-and-the-publics-withdrawal-of-trust/

[ix] Ibid.

[x] Under pressure: Wells Fargo, misconduct, leadership and culture. January 2018. By Bharathy Premachandra and Azish Filabi.

[xi] Ibid.

[xii] Actually, as pointed out by Bharathy Premachandra and Azish Filabi, the fraudulent practices were first brought to the attention of Wells Fargo’s senior management back in 2011. However, they were systematically downplayed as minor isolated incidents caused by a few bad apples. Thus, leadership (consciously or unconsciously) opted to remain in denial. Source: Under pressure: Wells Fargo, misconduct, leadership and culture. January 2018. By Bharathy Premachandra and Azish Filabi.

[xiii] Bloomberg. Wells Fargo Boosts Fake-Account Estimate 67% to 3.5 Million. 08/31/2017. Available at https://www.bloomberg.com/news/articles/2017-08-31/wells-fargo-increases-fake-account-estimate-67-to-3-5-million

[xiv] Independent Directors of the Board of Wells Fargo & Company Sales Practices Investigation Report. 04/10/2017. Available at https://www08.wellsfargomedia.com/assets/pdf/about/investor-relations/presentations/2017/board-report.pdf

[xv] The New York Times. 09/16/2016. Wells Fargo Scandal May Be Sign of a Poisonous Culture. Available at https://nyti.ms/2kjjqhK. It is worth noting, though, that less than a year later another crisis emerged at the bank. This time, an internal report disclosed that more than 800,000 people who took out car loans from Wells Fargo were charged for auto insurance they did not need, and some of them were still paying for it at the time of the announcement. The expense of the unneeded insurance, in turn, pushed roughly 274,000 customers into delinquency and resulted in almost 25,000 wrongful vehicle repossessions. Source: The New York Times. 07/27/2017. Wells Fargo Forced Unwanted Auto Insurance on Borrowers. Available at https://nyti.ms/2h7Boak

[xvi] ACP-0000342–81.2017.5.10.0011, 3ª Vara do Trabalho de Brasília — DF. The lawsuit can be accessed at https://pje.trt10.jus.br/consultaprocessual/pages/consultas/ConsultaProcessual.seam

[xvii] A survey of pension benefits granted to Santander’s employees showed that payments due to mental disorders corresponded to 37.3% of the bank’s total paid benefits in 2015. Source: MPT Notícias. 04/11/2017. Santander processado em R$460 mi por assédio e estresse. Available at http://portal.mpt.mp.br/

[xviii] UOL Notícias, blog do Sakamoto. 04/07/2017. Por lucrar com estresse de bancários, Santander é processado em R$460 mi. Available at https://blogdosakamoto.blogosfera.uol.com.br/2017/04/07/por-lucrar-com-estresse-de-bancarios-santander-e-processado-em-r-460-mi/ .

[xix] The tunnel vision metaphor can be understood as follows: by focusing only on our specific goals, we begin to look only at the light at the end of the tunnel. All the rest, including the ethical consequences of our decisions, becomes dark and irrelevant.

[xx] Campbell and Göritz (2014: 309). Campbell, J. L., & Göritz, A. S. (2014). Culture corrupts! A qualitative study of organizational culture in corrupt organizations. Journal of business ethics, 120(3), 291–311.

[xxi] According to Leo (2014: 207), each C-level officer at OGX earned an average of BRL1 million in salary plus BRL9 million in company stocks in 2010. Leo, Sergio. (2014). Ascensão e Queda do Império X. Editora Nova Fronteira. p. 207–208.

[xxii] According to Cuadros (2016: 46–47, 215), some OGX executives even sold shares from their stock option plans (that could only be exercised in a future date) with a large discount to an investment bank in order to pocket some money as quickly as possible. Still according to the author, when the investment bank realized the despair of the executives to sell their shares at a big discount, one of its funds set up a large short position in OGX shares, which allowed the institution to make a huge profit. Cuadros, A. (2016). Brazillionaires: Wealth, Power, Decadence, and Hope in an American Country. Spiegel & Grau, p. 46–47.

[xxiii] Leo (2014: 207–208).

[xxiv] Ironically, the chief of investor relations (CIRO) left OGX shortly before the most important announcement of its history: in June 2012, the company finally disclosed that its oil reserves were much smaller than expected. He sold his shares two months earlier, pocketing $60 million during his five years tenure at the company. Source: Revista Exame. 03/19/2014. Todos os homens de Eike. Available at http://exame.abril.com.br/revista-exame/edicoes/1061/noticias/todos-os-homens-de-eike

[xxv] According to Barsky (2008), unidimensional goals can increase unethical behavior by leading individuals to concentrate their mental resources on goal attainment rather than on moral standards. Consequently, their narrowed focus can lead them to experience lower levels of moral awareness.

[xxvi] It is worth mentioning that evaluating people solely based on the meeting certain indicators can also induce them to the so-called “incentive gaming,” a practice of manipulation of indicators.

[xxvii] EY Global Fraud Survey 2016. Available at http://www.ey.com/Publication/vwLUAssets/ey-global-fraud-survey-2016/$FILE/ey-global-fraud-survey-final.pdf

[xxviii] Campbell and Göritz (2014: 303). In addition, the authors report that the value “results orientation” connects to other important values such as “success” and “need for security”. Their overall conclusion is that the underlying

assumption ‘‘the end justifies the means’’ is the key characteristic of a corrupt organizational culture.

[xxix] Ibid: 302.

[xxx] Many books compile scientific evidence of the critical importance of fostering intrinsic motivation, including Pink (2011) and Deci and Ryan (1985). Pink, D. (2011). Drive: The Surprising Truth About What Motivates Us. Riverhead Books Plenum Press. Deci, E. & Ryan, R. (1985). Intrinsic Motivation and Self-Determination in Human Behavior (Perspectives in Social Psychology).

[xxxi] Frey and Jegen (2001) developed the first theory on the crowding-out of intrinsic motivation. Frey, B. S., & Jegen, R. (2001). Motivation crowding theory. Journal of economic surveys, 15(5), 589–611.




Professional speaker, business thinker and founder of Virtuous Company, a top management consultancy on corporate governance, culture, leadership, and purpose.

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Alexandre Di Miceli

Alexandre Di Miceli

Professional speaker, business thinker and founder of Virtuous Company, a top management consultancy on corporate governance, culture, leadership, and purpose.

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