Respect, integrity, communication, and excellence. They’re admirable and worthy corporate values – ones you proudly make official and put on the wall.

Unfortunately, those same values belonged to Enron. Only 12 months before declaring bankruptcy in 2001, the largest in US history at the time, Enron received plaudits for its 64 page Code of Ethics. It was named “America’s Most Innovative Company” by Fortune magazine and received numerous awards for corporate citizenship and environmental policies.

Enron’s failings have been well documented as the prototypical case study of what can happen when an organisation decouples its official values, principles and purpose – what we call the ethical framework –  from its everyday behaviours.

It’s a perennial challenge for all organisations. Ensuring behaviour, policies, systems and processes are aligned with that ethical framework is no easy feat.  If the managers of an organisation say one thing but consistently do something else entirely, it breeds a cynicism and disconnection that permeates the entire workforce. Customers and other stakeholders eventually figure it out as well.

Hidden from view

Many organisations have a second set of values lurking beneath the surface. These unofficial values – no less powerful than the official ones – are called ‘shadow values’.

Uncovering shadow values can reveal deeper facets of an organisation’s actual operating culture. By proactively identifying and monitoring its shadow values, an organisation is better placed to see any early drift in the alignment of its culture from its values and principles.

Consider the fraudulent behaviour of Volkswagen engineers who deliberately programmed 500,000 diesel powered vehicles to provide false readings during emissions testing. Despite the company’s explicit corporate values of excellence, professionalism and a commitment to integrity,  it became clear through the accounts of investigators and employees that a number of unofficial shadow values were dominating the organisation’s culture.

Volkswagen’s official and shadow values

In psychology, the dark side of human nature is often described as the alter ego. While Freud referred to the Id, Jung identified it as the shadow, referring to the sum total of all those unpleasant qualities we prefer to hide. The shadow gains its power through being habitually repressed. And it manifests in a multitude of symptoms and psychological disturbances.

Similarly, an organisation’s shadow values gain their power from being kept below the surface. At their worst they are destructive mutations of the official values which pose an existential threat to the integrity of an organisation’s ethical culture.

Despite the official values of ‘teamwork’ and ‘respect for individuals’, Volkswagen’s implicit leadership model was widely recognised as one that valued ‘autocracy’ and delivering ‘success’ at any cost.

A focus on fear

A culture of ‘fear’ was common, with intimidation used as a primary motivator for achieving sales targets. Fear provided a bulwark against any dissenting voice being raised to challenge decisions. These voices were kept silent by a culture that fostered ‘internal competition’ and ‘secrecy’.

Shadow values can also throw into relief sanctioned organisational values, revealing subtle nuances in the way they are understood and practiced day to day. For Volkswagen, its stated value of ‘excellence’ was subsequently revealed to be a very specific type of value – ‘technical excellence’.

The value of technical excellence has been evident throughout the company’s history. Volkswagon turned to it in this recent scandal, just it did in the 1970s when it was found guilty of similar manipulative practices to avoid emissions regulations.

These shadow values had their genesis in the shift in VW’s purpose. Following the appointment of Martin Winterkorn as CEO in 2007, Volkswagen set itself a goal: “To become the world’s largest automaker by 2018”. Winterkorn’s strategy was premised on developing a competitive advantage in ‘clean’ diesel rather than hybrids and other alternatives.

A shift in purpose

With tighter regulatory controls in the US, intense pressure was focussed on engineers to develop a technical solution, which they duly delivered, under the authority of the shadow values. In secretly modifying existing software capabilities that overrode pollution controls, Volkswagen went on to sell over 12 million illegal vehicles and met the target of becoming the “world’s largest automaker”, three years ahead of schedule.

This shift in purpose was not recognised formally in the company’s ethical framework. Allowing shadow values to proliferate unmoored the company from its purpose, values and principles. Indeed many of those shadow values were officially discouraged by VW’s ethical framework.

After his appointment in June 2017, new CEO Matthias Müller noted, “Our management culture needs to improve…openness, the courage to make innovations and speak one’s mind, as well as true willingness to cooperate are all essential elements… We need a solid system of values as a compass for our daily work.”

One hopes this “solid system of values” will be more attuned to the ones that might be still operating in the shadows.

At their worst, shadow values are in complete opposition to official values. At their best, they provide a nuanced expression of what an organisation really cares about. Either way, they are revealing of an organisation’s true, operating culture.

Test your ethical foundation by measuring what’s at play in the shadows against what you put up on the wall.

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