Complete rethink of ethics and values needed

Complete rethink of ethics and values needed: deeply embedded ethical responsibility drives enormous respect for people.

Extract from The Company Ethicist – Jeffrey Davis:

For years, renowned management author and consultant Gary Hamel has helped CEOs adopt and adapt in an age of massive technology disruption in business – from the Web’s nascent days in the 1990s to the challenges of 24/7 global connectivity today. In his latest book, What Matters Now, however, Hamel calls for some serious disruption in management thinking itself, which Hamel argues hasn’t changed much since the start of the Industrial Age and is long overdue for an overhaul.

At the top of his list? A complete rethink of ethics and values in business – plagued in recent years, Hamel writes, by a litany of “unprincipled CEOs [who] have seemed hell-bent on setting new records for egocentric irresponsibility.” Big companies today, he adds, “are now among society’s least trusted institutions. As trust has waned, the regulatory burden on business has grown. Reversing these trends will require nothing less than a moral renaissance in business. The interests of stakeholders are not always aligned, but on one point they seem unanimous: values matter more than ever.”

With that bold mandate in mind, Hamel sat down with The Company Ethicist to talk about what a “moral renaissance” for business might look like in practice.

What makes ethics and values in business such a pressing issue right now? The economy is improving, the stock markets had a good year in 2012 – why the urgency?

If you go back and you dig into the history of capitalism, whether it is Adam Smith or Alex de Tocqueville, people understood that you couldn’t have free markets without an underpinning of morality and a solid ethical foundation. Without that, capitalism degenerates into self-interest. Without that, you will soon find a snarl of regulation emerging as government tries to protect citizens from the more egregious excesses of capitalism.

It’s hard for me to argue that today’s executives are any less principled than they were a decade or three or five or ten in the past. But I think some things have changed that have made this question about the ethical foundations of capitalism more pressing. First of all is simply an increase in the scope and the power of large organizations. Companies today, their decisions are consequential in a way that perhaps was never true before. I think it is understandable and right that citizens hold companies and executives to account over what they do.

If you expect to have the freedom to grow and to acquire companies and to wield that kind of global economic power, then you have to accept a concomitant set of ethical responsibilities, too. I think executives often forget that the rights of corporations are not enshrined in the U.S. Constitution, probably in no constitution or in our Bill of Rights.

There’s this debate over whether corporations are people or not. My argument is, no, they’re not. We may treat them as such in certain contracting situations, but companies do not have inalienable rights granted to them by their creator. They are forever negotiating. Whether it’s explicit or not, they are forever negotiating the social contract that allows them to exist with all the stakeholders that are affected by their actions. I think that’s right and we should expect that.

But CEOs have lost touch with that idea?

Yes, I think a lot of executives have forgotten that. They assumed that they can behave with impunity. So I guess my first point is, keen observers of capitalism have always understood that without that foundation of ethical responsibility, capitalism either ends up kind of destroying itself from within, or conversely you end up with essentially a regulatory state – you defeat the very dynamism and purpose of capitalism because you end up so over-regulating it that it loses those qualities.

So why the urgency?

I think it’s become more of an issue now really for three reasons. One is the growing power and influence of large global corporations. This is measured not only by their size, but their kind of pervasive influence within our lives. It’s hard to imagine how you would exist, at least United States, without coming across Google, Amazon, or Apple. And so as these companies become more deeply infiltrated in our lives, as they acquire deep knowledge about what each of us is doing moment by moment and day by day, we have a huge right to expect them to behave responsibly.

The second thing that’s changed is that – thanks to the Web – any corporate malfeasance today is immediately visible. There are no dark corners. Everything is out there for people to see. A decade or two ago, if you had had a suicide at one of your suppliers on the other side of the globe, it probably would have never made the news. No one would know. And now suddenly you have to send in auditors. You have to get together and create standards for behavior. People hold companies accountable for whatever happens anywhere around the world.

Third, partly thanks to the Web, there’s a growing kind of global consciousness, an ethical consciousness where we expect companies to observe more or less the same standards wherever they operate around the world. And we appreciate that there are different wages and there are different conditions. But the idea that a company can get away with, not only wage arbitrage, but safety arbitrage or environmental arbitrage, you know, that idea is just becoming untenable. So whether it’s conflict-free diamonds or fair trade coffee or any other number of new initiatives, I think there’s that growing sense that as human beings, we really are all in it together, and that to profit off of somebody else’s misery or their powerlessness simply isn’t ethically right. So I think those set of things are putting enormous pressures on companies. And yet I would argue that still today –probably 99 % of companies are doing this off their back foot. They are still responding to specific instances of being caught in some way or other, and then, figuring out how do they respond, make sure it doesn’t damage their brand or reputation.

So what are the 1 % of companies who do get it doing to set new standards?

You see various initiatives. You see the CSR initiatives. A lot of that is green-washing or window dressing. You see companies beginning to think about, how do you create strategies that create both social and private returns? I think that’s a good thing.

It’s easy right now, I think, to be very pessimistic about all of this, because you see what happened in the financial sector and you see, honestly, very, very little soul searching. But at its core, the financial crisis, the financial meltdown was a moral crisis. You can call it a crisis of regulation or you can talk about misaligned incentives at the top of these companies and a culture of greed. But fundamentally, this is a morality play where every human vice was luridly displayed.

And so I think we have to ask some deeper questions probably than have been asked so far. So for me, going forward, the real question is, how do you build a truly virtuous organization? All of us have moral struggles every day. That is the nature of the world we live in. But how do you build an organization where it is easier to fight for virtue than it is to surrender to kind of malfeasance? That’s a big challenge to solve.

So where do you start?

I think there are a few things that are important. One is that I think in any organization you have to be very clear about, what are those ultimate values to which we are going to hold ourselves accountable? And I have argued that often there’s a lack of nobility in business. In most companies, the language that gets used every day by CEOs, by leaders, people talk about competitive advantage and superiority and solutions, efficiency and leadership and so on. But they don’t talk about truth and justice and love and honor and beauty, and these fundamental values that keep us centered as human beings, that ensure that our aspirations are directed in ways that are essentially good for humanity.

I think you have to start with that conversation about, what does it mean to have a business that has at its core truly noble goals? You know? That obviously takes you way beyond the shareholder wealth, or, I would argue, even takes you beyond simply satisfying customers.

The second thing, is having from the top, an explicit conversation, not only about these overarching values, the noble purpose to which we are going to devote ourselves, but also, what kind of personal values to which we are going to hold each other accountable every day, so honesty and equity and fairness and openness and so on. And only if that conversation is legitimized at the top will people feel safe and comfortable to speak up when they see violations. So you have to legitimize – you have to have an explicit conversation about the standards to which we’re going to hold ourselves accountable. People have to be empowered to speak up when they see something that is out of line with that. So whether that’s an ombudsman, whether it is an internal website where people can talk and share about the ethical dilemmas that they come up against every day in their jobs, but we have to legitimize this. We have to make it a matter of open discourse, rather than something that you feel you’re taking your career in your hands if you speak up.

The companies most likely to have that sense of ethical responsibility most deeply embedded are companies that have an enormous respect for human beings and the individual. If you show me a company that treats their employees, not as resources but as human beings, that empowers them, that shares information with them, that invests in them, that listens to them, that’s likely to be a company that takes its ethical obligation seriously. So for me, a good marker for me, if I’m trying to think about which organizations are most likely to live up to their ethical responsibilities to all their stakeholders are the ones that really live up to their responsibilities to their own employees. And if their own employees are treated as resources, as mere instruments of production, it’s hard to imagine how they’re going to treat their other stakeholders any better.

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