Can pressure managers to suppress their ethical concerns in pursuit of profits

As the 1990s overtake us, public interest in ethics is at a historic high. While the press calls attention to blatant derelictions on Wall Street, in the defense industry, and in the Pentagon, and to questionable activities in the White House, in the attorney general’s office, and in Congress, observers wonder whether our society is sicker than usual. Probably not. The standards applied to corporate behavior have risen over time, and that has raised the average rectitude of businesspersons and politicians both. It has been a long time since we could say with Mark Twain that we have the best Senate money can buy or agree with muckrakers like Upton Sinclair that our large companies are the fiefdoms of robber barons. But illegal and unethical behavior persists, even as efforts to expose it often succeed in making its rewards short-lived.

Why is business ethics a problem that snares not just a few mature criminals or crooks in the making but a host of apparently good people who lead exemplary private lives while concealing information about dangerous products or systematically falsifying costs? My observation suggests that the problem of corporate ethics has three aspects: the development of the executive as a moral person; the influence of the corporation as a moral environment; and the actions needed to map a high road to economic and ethical performance—and to mount guardrails to keep corporate wayfarers on track.• • •

Sometimes it is said wrongdoing in business is an individual failure: a person of the proper moral fiber, properly brought up, simply would not cheat. Because of poor selection, a few bad apples are bound to appear in any big barrel. But these corporate misfits can subsequently be scooped out. Chief executive officers, we used to think, have a right to rely on the character of individual employees without being distracted from business objectives. Moral character is shaped by family, church, and education long before an individual joins a company to make a living.

In an ideal world, we might end here. In the real world, moral development is an unsolved problem at home, at school, at church—and at work. Two-career families, television, and the virtual disappearance of the dinner table as a forum for discussing moral issues have clearly outmoded instruction in basic principles at Mother’s knee—if that fabled tutorial was ever as effective as folklore would have it. We cannot expect our battered school systems to take over the moral role of the family. Even religion is less help than it once might have been when membership in a distinct community promoted—or coerced—conventional moral behavior. Society’s increasing secularization, the profusion of sects, the conservative church’s divergence from new lifestyles, pervasive distrust of the religious right—all these mean that we cannot depend on uniform religious instruction to armor business recruits against temptation.

Nor does higher education take up the slack, even in disciplines in which moral indoctrination once flourished. Great literature can be a self-evident source of ethical instruction, for it informs the mind and heart together about the complexities of moral choice. Emotionally engaged with fictional or historic characters who must choose between death and dishonor, integrity and personal advancement, power and responsibility, self and others, we expand our own moral imaginations as well. Yet professors of literature rarely offer guidance in ethical interpretation, preferring instead to stress technical, aesthetic, or historical analysis.

Moral philosophy, which is the proper academic home for ethical instruction, is even more remote, with few professors choosing to teach applied ethics. When you add to that the discipline’s studied disengagement from the world of practical affairs, it is not surprising that most students (or managers) find little in the subject to attract them.

What does attract students—in large numbers—is economics, with its theory of human behavior that relates all motivation to personal pleasure, satisfaction, and self-interest. And since self-interest is more easily served than not by muscling aside the self-interest of others, the Darwinian implications of conventional economic theory are essentially immoral. Competition produces and requires the will to win. Careerism focuses attention on advantage. Immature individuals of all ages are prey to the moral flabbiness that William James said attends exclusive service to the bitch goddess Success.

Spurred in part by recent notorious examples of such flabbiness, many business schools are making determined efforts to reintroduce ethics in elective and required courses. But even if these efforts were further along than they are, boards of directors and senior managers would be unwise to assume that recruits could enter the corporate environment without need for additional education. The role of any school is to prepare its graduates for a lifetime of learning from experience that will go better and faster than it would have done without formal education. No matter how much colleges and business schools expand their investment in moral instruction, most education in business ethics (as in all other aspects of business acumen) will occur in the organizations in which people spend their lives. • • •

Making ethical decisions is easy when the facts are clear and the choices black and white. But it is a different story when the situation is clouded by ambiguity, incomplete information, multiple points of view, and conflicting responsibilities. In such situations—which managers experience all the time—ethical decisions depend on both the decision-making process itself and on the experience, intelligence, and integrity of the decision maker.

Responsible moral judgment cannot be transferred to decision makers ready-made. Developing it in business turns out to be partly an administrative process involving: recognition of a decision’s ethical implications; discussion to expose different points of view; and testing the tentative decision’s adequacy in balancing self-interest and consideration of others, its import for future policy, and its consonance with the company’s traditional values. But after all this, if a clear consensus has not emerged, then the executive in charge must decide, drawing on his or her intuition and conviction. This being so, the caliber of the decision maker is decisive—especially when an immediate decision must arise from instinct rather than from discussion.

This existential resolution requires the would-be moral individual to be the final authority in a situation where conflicting ethical principles are joined. It does not rule out prior consultation with others or recognition that, in a hierarchical organization, you might be overruled.

Ethical decisions therefore require of individuals three qualities that can be identified and developed. The first is competence to recognize ethical issues and to think through the consequences of alternative resolutions. The second is self-confidence to seek out different points of view and then to decide what is right at a given time and place, in a particular set of relationships and circumstances. The third is what William James called tough-mindedness, which in management is the willingness to make decisions when all that needs to be known cannot be known and when the questions that press for answers have no established and incontrovertible solutions.

Unfortunately, moral individuals in the modern corporation are too often on their own. But these individuals cannot be expected to remain autonomous, no matter how well endowed they are, without positive organized support. The stubborn persistence of ethical problems obscures the simplicity of the solution—once the leaders of a company decide to do something about their ethical standards. Ethical dereliction, sleaziness, or inertia is not merely an individual failure but a management problem as well.

When they first come to work, individuals whose moral judgment may ultimately determine their company’s ethical character enter a community whose values will influence their own. The economic function of the corporation is necessarily one of those values. But if it is the only value, ethical inquiry cannot flourish. If management believes that the invisible hand of the market adequately moderates the injury done by the pursuit of self-interest, ethical policy can be dismissed as irrelevant. And if what people see (while they are hearing about maximizing shareholder wealth) are managers dedicated to their own survival and compensation, they will naturally be more concerned about rewards than about fairness.

For the individual, the impact of the need to succeed is doubtless more direct than the influence of neoclassical economic theory. But just as the corporation itself is saddled with the need to establish competitive advantage over time (after reinvestment of what could otherwise be the immediate profit by which the financial community and many shareholders judge its performance), aspiring managers will also be influenced by the way they are judged. A highly moral and humane chief executive can preside over an amoral organization because the incentive system focuses attention on short-term quantifiable results.

Under pressures to get ahead, the individual (of whose native integrity we are hopeful) is tempted to pursue advancement at the expense of others, to cut corners, to seek to win at all cost, to make things seem better than they are—to take advantage, in sum, of a myopic evaluation of performance. People will do what they are rewarded for doing. The quantifiable results of managerial activity are always much more visible than the quality and future consequences of the means by which they are attained.

By contrast, when the corporation is defined as a socioeconomic institution with responsibilities to other constituencies (employees, customers, and communities, for example), policy can be established to regulate the single-minded pursuit of maximum immediate profit. The leaders of such a company speak of social responsibility, promulgate ethical policy, and make their personal values available for emulation by their juniors. They are respectful of neoclassical economic theory, but find it only partially useful as a management guide.

As the corporation grows beyond its leader’s daily direct influence, the ethical consequences of size and geographical deployment come into play. Control and enforcement of all policy becomes more difficult, but this is especially true with regard to policy established for corporate ethics. Layers of responsibility bring communication problems. The possibility of penalty engenders a lack of candor. Distance from headquarters complicates the evaluation of performance, driving it to numbers. When operations are dispersed among different cultures and countries in which corruption assumes exotic guises, a consensus about moral values is hard to achieve and maintain.

Moreover, decentralization in and of itself has ethical consequences, not least because it absolutely requires trust and latitude for error. The inability to monitor the performance of executives assigned to tasks their superiors cannot know in detail results inexorably in delegation. Corporate leaders are accustomed to relying on the business acumen of profit-center managers, whose results the leaders watch with a practiced eye. Those concerned with maintaining their companies’ ethical standards are just as dependent on the judgment and moral character of the managers to whom authority is delegated. Beyond keeping your fingers crossed, what can you do?• • •

Fortunately for the future of the corporation, this microcosm of society can be, within limits, what its leadership and membership make it. The corporation is an organization in which people influence one another to establish accepted values and ways of doing things. It is not a democracy, but to be fully effective, the authority of its leaders must be supported by their followers. Its leadership has more power than elected officials do to choose who will join or remain in the association. Its members expect direction to be proposed even as they threaten resistance to change. Careless or lazy managements let their organizations drift, continuing their economic performance along lines previously established and leaving their ethics to chance. Resolute managements find they can surmount the problems I have dwelt on—once they have separated these problems from their camouflage.

It is possible to carve out of our pluralistic, multicultured society a coherent community with a strategy that defines both its economic purposes and the standards of competence, quality, and humanity that govern its activities. The character of a corporation may well be more malleable than an individual’s. Certainly its culture can be shaped. Intractable persons can be replaced or retired. Those committed to the company’s goals can generate formal and informal sanctions to constrain and alienate those who are not.

Shaping such a community begins with the personal influence of the chief executive and that of the managers who are heads of business units, staff departments, or any other suborganizations to which authority is delegated. The determination of explicit ethical policy comes next, followed by the same management procedures that are used to execute any body of policy in effective organizations.

The way the chief executive exercises moral judgment is universally acknowledged to be more influential than written policy. The CEO who orders the immediate recall of a product, at the cost of millions of dollars in sales because of a quality defect affecting a limited number of untraceable shipments, sends one kind of message. The executive who suppresses information about a producer’s actual or potential ill effects or, knowingly or not, condones overcharging, sends another.

Policy is implicit in behavior. The ethical aspects of product quality, personnel, advertising, and marketing decisions are immediately plain. CEOs say much more than they know in the most casual contacts with those who watch their every move. Pretense is futile. “Do not say things,” Emerson once wrote. “What you are stands over you the while, and thunders so that I can not hear what you say to the contrary.” It follows that “if you would not be known to do anything, never do it.”

The modest person might respond to this attribution of transparency with a “who, me?” Self-confident sophisticates will refuse to consider themselves so easily read. Almost all executives underestimate their power and do not recognize deference in others. The import of this, of course, is that a CEO should be conscious of how the position amplifies his or her most casual judgments, jokes, and silences. But an even more important implication—given that people cannot hide their characters—is that the selection of a chief executive (indeed of any aspirant to management responsibility) should include an explicit estimate of his or her character. If you ask how to do that, Emerson would reply, “Just look.”• • •

Once a company’s leaders have decided that its ethical intentions and performance will be managed, rather than left untended in the corrosive environment of unprincipled competition, they must determine their corporate policy and make it explicit much as they do in other areas. The need for written policy is especially urgent in companies without a strong tradition to draw on or where a new era must be launched—after a public scandal, say, or an internal investigation of questionable behavior. Codes of ethics are now commonplace. But in and of themselves they are not effective, and this is especially true when they are so broadly stated that they can be dismissed as merely cosmetic.

Internal policies specifically addressed to points of industry, company, and functional vulnerability make compliance easier to audit and training easier to conduct. Where particular practices are of major concern—price fixing, for example, or bribery of government officials or procurement—compliance can be made a condition of employment and certified annually by employees’ signatures. Still, the most pervasive problems cannot be foreseen, nor can the proper procedures be so spelled out in advance as to tell the person on the line what to do. Unreasonably repressive rules undermine trust, which remains indispensable.

What executives can do is advance awareness of the kinds of problems that are foreseeable. Since policy cannot be effective unless it is understood, some companies use corporate training sessions to discuss the problems of applying their ethical standards. In difficult situations, judgment in making the leap from general policy statements to situationally specific action can be informed by discussion. Such discussion, if carefully conducted, can reveal the inadequacy or ambiguity of present policy, new areas in which the company must take a unified stand, and new ways to support individuals in making the right decisions.

As in all policy formulation and implementation, the deportment of the CEO, the development of relevant policy—and training in its meaning and application—are not enough. In companies determined to sustain or raise ethical standards, management expands the information system to illuminate pressure points—the rate of manufacturing defects, product returns and warranty claims, special instances of quality shortfalls, results of competitive benchmarking inquiries—whatever makes good sense in the special circumstances of the company.

Because trust is indispensable, ethical aspirations must be supported by information that serves not only to inform but also to control. Control need not be so much coercive as customary, representing not suspicion but a normal interest in the quality of operations. Experienced executives do not substitute trust for the awareness that policy is often distorted in practice. Ample information, like full visibility, is a powerful deterrent.

This is why purposely ethical organizations expand the traditional sphere of external and internal audits (which is wherever fraud may occur) to include compliance with corporate ethical standards. Even more important, such organizations pay attention to every kind of obstacle that limits performance and to problems needing ventilation so that help can be provided.

To obtain information that is deeply guarded to avoid penalty, internal auditors—long since taught not to prowl about as police or detectives—must be people with enough management experience to be sensitive to the manager’s need for economically viable decisions. For example, they should have imagination enough to envision ethical outcomes from bread-and-butter profit and pricing decisions, equal opportunity and payoff dilemmas, or downsizing crunches. Establishing an audit and control climate that takes as a given an open exchange of information between the company’s operating levels and policy-setting levels is not difficult—once, that is, the need to do so is recognized and persons of adequate experience and respect are assigned to the work.

But no matter how much empathy audit teams exhibit, discipline ultimately requires action. The secretary who steals petty cash, the successful salesman who falsifies his expense account, the accountant and her boss who alter cost records, and, more problematically, the chronically sleazy operator who never does anything actually illegal—all must be dealt with cleanly, with minimum attention to allegedly extenuating circumstances. It is true that hasty punishment may be unjust and absolve superiors improperly of their secondary responsibility for wrongdoing. But long delay or waffling in the effort to be humane obscures the message the organization requires whenever violations occur. Trying to conceal a major lapse or safeguarding the names of people who have been fired is kind to the offender but blunts the salutary impact of disclosure.

For the executive, the administration of discipline incurs one ethical dilemma after another: How do you weigh consideration for the offending individual, for example, and how do you weigh the future of the organization? A company dramatizes its uncompromising adherence to lawful and ethical behavior when it severs employees who commit offenses that were classified in advance as unforgivable. When such a decision is fair, the grapevine makes its equity clear even when more formal publicity is inappropriate. Tough decisions should not be postponed simply because they are painful. The steady support of corporate integrity is never without emotional cost.

In a large, decentralized organization, consistently ethical performance requires difficult decisions from not only the current CEO but also a succession of chief executives. Here the board of directors enters the scene. The board has the opportunity to provide for a succession of CEOs whose personal values and characters are consistently adequate for sustaining and developing established traditions for ethical conduct. Once in place, chief executives must rely on two resources for getting done what they cannot do personally: the character of their associates and the influence of policy and the measures that are taken to make policy effective.

An adequate corporate strategy must include non-economic goals. An economic strategy is the optimal match of a company’s product and market opportunities with its resources and distinctive competence. (That both are continually changing is of course true.) But economic strategy is humanized and made attainable by deciding what kind of organization the company will be—its character, the values it espouses, its relationships to customers, employees, communities, and shareholders. The personal values and ethical aspirations of the company’s leaders, though probably not specifically stated, are implicit in all strategic decisions. They show through the choices management makes and reveal themselves as the company goes about its business. That is why this communication should be deliberate and purposeful rather than random.

Although codes of ethics, ethical policy for specific vulnerabilities, and disciplined enforcement are important, they do not contain in themselves the final emotional power of commitment. Commitment to quality objectives—among them compliance with law and high ethical standards—is an organizational achievement. It is inspired by pride more than by the profit that rightful pride produces. Once the scope of strategic decisions is thus enlarged, their ethical component is no longer at odds with a decision right for many reasons.• • •

As former editor of HBR, I am acutely aware of how difficult it is to persuade businesspeople to write or speak about corporate ethics. I am not comfortable doing so myself. To generalize the ethical aspects of a business decision, leaving behind the concrete particulars that make it real, is too often to sermonize, to simplify, or to rationalize away the plain fact that many instances of competing ethical claims have no satisfactory solution. But we also hear little public comment from business leaders of integrity when incontestable breaches of conduct are made known—and silence suggests to cynics an absence of concern.

The impediments to explicit discussion of ethics in business are many, beginning with the chief executive’s keen awareness that someday he or she may be betrayed by someone in his or her own organization. Moral exhortation and oral piety are offensive, especially when attended by hypocrisy or real vulnerability to criticism. Any successful or energetic individual will sometime encounter questions about his or her methods and motives, for even well-intentioned behavior may be judged unethical from some point of view. The need for cooperation among people with different beliefs diminishes discussion of religion and related ethical issues. That persons with management responsibility must find the principles to resolve conflicting ethical claims in their own minds and hearts is an unwelcome discovery. Most of us keep quiet about it.

In summary, my ideas are quite simple. Perhaps the most important is that management’s total loyalty to the maximization of profit is the principal obstacle to achieving higher standards of ethical practice. Defining the purpose of the corporation as exclusively economic is a deadly oversimplification, which allows overemphasis on self-interest at the expense of consideration of others.

The practice of management requires a prolonged play of judgment. Executives must find in their own will, experience, and intelligence the principles they apply in balancing conflicting claims. Wise men and women will submit their views to others, for open discussion of problems reveals unsuspected ethical dimensions and develops alternative viewpoints that should be taken into account. Ultimately, however, executives must make a decision, relying on their own judgment to settle infinitely debatable issues. Inquiry into character should therefore be part of all executive selection—as well as all executive development within the corporation.

And so it goes. That much and that little. The encouraging outcome is that promulgating and institutionalizing ethical policy are not so difficult as, for example, escaping the compulsion of greed. Once undertaken, the process can be as straightforward as the articulation and implementation of policy in any sphere. Any company has the opportunity to develop a unique corporate strategy summarizing its chief purposes and policies. That strategy can encompass not only the economic role it will play in national and international markets but also the kind of company it will be as a human organization. It will embrace as well, though perhaps not publicly, the nature and scope of the leadership to which the company is to be entrusted.

To be implemented successfully over time, any strategy must command the creativity, energy, and desire of the company’s members. Strategic decisions that are economically or ethically unsound will not long sustain such commitment.

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