Archive for month: March, 2014

By Rushworth Kidder

[dropcaps type=”circle” color=”” background=””]A[/dropcaps]s the Institute for Global Ethics develops its Corporate Services activities, executives everywhere ask us the big question: Can business really be ethical? What they’re asking is: How can I be sure that acting ethically won’t damage my bottom line? Can I make a real profit and still exhibit real ethics? We think they can. Here’s why.

In his book The Moral Sense, James Q. Wilson reflects on his decades of research into the criminal mind and raises a pithy question. “What most needed explanation,” he writes about that experience, “was not why some people are criminals but why most people are not.”

The question, in other words, is not, “Why do some people do bad things?” It is, “Why doesn’t everyone?” Why don’t most people opt for the immediate rewards of duplicity, fraud, and theft? Given a choice between the hard slog and the easy grab, why not go for the latter? Why abide by the constraints of a moral life when, as the old adage goes, the devil has all the good tunes?

One way or another, these are all forms of the age-old question lying at the heart of moral philosophy: Why be good? It’s a question asked by small children eyeing the cookie-jar, truckers pressed for time on late-night trips, athletes who notice that the referee isn’t looking, shoppers given too much change, and politicians wanting to line the pockets of their friends.

It’s asked in modern corporate life as well. The culture of short-term rewards, the exigencies of the quarterly report, the pressure from unscrupulous managers, the glut of overseas competition—there are excuses aplenty for the moral shortcut, especially when the stakes are high and careers are on the line.

Can the case truly be made that, despite the apparent advantages of unethical activity, a corporation’s bottom line will be significantly benefited by ethical standards and practices?

During years of public lectures and corporate presentations on ethics, I’ve fielded versions of that question by the score. Sometimes they come from executives who are already in a lather of enthusiasm, sold on ethics and only wanting more ammunition for their arguments. At other times they come from furrowed-browed cynics, keen to ferret out the logical flaw and prove that ethics is only for the naive. But most often they come from good people yearning to be convinced that ethics is congruent with a healthy bottom line.

To answer them, I find I talk a lot about shared values. Companies searching for effective ethics programs are increasingly moving beyond a compliance orientation and toward a values-based approach. What they’re finding is that a consensus on a set of core, shared values—especially moral values—lays the basis for ethics programs that bring significant benefits to their organizations.

But they’re not interested only in soft, fuzzy, and intangible benefits. They need to see results. And in at least ten ways, they’re finding that sound ethics can have practical impact on the bottom line.

1. Shared values build trust. Any company benefits from a high level of trust among employees. That trust translates into faster decisions with less churning. Since decision-making is time-consuming and costly, that means immediate savings to the bottom line. Just as important, however, is the quality of the decisions. In a company that has come together around a common set of values, managers are more apt to react in the same way. A shared-values company, in other words, reflects a consistency in response. Companies without that consistency can find themselves challenged by debilitating levels of suspicion, envy, and back-stabbing.
2. Consistency leads to predictability in planning. Shared-values companies are more able to do serious strategic planning—and have some certainty that the plan will be carried out. The clearer the sense of predictability based on shared values, the clearer the ability of executives to prepare accurate forecasts and implement strategies based upon them—especially across the far-flung collection of business units that makes up the modern multinational. Absent such predictability, what confidence is there that top management will not suddenly shift gears and dismiss months of careful thinking? In that case, why bother to think carefully?
3. Predictability is essential for crisis management. Having common expectations about decision making, shared-values companies are able to react more quickly to severe situations and sudden emergencies. They can respond rapidly, without having every move delayed while it is checked back with headquarters. If the values are sufficiently explicit, managers will trust in right doing rather than stonewalling—and will know that they will be rewarded for so doing. By contrast, managers in firms in which the values are foggy or absent often learn the tough lesson that, in times of crisis, no good deed goes unpunished.
4. Confidence in such rewards builds loyalty. A culture of shared values creates the basis for a flattened management structure, giving increased autonomy to managers in the field. Shared-values companies can deliver more power to more people, thereby increasing the pace of business, the allegiance and commitment of those with a stake in decision making, and the likelihood of developing excellent future leaders within the company’s own ranks. As firms become increasingly global, there is clear benefit to promoting top executives from various parts of the world. Such a practice will be successful in the degree to which the promoted executives’ values are aligned with those at headquarters and widely shared.
5. Companies are as good as their people. Developing clear statements of expectations is vital to successful hiring and promotion. Those expectations should include a sense of character shaped by the core values of honesty, responsibility, respect, fairness, and compassion. Those five values, which our Institute’s research suggests are cross-cultural and universal, reflect themselves in the moral integrity of leadership. By developing screens for employment and promotion based on core values (as well as on competence and performance), human resource managers can have greater confidence that employees from different backgrounds will fit well into the corporate culture. Without those screens, any firm risks building a base of bright, vigorous, smooth-talking, hard-working individuals who, lacking a moral compass, drive up the levels of employee turnover, absenteeism, cynicism, and dishonesty.
6. Consumers care about values. Increasingly, customers are holding companies to account for their products and services. A shared-values company sees no difference between its own values and those of its customers. Result: Smoother handling of problems related to damaged products, returns, wrong labeling, missent orders, conflicts over sales territories, and so forth. Such companies put the customer first not only to improve the sales record but in recognition that the firm and its customers are one in values, attitudes, and expectations. Managers without that sense of shared values can easily imagine that the customers are out to “get” them—and that, in defense, they better “get” the customers first.
7. Shareholders also care about values. America’s socially conscious investment movement, at $650 billion and rising, already accounts for some ten percent of the nation’s invested funds—up from zero in 1970. Increasingly, investors want to be part of “good” companies, not just profitable ones. As high-quality competition narrows the differences among products and services, companies that do things ethically, and are seen to be doing so, will have powerful advantages in attracting shareholder investment. Companies already recognized in this area can improve their standing in proportion as they are known, praised, and given awards for the strength of their values and ethics programs. By contrast, companies that hit the headlines for unethical practices can build investor aversions and brand disloyalties that may take decades to overcome.
8. Ethical leadership forestalls oppressive regulation. The best preventative to red tape and external rule making is a respected, proven track record in self-regulation. The reason: Ethics, which can be defined as “obedience to the unenforceable,” is fundamentally different from law, which requires compliance with enforceable rules. In corporate life, as in every other part of society, laws arise when self-regulation collapses. But no company is an island. It is very much in any corporation’s interests to exemplify high ethical standards that can be emulated across the industry. Otherwise, when a close competitor goes belly-up in its ethics, everyone else in that sector risks the heavy hand of increased regulation.
9. Effective partnerships depend on common values. In alliances and acquisitions, especially overseas, shared values are essential. Nothing is more difficult than trying to blend two corporate cultures whose values are at odds. A shared-values company will have in place procedures and programs for identifying potential ethical differences; for working through them; and for emerging with a core of shared values, a common mission, and a similar set of goals. The greatest danger in alliances is that, despite the consummation of all the legal and financial details, the cultures simply won’t align because nobody bothered to look hard at core values.
10. Ethics is a form of insurance. A thriving ethics program provides the comfort of indemnification. Like any insurance, it costs something to maintain. Yet no serious executive would be without insurance. And none would measure success by charting the return from that expense. Quite the opposite: Success flows to those companies that never file a claim because they escape the hurricanes, floods, fires, and other devastations that drastically reduce business. Similarly, a well-tuned ethics program provides insurance against the moral lapses and ethical meltdowns that have damaged so many companies in recent years.

So does ethics affect the bottom line? Well, try arguing that it doesn’t. You’ll have to start by convincing yourself that trust, planning, and crisis management don’t affect your ledger at all. Then you’ll need to demonstrate that empowered personnel have nothing to do with success, and that neither customers nor shareholders are worth worrying about. Finally, you’ll need to be clear that regulation carries no costs, that growth through partnerships is financially irrelevant, and that insurance is just a waste of money.

Frankly, it’s easier to make the case that ethics has a powerful, practical, and immediate impact on profitability.

Permission is needed from Lighthouse Consulting Services, LLC to reproduce any portion provided in this article. © 2014

Dr. Rushworth Kidder is the founder of the Institute for Global Ethics, an independent nonprofit organization working in educational, corporate, and public settings to advance ethical action worldwide. Website: www.globalethics.org © Institute for Global Ethics

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