Executive Leadership: The Matter of Business Ethics

  • 6 mins read

We are making great strides in corporate social responsibility, many of which reflect changes in business policies and practices. But are we really improving when it comes to business ethics?

Consider this: almost 120 years ago, German socialist, economist, and politician Max Weber published his book, The Protestant Ethic and the Spirit of Capitalism, emphasizing that personal integrity and reputation matter: they form the basis of good business relationships. A person’s words are their bond, and business can be counted on with a handshake.

Jump to the turn of the century. Fortune magazine deemed Enron one of the most innovative organizations for six consecutive years. Two months after being publicized, Enron filed for bankruptcy, bringing down companies and thousands of individuals.

New regulations and legislation were enacted not long after, including penalties for records and auditing firm accountability.

Then came the financial crisis of 2007-08, where organizations were deemed “too big to fail,” generating other hazards, risks, and an uneven playing field.

Headlines, book lists, and social media are filled with other examples, several from the most recent past. How did we get here? And, more importantly, where do we go from here?

What We Don’t See

In Moral Mazes (Oxford University Press, 2009), Robert Jackall suggests that modern bureaucracy has created a “society within a society” in which a set of ethical standards may not be consistent with those of the larger society. Our current capitalistic society goes along with these sub-societies as long as they are successful.

Generally, the larger the organization, the more complex the strategy and operations. It might seem easier to stretch standards and change numbers to reflect what is desired rather than what is.

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Morality and Ethics in the Workplace

Research and empirical studies on moral standards and business ethics are sparse. However, if we look at self-reporting surveys, we can see some trends. For example:

  • 86% of managers claim moral standards at work are set by the expectations perceived in the work environment.
  • A corporation’s culture strongly determines individual thought, behavior, and organizational norms.
  • Corporate or organizational culture is recognized as a key contextual influence in establishing and maintaining norms.

The Influence of Executive Leadership

When executive leadership behaviors are seen to serve shareholders and themselves rather than the employees, the community, the environment, or even the customers, there is an increasing sense of distrust of leaders’ motives.

Such erosion of trust may be a pandemic. But as Dr. Marc J. Epstein and Kirk O. Hanson write in Rotten: Why Corporate Misconduct Continues and What to Do about It (Lanark Press, 2020), “While we don’t argue here that corporate behavior has necessarily gotten worse in recent years, we certainly don’t believe it has gotten better.”

Institutional Integrity: The Privilege of Pressure

Today’s great executive leaders understand and embrace the profound privilege and responsibility to create purpose and meaning that drives employee contributions, including innovation and productivity.

In most organizations, stated goals are consistent with the higher values of the organization: the vision of the leader, the organization’s mission, and a value statement. This allows all employees to operate in a coherent and consistent manner to achieve stated goals.

Addressing Injustice

Aside from the ongoing unemployment and underemployment during the pandemic, there are still unresolved matters in the American workplace. One of the most pervasive is salary and pay inequities.

According to a recent Harvard Business Review article (November 2020), a recent self-reported survey of U.S. companies found that only 22% of the 922 largest public companies performed a pay equity audit (PEA) between 2016 and 2020. Until this issue is addressed and adjustments made, leaders will have an ongoing issue with building trust and credibility in organizational cultures.

Discussing Ethics at Work

Questioning moral or ethical viewpoints can trigger defensiveness, outrage, and even aggression toward those who think differently. However, executive leadership can set clear and consistent standards and expectations through:

Executive leadership development practices must include programs on ethical reasoning and decision-making. To fulfill a requirement, this must be an ongoing process, not a one-shot affair. The most effective include coaching and/or mentoring, where issues of personal ethics and moral responsibility are explored and aligned with organizational values.

Leadership programs must include selection, development, evaluation, and reward policies that are aligned to reflect their support of the organization’s values. When a person is selected for promotion or is rewarded, the organization is making a statement: this person represents our values and standards.

Moral Rebels at Work

Morality and ethics are a daily challenge for managers and leaders. Most, if not all, have promised to “not knowingly do harm.” Of course, this is not always an easy promise to keep. However, as Peter Drucker wrote in The Essential Drucker, “It’s very modesty and self-constraint make it the right rule for the ethics that managers need, the ethics of responsibility.”

Powerful forces may lead us to feel powerless to oppose. Each person must weigh alternatives and make choices in light of personal values and goals, but also with consideration to organizational and professional success. Clearly, there are times when we must speak out.

A Framework for Ethical Dilemmas

There are two major approaches philosophers use to address an ethical dilemma:

  1. Focus on the practical consequences of what we do. This argues, “no harm, no foul.”
  2. Focus on the actions themselves and the “rightness” of the action alone. This argues that some actions are simply wrong in and of themselves.

An effective process includes a solid analysis:

Analyze the consequences.

Explore all aspects by answering the following questions:

Who will be helped by what I do?

Who will be harmed by what I do?

What is the benefit, and how is it beneficial? (i.e., minimal, incremental, extremely, short-term, and/or long-term)

What is the harm, and how harmful?

Analyze the actions. Without thinking about the consequences, consider all of the options from a different perspective. Explore all options by answering these questions:

How do the actions measure up against moral principles like honesty, fairness, equality, respecting the dignity of others, and people’s rights?

Do any of the actions “cross the line?”

If there’s a conflict between principles or between the rights of different people involved, is there a way to see one principle as more important than the others?

Which option offers actions that are least problematic?

Make a decision. Consider the answers from steps one and two, and make a decision.

Moral and ethical executive leadership today requires great courage, wisdom, and the right decision-making framework. And there is always room for improvement.

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