Archive for the ‘management’ Category
I spent the morning today speaking at Centre for Accounting Ethics Symposium called “Accounting Ethics and Tone at the Top” (put on by the School of Accounting and Finance, University of Waterloo). I was part of a panel discussion that took on the provocative question of whether positive ethical tone at the top ensures success.
It’s a provocative question because the word “ensure” pretty much points to a negative answer. Success is never guaranteed in business. In fact, it is the constant fear of failure that drives competition, that drives the pursuit of efficiency, that drives innovation. Nothing – literally nothing – guarantees success. Will a killer product ensure success? Of course not! You need the right financial model, the right marketing channels, the right organization, and the right competitive environment too. Will a great team ensure success? No, of course not. Other organizations have great teams, too. You also need the right leadership, a product that consumers want, and so on.
So positive tone won’t guarantee success, but neither will anything else. The right tone won’t guarantee ultimate victory in the marketplace, but that’s hardly a criticism. The fact that a positive ethical tone won’t guarantee success doesn’t mean it’s not important, indeed, essential. Without it, an organization’s chances of long-term success – defined either in terms of integrity or in terms of the bottom line – are considerably diminished.
So what do we mean when we refer to “tone”? Tone is much more complicated than it sounds.
In this context ethical “tone” means the tone or tenor that a leader sets with regard to choices between right and wrong, between more and less admirable forms of behaviour. Tone is the signal that is sent from top to bottom within an organization about what kind of behaviour is to be admired and emulated, and what kinds of behaviour will not be tolerated. Ethical leadership means taking responsibility for the tone you set.
But tone takes many forms. It is crucial to see that setting the right tone means much more than just sounding ethical. It also means acting ethically, and being seen as acting ethically. Tone consists in the set of signals given through the words a leader says and the deeds she does and the attitudes she displays.
It means doing what you can to manage that elusive something called “organizational culture,” and knowing that culture trumps strategy every time.
In particular, setting the right tone means avoiding – in both words and deeds – excuses and rationalizations. Rationalizations (“I had no choice;” “No one was really hurt;” “It’s not my job;” “It’s a stupid rule anyway…”), are an absolutely key ingredient in a great many instances of wrongdoing. And we don’t generally make up rationalizations on our own and learn how to apply them from scratch. We learn them, unfortunately, from our role models, from people we look up to, from people we see as leaders. Leaders can and must set the tone, in neither helping themselves to such rationalizations, nor tolerating them when used by others.
Setting the right tone also means fostering open conversation about ethics, about the obligations of and obligations within your organization. It means putting ethics on the table. It means letting those who work for you know that it’s OK to ask questions about ethics, and to make values and principles an explicit part of their decision-making. A leader needs to build decision-making capacity and empower employees to take responsibility.
We can sum up the significance of tone this way: A great deal has been written about ethical leadership, and the significance of ‘tone at the top.’ That literature might be usefully summed up by two sweeping statements, two unavoidable truths:
1) Ethics must come from the top down. People take their cues from their leaders. Yes, people learn their basic values from their parents and other childhood role-models, long before they become employees. But they learn how to enact those values in a business context from their workplace mentors and leaders. All of us learn basic lessons about honesty and integrity from our parents. But few of us learn about technical concepts such as Conflict of Interest from our parents. They don’t teach us about the moral obligations embodied in fiduciary relationships, or about how to balance the various interests at stake in a quasi-adversarial relationship between buyer and seller. We need leaders – specifically business leaders – to teach us those things. So: Ethics must come from the top down.
The second grand lesson is this:
2) Ethics cannot come from the top down. It cannot be imposed. You need buy-in. You can lead a horse to water, but you cannot make it drink. You can hand every employee a copy of “their” brand-new code of ethics, commissioned by HR and endorsed by the CEO and the Board. But that doesn’t guarantee that anyone will read it, let alone take it to heart. A code won’t overcome an organizational culture that puts short-term profit-seeking above all else; or a culture where individuals put moral blinders on, focusing narrowly on their own jobs rather than taking responsibility for the ethically-significant elements of the organization’s mission. It won’t make up for a culture that tacitly endorses playing fast and loose with accounting rules. That’s why tone – not just sermons handed down from on high – is so important.
A focus on tone can of course easily become confused with a focus on words, and on the personal integrity that a leader takes him- or herself to have. We see this all the time. When the mayor of a major city prides himself on integrity, on wanting to “clean up City Hall” and to put an end to the “gravy train,” but then cannot recognize a blatant conflict of interest when he sees one, you see “tone at the top” gone awry.
In my next blog entry, I’ll continue this topic by addressing what it means to focus on “tone at the top” and whether it can ensure or at least contribute to success.
I’m just back from the University of Redlands, just outside of Los Angeles, where I spoke at the wonderful Banta Center for Business, Ethics and Society. The topic of my talk there was “Responsibilities in the Blogosphere,” but the key themes of that talk apply pretty directly to the world of business more generally.
One of the key themes had to do with the tension between a focus on individual decision-making on one hand and a focus on institutional design on the other, between a focus on individual responsibilities and a focus on how Internet giants like Google and Facebook construct online worlds that shape our behaviour.
There’s an awful lot of focus — too much, in my opinion — on individual decision making in ethics. In fact, a focus on individual decision-making is kind of the default, both in philosophical ethics and in more applied areas. The key questions, for many people, are general questions like “How should I behave?” “How should I resolve an ethical dilemma?” and “What factors should I take into consideration in ethical decision-making?”
And to be sure, that kind of focus makes for some great after-dinner speeches. The focus on the individual is empowering: “it all comes down to you.” “Your choices matter.” “We can do better, if each of us just changes how we think.” “It’s all about integrity.” And so on. More than that, individual ethical dilemmas really do have a huge impact on individuals, and so it behooves those of us in the ethics biz to do something to offer some guidance. (One modest contribution of mine to this area is my Guide to Moral Decision Making.)
But there’s a real sense in which the focus on the individual is a distraction. Individuals will make the decisions they make, and those decisions will in large part be determined by forces that are a) psychological and cultural, and b) institutional.
So the real focus should be on institutional design, on devising institutions to foster the right kinds of behaviours. And I’m talking about institutions in the broadest sense, which includes not just corporate frameworks and governance structures, but also traditions and norms and social conventions.
Greater attention to institutional design is more than just a remedy to the excessive (and perhaps futile) attention paid to individual decision-making. It changes the way we frame discussion of ethics in that it makes it clear that business ethics isn’t just a microcosm of everyday ethics. It is instead a matter of using human ingenuity to build ways of doing things that suit the situation at hand: devising rules and norms that put reasonable constraints on human behaviour, to make sure that business stays mutually advantageous. But we’re not building entirely from scratch: rules and other normative institutions in the world of business still have to be ones that can be understood and applied by the human beings who inhabit that world. The software, in other words, has to match the hardware.
Don’t get me wrong. I’m not against thinking about individual decision-making. I teach a course on critical thinking, and I think all of us can learn to think more critically about ethical issues in business, to avoid certain well-known fallacious arguments, and so on. But the emphasis on design helps makes clear that ethics in business is a realm for innovation, and isn’t just a matter of importing into the world of commerce the values you learned at your mother’s knee.
Note: Some of the thinking here was inspired by a conversation with my friend & former student, Garrett Mac Sweeney).
I’m finally getting around to reading Moneyball, Michael Lewis’s best-selling ode to the study of baseball statistics (and the source material for the new Brad Pitt movie of the same name). It’s one of the most engaging books I’ve read in a long time — something that won’t surprise those of you who happen to have read The Big Short, Lewis’s lively account of the 2008-2009 financial collapse.
What did surprise me as that Moneyball isn’t really a book about baseball. It’s fundamentally about epistemology. Epistemology is the critical study of knowledge itself — how we get it and how we use it. And though Lewis doesn’t (as far as I can recall) use that word, Moneyball is all about epistemology: the epistemology of baseball, yes, but much more than that. It’s fundamentally about how managers should use information to achieve better outcomes.
Moneyball holds important lessons for business managers generally, but in particular it holds lessons about business ethics. But the messages aren’t the obvious ones you’d expect from a book on baseball — they aren’t about the ethics of labour negotiations, for example, or the incomplete alignment of the twin goals of satisfying your fans and making money.
Three key lessons of the book, as far as I can see, are as follows:
1) The numbers matter. So, don’t guess — measure. In baseball, this means scouts need to look closely at a player’s stats, rather than relying on the fact that he’s got a “nice swing” or a “body made for baseball.” In business, it means measuring actual performance — not just bottom-line financial performance, but social and environmental performance, too, rather than just relying on the vague feeling that your company is “doing OK.”
2) The numbers don’t come out of thin air. The numbers you have available to you aren’t just a feature of the universe around you. The numbers represent what happens to have been measured. The “bottom line” (net income) is no more a natural feature of business than “Earned Run Average” is a natural feature of baseball. Both are artefacts of a particular system, one with a particular history and its own set of biases.
3) Numbers can lead you astray. Managing based on the numbers someone else more-or-less arbitrarily decided to keep track of can result in disaster. This is especially the case when those decisions are rooted in idiosyncratic interests or biases. Lewis points out, for instance, that early baseball stats didn’t bother to record the number of walks a batter earned — mostly because one of the early promoters of baseball stats, a journalist named Henry Chadwick, happened to be a fan of cricket, a sport where there’s just no such thing as a ‘walk.’ Chadwick decided not to keep track of how many walks a batter achieved. The result was that there was no way to track which batters had the good judgment to watch a high-and-inside fastball sail past instead of swinging at it. It matters to their performance, but for a time there was no way for coaches to include it in their management strategies. The exact same point can be made about various elements of social and environmental reporting.
The overarching lesson, here, is about the need for (pardon the pun) a measured approach to the use of numbers in business. Numbers matter, and they matter a lot. The old saw that “you can’t manage what you can’t measure” is surely a vast overgeneralization, but one that contains a kernel of truth. But what matters even more than the numbers is knowing what the numbers mean, and what they can and cannot tell you.
When oil spills in a forest, does everybody matter? That’s the question posed by the events recounted in this recent CBC story: Wrigley residents voice pipeline spill concerns.
The story is about an Enbridge pipeline that sprung a leak in a tiny, remote town in Canada’s Northwest Territories. Not surprisingly, residents of tiny Wrigley are unhappy about the spill, and so Enbridge has to figure out not just what to do about the spill (i.e., how to clean it up) but what to do about the people of Wrigley. More generally, managers at Enbridge have got to figure out, on an ongoing basis, what their obligations are, and to whom those obligations are owed.
There’s an older school of thought (or more likely a caricature of an older school of thought) according to which shareholders are the only ones whose interests really need to be taken seriously. According to this view, an oil company’s managers’ only real obligations are owed to shareholders. After all, says this view, shareholders own the company, and they’re the ones who (indirectly) hired these managers to make money on their behalf. If anyone else matters, they matter in a strictly instrumental way. Don’t treat your customers badly, for example, because they’re the key to making a profit. Or, in the present case, don’t irritate the people of Wrigley, because if you do they might do something inconvenient, like protesting.
A leading modern alternative to the only-shareholders-matter view is sometimes called the “stakeholder” view (or sometimes, in academic circles, “stakeholder theory.”) The core of the stakeholder view is the idea that the real ethical task of corporate managers is to balance the interests of various stakeholders — various individuals and groups whose interests intersect with those of the corporation. After all, many people contribute to the success of a firm, from customers to suppliers to members of local communities. And if they all contribute, they all have the right to ask for something in return. (You can read a summary of my review of a recent book on the topic, here: Managing for Stakeholders.)
The pipeline story is an excellent example of both the strengths and the limits of the stakeholder perspective. It’s surely useful for executives at Enbridge (or any other company, in the midst of an environmental crisis) to survey the situation and ask, “Who do we need to talk to? Who has a stake in this?” So, are the people of Wrigley stakeholders in Enbridge? Pretty clearly, yes. But after that, things get complicated. Does the environment itself automatically count as a stakeholder of some sort, or does it only count if the well-being of the people of Wrigley is jeopardized? What about the residents of Zama, Alberta? That’s the little town, 850 km away from Wrigley, to which Enbridge is planning to ship the contaminated soil. What about me? Like most people, I’m a consumer of oil. I clearly have a stake, here, don’t I? Pretty clearly, there are stakeholders and then there are stakeholders.
But anyway, once you’ve figured out who the stakeholders are, then what? Let’s take the easy one, a group that’s directly affected, namely the people of Wrigley. What are they owed? Are they owed the cleanup? Are they owed a speedy one? At what cost? Do they have a right to participate in the decision-making, or just to be kept informed? Or are they owed, as one resident of Enbridge suggested, a “swimming pool or a hockey arena or something for the kids”?
As you can see, one problem with the stakeholder view is that the word “stakeholder”, itself, doesn’t actually clarify much. Yet some people tend to sprinkle it on like fairy dust, as if simply anointing someone a Stakeholder™ clarifies what is owed to them, ethically. Life in the little town of Wrigley should be so simple.
A couple of years ago, the editors of Business Ethics Quarterly asked me to write a feature-length review of Managing for Stakeholders: Survival, Reputation, Success (2007), by R. Edward Freeman, Jeffrey S. Harrison, and Andrew C. Wicks. It was a daunting task. The book was a highly anticipated one — the lead author of the book, Ed Freeman, is the man who imported the term “stakeholder” into the world of business ethics back in 1984, in his much-cited (and recently re-issued) book Strategic Management: A Stakeholder Approach. Further, Managing for Stakeholders is a book aimed specifically at a non-academic audience, and yet I was being hasked to review it for a scholarly journal. The 4500-word result appeared in the October, 2009 issue of BEQ (Vol. 19, No. 4).
For anyone unfamiliar with the term, a stakeholder in a company is roughly any person or group that can affect, or be affected by, that company’s operations. It’s a useful concept, though its real contribution to business ethics is up for debate. Freeman’s key insight, nearly 30 years ago, was that business managers have obligations to a range of stakeholders (rather than just to shareholders), and that hence the manager’s job is to balance the interests of various stakeholders. But identifying someone as a stakeholder just means, ethically, that they matter — somehow. That still leaves unanswered a whole range of harder questions about how to balance the interests of various stakeholder groups when those interests conflict.
So, here’s a brief summary of my review of Managing for Stakeholders:
On the plus side:
1) The book’s authors express their intention to tell “a new narrative” about business, one according to which a manager’s legitimate social role goes beyond short-term profit-making. They’re right. We desperately need such a narrative.
2) The authors of Managing for Stakeholders aim their message directly at managers, rather than at other scholars, and they try hard to make it a narrative that managers, themselves, can take up and consider their own. In other words, their book isn’t just about managers, it is for managers.
3) The book wisely encourages managers to seek out what might colloquially be referred to as “win-win” solutions. Creating value for all, when possible, is both wise and ethically good.
On the minus side:
1) The authors of Managing for Stakeholders portray, as the “standard” view to which their view is intended to be an alternative, a view of managerial capitalism that I doubt anyone actually holds. According to them, the “standard” view (held by managers and scholars) is that the goal of capitalism is only to generate value for shareholders, and that other stakeholders need not even be considered. This is of course false.
2) The authors of Managing for Stakeholders try very hard to deny that there is any real conflict between the interests of different stakeholders. They’re right to point out that commerce is a cooperative game from which all voluntary participants ought to benefit; what’s in the interest of one stakeholder needn’t automatically be against the interests of another. But that’s not to say that there’s never any conflict at all.
3) Managing for Stakeholders also seems to assume that the mindset of managers is all that matters — it contains no discussion of corporate culture, and no discussion of the requirements of good corporate governance or the dictates of corporate law.
4) The authors slide from the very reasonable claim that managers ought to manage stakeholder relationships to the the much-less-plausible claim that managers ought to manage the corporation for stakeholders. The latter claim is one that many others believe, but it needs support, and it certainly shouldn’t be confused with the former claim.
5) The book also make a faulty leap of logic in jumping from the very sane claim that business is in some sense about creating value for all to the much-less reasonable claim that it is the role of individual managers to ensure value for all concerned. The latter claim puts a lot of pressure on the very managers these authors seek to help, as well as implying what is likely a violation of employment contracts and committing the fallacy of division.
But the biggest problem with Managing for Stakeholders, I argue in my review, was that it was unlikely to serve well its intended audience, namely managers. For example, the authors of the book steadfastly refuse to cite any social science (including economic) literature to back up their many empirical claims. This is surely a result of their well-intentioned populist approach, but the result is that many claims go unsupported, and managers who want to learn more are left with nowhere to turn. And by telling managers that a “simple” change of mind-set is all that is needed, the book fails to make good on the now decades-old promise to turn the term “stakeholder” from a mere category word into a useful tool for ethical decision-making.
As was widely reported yesterday, the printing presses at News of the World (part of Rupert Murdoch’s News Corp.) will be grinding to a stop after this Sunday’s edition. The paper’s shameful history of phone-hacking and other scuzzy “journalistic” practices has finally caught up with it.
Under what conditions is such a move the right one? When is a company obligated to commit the corporate equivalent of the ancient Japanese tradition of seppuku (a.k.a. harakiri), or even just to sacrifice a corporate “limb”?
Some people might say, “when doing so best serves the interests of your shareholders.” Others might say, “when doing so best serves the interests of the full range of stakeholders.” Still others might say that it has nothing to do with anybody’s interests, but rather with what’s in the the interest of justice. “Let justice be done,” as the ancient legal saying goes, “though the heavens fall.” So it may be thought that the organization, as a whole, needs to pay a penalty for its wrongdoing.
But there are of course counter-arguments that could apply, even where the corporate wrong is significant. For one, in shutting down an entire corporation for the wrongdoing of a few, you are effectively punishing a large number of innocent employees. And in some cases, that might be justified. Sometimes there is collateral damage along the road to justice. But surely that damage is not irrelevant.
In other cases, shutting a company down may amount to a cynical attempt to insulate sister companies or a parent company from fallout. Or to protect a favoured employee. In such cases, shutting the company is likely blameworthy, rather than worthy of praise. In such cases, surely the honourable thing to do is not to perform seppuku, but rather to stand to face the music. Accept the scrutiny, pay the price, and then rebuild under new management.
But all such considerations presume that the initial crime is sufficiently grave to make such an extreme solution plausible in the first place. In the News of the World case, the offence is serious and multi-faceted. Individual rights were violated; law enforcement officials were bribed; and the journalistic profession was arguably sullied. And all of that was perpetrated in pursuit of an utterly trivial objective, namely the production of yet more trashy tabloid “news.” Compare: there were few serious calls for BP to be dismantled after the Deepwater Horizon spill, despite that spill’s very serious human and environmental impact. But then, unlike News of the World, BP actually produces a socially valuable product.
If disgraced hedge-fund manager Raj Rajaratnam were good at his job, couldn’t he have done well without insider trading?
Unethical (and illegal) behaviour in business is often compared to breaking the rules in sports. And it has always seemed to me that the sportsman who cheats is basically admitting he’s not good enough to win any other way. Same goes for the student who cheats on a test — she cheats because she knows she hasn’t got what it takes to get a passing grade any other way.
Too often, in the world of business, those caught doing something unethical end up being regarded as “great but flawed.” The story that gets told is usually a Shakespearean one of a talented business mind driven to the dark side by greed, ambition, etc. So Rajaratnam gets described as “brilliant”. And Enron’s Jeff Skilling was, after all, “the smartest guy in the room.”
Now, this line of thinking has occurred to me before, namely that if you have to do something unethical to make a profit, then you’re just not very good at your job. But I was reminded of it by Andrew Potter’s recent blog entry on countersignalling, and how refusal to use modern, high-powered hunting bows might be a way of signalling the hunter’s true skill, and consequent refusal to ‘cheat’.
I sense there’s an opening for a potent new narrative here. When someone is caught doing something unethical in business, we should, in addition to criticizing their lack of character, and perhaps worrying about the institutional structures that facilitated their wrongdoing, also mock their lack of business acumen. Yes, mock. We should mock them the same way we might mock the hunter who uses a sniper rifle to take out a deer. Or maybe the guy who shoots fish in a barrel. Oh, congratulations, tough guy. And we should reserve our praise not for the shrewdness of the Rajaratnams and Skillings and Madoffs of the world, but for the quiet sagacity of the other guy, the truly talented one who quietly goes about building and maintaining a thriving business without having to resort to cheating.
As regular readers know, I’ve blogged a lot about the vocabulary we use to talk about ‘doing the right thing’ in business. Here’s another example of a term that some people seem to want to use to capture that entire topic: “Social Impact.”
See for example this piece, by NYU’s Paul Light, in the Washington Post: It’s time to require students to do good.
I’ll start by pointing out that the headline is inaccurate, though that’s likely not Light’s fault. (It’s more likely the fault of the newspaper’s headline writer. Hard to say.) At any rate, Light’s article isn’t about making students “do good;” it’s about teaching them courses about doing good. And that’s a very different thing.
Light points out that many business schools now offer courses on what he refers to broadly as the “social impact” of business. “Social impact,” he says, can variously be defined in terms of “social responsibility, innovation, engaged citizenship or plain old public service.” (Note that Light is in trouble here, already, implicitly assuming all of those terms are good things. For counter-examples, see my recent blog entry on unethical innovation.)
Anyway, Light says business schools are increasingly realizing that they need to teach students something about the social impact of business (and presumably, more specifically, about how to maximize positive social impact and minimize negative social impact.)
For what it’s worth, I should point out that many business ethics classes — presumably among the courses that Light sees as part of the trend — absolutely would not focus primarily on social impact. And that’s a good thing, because social impact is just one of the many ethical issues that arise in business. Courses on business ethics can cover a large range of issues, many of them not directly related to social impact:
- product safety (which is mostly a concern to customers, who very often make up only a tiny segment of “society”)
- employee health and safety
- truth in advertising
- the environment (which, depending on your philosophical views, may have ethical importance independent of society’s reliance on it).
Each of those topics has relatively little to do with social impact, and indeed there can be important tensions between, for example, what is good for employees and what is good for society.
But maybe Light doesn’t want courses in business ethics more generally; maybe he really does think it most important to focus on social impact, thereby ignoring the issues (like those noted above) that got the field of business ethics off the ground in the first place. Such a focus by business schools would be incredibly unfortunate, because it would leave business students radically unprepared to face the ethical challenges that they really will have to face on a daily basis in their professional lives. And even if courses on “social impact” do tackle a broader range of issues (including the ones listed above) the title of the course is going to mislead students into thinking that social impact really is the key issue after all.
Finally, I’m confused by the fact that Light views “social impact” as a skill:
Making social impact part of every student’s curriculum would send the signal that social impact is an essential skill….
What are we to make of this? Is social impact really a “skill”? Personally, I’m not sure how to make sense of that turn of phrase. I suppose we can read Light somewhat more charitably as meaning that an appreciation of the social impact of business, and an understanding of the key issues and how to respond to them, are essential parts of a sound business education. And surely he’s right. But we ought at least be clear on the fact that what we’re struggling with — and what we need students to struggle with — is the complexity of the role and impact of business in society. Calling it a skill misleadingly implies that we know what to do about it all, and now we just need to do it. If only life were so simple.
Motives, especially corporate ones, are hard to figure. Some people, of course, are skeptical about the notion that an abstract entity like a corporation can have motives (or intentions or beliefs of attitudes or any of those sorts of things), even though we all have a tendency to talk about corporations as if they are capable of having them. It’s pretty common to talk about a company “expecting” profits to rise next year, or “wanting” to increase its market share, and so on. But even if we’re not so skeptical about attributing motives (etc.) to companies, their motives can be pretty elusive. We may not be ready to believe corporate spokespersons when they tell us what their company’s motives are, and besides, even if everyone within a company agrees that a certain course of action is the right one to take, it’s entirely possible that different parties within the company all have different motives for doing so.
But sometimes it’s good to at least try to understand what motivates companies, particularly when we want to diagnose a widespread and/or persistent problem, in order to suggest changes.
This question of determining motives came to mind when I read a story about an age discrimination case at 3M: “3M settles age-discrimination suit for up to $12M”.
3M Co. has agreed to pay up to $12 million to settle an age-discrimination lawsuit with as many as 7,000 current and former employees.
The 2004 lawsuit targeted the company’s performance-review system, alleging that older workers were disproportionately downgraded. It also accused the company of favoring younger employees for certain training opportunities that could fast-track them for promotions….
If we accept for the sake of argument that some sort of systemic discrimination took place at 3M, what on earth might have motivated such behaviour?
Here are a few possibilities:
- Profits. Maybe the discriminatory practices and policies were an attempt to increase efficiency in order to boost profits. This of course is the go-to assumption for most corporate critics.
- Energy. Maybe those who engaged in age discrimination weren’t thinking specifically about the end goal of profits, but merely had a certain vision in mind of the kind of company they ought to have, and the kind of youthful energy that makes a company vibrant.
- Recruitment. Maybe 3M wanted to give younger employees lots of opportunities so that they could brag about opportunities for young employees when recruiting new talent. Most recruits, after all, are likely to be young, and ambitious young people are likely to be drawn to a company that holds the promise of great opportunities.
- Bias. It could be that various key decision-makers inside 3M were simply personally biased, as many (most? all?) of us are, against older employees.
- Justice It’s at least possible that key decision-makers within 3M actually thought that giving preferential treatment to younger employees was the morally-right thing to do. Quick, ask yourself this: if 2 patients each need a heart transplant, and you’ve got just one donor heart, and one patient is 15 and the other is 55, who would you give the heart to? Surely all of us are tempted, from time to time, to think that the young are particularly deserving of opportunities. Note that I’m not defending such a view, here.
What do you think? Note that the point here is not about the 3M case, but about what could motivate a company, any company, to engage in discriminatory behaviour. And again, I think it’s worth contemplating the possibility that there simply was no corporate motive (nor maybe even a truly corporate “cause”).
I’m currently attending the Global Ethics Summit in New York. In reality, despite its name, the GES is not just about ethics per se, but about ethics and legal compliance. Those of us who spend time thinking about corporate behaviour in terms of ethics are sometimes tempted to downplay the significance of legal compliance. After all, “compliance” just means “following the law,” and it’s tempting to think that following the law is a pretty low aspiration. After all, shouldn’t we be able to take for granted that companies will follow the law? Shouldn’t the real discussion be about the subtler ethical issues that pop up in areas not covered by law? The answer is not so clear, especially when we think about really big companies.
The first session I attended here yesterday got me thinking about the challenges of compliance, and the challenges faced by big companies precisely because of their scale. The panel was called “Compliance 2011: What’s Next?” and its members included representatives from three truly enormous companies: Kathleen Edmond, the Chief Ethics Officer for Best Buy; Odell Guyton, Director of Compliance for Microsoft; and Haydee Olinger, who is Vice President & Chief Compliance Officer for McDonald’s.
My thinking about scale was stimulated by two comments by panelists. First, Best Buy’s Kathleen Edmond mentioned that her company has over 170,000 employees. Just imagine the challenges that number implies for the people who are going to be held accountable for the company’s behaviour. Imagine being the mayor of a city with 170,000 citizens, and your job is to ensure that all of those citizens know about all the laws that apply to your city and its residents, and that none of those citizens ever breaks any of those laws. And add onto that the likelihood that you as mayor and your city as a whole will be held responsible for the bad behaviour of any of those citizens. Finally, imagine that the citizenry of your city has a yearly turnover rate of, say, 75% (Edmond said that Best Buy’s employee turnover rate is something between 60 and 70%, which she said is well below the retail industry’s average). That implies a tremendous challenge for education and enforcement.
The second comment of interest was from Haydee Olinger of McDonald’s. She pointed out that McDonald’s has “hundreds of thousands” of suppliers. And each of those suppliers is likely to have hundreds or maybe thousands of employees. That means that the quality and safety of McDonald’s product depends on the good behaviour of a lot of people. The same goes for keeping the fast-food giant out of legal trouble, because there are lots of ways in which McDonald’s could end up on the hook, legally, for problems the root causes of which lie with a supplier’s behaviour. The result is that an enormous amount of energy has to go into selecting those suppliers, teaching them about McDonald’s standards, and then enforcing those standards.
Now, we shouldn’t be fooled though into thinking that the problems unique to giant corporations amount to a criticism of such companies. Because the problem really lies with the amount of commerce done, rather than with the size of the organization that does it. If Best Buy’s 170,000 employees were instead employed by 170 companies, each with 1000 employees, there would still be a total of 170,000 potential wrongdoers. The only thing that would really change is that instead of one giant employer with a unified system for training those employees and monitoring them, you’d have 170 small businesses, each of which would likely struggle with figuring out the best way to do so. Likewise, consider the millions of burgers McDonald’s sells each year. If they were instead sold by a few thousand small burger joints, all those ingredients would still have to be bought from a massive number of suppliers. The difference would be that none of those small restaurants would be likely to have the resources required to screen, select, educate, and monitor those suppliers in any rigorous way. They’d probably just, you know, buy stuff from from them, and hope for the best.
So in terms of compliance, while size brings challenges, it also clearly brings advantages.
By the way, Best Buy’s Kathleen Edmond writes her own blog, which is well worth a look.