Archive for the ‘character’ Category
Are the Unethical in Business Also Untalented?
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.
L.I.F.E. Lessons (A Short Guide to Ethics)
In this blog, I spend a lot of time talking about particular ethical issues in the world of commerce. “What are the limits on honesty in business?” “How should we handle conflicts of interest?” And so on. But one of the questions I get asked most frequently, as a professor and as a consultant, is about how to go about making ethical decisions, quite generally. It’s not an easy question. There have been many, many attempts to sum up our ethical obligations, none of them fully satisfactory. Naturally, you’re never going to find a brief summary — let alone a slogan or single word — that captures everything about how we ought to think about complex issues involving a range of values, virtues, and principles. But it can be useful to think in terms of a brief acronym that serves to jog the memory, to remind us of the major elements that make up our ethical responsibilities.
One way to think of ethics is in terms of what I call “L.I.F.E. Lessons.” Each of the letters in “L.I.F.E.” stands for a word that should play a crucial role in our moral reasoning:
L is for Loyalty. The “L” in “L.I.F.E.” reminds us that loyalty is in many ways the first virtue of organizational life. Loyalty, of course, should never be absolute: being loyal to your company or to your friends doesn’t imply that your company or your friends can do no wrong. Loyalty doesn’t mean being morally agnostic or refusing to take action when you see wrong being done. The focus on loyalty here is just to remind us that in various roles — as employee, as trustee, as leader — you have been entrusted by others to do your job and to do it right. When we voluntarily associate ourselves with particular people and organizations, the default setting is that they deserve our loyalty.
I is for Integrity. The “I” in “L.I.F.E.” reminds us that each of us should aim at integrity. Each of us is responsible for our own actions, and those actions should add up to a clear and consistent pattern of honest and trustworthy behaviour.
F is for Fairness. The “F” in “L.I.F.E.” reminds us of the importance of treating each other fairly. We should treat like cases alike, and give people what they are owed. Fairness is a value that has to do with the fact that we want not just to do good in the world, but to make sure that that good is distributed justly — whatever justice demands in particular cases.
E is for Empathy. Finally, the “E” in “L.I.F.E.” reminds us of the importance of figuring out how other people feel, in ethically-contentious situations, and what their point of view is. We need empathy in order a) to understand the impact that our actions really have on others, as well as b) to understand other people’s reasons, when our ethical judgment differs from theirs.
Again, there’s nothing magical about this way of thinking about ethics. It’s just a mnemonic, a kind of memory-jogger. Acting appropriately requires much more than this, especially on complex organizational contexts involving special role-specific obligations.
But still, I think the idea of “L.I.F.E. Lessons” amounts to a pretty good heuristic. We all know that loyalty, integrity, fairness, and empathy are crucial ingredients to leading an ethically-sound life, but it’s good to be reminded. And if life hasn’t taught you these lessons yet, those around you can only hope that it eventually will.
Buffett, Sokol, and Virtue Ethics
Filed under: character, conflict of interest, employees, ethics, finance, honesty, trust, values, virtue, white collar crime |
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Warren Buffett (photo by Mark Hirschey)
The world’s most successful investor, Warren Buffett, was recently caught up in a scandal. He himself is not accused of any wrongdoing, though some have accused him of responding to the scandal — one involving a senior employee of his, one David Sokol — in a lackadaisical manner.
For the basics of the story, see here:
Berkshire doesn’t plan big changes after scandal (by Josh Funk, for the AP)
Berkshire Hathaway CEO Warren Buffett says he doesn’t think his reputation has been hurt much by a former top executive’s questionable investment in Lubrizol shortly before Berkshire announced plans to buy the chemical company….
Sokol is accused of a form of insider trading, essentially a kind of betrayal that is unethical at best, and illegal at worst. Now, Sokol himself is, not surprisingly, keeping pretty quiet, and speaking only through his lawyer. I’m more interested, at this point, in Buffett’s response, and what it says about his character. I’m not the first person to suggest that you can learn a lot about a person by the way he or she responds to a crisis. But when the man in the spotlight happens to be one of the world’s most successful businessmen, there’s some reason to think that the lessons learned might just be more interesting than most.
For more about Buffett’s response, see here: Buffett Takes Sharper Tone in Sokol Affair (by Michael J. De La Merced, for the NYT.)
Despite the critics, I think Buffett comes out of this looking pretty good. To begin, Buffett gets points for demonstrating his loyalty to a long-serving employee:
[Buffett] was harsh in his assessment of Mr. Sokol’s trading actions, he pointedly declined to personally attack Mr. Sokol, instead highlighting the executive’s years of service and good performance.
Buffett also has a sense of context and proportion. Not that the wrong of which Sokol is accused is small. But it is wise, and ethically correct I think, for Buffett to resist the urge to pounce on an employee who has, in Buffett’s own experience (up until the present crisis), been a diligent and morally-upstanding employee:
“What I think bothers some people is that there wasn’t some big sense of outrage” in the news release, Mr. Buffett said. “I plead guilty to that. But this fellow had done a lot of good.”
Buffett’s business partner, Charles Munger, likewise gets points for showing restraint:
“I feel like you don’t want to make important decisions in anger,” Mr. Munger said, defending Berkshire’s press release. “You can always tell a man to go to hell tomorrow.”
All of this is set against a background of Buffett insisting on the importance of having a reputation for integrity in business. Buffett is no slacker when it comes to ethical standards. The NYT piece quotes Buffett from 20 years ago, on the topic of the significance of reputation in business:
“Lose money for the firm, and I will be understanding. Lose a shred of reputation for the firm, and I will be ruthless.”
Finally, it’s worth pointing out that this focus on Buffett’s character, and on the example he sets, represents an importantly different approach to business ethics. The approach here is akin to what philosophers call “virtue ethics,” a stream of thought that goes back to Aristotle. The idea here is that, rather than focusing on principles (or, more cautiously, in addition to focusing on principles), what we really ought to do when thinking about ethics is to focus on character. Rather than asking, “what rules apply to this situation?” this way of thinking asks, “what would a good person do in a situation like this?” And in between crisis points, we should be asking, “when a crisis comes, what kind of person do I want to pattern my behaviour after?” I don’t know nearly enough about Mr Buffett to hold him up as a moral exemplar, but I think that the kind of character he has displayed in the Sokol affair is worthy of emulation.
Honesty, Reputation, and Ethics
Filed under: character, corporations, ethics, honesty, regulations, transparency, trust, values |
Comments (6) The connection between reputation and ethics is complex. A pattern of ethical behaviour is clearly essential to establishing a good reputation, which for a company means a reputation as the kind of company people want to do business with. But hold on. All that’s really essential, from a business point of view, is to be perceived as ethical. But there are two ways of reading that ancient point. The cynical way is to say that all that matters in business is to give people the impression that you’re ethical, and that can be done through good PR or even outright misrepresentation. The less cynical way of reading that is that you’ve got not just to be ethical, in the sense of doing what you think is the right thing to do; you’ve also got to convince key stakeholders that you’ve done the right thing.
Take honesty, for example. Honesty matters, but so do public perceptions of honesty. In that regard, see this useful piece on corporate disclosure, by Steven M Davidoff for the NY Times: In Corporate Disclosure, a Murky Definition of Material.
Most of the piece is an exploration of the legal standard of “materiality.” Materiality is essentially about relevance. Publicly-traded companies are obligated to reveal certain information to the investing public (typically through filings with the relevant regulatory agency). But not everything they do needs to be reported — not everything is sufficiently important — and there are lots of legitimate reasons why companies don’t want to reveal any- and everything. Figuring out just what needs to be disclosed is a difficult legal problem. But towards the end of the piece, Davidoff argues that companies should avoid focusing on mere legalities. As Davidoff points out:
Companies need to understand that information disclosure is not just a legal game. Failure to disclose important information on a timely basis can harm a company’s reputation.
So, it’s all about reputation, about ‘optics’? “What about ethics?” you ask. But consider: why would a failure of disclosure harm a company’s reputation? In part, it would do so because (or if) the failure harms people’s interests. But even then, harming someone’s interests won’t immediately harm reputation. If, for example, Ford designs a new SUV that’s so good that sales of GM’s SUV’s fall, putting thousands of GM employees out of work, well, that’s bad for GM’s employees, but the harm done to them by Ford is not going to damage Ford’s reputation. Because, after all, the harm done to the employees was the result of fair competitive practices on the part of Ford. A company’s behaviour is only going to hurt its reputation if some critical mass of people see that behaviour as unethical. So in the end, even a concern about “mere reputation” has to be grounded in ethical principles.
Ethics of Profit, Part 3: The Profit Motive
Filed under: character, competition, corporations, decision-making, ethics, finance, profits, white collar crime |
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This is the third in a 3-part series on the ethics of profit. (See also Part 1 and Part 2.) As mentioned in previous postings, we should distinguish between our ethical evaluation of profit per se (which, after all, just means financial “gain”), and our ethical evaluation of the profit motive. After all, I don’t worry at all that Big Pharma makes big profits — that just means that they make products that lots of people think are worth paying for — but I do have serious worries about what people inside the pharmaceutical industry are willing to do to maintain those profits.
But we should be cautious about jumping too quickly to criticize the profit motive, either in particular cases or as a force in the economy as a whole. Here are just a few points:
1) People often suspect the profit motive — or at least, excessive focus on the profit motive, in the form of greed — of being responsible for a lot of corporate wrong-doing. But, anecdotes aside, that intuitive hypothesis isn’t necessarily well-supported by the facts. I’ve mentioned previously a paper by philosopher Joseph Heath* that points out that there are problems with the theory that greed is the root cause of a lot of wrongdoing. Corporate crime is actually more often aimed at loss-avoidance than at profit-making. And it’s also worth noting that we see lots of white-collar crime occurring at the top of organizations, committed by people who are already rich and who hence have relatively little to gain in financial terms. As Joe points out, the criminological literature has long since discarded the notion that greed is the root of all (or even most) evil.
2) Despite the fact that the traditional corporate (and anti-corporate) rhetoric has focused on the significance of profits, it’s probably much more likely that corporations and the key decision-makers within them are moved by a much broader range of motives, including things like:
- A desire to increase market share;
- The desire to innovate;
- The desire to create cool products;
- Basic competitive drives to be (and prove yourself to be) bigger, stronger, faster, smarter, etc.;
- The CEO’s desire to build his or her personal legacy;
- etc.
Of course, each of those motives can almost certainly result in wrongdoing too. But that just reinforces the point that even if the profit motive causes trouble, it isn’t unique in that regard.
3) The profit motive, whatever else it may do, plays 2 absolutely essential roles in any modern economy. Economist Steven Horwitz points this out in his “Profit: Not Just a Motive”. One role (as Adam Smith pointed out) is the basic one of motivating productive activity. Now, Smith never said that the profit motive is the only thing that motivates people to engage in production and trade. But what he did say is that even someone who doesn’t happen to have much love for his or her fellow human being is liable to end up doing something productive, even if only because he or she wants to earn a living. The other role for the profit motive is more subtle, and has to do with information. As Horowitz puts it:
What critics of the profit motive almost never ask is how, in the absence of prices, profits, and other market institutions, producers will be able to know what to produce and how to produce it. The profit motive is a crucial part of a broader system that enables producers and consumers to share knowledge in ways that other systems do not.
4) The profit motive also plays an essential role in modern corporate governance. Most large corporations are “owned” (in a very loose sense) by shareholders, to whom corporate managers and directors owe a fiduciary duty. In particular, managers and directors are obligated to try to make a profit. (Note that, contrary to what many seem to think, there is no obligation to actually make a profit, and the need to make a profit is not, in fact, legally binding or overriding. Shareholders only ever get a profit after a number of other, legally-binding, obligations — such as the obligation to pay workers, to pay suppliers, to provide refunds for consumers who bought faulty products, etc. — are met.) The strong obligation to try to make a profit for shareholders provides focus for managers. Rather than being pulled in 20 different directions by 20 different stakeholders, corporate managers have in mind that, yes, they need to keep in mind various stakeholder obligations, but all of that has to be part of an overall plan aimed at shareholder profits. Many people believe that this imposes a kind of discipline on corporate executives, without which those executives would be free to feather their own beds, throw lavish parties for their favourite charities (not necessarily the most needy ones), hire under-qualified siblings for key roles, etc.
5) Getting rid of the profit motive would essentially mean abolishing private ownership. When we talk about “profit”, we’re typically talking about the money that flows from owning something. It might be the landlord’s profit (i.e., whatever’s left after costs are subtracted from rent) or the shareholder’s profit (i.e., the dividend that might be paid out on the shares he or she owns, if the corporation happens to make a profit). Abolishing the profit motive basically means and end to permitting individuals to own things. So why do critics of the profit motive so seldom (in the last, say, 4 decades) propose ending private ownership? Hmmm. As Joseph Heath put it in “Learning to love the Psychopath” [PDF] (a review of the movie, The Corporation), “If public ownership is not the solution, then private ownership cannot be the problem.”
6) Even if we could keep our attachment to private ownership and wish into existence more “positive” motives than the profit motive, it’s not clear that we would be better off. Even if large numbers of executives (and shareholders) could be convinced not to aim at profit, but instead to aim at things like charitable deeds or the public good or world peace, it’s not clear that that would solve the problems we are most worried about. Does anyone really think that fraud couldn’t be, or indeed hasn’t been, committed in the name of charity? Does anyone believe that lies haven’t been told and thefts committed in the name of the public good?
None of this is intended as a blanket endorsement of profit-seeking. It’s just a reminder that in our haste to criticize the profit motive, we ought not ignore important questions about just what role the profit motive plays, what current institutions do to transform a range of motives into a range of outcomes, and what alternative motives and institutions are available to us.
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*Joseph Heath, “Business Ethics & Moral Motivation: a Criminological Perspective,” Journal of Business Ethics 83:4, 2008. Here’s the abstract.
Groupon Super Bowl Ad: Unethical
Filed under: advertising, brands, character, consumers, ethics, food, international, marketing, virtue |
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A collective gasp could be heard at one particular moment last night during the Super Bowl. No, I’m not talking about the gasp following Nick Collins’ 37 yard touchdown run in the first quarter. I’m talking about the gasp that issued at the punchline of the now-infamous Groupon.com commercial featuring Timothy Hutton.
You can see the 30-second spot here, on YouTube: Groupon – Tibet
And here’s the entire transcript:
“Mountainous Tibet — one of the most beautiful places in the world. This is Timothy Hutton. The people of Tibet are in trouble, their very culture is in jeopardy. But they still whip up an amazing fish curry. And since 200 of us bought at Groupon.com we’re getting $30 worth of Tibetan food for just $15 at Himalayan Restaurant in Chicago.”
Immediately following the commercial’s appearance, Twitter lit up with comments about how “offensive” and “tasteless” the Groupon.com commercial was. Media outlets today have been abuzz with criticism and commentary. The headlines tell the tale. According to NBC Chicago: “Groupon Super Bowl Ad Not a Good Deal”. CNN Money.com‘s headline was “Groupon spends big on controversial (tasteless?) Super Bowl spots”. Time asks: “And the Most Offensive Super Bowl Ad Goes To: Groupon?”
But the ad was more than just tasteless. It was unethical. To recruit — and then trivialize — the plight of the people of Tibet to sell Groupon’s services shows a jaw-dropping level of disrespect. And while we often think of disrespect as a matter of bad manners, showing suitable respect for other humans’ basic needs and interets is a core moral principle.
It’s also worth pointing out that the commercial played, perhaps unintentionally, on the unfortunate fact that, for many westerners, complex Asian societies are often most closely associated with exotic dinner fare. Yes, yes, Tibet is exotic and troubled. But hey, they make a yummy curry!
Who knows just what the fallout will be? There have been predictions that Groupon will lose business over this — it’s been suggested that the company may have found the limit of the notion that “there’s no such thing as bad PR.” And, predictably, there have already been calls for a boycott of Groupon.com. Timothy Hutton (once an Academy Award winner) will likely have to go into the spokesperson’s equivalent of rehab, perhaps by working with a pro-Tibet charity of some sort.
Of course, some will cling to the notion that Groupon.com intended all this — that they knew the ad would be controversial, and were aiming directly at the enormous amount of free media coverage they’re now getting. Maybe that’s true. But it was a helluva gamble to take. And, if it was a gamble, it was a gamble that treated the people of Tibet as just another Asian trinket to be tossed in among the poker chips.
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Addition:
It’s been pointed out to me (by @Changents on Twitter) that Groupon is apparently donating money to the causes featured in its commercials. See: http://savethemoney.groupon.com/. I’m not at all sure that that’s sufficient to overcome the worries discussed above, especially given that the disrespectful commercials is all that most people will see or know about. What do you think?
Authentically Unethical
Filed under: character, ethics, excuses, leadership, values, virtue |
Comments (1) Authenticity is the among the favourite buzzwords of the day. (My pal Andrew Potter’s recent book, The Authenticity Hoax, is a wonderful take-down of the concept.)
There are lots of ways the feel-good word, “authenticity”, can fail us. See, for a start, this blog entry by Deborah Gruenfeld and Lauren Zander, for the Harvard Business Review: Authentic Leadership Can Be Bad Leadership.
…being who you are and saying what you think can be highly problematic if the real you is a jerk. In practice, we’ve observed that placing value on being authentic has become an excuse for bad behavior among executives….
Gruenfeld and Zander’s basic point is that while authenticity (being who you really are) is great in principle, is authenticity the right goal if “who you really are” is a jerk? And in fact, there’s a fine line between being a jerk and being unethical. For starters, although most of us have our moments of rudeness, it is unethical — a serious character flaw — to consistently act like a jerk. Consistently acting rudely demonstrates a lack of respect for other people, and that’s unethical. So aiming for authenticity might not be all it’s cracked up to be, especially when compared to the more obvious aim of being a decent human being.
(See also Andrew’s Authenticity Hoax Blog.)
Modern Ethics: More Than Personal Integrity
Filed under: character, ethics, government, honesty, virtue |
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I blogged two weeks ago about Obama & Business Ethics.
Today, Wayne Norman (of Duke University’s Kenan Institute for Ethics), has this very good opinion piece in the Durham, NC News & Observer: “Honor and conflicts in the new age of ethics”.
Here are the first few paragraphs:
On his first full day in office, President Obama chose to shine the spotlight on “Ethics Commitments by Executive Branch Personnel.”
The executive order issued Jan. 21 requires all those appointed during Obama’s presidency to an executive agency to sign a pledge contractually committing them not to accept gifts from registered lobbyists or lobbying organizations, among other similar restrictions.
These reforms are primarily concerned with avoiding conflicts of interest and restoring public trust in Washington. They do not in any way lie along a traditional right-left continuum, but they do represent a paradigm shift in values, one that might best be described as “generational.”
Older generations of politicians cling to the belief that they can ensure government integrity merely by appointing honorable people to sensitive offices, even if these people have outside interests (say, had just worked or lobbied for a firm they are now supposed to regulate).
Obama and much of his team have come of age in an era which recognizes that organizational and professional ethics cannot be expected to piggyback entirely on the virtues and character traits of good individuals. In other words, designing and running an ethical organization now requires concepts and categories of values that nobody learned at their mother’s knee.
Wayne’s overall point is obviously not just about the Obama administration. It’s about the right approach to ethics in any complex institutional setting. Once upon a time, the best advice we could give to leaders and administrators was, “Do your best. Be honest. Don’t give in to temptation.” And that’s still good advice. But increasingly, good ethics has to be not just about the integrity of individuals, but about how to structure institutions so that they work as well as possible, in spite of the foibles and frailties of the best among us, and the machinations of the worst.
(Note: Wayne & I co-authored a chapter on Conflict of Interest for the forthcoming Oxford Handbook of Business Ethics. Wayne is also the author of Negotiating Nationalism: Nation-Building, Federalism, and Secession in the Multinational State.)
The Business Ethics Blog 