Tales from the “Real World” – how much ethics can the world of business tolerate?

In my last blog post I described a concrete example of a moral dilemma that I faced while I worked in the international business arena (and I use the word “arena” for a reason…). I posed the question as to what realistic options are available to business leaders should they like to take the moral high road. The answer hinges upon, I think, how we should like to define “realistic”.

Would it have been “realistic” for me to go sign up the fledgling start-up as our distributor in Tunisia, foregoing engaging the established Dutch firm? As much as I am loath to admit it, I think not. The company I worked for was operating in a highly competitive industry where thin profit margins provided for very little largesse in choices that were not tightly aligned to short-term profitability. In another industry, with a pioneering product with no immediate competitors, or in a domestic market artificially shielded by high entry level costs or tariffs, there might have been more room to maneuver. But when one was competing tooth and nail for survival, this was not a viable option.

Prior to working in the low profit margin apparel industry, however, I worked in a radically different industry for a medical laser manufacturer where profit margins hovered around 60%. While obviously also a competitive industry (after all, everybody was scrambling at getting a piece these dream margins…), there certainly was more room for maneuver from a moral point of view. Regrettably, this option was not always exercised. A case in point: over the course of several years I had the pleasure – and it was indeed a pleasure – to nurture a start-up firm in Russia to be our distributor in this promising market. They were highly motivated and worked endless hours. Even though they had very limited resources, they sent one of their engineers over to the United States for a one week product training program we offered to our distributors. After two years of major investments and working the market, the company was finally poised to make some important sales. This was, however, also the point in time when the medical laser company I worked for was bought by another medical device company and consequently overnight we had two distributors in virtually all of our markets.

Our new owners insisted on using their own distributors in all of the countries where they themselves were present or alternatively forced our distributors to become sub-distributors, which for our distributors essentially meant giving up all control of the business and taking a major cut in their earnings. I remember being on the phone with a manager at our new parent company and him telling me to terminate the sales agreement we had with our Russian partner. When I explained to him that our Russian partner had worked for two years to build up the necessary relations in a market that had very long decision making procedures, he told me that “first cut him, bring him to his knees and then we renegotiate our terms with him from a position of strength.” So the basic strategy was to first make him desperate (he would lose two years worth of investments!) and then try to squeeze the max out of him so that he could salvage at least a pittance of what he had invested. Hardly a win-win strategy.

While many people sincerely tried to do their best to remain “humane” in an essentially a-moral system and things seem – at least in public discourse - to be changing somewhat these days, many of the things I saw and heard while in the business world were diametrically opposed to a human centered, win-win, stakeholder approach. A few of the ones I still remember I wish to share with you here (some are paraphrased by me, their essence is however retained):

·         “There is no ethics in the business world”

·         “If we don’t do it, somebody else will”

·         “No matter how much you may like somebody and how close you get to them in your work dealings, never make the mistake to think that they are your friends”

·          “The [neo-liberal] economic system as it is today reflects a deeper reality that is inherent in all of nature and therefore cannot be changed: just look at Communism!"

·         “Survival of the fittest”

·          “Markets always know best”

·          “If you can’t beat them, join them”

·         “The corporate world is essentially one of war without weapons”

·         “Money is success and success is no coincidence”

·         “Make money first, then do good”

·         “Too much ethics is a weakness and we have no place for weak people in our management team”

·         “The business world is the only real world and we who actually operate in it have nothing much to learn from researchers and intellectuals as they live – at best - in a naive utopian, imaginary one”

What all these quotes reveal is that, at the end of the day, there was a widely prevalent attitude (even if not voiced thus publically) that ethics, a humane stakeholder approach and the competitive business world simply don’t mix. Regrettably, the way our current economic system is set up and the widespread normative mantra of “profit and shareholder value maximization” inculcated into students, employees and managers, this has become in many ways a self-fulfilling prophecy.

In my next blog posts, we shall take a look at these proclamations and how they fit or don’t fit into a sustainable economic system.

Manuel Heer Dawson

The Need for Humanism in Management Across the World

Over the last weeks I spent my summer holidays travelling through northern and western Madagascar – a wonderful country with charismatic people, a variety of landscapes and unique flora and fauna. But this is not meant to be a travel report and to my delight I frequently stumbled across what is supposed to be the underlying subject matter of my research topic – microentrepreneurs or commercially active people living on a few bucks per day. For example, there was this artisan group of neighboring women producing gorgeous silk embroideries and selling them in a small shop on a veranda. In another village, there was a man crafting delicate artwork and articles for daily use out of polished cow horn with the help of an old washing machine’s engine. Like in every developing country, the majority of Malagasy people, however, were working on fields, planting rice and spices or farming cattle. Here and there, I spotted agencies of microfinance institutions (MFIs) in surrounding villages, indicating that financial services were potentially available for the aforementioned random acquaintances.

Back home, I found the report of the Microfinance Banana Skins Survey 2012 from the Center for the Study of Financial Innovation (CSFI) fresh from the press (www.csfi.org). With the title ‘staying relevant’, this is the 4th edition of what can be regarded as the most comprehensive risk perception survey in the sector. According to this year’s report, the most pressing risk is - for market observers unsurprisingly - overindebtedness among microfinance borrowers. However, the overindebtedness problem is symptomatic of deeper difficulties in the industry - first of all the overemphasis on growth and profit at the expense of prudence and the lack of good governance, management skills and professionalism in local MFIs: “Corporate governance is widely perceived to be inadequate, failing to provide sufficiently strong leadership to keep MFIs on a healthy growth path. Management quality is also seen to be lacking in many markets…, including the quality of risk management which is seen to be low or nonexistent in some sectors” (p. 8).

Reflecting on my holiday experience with regard to the responsibility of business schools and research for establishing a new paradigm of leadership, this made me realize that it is clearly not only western, industrialized countries, for which a new generation of managers and leaders is needed, but certainly also developing countries. Although they weren’t directly liable for the recent crises in the global economy or necessarily affected by the numerous management scandals in multinational corporations, narrow-mined short-term thinking with a sole focus on profit-maximization there too takes its toll. The microfinance experience in developing countries shows again that economic progress and societal development cannot be sustainable without appropriate management education and responsible business leaders with a sense of solidarity for all their stakeholders. The humanistic mission of initiatives like “People for People” seems therefore equally important for fighting inequality across the world and the aspiration for prosperity of underdeveloped regions.

Marc Moser

Value Creation with the Humanistic Mission of ‘People for People’

During the last several years both business and society are undergoing substantial change. A few key examples illustrate this change: the oil spill in the Gulf of Mexico; the nuclear catastrophe in Japan; the ongoing European debt crisis and social movements such as “Occupy Wall Street” that have spread around the globe. All these changes show that it is not simply single actors who are salient, but rather networks of actors. This interconnectedness is the critical feature of today’s reality. Value creation takes place between firms and stakeholders in networks to achieve greater service to society. Such networks of value creation encompass the boundary of sectors (economic, political, and societal) as well as the degree of institutionalization (formal and informal).

Business schools are responsible for preparing new generations of leaders for a networked globalized society in which intra- and inter-network cooperation is key. The responsibility of business schools was also the topic at the caucus session we conducted at the annual meeting 2011 of the Academy of Management (AoM) (http://www.fh-hwz.ch/g3.cfm/s_page/63780/s_name/socialmovementinitiativeteaching). The focus was to assess whether there is sufficient interest in the core challenge of nurturing humanism in management education by creating a network of interested scholars. The shared understanding of participants was that it matters what business schools do in educating future leaders and managers. The participants came to the conclusion that as educators of future leaders and as world citizens we have to foster teaching and research that contributes to the humanistic mission of ‘People for People’. "People for People" describes the humanistic mission of all management: human beings helping others.

If you are interested to advance the humanistic mission in management education please join us for our Professional Development Workshop at the annual meeting 2012 of the Academy of Management (AoM) in Boston. Joseph Mahoney (University of Illinois) and I organized this workshop for the following divisions of AoM: Business Policy and Strategy (BPS), Human Resources (HR) and the Social Issues in Management (SIM). Panelists include Sandra Waddock (Boston College), Robert Phillips (University of Richmond), James Post (Boston University), Tom Donaldson (University of Pennsylvania), Ed Freeman, (University of Virginia). The workshop takes place on 03. August 2012, 2:45pm, pm Boston Hynes Convention Center, Room 301 (http://program.aomonline.org/2012/subMenu.asp?mode=setmenu&menuid=14).

I am looking forward to see you there.

Sybille Sachs

Humanistic Perspectives in Management

This June, the Humanistic Management Network organized a conference at the University of St. Gallen, Switzerland, with the topic “Happiness and Profit – Wellbeing as Alternative Objective Function for Business?”. This network has as its objective to promote an economic system which operates in the service of human well-being in the larger context. Out of the many ideas that one could reap at this occasion I would like to highlight the following three:  

1.      Professor Binsweanger, an economist, reminded us that the original economic theory made the comprehensive concept of utility as the goal of our dealings and not the narrow objective of the multiplication of money as has been brought to prominence in both theory and practice these past years. Such a broader understanding of utility is incompatible with both the narrowly conceived shareholder value thinking as also the notion that the gross national product accurately reflects the prosperity, much less happiness, of a society. The financial crisis and the bonus discussion have shown that narrow monetary goal conceptions lead us astray and are nefarious to our common good. This understanding is fully in line with the people for people project espoused here. http://stakeholder-peopleforpeople.blogspot.ch/

2.      Various conference contributions elucidated possibilities as to how the use of multidimensional criteria grids could create indices which reflect the utility of economic as well as ecological and social dimensions. They complement already available approaches in this direction as for example the Global Reporting Initiatives. The utility contribution of a firm or a project is thereby reflected in a more sophisticated manner then a mere monetary measurement. A considerable number of firms already today produce such common-wealth balance sheets and common-wealth reports. Such firms should in the future be privileged by their customers or by the attribution of public commissions, as they serve the common good in a more deliberate fashion. Regrettably, there were no representatives of public institution at the conference; they would, however, have a model function with the promotion of such a common good thinking.

3.      I was especially impressed by an entrepreneur (Mörkisches Landbrot – a bread bakery) who conducts a consequential stakeholder management which is rarely seen in practice. Through a systematic cultivation of the interactions with important stakeholders (for example suppliers or co-workers) he could not just attain a high degree of motivation and loyalty, but also valuable impulses for the increase of innovation and quality. Thereby his operation is also oriented towards a broad segment of the society. This understanding of value creation which he has pragmatically developed reflects to a high degree the theoretical concept which we also elucidated in our book http://tinyurl.com/8ay79k7. He would be a valuable interview partner for our new leadership project http://tinyurl.com/88qqpxy

The most valuable aspect of the conference was the orientation towards practice. The conference also showed me that there is a considerable need to bring these pragmatic approaches onto solid theoretical basis, so that they will not drift off to arbitrariness.

Edwin Rühli