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

Discretionary Morality in a Competitive World?

In the heady days of younger years I thought and felt strongly that I could chart my own path through this world of ours without compromising what I intrinsically believed to be “right” or “wrong”. As you might expect, this belief turned out to be rooted more in naiveté than reality, and latest upon entering the corporate world did reality bite back. Let me give you one particularly illustrative example.

In charge of developing the overseas markets for a US manufacturer in the apparel industry, I was evaluating potential business partners in numerous countries to distribute, install and service our products. Due to the high labor costs in the US or Western Europe, the fabrication of clothing was rapidly shifting to areas of the world in which labor was still affordable enough so as to allow a reasonable profit margin in an increasingly competitive industry. A country of interest was then for us Tunisia, which promised to have the right mix of low labor costs with a reasonably reliable legal framework so as to make doing business there a relatively low risk venture.

I had singled out two companies in Tunisia which seemed promising business partners. The first was a start-up led by an enthusiastic and eager young woman having just returned from Canada where she had done her studies in the design and production of apparel. The latter was a large manufacturing company from the Netherlands which had been established in the Tunisian market for the better part of three decades. Meeting first with the young woman entrepreneur (in a male-dominated society!), I was immediately invited to her home to share a dinner with the entire family. It not only turned out that her business “headquarters” was the house’s basement, but that the entire family was poised to participate – as deeply vested stakeholders – in the venture. The mother, working at a local bank, was to be in charge of finances, the brother in sales, the father figured as the presidential formal “figure head” of the company (important in a patriarchic society), and the young, female entrepreneur was the effective Chief Executive Officer.

The following day I met with the director of the Dutch company and was shown around an expansive manufacturing plant which included several hundred workers busily hunched over sewing machines, churning out mounds of pants. He outlined for me the various sales channels they had throughout the country, and I was shown a well-equipped repair shop for technical support. In as much as servicing a sophisticated technical product as was ours is at least as important as just selling it, I was duly reassured.

That night at the hotel, however, the moral dilemma which I faced struck me with full poignancy. From a business perspective, the choice was as simple as could be: the established Dutch company disposed of vastly more resources, experience and connections to make our market entry in Tunisia a profitable and smooth one. By contrast, the small start-up lacked all of these crucial elements necessary for fast and profitable market development.

From a sustainable, human perspective, however, the choice was also as simple as could be: the established Dutch company lacked the heart-felt enthusiasm and commitment of the small venture and could readily do well without the benefit of adding our product to their already extensive product mix. But giving it our business would do little to nothing for developing the sprouting, indigenous economy in this area, and most of the profits would be ciphered off to the Netherlands. If I gave this business opportunity to the small start-up, however, I would be able to nurture the local, grass-roots economy, transferring not only financial resources to the locals, but also valuable know-how, so as to provide for the emancipation not only of the local economy from the dominance of the wealthy West, but, in this particular case, also of women in a still conservative, patriarchic Muslim society.

It was, however, equally apparent that it would be nothing but impossible (and virtual professional suicide) to justify going with the small start-up from a business point of view: I already pictured myself explaining my decision to my boss, the company’s CEO  - and then, following the food-chain upwards – him to the board of directors and the investors: “well, I know that we are rapidly losing market share in this highly competitive industry and our sales are imploding, but take a look at how much grass-roots, sustainable nurturing we are able to do in poor countries, taking heed of all the involved stakeholders!”

In essence, I was damned if I do, and damned if I did not. So what was the solution, and how would you choose if you were faced with such a decision?

For me, the solution was to leave the business world for the academic one, where I hoped to at least find an intellectual microcosm where I could align what I believed in with what I worked on and actually practiced. Moral of the story: I capitulated not by becoming entrenched in a system that was profoundly out of sync with what I believed to be “right”, but by stepping out of – or, if you like – fleeing a system I felt I simply could not change from the inside out. But capitulating will certainly will not change matters for the better…

The above account raises many questions about to what extent leaders should – and in a certain manner are even at a liberty to – live by what they believe is “right” or “wrong”. It also raises many questions about our social and economic system as a whole. In particular, how can leaders walk the moral high ground in an increasingly competitive, globalized world that so often punishes those who seek a more long-term perspective?

We shall take a closer look at this in a subsequent post. Stay tuned.

Manuel Heer Dawson

Polity of Certainty or Polity of Doubt?

It is a striking phenomenon that we human beings have a strong penchant for supposing we comprehend things, sometimes even how the whole world functions. We have opinions on most things, and if not, are quite fast in formulating one if so prompted. Indeed, it seems to be almost expected of us socially to have such ready-made opinions on just about everything. This fact is ever again driven home to me during political discussions, debates and elections. Each participant – if spectator, analyst or candidate - has his or her own take of the state of affairs, what the problems “really” are and what “exactly” needs to be done to solve them.

What conceit – if not sheer lunacy – however, to think things are so simple! The complexity of the world (including all political process) is thus, that no human being - citizen, politician or think-tank - can hope to grasp it all, make reliable predictions, or make proud declarations as to how to “solve” this or that problem, yes, if you only listen or elect me, this and that will happen. How refreshing (yet utterly unrealistic) it would be if a pundit, CEO or candidate would openly proclaim, “Frankly, I don’t fully understand this whole mess we are in and while I’ve got my hunches and inclinations, at the end of the day I simply don’t know for sure how to get us out of it. But we’re in this together and together we will stumble about as best we can, making judicious use of that which we can and do understand and using common sense as best we can. But predictions and promises? That I cannot and will not give you!”

Human existence is never a straightforward plan that simply awaits to be implemented. The trouble, however, is that while our limited, or “bounded”, human rationality is a fact, it is also a fact, as numerous empirical studies have shown, that perhaps the single most important trait of a “successful” leader is that he or she is decisive in his or her decisions, sticks with them and avoids signaling any form of doubt once the decision has been made. This has deep psychological – and even evolutionary – reasons, hailing from a still more primitive, precarious world setting than our 21^st century reality presents us with. But therein lies the fundamental dilemma of any leader – above all a political one, repeatedly forced to make predictions and pledges. It is in essence one between honesty and utility.

Or does one in fact really need to choose between the two? Can one indeed be humble enough so as to be honest, while still confident and decisive enough so as to be effective as a leader?

While certainly not self-evident, I think the answer is yes. One can be decisive and confident also in acknowledged uncertainty. It simply requires an attitude that eschews what our current “achievement culture” (and perhaps even innate biological inclinations) seems disposed to undercut. But it is perhaps homo sapiens’ most remarkable asset to be able to rise – at least at times - beyond our predominant evolutionary tendencies and the social prescriptions they give rise to. And thus I shall close these considerations with the following entreat: dare to be humble, dare to be confident and dare to be bold!

Manuel Heer Dawson

Dare to care

During a recent conservation with the leaders of various business units in a multinational corporation it became clear how different leaders are used to perceive and treat their employees. One of the participants told the following story: One of his employees was undergoing a difficult personal situation in her family circle. Finally she could no longer carry the burden; so she told to the manager that she was no longer able to perform in her usual manner as she had to unexpectedly take care of a problem in her family. The manger who esteemed this employee and her extraordinary performance decided to support her. Therefore he suggested that she could give priority to her personal problems for a certain time. He restrained from giving her a time limit or any other kind of specifications and restrictions.  

The reaction of the employee was overwhelming. She voluntarily informed him how she resolved her situation step by step and she was obviously even more devoted to her work after this experience than before. The manager himself decided that in the future he would encourage his staff to be open to him regarding their personal situation.

This story is probably not an exception but it confirms important insights we can gain out of studies that are done in the area of “work and care”. People are more motivated to work if they are respected not only as a human resource but as a human being. Doing business is not a purely economic affair but also a human one. And finally, considering employees as human beings provides  not only positive effects in motivation but such employees are more than 30 % in a better physical condition, 25 % have a reduction in stress,  5 % are sleeping better. Due to their improved  work-life balance an increase in productivity of over 30 % could be ascertained  (see for example  Bright Horizon (2010).  Enhanced Employee Health, Well-Being, and Engagement through Dependent Care Supports).

With respect to a systematic approach to motivate employees and other stakeholders to contribute their resources for a firm’s value creation, it is important to keep in mind that stakeholders are ends and not means. This was emphasized by an interviewee as follows: “Employees as stakeholders play an integral role because if you treat employees as interchangeable commodities that can just be switched in and out, you're never going to get the transfer of knowledge; and you're never going to achieve the real efficiency that you can with the development of knowledge and expertise” (see chapter 6 in Sachs, Rühli 2011). Last year the annual meeting of the Academy of Management was guided by the motto “Dare to care” to explore new approaches in the field of strategy and organization. Based on the above stated experiences and studies I suggest that one of the guiding principles for new narratives of leadership should be “Dare to care”.

Sybille Sachs

The human factor

Last week I was invited to a networking meeting of top-management to present our book to leaders of different industries. The focus of the event was the success factors of strategic management, in the time after the financial crisis and in Europe’s critical economic situation. The participants agreed on one dominant factor for success: human beings. After a long period of narrowing down corporate value creation to a purely financial dimension, which can be measured and negotiated in impersonal markets, the longing for a human dimension has become dramatically noticeable.

The success stories the participants presented are examples of actively motivated individuals, who are inspired to contribute in a meaningful way to value creation. The successful management strategy in these examples depends on the way human beings are willing to contribute. And they emphasize that human beings are motivated, when they are respected and appreciated in their engagement. Confronted with challenging times, and the growing lack of trust in leadership, the relief is seen to be in the hands of human beings.

The participants of the meeting then asked how this crisis of confidence could be overcome. One leader emphasized that successful mangers are also courageous individuals. Leaders have to stand up and advocate sustainable value creation that contributes to the quality of human life, and not to quick short-term profits. They have to support their own people, and respect the experience and knowledge of the people with whom they do business. These kinds of human narratives contrast greatly with the greedy behavior that brought us to the deep crisis of trust in which we find ourselves. Or to quote one manager: “Every company has the employees it deserves. If a company is interested in short-term profitability and it sets the corresponding incentives, it will automatically have selfish and extrinsically motivated people. Companies are what they do (not what they say!).”

Successful business is moving away from the idea of the controlled and defensive management of relations toward a constructive and partnership exchange between leaders of firms and stakeholders. In the late seventies, Chandler was already calling for the visible hands of the leaders (Chandler, A. D. (1977). The Visible Hand: The Managerial Revolution in American Business. Cambridge, MA: The Belknap Press of Harvard University Press). We recall Chandler’s notion of the "visible hand," because value today is not being primarily created by the invisible hand of the market, but by the active shaping of leaders (see chapter 9 of our book). Not the invisible hand of the market leads to an overall increase in the welfare of society, but the visible hands of the leaders of the firm and its stakeholders. The human factor, not the inhuman factory, matters in rebuilding trust and achieving sustainable value creation.

Sybille Sachs