Ethics in a Bottle

In my last blog I listed a number of statements and underlying attitudes I encountered while working in the business world. Here I would like to take a closer look at one of them and evaluate its veracity and possible transformation.

The assertion that “there is no ethics in the business world” is both an observation as also an assumption. As an observation it reflects a simple “is”: personal experiences I shared with you in past postings revealed that human needs are indeed frequently placed behind the short-term imperative of a corporation to post profits and maximize shareholder wealth. In a world where organizational survival is dictated by the mere string of numbers that are published on a monthly or quarterly basis and not by the reality of the personal stories of the involved stakeholders, it is only logical that there will – push come to shove – be an inherent bias and managerial recompense to sacrifice human “ethics” for the sake of the ethic of maximizing profitability. Therefore, there is a certain amount of veracity to this statement as an observation, provided one defines “ethics” as placing the well-being of human beings in the center of our moral considerations.

As an assumption, on the other hand, this statement implies a normative “should”: there should not be any ethical considerations that impede the profitability and shareholder wealth. An individual who once shared this view with me in an unabashed manner revealed also that he made a clear cut distinction between how he valued, and consequently then treated, people in his private circles such as friends and family, and how he did so in his work dealings. This type of an attitude I have come to label “ethics in a bottle”: it is a form of moral compartmentalization where at times radically different standards apply in different types of social contexts. Now, it is naïve to think that we as human beings can ever completely transcend moral compartmentalization (for example, we will continue to be more inclined to help a personal friend in distress, rather than an anonymous individual at the other end of the world, all other things being equivalent). Nonetheless, it is legitimate to question if such a strict demarcation line should be drawn between the personal and professional worlds.

The problem with moral compartmentalization in our economic dealings is that under the guise of “professionalism” almost anything can be justified. Professional organizations and corporations, particularly publically traded ones subject to short-term shareholder wealth maximization, have gone to great lengths to legitimize their institutionalized norms to conform to the prerogatives of profitability or the stock markets. Under the guise of “accreditations”, “codes of professional conduct”, “best practices” and the likes, professional organizations and corporations have created sophisticated constructs to make employees, clients and the public think and feel as if they were upholding the highest of moral standards.

For the professional, the rationale then is often, “if it meets the highest standards of professional codes of conduct, well, than it must be ok for me to do.”

Well, no. Simply because something meets the standards or regulations of a certain corporation, industry or profession, does not make it morally palatable in a larger context. For example, nowhere in the Certified Financial Advisors (CFA) Code of Ethics (http://tinyurl.com/9wxs38) is there any mention or consideration of the secondary ramifications of certain investment tools or choices. Yes, we find the statement that the advisors must “Place the integrity of the investment profession and the interests of clients above their own personal interests.” (As recent scandals, however, illustrate that this rule was nevertheless frequently ignored.). But what about the fact, for example, that speculating in mercantile exchanges can abruptly drive up the price of certain commodities like corn, wheat or rice beyond the capacity of people in third world countries to pay for? Or take the code of conduct in private banking, for example, of Singapore (http://tinyurl.com/bu8m8yl). The transfer of large amounts of wealth of high net worth individuals from poor, developing countries into international tax havens such as Singapore, the Cayman Islands or Switzerland, while certainly in the interests of the client, deprives these countries of these sorely needed resources. While there is mention of money laundering and terrorism, nowhere in its code of conduct is there any consideration of this wider moral dimension of the professional’s actions.

However, since a financial advisor’s or private banker’s circle of professional responsibility is defined only in a very narrow manner driven by the client’s (and the advisor’s or bank’s) interests, both the financial professional and their clients indirectly partake in the creation of human poverty, and that with a clear conscience, extracted as they are of further responsibility by the professional code of conduct they are adhering to (and often also legitimized by Milton Freedman’s position that these ethical consideration is not the purview of the business community, but of the regulatory agencies of countries). This divorce of responsibility of one’s personal, professional activities and the wider social ramifications represents one of the major challenges facing our current status quo in how we structure and manage our economic activities.

What we consequently have is “ethics in a bottle” and by extension, if you will, a form of the “banality of evil”. It’s time for professionals to take the ethics out of the bottle and permit it to imbue all domains of human lives, not just the ones of one’s family, friends, corporation or business clients.

Manuel Heer Dawson

How Economic Individualism leads to Anarchy. And a possible Way Out

In Thomas Hobbes’ (1588-1679) prominent state of nature every individual fights against all other individuals. Each individual does so to survive: When I kill my neighbor he can no more steal my belongings or kill me, I am consequently safer now. Hobbes’ state of nature is an individualism-based condition of anarchy: Neither laws nor governments nor any form of contracts exist. His ultimate objective is to find ways to leave or avoid this condition.

 

The individualistic concept was new then and characterizes many schools of thought in the modern period. Among others, the neoclassical theories in economic sciences of the 20th century generally rely on the methodological individualism. Each individual aims to rationally maximize its utility accordingly.

Through neoliberal politics these theories were implemented in many countries in the last 30 years: The transfer of theoretical concepts like the methodological individualism was essentially (although not exclusively) transferred and supported by such politics into the real world. Today, they structure to large parts the perception of how the economy functions and what it is in reality. This thinking is also based on competition because others are understood as (potential) competitors. The assumption of this politics of deregulation was that market-ruled competition alone establishes the most effective and efficient solutions.

 

Yet, individualism (as also competition) is not bad per se. Every one of us is an individual and it is nothing else than self-evident that individual rights need to be protected. But, the methodological individualism as the one of economic provenience was implemented at the cost of the community. In Switzerland e.g. voluntary community work is strongly decreasing (e.g. there are less football coaches for children). People are too busy with their individual job career and want to score (financially) in their personal competitive game.

 

The strong individualism of today may be seen as a kind of a global state of nature. Some examples: The exploitation of workers and local communities by transnational corporations is fostered by political deregulation and missing cooperative global governance structures: Responsibility is left often to individual managers; because of removing or not establishing regulation it is often made easy for managers of firms to enrich themselves excessively. Conversely, single individuals can trigger shitstorms against firms by posting individually declared violations of political correctness in the social media. And, as mentioned, voluntary community work is decreasing. The neoliberal politics of deregulation thus led at least partly to conditions which for Hobbes were imperative to leave in place.

 

A possible way to balance the corrosive consequences of such overreaching (economic) individualism on communities is that we, the civil society, begin rebuilding voluntary, non-market based cooperation between us citizens. A stronger togetherness between neighbors and friends etc. can foster the creation of values that provide a whole society meaning and vision. The economy can rediscover its role in and for society by cooperating more seriously with and for stakeholders.

 

Of course humans are competition-oriented individuals but they are also cooperative and social beings needing mutual value and meanings. The sociologist Richard Sennett and communitarianists often write about the importance of cooperation and togetherness in civil societies. And the stakeholder theory explains the advantages and appropriateness of an economy understanding itself more as a part of society and related to stakeholders.

 

 

Claude Meier

Awareness and simplification: The KONY 2012 campaign

To increase the awareness level of a message, advertisers and campaign managers know well about the psychological effects of simplifying matters on people’s attention. Short communications are persuasive and affect people’s readiness to engage in different kind of actions. However, short communications have to simplify complex topics an may lead to the problem of not taking into account the entirety of a complex problem, for example by focusing only on a specific relationship among many affected interest groups. To avoid a misleading reduction of complex issues, I argue that the intention to increase the level of people’s awareness by simplifying communications should be accompanied by a careful consideration of the corresponding impacts in a more fine-grained stakeholder network. An insightful example is the viral campaign KONY 2012, which entered the social media in early March 2012.

The core of the KONY 2012 campaign is a short film created by the non-profit organization Invisible Children, Inc. The film documents the brutal abduction and cruel abuse of children by Joseph Kony and his Lord’s Resistance Army (LRA) to use them as child soldiers in an ongoing conflict in northern Uganda. The LRA is a guerilla group and its leader, Joseph Kony, was indicted for war crimes and crimes against humanity by the International Criminal Court in 2005, but still has evaded capture.

 

The KONY 2012 short film spread virally in the World Wide Web, mainly through social media channels like YouTube, Vimeo, Facebook and Twitter. Within a month the clip had been viewed more than 90 million times and the social media campaign raised a tremendous awareness all over the world. Celebrities and politicians started to support the concerns of Invisible Children, Inc. to bring Joseph Kony to justice.

However, criticism about simplifying the complex conflict in northern Uganda arose shortly after the film’s release. Invisible Children, Inc. was accused of providing a black-and-white picture of the situation and of manipulating the public opinion. For example, the film suggests that violence in northern Uganda will come to an end and the abducted children will be able to return to their families as soon as Joseph Kony would be captured. Of course, Kony is a dangerous and cruel individual and bringing him to justice would be important. But reducing the problems in northern Uganda to the faith of Joseph Kony is deceptive. The history of the conflict is far more complex and includes many other interest groups like, for example, the Ugandan army and government, of which many seem highly suspicious too. Further, the film neglects the fact that most LRA forces, including Joseph Kony, fled northern Uganda in 2006 to be dispersed now across three neighboring countries.

 

As the example of KONY 2012 shows, awareness and simplification have to be balanced so that creators of social media campaigns are able to achieve their objectives and at the same time meet their responsibility towards other stakeholder groups affected by complex problems. The narrow spotlight on Joseph Kony led Invisible Children, Inc. to donate funds to support military action for capturing the LRA leader. But what about the rehabilitation and reintegration of former child soldiers as another affected interest group?

AoM-Meeting 2012; People for People

The annual meeting of the Academy of Management  (AoM), at which 12,000 participants from all over the world discussed the latest research results and trends, was held in Boston August 3-7. One presentation type is the “Professional Development Workshops” (PDW), which are about the further education of university teachers. Professors Joe Mahoney (University of Illinois) and Sybille Sachs (University of Applied Sciences in Business Administration Zurich, HWZ) organized and moderated a panel discussion on “Value creation with People for People”. It was the continuation of an initiative that the two had started the previous year at the AoM-Conference with the goal that after years of excessive emphasis on shareholder-value thinking the importance of people should again be regarded as the central focus of interest (see the report of last year). Some impressions of the well attended and comprehensive presentation are noted in the following:

Professor Joe Mahoney (University of Illinois), a leading academic in the field of the Theory of the Firm, demonstrated among other things that managing decisions narrowly oriented to shareholder value often lead to breaks in the social contract that exists between the firm and its stakeholders (e.g. customers, employees etc.). This again leads to the underinvestment of these stakeholders in their firm specific engagement and generally to a lack of commitment of these stakeholders. The firm can thereby suffer a weakening of its resources and a decrease in productivity. In contrast, when stakeholders are involved as people in management decisions, not only can negative effects be avoided but also commonly found innovative solutions can be encouraged (see our book, Chapt.7, p. 114 ff). 

Ed Freeman (Darden Business School), theoretician and founder of Stakeholder-Management, regards the increasing inclusion of People for People thinking as the most central question of business education in our time. He reminded us that in the course of history great thinkers (e.g. Freud, Kant etc.) have acquired fundamental knowledge about human beings that has not been sufficiently regarded and applied in the education of true leaders.

Jim Post (Boston University), professor for Business and Society, who together with other authors has recently published a book on The Historical Development of Social-Responsibility – Idea in Theory and Practice, demonstrated with the example of his own university, how regard of human aspects have changed in teaching. Whereas a few years ago the vision of the Dean in charge was completely oriented to human aspects and required a humanistic mindset from the faculty, this orientation is missing today.

Sybille Sachs (HWZ), professor for Strategy and Stakeholder Theory, demonstrated in her contribution that the aspiration of a more human perspective, and in particular an increased propagation of positive narratives, is not only to be seen in management. In various academic disciplines analogous thoughts are being acquired, which means that there is potential for interdisciplinary cooperation. She illustrated this with quotations from very different scientists, who are advocating a positive humanistic view in their fields. One such quotation is given here: “In particular, we encourage researchers to examine the origins and implications of positive framing. We further advocate for positive leadership (e.g., Cameron 2008) in response to crisis and the outcomes to be gained from crisis events when positive frames and positive leadership are enacted” (James, Wooten and Dushek, 2012, p. 483).

The participants of the workshop agreed at the end of the extremely stimulating discussion that the idea of People for People needs to be continued and deepened in a presentation at the AoM-Meeting 2013. In the meantime information on examples of positive narratives in leadership education or in firms should be exchanged among the participants. Should you also know of examples, we would be happy to publish them in our blog.

Edwin Rühli

What about Fair Play of International Sporting Events?

Sport games are a wonderful celebration of excellence in sports, excitement and pride. The expectation of sporting events is always high and the questions being raised even higher: Will the event help develop the infrastructure and the society of the host country in a sustainable way? Will all the money be well spent? Huge sport games like the Olympics and the European Cup might be vulnerable to corruption in several ways: match-fixing, corporate hospitality, ticket allocations, sale of television rights, corporate sponsoring (for further information please visit http://snipurl.com/24qh8hy ). Above all they represent a big exercise in construction and procurement. Both stand for classic areas that are prone to corruption. In this article I will focus on these two challenges.

The development of infrastructure for international sporting events involves the mobilization of vast resources, complex logistical arrangements and pretty tight timeframes. These challenges probably became a sincere problem for one of the latest European sporting event. In regard of the Euro 2012 allegations of corruption have been made. Ukraine embarked on a program of modernization for Euro 2012. Stadiums were built or renovated, the airports were upgraded and the roads repaired. All this happened without competitive tenders, since in 2010 Ukraine cancelled the tenders for all Euro 2012 projects. Uefa, the governing body of football in Europe, is now under pressure to investigate claims of massive corruption. Opposition politicians claim that $ 4 billion from the state funds were stolen by officials (http://snipurl.com/24qh8s2 ). But also in Brazil the preparation for the World Cup in 2014 and the Olympics in 2016 face some corruption challenges. In June the government coalition deputies approved a bill that would keep the massive infrastructure budgets secret (http://snipurl.com/24qh96c ). Because of critics the text got changed and the budget will be public but just after the public tender process.

In international sporting events many stakeholders are involved: the organizing international organization, the host country, different governments and last but not least the public - just to mention the very important ones. To enhance transparency, the involvement of all these stakeholders is central. A good way to do this is a multisectoral initiative.

In regard of the construction sector the Construction Sector Transparency Initiative (CoST) could be of help (www.constructiontransparency.org). CoST is a country centered multistakeholder initiative designed to promote transparency and accountability in publicly financed construction. CoST’s core is the belief that the processes involved in the construction of public infrastructure must be more transparent.

As all the mentioned critical aspects are important issues for various stakeholders, pressure will increase to make international sport mass gathering events that cost billions of dollars more transparent for them. Then availability of information to the public is of great importance to hold decision makers to account and to ensure better value for money. In this regard issue based multistakeholder initiative represent a promising solution.

Sabrina Stucki

Switching perspectives

If we talk about stakeholder relationships, the most common reaction of people is to think about a firm and the different groups which are affected by the corresponding business activities. These stakeholders are usually named as financiers, customers, suppliers, employees, the communities and so on. By this means we talk about stakeholders defined by their functional relationships with a firm, which is situated in the center of its stakeholder relationships. Further, the usual way of thinking about stakeholder management is on how to elaborate positive relationships with stakeholders to create as much economic value as possible.

In this blog post I would like to address two rather unusual ways of thinking about stakeholder management by making use of the example of employees’ work-life balance as an independent issue. In the context of this issue, the traditional defined stakeholder categories of a firm are no longer of much use to capture the essential features of the employees’ work-life balance. To assess what is of real importance for people, a firm’s decision makers have to switch perspectives to find out which groups have a real stake in the issue of the work-life balance. The traditional stakeholder category of employees then becomes more fine-grained, for example as mothers, fathers, daughters, sons, part-time workers and so on. By switching the perspective from a functional firm-centered to an issue-based view, decision makers are able to identify a much broader, and arguably more useful, set of stakeholders related to the firms’ activities.

But how are those newly recognized stakeholders related to a firm’s value creation? I think part of the answer arises from a too narrow understanding of value in an economic sense. It is easy for decision makers to conceptualize economic value creation in traditional firm-stakeholder relationships, as those ties are, as described above, functionally defined. But from a stakeholder’s perspective, there are other ways of understanding what “value” actually consists of. Indeed, regarding the issue of the work-life balance, stakeholder groups like mothers or fathers acknowledge the results related to their relationship with a firm, for example the accessibility to corporate childcare services, but also the possibility to work part-time in a managerial function. However, besides those extrinsic values related to economic or non-economic goods or services in a stakeholder relationship, employees are also seeking for more intrinsically motivated results. For example, employees also appreciate the psychological result of job satisfaction, as they are recognized and esteemed by the firm’s decision makers regarding their stake in the issue of work-life balance, thus for example as mothers and fathers.

In my opinion, managerial decision-makers can realize a much broader potential for value creation if they not only rely on a firm-centered approach to create economic value together with their functional stakeholders. Switching perspectives to identify the stake different groups have in a focal issue and recognizing both the corresponding extrinsic and intrinsic results of stakeholder relationships will then lead to an enhanced mutual value creation of a firm with its stakeholders.

Thomas Schneider

Market-advocates demand state interventions: An ideological absurdity that is reality

End of July Mario Draghi, President of the European Central Bank (ECB) indicated quite vaguely the intervention that ECB will buy state bonds from crisis countries of the Eurozone. The stock market reacted promptly by increasing quotations. This is interesting because interventions from institutions close to the state normally are not what market-advocates (to which stock exchanges overall can be counted) put into a good mood.

But, since the sub-prime crises from 2008/09 and the following bail-out of many financial institutes by states all over the world, things have fundamentally have changed, one could mean. The state since was not only decent again, it was indispensable. The neo-liberal ideology of a pure self-regulating market solving (nearly) all economic problems and beyond as well as the ideology’s inherent state-critic was out of fashion suddenly. Draghi’s indication of a possible intervention by ECB shows that state related interventions today not only are accepted but even are demanded by market participants. If this is right or wrong or just a logical mechanism, is irrelevant. It is reality and that’s what’s relevant.

But how this new reality gets along with an ideology that sees things quite different? Already after the first shock of the sub-prime crisis the old apologists of the market ideology came back on stage. In their contributions in diverse newspapers, magazines and journals it was to read again what blessings a pure market-driven system would be able to perform, as long as there is no distortion through state interventions. In many contributions the new facts haven’t found any access to the thoughts of the authors. It seems that many want to preserve their ideology and its theoretical backgrounds as it is and defend it against the new realities. One of the latest of such market-purists seems to be the US presidential candidate of the Republicans Mitt Romney. Overall, he seems to believe that the less state intervention exist in the market-economy (taxes, regulations etc.) the better it performs. The state primarily handicaps economic freedom and is a threat in general. If things would be so easy we never had the sub-prime or other economic crises.

To stay ideologically fair, we can take a look to the ideologists on the other side of the continuum, the state-centrists. Indeed most of them learned at latest after the fall of the Berlin wall that a pure centrally planned economy does not lead to salvation and comprehensive well-being. But, there are still contemporaries who try to save as much as possible from this state-centric ideology by ignoring facts and reality. The latest example is the President of France, François Hollande, a Socialist. As soon as he was in power he reduces the retirement age back to 60 years although the public purse is nearly empty and the people’s life expectancy rises and rises.

Either market-purist or state-centrist both are ideologically conservative and therefore also structurally conservative: old and outdated structures (e.g. pension age 60 in France, the intention to prolong temporary tax reliefs for very wealthy citizens by Romney in the USA although also here the public purse is scarce) will be preserved with such bodies of thought. Ignored thereby is the reality. A reality in which capital investors demand state interventions. It is obvious: such realities need new and a more progressive and pragmatic political thinking and measures. It is very important to adapt the institutional structures to the new needs which are already here and recognizable in the daily life. Ideologies are principally ok as guidelines but they have to develop themselves by incorporating actual reality. The other way is fatal: to simply serve the ideological clients by trying to impose ideological purism in reality.

Claude Meier

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