The Future of Capitalism Depends Upon Values-Based Leadership

By Max Cohen, LRN

Scandal is among us. Even though employees and managers at GM raised red flags about defects, it took 10 years to recall vehicles with air bag disabling ignition switches. Hands were also raised but unseen at VW, where diesel vehicles with falsified emissions continued to roll out of the factory, into showrooms and now across the world. At LRN, we believe that the business world has been reshaped, into one of blinding transparency, constant interdependence and ever critical stakeholders. Practices like these at GM and VW are not all that new and yet in this reshaped world it has become abundantly clear that they will be rooted out and pose dire consequences. Pharmaceutical giant Valeant, for example, took a 90% plunge after a series of accusations that the company partnered with “phantom captive pharmacies” forced to sell overpriced drugs. The stakes are high, operational, financial and reputational risks are everywhere and ever present.

Believe it or not, these scandals are good news in the long term. Poor business practices are under new spotlights, consumers now reach into their right wallet pockets based on what their phones from their left pockets tell them. Whether it’s from the rogue tweet or viral YouTube protest video, business leaders are realizing, some more painfully than others, that their business practices are no longer shielded from the public eye by closed doors. They recognize that the path towards sustained business performance must shift to reflect this new blinding transparency. But how?

Let’s take a look at the data from Fortune’s “Best Places to Work.” Believe it or not, the data indicates that business performance isn’t best predicted by the standard differentiators, such as compensation, recruiting, communications, or research strategies. “Success,” in fact, was most strongly correlated with the following two statements: “Management’s actions match its words” and “Management is honest and ethical in its business practices.” In other words, predictive indicators for business performance focus on a single variable: the degree to which behavior in an organization upholds shared values, such as integrity and honesty.

It’s often tempting to think that we are all ethical and honest people, and most of us probably are, at least most of the time. But as LRN has said since its inception some 22 years ago, creating cultures, systems of governance and forms of leadership that draw out our best selves is easier said than done. To further this work, LRN partnered with Conscious Capitalism and Ethical Systems, to host a gathering of Ethics and Compliance officers, consultants, entrepreneurs and other organizational culture enthusiasts earlier this April.

The presenters and panel at the event focused on the increasing prevalence and success of values-animated organizations and the unique challenges they face on their journey. But they also unanimously agreed that capitalism, which in its best forms can provide opportunity and spur innovation, must evolve to retain political and popular support. The colonial, industrialist and even the shareholder conceptions of capitalism of the past centuries no longer work as our society aims to go beyond brute efficiency or wealth. Although a “stakeholder” approach can create value for all of the members of our organizations, a “stakeholder” approach is not enough. A 21st century organizational culture must also be aspirational, inspired by commonly held values.

According to Jonathan Haidt, from Ethical Systems and NYU Stern, the first step to fostering values-animated and purpose–lead behavior is to remember that, in the moment, intuitions lead reason. Haidt explained, that for better or for worse, most of our everyday moral decision making is made by our emotional intuitions. He metaphorically likens our emotional intuitions to a powerful elephant, and our reason to its rider. LRN’s senior advisory colleagues Andrew Soren and Katie Gilbert have described this phenomenon well when they wrote:

“The rider, perched on the elephant’s back, seems like it’s in control of the situation because it’s using all of these sensible inputs to make rational decisions and steer the course. But when you put a mouse or a peanut in front of the elephant, let’s see who’s in control. Sometimes the rider’s methods are in fact just a means of justifying choices the elephant has made. The hiring manager who rejects the resume with the Arab-Muslim name or the candidate who is overweight, is not doing so based on the rational merits of the candidate — even if they may be able to argue that’s exactly what they are doing if called on it.”

Haidt therefore suggested that the most effective means to guide the elephant is not to pull harder on the reins of our emotional elephant but rather create cultural and procedural mechanisms that activate moral intuitions in the desired way. By this method we can guide the elephant on its own will down a new path. Haidt brought this point to life at the event by focusing on the format of an expense report. He explained how honesty in completing expense reports increases when the reporter is asked to sign the report at the beginning of the page rather than at the bottom, reminding the reporter of honesty before rather than after declaring expenses.

The Chief Ethics and Compliance experts that rounded out the panel echoed Haidt’s point about looking beyond rules to guide behavior and included: Susan Divers from LRN, Karen McDonnell from GE Healthcare, Stephen Harris from The Hartford, Lee Augsburger from the Prudential and Matt Kelly from Radical Compliance. Haidt has suggested that when articulating, modeling, and rewarding desired behaviors, organizations should avoid using words like “must” and “cannot,” which activate emotions that are at best dismissive and at worst rebellious. Rather than using a language of restriction, articulate, model, and reinforce specific desired behaviors in an aspirational way. Lee Augsburger from the Prudential spoked to this strategy when he shared the power of a program which showcased leaders retelling, often in a comical fashion, stories of integrity from their pasts.

These sorts of vulnerable interactions, which demonstrate growth and a pursuit of significance in a joyful way help to establish a bedrock of trust in an organization. This is especially important if ethical decision making takes place under existential stresses such as financial solvency, deadlines or public scrutiny. It is only with trust in place that leaders can count on their staff to speak out even in times of existential threat or incomplete information.

Establishing this foundation of trust however becomes a much more difficult, even if more worthwhile task, when it needs to be scaled to international divisions and 3rd party partners. To lie, cheat, steal or commit fraud is wrong, and yet given the right context many nevertheless can fall into these temptations. There are a web of interrelated pressures which surround these temptations and each web of pressures is unique to an individual’s local culture and perspective within an organization.

“We are the strength of the rock.”

Organizational leaders are therefore often faced with handling two competing desires: 1) to have small homogenous groups of employees whom through reputation and word of mouth can maintain strong ethical comradery and 2) to have moral and intellectual diversity to keep behavior from becoming indoctrinated, stale or blindly beholden to our “elephants.” Speaking to this point, Lee Augsburger related that he needed to change the tone of his organization’s code of conduct when applying it to the organization’s Asian divisions. While Western employees resonated with the Prudential Rock trademark and the statement, “I am the strength of the rock,” in the organization’s Japanese division, this messaging fell flat in the face of strong traditions of duty and loyalty, necessitating a rephrasing to “We are the strength of the rock.”

Organizational leaders can complement efforts to create loyal, strong communities through purpose-led, values-driven behaviors with exchange programs, initiatives which foster joy and systems for personal growth. Yet, finding the balance between moral diversity and comradery, be it localized or enterprise wide, remains a challenge values-based organizations looking to scale will continue to and must wrestle with. It’s a challenge without a one time or silver bullet solution, one which requires a multi-level approach as agile and evolving as the diversity it’s intending to address.

All in all, the evening showcased LRN’s central perspective: it is only through principled performance, business practices which are values-animated and purpose-led, that organizations can achieve long term significance and financial success. If organizations can embed cultural mechanisms that redirect their elephants; if they can articulate, model, and reinforce specific desired behaviors in an aspirational way; if they can embrace vulnerability and avoid a reliance on rules which externalize accountability and stifle innovation; then, and only then, will 21st century organizations feel comfortable with the blinding transparency of this reshaped business world. Not only will these organizations have nothing to hide but they will attract the best talent, talent looking to embark on a shared journey of pursuing significance.

Visit LRN’s website to learn more.

References:

Gandel, Stephen, and Reuters. “What Caused Valeant’s Epic 90% Plunge.” Fortune, 19 Mar. 2016. Web.

“General Motors Announces 30th Recall of Year.” CBSNews. CBS Interactive, 23 May 2014. Web.

Haidt, Jonathan. The Righteous Mind: Why Good People Are Divided by Politics and Religion. New York: Vintage, 2013. Print.

Livestream Event — Embedding Values and Ethics — LRN.” LRN. N.p., n.d. Web.

To Be Human Is to Be Biased.” Medium. LRN, 05 Apr. 2016. Web.