Corporate Ethics Transformation — Part I: Current Ethics Landscape
Business can’t do well AND do good without better behavior: Here’s how.
Ethics. A small word with outsized, unresolved meaning. Which means that to say corporate America needs an Ethics Transformation is a statement rife with disparate, often polarizing meaning.
Therefore, before diving into the muck and mire, I must ask you, reader, to agree to a basic assumption:
The word Ethics is loaded with baggage. What does it truly mean? How is it different from Morals? Does it matter that people of different faiths, ethnicities, and cultures define Ethics (or Morals) differently? This post, and the series that follows, however, will not attempt to solve these philosophical debates — I’m not pretending to be Kant or Neitsche. Nor will I be proposing any specific code of Ethics or will I attempt to replace the word Ethics with something different or better. For the purposes of this series, Ethics should be understood in simple terms––a way of behaving that recognizes and rewards good from bad behavior, however you, the reader, define good and bad. So, I ask you, reader, to accept broad usage, taking Ethics at face value; we know it when we see it. Your willingness to do so is greatly appreciated.
Bad corporate behavior isn’t new. Over the past several decades, money and profit, however, seem to have trumped good behavior. Everywhere across the corporate world we see ethics problems — executive corruption and dishonesty (see Volkswagen, Enron, Tyco, HealthSouth); monopolistic, anti-trust, anti-competitive practices in distinct business sectors (e.g., technology — see Microsoft, Apple, Worldcom); fraud and abject malfeasance across global finance (see Wells Fargo above, AIG, Countrywide, Merrill Lynch, Deutsche Bank, Bear Stearns, Lehman Brothers, the entire savings and loan industry in the ‘80’s/’90s); toxic culture in the workplace, sexual harassment, and other discriminatory behavior (see #MeToo, Harvey Weinstein, Uber); corrupt, dishonest individual corporate leaders (see Bernie Madoff, Martha Stewart); breaches in consumer privacy and data hacks, algorithms designed with inherent bias (see Facebook + Cambridge Analytica, Equifax, YouTube).
What would you add? How many in the Fortune 5,000 wouldn’t make one of these lists? All of us purchase products and services from companies that behave badly, sometimes horribly. In this respect, companies are truly human; complex ethical dilemmas we (society + government + educational institutions) have collectively failed to address. Sarbanes-Oxley has made little impact, Wall Street clawed back many of its core regulations and compliance provisions; the same with Dodd-Frank Act, the latest regime implemented to curb illegal financial practices and malfeasance in the wake of the 2008 financial crisis. Here’s another more recent one (unfortunately) from our friends at Wells Fargo:
“…the new report took a less sanguine view of (CEO) Stumpf’s leadership, using the typically restrained language of corporate investigations to note that he ‘failed to appreciate the seriousness of the problem and the substantial reputational risk to Wells Fargo.’ The bank will claw back an additional $75 million in compensation from him and the former head of community banking. That sounds like a lot of money, yet Wells Fargo’s executives were richly rewarded for years, and the report largely exonerates current leadership. Nor did this problem suddenly emerge. There were indications years earlier that employees were acting improperly to meet sales targets, though nothing was ever done to address the issue until regulators finally took action. As much as Wells Fargo might vow to change its culture, the pressure to deliver results may be enough to prevent any real change. Clawing back a bit of compensation from former executives is unlikely to deter this type of misconduct in the future.”
One could say, “Well, people have been unethical, however you define the word, since the beginning of time.” And this statement would be true. From Plato to Shakespeare to Kant to Dickens to LeCarre, the stories that define humanity typically boil down to the battle between good and evil, the Darwinian urge to win at any or all costs versus the better forces of our nature designed into our genetics to suppress bad-behavior and ensure survival of the species.
It’s not trite or hyperbolic, however, to say the world is different now. Everyone and everything is connected digitally; information flows in ways and to places we never thought possible. Every human can witness, evaluate, comment, and share examples and evidence of ethical breaches in real-time.
What this all means is that bad behavior is no longer possible to hide. It is rotting the underpinnings not just of individual companies, it’s tearing apart entire industries and threatening our way of economic life. In “The Future of Capitalism”, Paul Collier argues that “existential rifts in the capitalist system have emerged — geographic (regions against the metropolis), global (increasing wealth disparities), and educational (have-more access versus have-less access).” He goes on to say that what we now recognize as capitalism has morphed into something entirely different than what it was just a few decades ago:
“Modern capitalism has the potential to lift us all to unprecedented prosperity, but it has become morally bankrupt and on track for tragedy.”
In response, we’re seeing resurgence from a new crop of corporate leaders. The West’s economic dominance from the industrial revolution until the rise of Milton Friedman and his call for profit uber alles was lead in part by the once-revered philosophy of corporate social responsibility (CSR). It’s coming back into fashion, and many forward-thinking entrepreneurs and CEOs of multinationals are causing a paradigm shift away from Sir Milton:
“…speaking at the Fortune CEO Initiative last night, IBM CEO Ginni Rometty offered a clear rejoinder to the cynics. She talked about the decision her company made seven years ago to start an effort to train disadvantaged youth for technology jobs, called P-Tech. It wasn’t charity or even corporate responsibility that drove IBM to do it, she said. Instead it was a realization that the company needed an influx of new tech talent to manage the rapid changes ahead. Since then, P-tech has served 125,000 students through 200 schools in 14 countries. Rometty says some 500 other companies have now joined IBM in the effort. It‘s not just because they have a heart; it’s because they have a clear-eyed focus on the long term interest of their companies. In the long term, corporate interest and societal interest tend to converge. In another example of doing good in the world, Brad Smith, the president of Microsoft, made a similar point explaining why his company had devoted company funds to combatting housing issues. ‘You can’t have a healthy company if you don’t have a healthy community,’ he said. It’s not just doing good; it’s good business.”
People. Planet. Profits — CSR, TBL, Conscious Capitalism, and Purpose
At its core, the new version of CSR fuelled by the notion of the triple-bottom-line, or TBL, an accounting framework with three parts: social, environmental and financial. Some organizations have adopted the TBL framework to evaluate their performance in a broader perspective to create greater business value. Here’s some profound evidence of the shift to CSR:
In 2015, the Pope ignited the Vatican’s diplomacy apparatus to back the Paris Agreement, the UN’s Framework Convention on Climate Change, calling it a moral imperative. This week [June, 2019], the Pope will gather executives from the world’s largest oil producers for meetings designed to accelerate coordinated efforts to lower carbon emissions.
The new world requires that business take on a larger portfolio of responsibilities that collectively strive for outcomes beyond those that are solely self-serving. The mandate is to reform the capitalist system, shift it from a focus on profit alone to a focus on simultaneously bettering the world in meaningful ways.
In 2013, John Mackey, co-CEO of Whole Foods Market, and Raj Sisodia, marketing professor at Bentley University, published “Conscious Capitalism: Liberating the Heroic Spirit of Business”, articulating a call-to-action to transform capitalism itself:
“Conscious capitalism is an evolving paradigm for business that simultaneously creates multiple kinds of value and well-being for all stakeholders: financial, intellectual, physical, ecological, social, cultural, emotional, ethical and even spiritual. This new operating system for business is in far greater harmony with the ethos of our times and the essence of our evolving beings.”
Mackey and Sisodia challenge world leaders, not just in business, to commit to caring for workers, communities, and the environment. They urge that doing so is not a distraction from fiduciary duty, but is actually “the best way to optimize long-term profits and long-term shareholder value.”
In their view, how money is made just as important as making the money in the first place.
Proof is abundant even now in the movement’s early stages — Patagonia is the poster-child for doing good while doing well; Harley-Davidson, Google, the Container Store, Pedigree, Medtronic, Trader Joe’s, Panera Bread are other strong examples.
Back to our discussion of AI, concerned communities of scientists, policy-makers, and corporate leaders are emerging around the world:
The computer science and artificial intelligence communities are starting to awaken to the profound ways that their algorithms will impact society, and are now attempting to develop guidelines on ethics for our increasingly automated world. The EU has developed principles for ethical AI, as has the IEEE, Google, Microsoft, and other countries and corporations. Among the more recent and prominent efforts is a set of principles crafted by the Organization for Economic Co-operation and Development (OECD), an intergovernmental organization that represents 37 countries for economic concerns and world trade.
In various ways, these standards are attempting to address the inequality that results from AI and automated, data driven systems. As OECD Secretary-General Angel Gurría put it in a recent speech announcing the guidelines, the anxieties around AI place “the onus on governments to ensure that AI systems are designed in a way that respects our values and laws, so people can trust that their safety and privacy will be paramount. These Principles will be a global reference point for trustworthy AI so that we can harness its opportunities in a way that delivers the best outcomes for all.”
Often, however, these efforts fail to recognize the cultural and social differences that underlie our everyday decision making, and make general assumptions about both what a “human” and “ethical human behavior” is. This is insufficient. “Whose ethical behavior?” is the question that must drive AI, and all the other technologies that impact our decision making, guidelines, and policies.
