Conscience and Corporate Culture
19 December 2006 Kenneth E Goodpaster
Kenneth E Goodpaster asks: to what ethical standards can we hold corporations? In an extract from his book, Conscience and Corporate Culture, he finds common moral patterns and argues for the development of an ethical response.
There is a certain ambivalence about business ethics in Western society. We begin with scepticism about the moral credentials of the profit-driven market system. As Irving Kristol wrote: "Two cheers for capitalism!" In business, as in campaign politics, we often witness an unbalanced pursuit of goals and objectives.
Over the last 35 years we have seen this pathology at work from Watergate to WorldCom. We have seen it in the career crashes of inside-traders like Ivan Boesky, in the corporate crashes of Enron and Andersen, and in the literal crashes of the World Trade Center, and the space shuttles Challenger and Columbia. Call this the stimulus problem: a business system that lends itself to certain kinds of excess.
The ambivalence becomes evident when we recognise our reluctance to prescribe the most obvious cure for the stimulus problem: the use of moral criteria (beyond economic competition) to balance managerial decision making. Both our laws and our social norms caution managers and boards of directors (as agents of the corporation) against thinking that strays too far from a strict duty of care to shareholders.
Perhaps we fear that incompetence might parade as virtue, or that ethical judgment might mean moral fanaticism. Either way, we seem to resist our most obvious alternative to amorality. This could be called the response problem.
Is there a way to overcome, or at least mitigate, this ambivalence with conscientious decision making, especially in the wake of the corporate scandals and (in the US) the Sarbanes Oxley Act? Yes, but only if we can achieve in some measure a shared moral outlook, trusting that we can tell integrity from its counterfeits – and wisdom from misguided zeal.
ETHICS AS A RESPONSE TO A COMMON PATTERN
There is a common pattern underlying the tragic events just mentioned (the stimulus problem) and we need to develop an ethical response to that pattern. The pattern is this: take an organisational culture that is fixated on certain goals whatever the cost; combine it with the group's rationalisation of its behaviour in the name of those goals, and repeat this behaviour again and again until the protesting consciences of the participants become detached, anaesthetised.
These are the symptoms of a pathology that can infect our most treasured institutions, including not only those in the private and public sectors, but also the moral-cultural sectors of religion, the media and education. We see these symptoms in the fanatical behaviour of terrorists, but we also see these symptoms in the obsessive behaviour of corporate executives and in the driven behaviour of NASA decision makers
Fixation. Rationalisation. Detachment. Symptoms of a hazard to which both individuals and groups can succumb. Objectives become idols; obstacles become threats; second-thoughts are not allowed – and eventually, second thoughts disappear.
Despite the behaviour of individual decision makers, the larger reality is a cultural reality, and this fact explains most corporate wrongdoing in recent years. Conscience is our primary check on the unbalanced pursuit of goals and purposes. And corporate conscience is not in the end a matter of external compliance or competitive advantage; it is a matter of internal self-assessment and improvement. Internal moral compasses are much more reliable than external sanctions – legal or economic.
THE MORAL AGENDA OF LEADERSHIP
It is the leader who must ultimately make ethical awareness happen when the values and behaviour of the organisation are at stake. The leader is the principal architect of corporate conscience and the one who must manage the stimulus and response problems. He or she is the person most responsible for giving substance to the moral agenda of the organised group. That agenda includes three broad imperatives: orienting, institutionalising and sustaining conscience in the corporate culture.
Orienting means giving direction, setting a course. Getting there from here, however, is impossible if 'here' is a mystery. Leaders need to appreciate where their organisations are, ethically, to begin with.
Orienting (or reorienting) shared values in a culture is like orienting (or reorienting) corporate strategic planning. As the orientation of a culture becomes clear in relation to a company's current position, however, questions about the legitimacy of that orientation may arise. The stockholder-stakeholder debate reflects such questions.
Institutionalising means making the company's value orientation part of its operating consciousness. An organisation must align its ethical aspirations with its incentive and reward systems.
This process includes communication, motivation and discipline, relating ethical values to operations at every turn. It also means reinforcing them with symbols, ceremonies and celebrations. A conundrum in this domain may be that conventional management incentives and rewards often appeal more to self-interest than to moral motives.
The third item on the moral agenda is extending and sustaining shared ethical values over time. This means continually renewing corporate conscience in the face of a kind of entropy. As with individual character, organisational character can weaken with the passage of time and under pressures to compromise.
Like physical processes in nature, social processes such as orienting and institutionalising values have a tendency to wear down. This means ongoing attention not only to the next generation of leadership, but to the forces in the external social environment that influence the values of the company. A puzzle arises: can corporate conscience be sustained without imposing values on others? If not, how are ethical values to be propagated in organisations over time?
CLASSROOMS AND BOARDROOMS
The moral agenda of leadership cannot ultimately succeed without educational support structures, what I call the three 'academies'. The first 'academy' – the modern business school – must come to terms affirmatively with the classical question, "can ethics be taught?" if it is to avoid defaulting on the moral formation of future leaders.
I argue that the three imperatives of corporate leadership (orienting, institutionalising and sustaining shared values) must be mirrored in business schools' curricula: imperatives to initiate, integrate and continue ethics education.
The second 'academy' – corporate management education programs – must also address the moral agenda, both in general and as it relates to the institutionalisation of company-specific values. The corporation is a business school in many ways, and needs to incorporate ethics education just as the first 'academy' does.
The third 'academy' is comprised of associations of distinguished leaders that oversee and set global standards for corporate ethics. The Center for Ethical Business Cultures and the SAIP Institute at the University of St. Thomas are examples. They offer transcultural ethical principles and a self-assessment and improvement tool analogous to the Baldrige process for quality management.
Such associations are as essential to professional management as are their counterparts in medicine and law. The moral agenda of the corporation requires scrutiny and stewardship from the generation of leaders most experienced with its possibilities and challenges.
We must find ways to discourage moral blindness and thoughtlessness in the competitive environment of corporate decision making. The stakes are high, for defaulting on this moral agenda could, and arguably should, mean the erosion of the corporation itself, as we know it.
As Kenneth Andrews put it nearly three decades ago, "If organisations cannot be made moral, the future of capitalism will be unattractive – to all of us and especially to those young people whose talents we need." Ethically, we should perhaps ask no more of corporations than we ask of ourselves, but we should not ask less.