business ethics: the challenge of leadership and ethical decision making ethics breakfast1.pdf ·...

Business Ethics: The Challenge of Leadership and Ethical Decision Making

Fisher College Executive EducationBreakfast Club

David E. Freeldavid.e.freeL@gmail

[email protected] 22, 2013

WelcomeWelcome• Who I am

• What is my What is my perspective?

• Please feel free to ask Q's

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David E. Freel Fisher Executive Education

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To discuss our topic, I intend th "t h " i ti todaythree "touches" in our time today:

• Why Ethics?Why Ethics?• What do we mean by this Ethics "stuff"?• And, lets see... there's processes for:

• Strategic decision making, and long-term decision making, and...

• Financial, HR and Personnel, IT and Systems Migration,Financial, HR and Personnel, IT and Systems Migration, Marketing, Legal,...decision making

• Why aren't we discussing/analyzing/informing upon...• Framework for Ethical Decision Making

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C S LewisC.S. Lewis

Most people don’t need to be taught.They need to be reminded.

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Starting Assumptions at Fisher:Starting Assumptions at Fisher:

• Leadership development is a critical role for business schoolsLeadership development is a critical role for business schools• Leadership is not only about:

• Personal styleL d d l d t i b t l• Learned, developed competencies, but also:

• Values, character, integrity, and ethical reasoning• Ethics issues pervade leadership & business decisions • Leaders must be self-aware and know who they are:

• Their core values • How their values fit within their profession/employmentHow their values fit within their profession/employment• How to "frame" and decide significant ethical issues

• In addition to cases and readings, we drill down into a variety of different strategies with students to get at thesedifferent strategies with students to get at these

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Can you identify business or leadership Ethics i di t i l t l ?issues pervading enterprises lately?

• Lance Armstrong and LivestrongLance Armstrong and Livestrong• Penn State, Air Force Academy, Catholic Church sexual

misconduct scandals • Harvard undergraduate cheating scandal• Bank rate manipulation affecting LIBOR - UBS - $1.5 B• Bank money laundering for drug dealers, terrorists, and Iran,

among others - HSBC - $1.9 B• Allegations and settlements of FCPA bribery Wal Mart in• Allegations and settlements of FCPA bribery - Wal-Mart in

Mexico; J&J in ME; Avon in China; Microsoft, etc. • Mortgage Crisis and Financial Collapse of 2008 Dodd-Frank• Bernie Madoff's ponzi schemep• Even Gibson guitar – violating exotic wood environmental bans• US not alone - global enterprise scandals; such as in China,

Taiwan, India, Spain, and England

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Dr. Catharyn A. BairdELI and EthicsGame Creator

…all of us seem to have a desire to be…all of us seem to have a desire to be ethical and/or to be perceived as ethical.ethical.Citing the work of Norma Haan, et al, University of California Berkeley psychologist and the book OnCalifornia, Berkeley, psychologist, and the book, On Moral Grounds: The Search for Practical Reality

Why do you think we want to be ethical and viewedWhy do you think we want to be ethical and viewed by others as being ethical?

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How do you think we are doing as business, t NGO l d ?government or NGO leaders?

• Any nurses or pharmacists here?• Just askingg

• Let's check out the rest of us• Gallop PollGallop Poll

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Let's talk a bit about what we mean h th t "Ethi "when we use the term "Ethics":

Prof Paine (HBS):Prof Paine (HBS): • Moral science

Prof's Hartman (DePa l) and DesJardins (StProf's Hartman (DePaul) and DesJardins (St. Benedict and St. Johns Colleges):• How humans beings should properly live theirHow humans beings should properly live their

lives, and how we act

Prof Wicks (Darden Univ of Virginia):Prof Wicks (Darden - Univ. of Virginia):• Originating from the Greek; “Theory of living”• Thinking about right and wrong

3/22/13David E. Freel

Fisher Executive Education Breakfast Club

• Thinking about right and wrong

Working definitions of Ethics:Working definitions of Ethics:

Ethics is often commonly described as: • Rules or system governing conduct

Sh d it l / i i l• Shared community values/principles• Inclusive of, but much broader than, what some in

enterprises might think of "ethics", as purelyenterprises might think of ethics , as purely compliance

And, as distinguished from Morality: , g y• Our personal compass of values/principles

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What then is Business Ethics?What then is Business Ethics?Prof Paine (HBS): ( )• Organization's values and cultureHartman and DesJardins:• Application of values within a business context• Process of responsible decision makingB M C A th f Th P bl f th S dhBowen McCoy – Author of The Parable of the Sadhu • The authenticity and integrity of the enterprise• Taking a tough line or decisional stand in a muddle of• Taking a tough line or decisional stand in a muddle of

ambiguity

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Although I, along with some others i h E hi ldin the Ethics arena, would suggest:• The true Q is not:The true Q is not:

What is "Business Ethics"?

• The real Q is: What do you want your Ethics to be?y y

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Have things changed in Business with regard to Ethics? Value Shift Prof Lynn Paine (HBS)

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Ethics? - Value Shift - Prof Lynn Paine (HBS)

When she first examined business ethics three decades agog• Business Ethics? - "an oxymoron"Businesses have shifted dramatically in recent decades in

l i ifi tseveral significant ways:• Technology• Increased Globalization• Increased Globalization• Heightened Competition• Shifting DemographicsShifting Demographics • Corporate Attention to Values/Ethics - more subtle shift

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Paine - Today's Business Ethics f th CEO' h h t ithfrom the many CEO's she has met with:

Changed environment from observations and discussionsChanged environment, from observations and discussions with global business exec’s:• Less about why or should Ethics be a part of business• More about how Ethics be integrated w/i businesses• Q is which values and principles should guide business

d i idecisions• Also, a deisre to avoid a “60 Minutes” event

Companies having significantly shifted, in part, because:• Established co.'s - protecting their reputation/brand• Entrepreneurial co 's building their reputation/brand• Entrepreneurial co. s - building their reputation/brand

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Paine's Reasons for the Value Shift in Business: E hi G d B iEthics = Good Business

• Risk ManagementRisk Management • Avoid negative economic results of unethical activity• Avoid negative impact upon Stakeholders

O i ti l F ti i d St bilit• Organizational Functioning and Stability • Increase quality and commitment of Employees and

Customers - "Intangible value"

• Market Positioning • Research shows it's better for business

Ci ic Positioning ithin Comm nit• Civic Positioning within Community • Just the "Right thing to do"



Importance to Business and Leadership?T L l C i f W kfTrust, Loyalty, Commitment of Workforce

94% id fi ’ Ethi iti l t• 94% consider firm’s Ethics as critical to employment choice

• 82% willing to trade off lower pay to work for• 82% willing to trade off lower pay to work for firm with Ethical business practices

• Est one third of US workers have walked off• Est. one-third of US workers have walked off the job on the basis of ethics issues

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Import to CustomersImport to Customers• 91% - Behavior towards customers and communities91% Behavior towards customers and communities

influential when making a purchase• 74% - Want to know more about company behavior

before buying• 6 of 10 - Awareness of a company ethics affects decision-

making• 53% - Knowing that "the company donates a percentage of

profits to charity and good causes” influential whenprofits to charity and good causes influential when considering a purchase

Age and gender splitM d 30 ki " thi l b d l " i it h• More under-30s ranking "ethical brand values" as a priority when spending, compared to older consumers.

• Social responsibility higher priority for women than men

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PlatoPlato

Good people do not need laws to tell them to act justly, while bad people will find a way around the j y p p y

laws.

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Let's keep in mind -i E hii E hiLaw is not EthicsLaw is not Ethics

• Ethics and Law are complimentary, but fundamentally different• Law is public policy, but a baseline of societal expectation• Law is a floor limiting action, not a ceiling of high integrity

• Law often results from past experience rather than easilyLaw often results from past experience, rather than easilyanticipates or frames future unexpected conduct

• Law has a difficult time being elastic or responding to unique circumstancescircumstances

• However, you choose to disregard law at your peril• Criminal law is designed to prohibit the worst of conduct, not

ensure the best of expectationensure the best of expectation• Law does serve as a barrier or deterrent to unethical conduct,

and a standard of accountability for corruptionC h C t l• Cuyahoga County one example

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Stephen ColbertStephen Colbert

This is 100 percent legal and at least 10 p gpercent ethical.

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Ethics Resource Center

Well implemented ethics and complianceWell-implemented ethics and compliance programs reduce misconduct slightly, but an effective focus on ethical culture reduces misconduct to roughly 1/3 to 1/2 the rate of companies with weak ethical cultures.

Business First Editorial 12/28/07

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Some of the connections between Ethics and Leadership:

Three key traits of Leadership in Prof Rucci's research• Three key traits of Leadership in Prof Rucci's research – One of three is Principle - others, Passion &

PerformancePerformance• "Hallmarks" of Leadership and Emotional Intelligence (EQ)

– Integrity – Self-assessment (honesty with ourselves and

others)S lf l i ( hi i i i h– Self-regulation (trustworthiness; anticipating that ethical decision making often occurs in ambiguous factual circumstances)ambiguous factual circumstances)



The "Right" course of conduct -h d fi t h t it i ?how do we figure out what it is?

• May be obliged by the Law or RulesMay be obliged by the Law or Rules• But when the rules do not control, what is our ethical

course of action?• And when facing an ethical challenge how do we• And when facing an ethical challenge, how do we

choose the best ethical decision?– How does our own perspective affect our choice?– Is there value to us to explore a diversity of

perspectives?– What about our core values?– What about our core values?

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Joseph L. Badaracco, Jr.p ,

…life seldom presents [ethical] challenges and problems in the formchallenges and problems in the form of stark, either-or choices.

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Decision Process Contrasts Wh It C t Ethi l Ch llWhen It Comes to Ethical Challenges:

Issue: View:Issue:• Financial, legal, HR

competiveness, market i d h ll

View:• Explicit and routine process• Subject to analyses• Often critical discussionissues and challenges • Often critical discussion

• Ethics challenge • Often left to instinct• Ethics challenge • Often left to instinct• “Gut” response• Ad hoc to the challenge

Difficulty is that we often use emotion, rather than reason, to resolve ethical issues – if we use reason, often it is to attempt to justify our action after the fact

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to justify our action after the fact.Prof. Mary Gentile Giving Voice to Values –Babson/HBS/Yale

Paine's Ethics Decision Making Framework:Making Framework:

1 F t1. Facts2. Stakeholders' impact

– Appreciate standards and obligations3. Maintain objectivityj y4. Act transparently

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Appreciating Impact on Stakeholders Four Q’s:Stakeholders - Four Q s:

• Is the action consistent with the actor's basic duties?• Does it respect the rights and other legitimate claims

f ff t d ti ?of affected parties?• Does it reflect best practice?

(Recent presentation on the changes to OSU's College of– (Recent presentation on the changes to OSU's College of Medicine goals and objectives for educating doctors)

• Is it compatible with the actor’s own deeply held p p ycommitments (core values)?

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Concrete Example of These Q's:West Point Three Rules of ThumbWest Point – Three Rules of Thumb

Does the action attempt to deceive anyone or allowDoes the action attempt to deceive anyone or allow anyone to be deceived?

Does the action gain or allow the gain of privilegeDoes the action gain or allow the gain of privilege or advantage to which I or someone else would not otherwise be entitled?

Would I be dissatisfied by the outcome if I were on the receiving end of the action?

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Some of the Hurdles/Rationalizations to Ethical Decision Makingto Ethical Decision Making:

• Slippery slopeSlippery slope• Victim mentality• Everybody does it• Cultural context - organizational and demographic "practice"

or "the way things are done"• Don’t challenge ‘authority’, obedience mentalityg y y• "Moral muteness" • "Moral disengagement" • Conflicting Interests self interest• Conflicting Interests – self-interest

• "Inappropriate" self-interest - evolutionary influence

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Michael JosephsonMichael Josephson

Self-interest has a powerful tendency to disable our objectivity and befuddle our abilitydisable our objectivity and befuddle our ability to live up to moral principles.

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Conflicts of Interest & Self-Interest:Conflicts of Interest & Self Interest:

– Self-InterestSelf Interest – Remains an intense and inherent motivator

to any leadership action• Can be good and bad - appreciate it's presence

– “Inappropriate Self-Interest: A Beguiling and Unconscious Influence on Decision Making”Unconscious Influence on Decision Making

• Evolutionary, self-protective instincts • Why Good Leaders Make Bad Decisions and

How to Keep It From Happening to You - HBSHow to Keep It From Happening to You - HBS book Sydney Finkelstein, Jo Whitehead, and Andrew Campbell

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Michael JosephsonMichael Josephson

We judge ourselves by our intention, but we are judged by our last worst act.

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Paine's Ethics Decision Making F k (Ad t dAd t d)Framework (AdaptedAdapted):

1. FactsSt d Thi k• Stop and Think

• Facts are fluid; require critical inquiry & discernment2. Stakeholders and standards

• Diverse perspectives identifying ethical issues & alternatives• Respect the rules; duty, rights, best practices & commitments

3. Maintain objectivityj y• Self-interest +'s and -'s - requires leadership self-awareness• Need to anticipate/avoid rationalizations for unethical action• Consult expertise• Consult expertise

4. Act transparently• Ethics can be tough - can require courage

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Institute for Business Technology & Ethics -8 Traits of a Healthy of Organizational Culture8 Traits of a Healthy of Organizational Culture

1 Openness (Transparency) throughout enterprise1. Openness (Transparency) throughout enterprise2. Environment of accountability and personal

responsibility3 F d f i k t ki /i i t li it3. Freedom from risk taking w/i appropriate limits4. “A fierce commitment” to “doing it right”5. Willingness to tolerate and learn from mistakesg6. Unquestioned integrity and consistency7. Pursuit of collaboration, integration, and holistic

thinking – invited creativityt g ted c eat ty8. Courage and persistence in the face of difficulty

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Leadership Ethics and Integrity Pyramidand Integrity Pyramid

Ethics & Integrity Our Values& Decisions& Decisions

Corporate ValuesCompliance & Ethics

Codes, Mission Statements

Law as a Foundation

Baseline

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Groucho MarxGroucho Marx

Those are my principles.

And if you don't like them...I have others.

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Thank You!Thank You!

• Thank you for your attention

• Questions?

David E. Freel d id f l@ [email protected][email protected]

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business ethics: the challenge of leadership and ethical decision making ethics breakfast1.pdf ·...

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