Company managers have likely heard the old quip: Business ethics is a contradiction in terms. That’s because too often, business is viewed as a hard-hearted enterprise, driven by getting ahead at all costs, even if that means cutting ethical corners.
But that attitude is seriously outdated, says Harvard Business School visiting professor J. S. Nelson in her new book Business Ethics: What Everyone Needs to Know, which will be released on April 21. Nelson, a Villanova University law and business faculty member, co-wrote the book with Cornell University professor Lynn A. Stout, who died in 2018 while the book was in process.
Today, strong ethics are a central issue for business leaders, knowing consumers are drawn to companies that do the right thing while steering clear of businesses that break ethical boundaries, Nelson says. As business leaders navigate a fluid marketplace, a solid ethical practice is the best compass, she advises.
“The world is changing around businesses,” Nelson says. “There is more pressure to make profits, and at the same time to respond to environmental, social, and governance issues.”
And, she says, good workplace and customer ethics aren’t just trendy promotional talking points for companies. Rather, they’ve become crucial for a corporation’s success. As the authors write, “Organizations and societies with high ethical standards tend to flourish, while those with weak ethics often fail.”
‘You have to live it’
Business Ethics is written in a question-and-answer format that’s accessible for everyone from C-suite executives to business students. It covers a wide range of topics, from the basics of ethical behavior and legal liabilities to the cultivation of best practices and the role of whistleblowers.
One overriding message emerges from the book: Good ethical practices don’t just happen; everyone within a corporation has to continuously work on them.
“People are not always comfortable talking about ethics,” Nelson says. “Some have been dismissing ethics as, ‘I don’t have to think about [those things].’ But making ethical choices has got to be conscious. You have to put the work in. You have to live it … Cultivating positive ethics within our companies is among the most important things we can do.”
Surveys show plenty of work still needs to be done. Nelson and Stout write that unethical behavior arises from the “ethical traps” of opportunity, motivation, and rationalization, and typically can be seen through measures of at least five types of misconduct: abuse, lying to employees, discrimination, health and safety violations, and stealing.
Worldwide, 20 percent of employees say they’re pressured to bend the rules; in the US, that figure is even higher, at 22 percent. And managers are responsible for 60 percent of all misconduct, with nearly a quarter of it coming from senior managers.
Avoiding ’the ethical slide’
Nelson points to the recent Theranos trial, in which founder and CEO Elizabeth Holmes was convicted in January of defrauding investors. A sure sign of the ethical lapse at Theranos was that “people started asking questions, and they got fired,” Nelson says.
Wells Fargo’s 2016 account fraud scandal, in which bank representatives were pressured into creating 3.4 million fake accounts to meet company quotas, is an example of what Nelson calls “the ethical slide” into shady or illegal actions.
“People who stay in that kind of system, they get used to it,” she says. “Either nothing happens [to you] when you commit misconduct, or you’re rewarded. And bad behavior snowballs. If it’s happening across the company, you get to the point that all your time is spent in crisis management.”
Cultivating a ‘speak-up culture’
While cultivating good ethics may sound daunting, Nelson says it isn’t complicated. For example, Costco’s code of conduct is based on a few simple values, such as: Obey the law. Take care of our members and employees. Respect our suppliers. And the company promotes managers in-house to maintain a consistent ethical culture.
The Hershey chocolate company’s code is similar and includes a question that corporate employees should ask themselves: “Would I feel okay if everyone knew about it?” Hershey also has a firm anti-retaliation policy, which is intended to make whistleblowers feel secure about reporting illegal or unethical activities.
Nelson says the ethics at corporations like Costco and Hershey start with the creation of what she calls “a speak-up culture,” which encourages employees and lower-level managers to report problems.
With customers and investors more attentive than ever to corporate social responsibility, firms that act ethically will have a competitive advantage, Nelson says.
“You have more innovation. You have customers who seek you out. Having a good ethical reputation is attractive,” she says. Not only that, “those companies are more steady and less volatile. They do not go through huge ethical collapses. They’re well-managed, and they’re able to respond [to challenges].”
In addition, in this tight labor market, people want to work for ethical companies, Nelson says. They will seek them out, be willing to take less money, push innovation, and be more committed than to other companies. “Ethics are an enormous competitive advantage in every way,” she says. “Savvy companies understand this, and invest in their ethics to do so many other things.”
Business Ethics: What Everyone Needs to Know
J. S. Nelson
Most people follow at least some ethical rules in their daily lives. (The small percentage of individuals who do not are called psychopaths; we discuss them some more in Chapters 2 and 10.) The world of business, however, presents some unique issues, which is why they have evolved as a specialized field of ethics.
One of those unique issues is the sheer size and frequency of the ethical challenges that businesspeople must face. It is not unusual for those in business to be presented, almost daily, with opportunities to personally profit by violating the law or by harming or misleading others. The stakes can be enormous, especially when a big transaction or career-making decision is involved. This means people in business often face much larger temptations in the office than on the street. (Although it is usually not very tempting to shoplift a small item, the opportunity to make millions of dollars by insider trading or cheating on a large contract is far more enticing.)
As a result, businesspeople must always remain aware of and sensitive to their ethical obligations. If they do not, they risk joining the long and sad parade of once-virtuous—but now notorious—white-collar criminals like Enron Chair Kenneth Lay, Goldman Sachs director Rajat Gupta, and business maven Martha Stewart.
A second unique aspect of business ethics is that they operate in a social environment—business dealings—in which people, to some extent, often tolerate, expect, or even praise the selfish pursuit of personal gain. This makes the business environment quite different from many other social environments in which we interact with other people. Few of us want to be perceived as selfish at a wedding reception or a bar mitzvah. But when we are negotiating a contract or trying to sell a product, a certain degree of material self-interest is expected.
The key phrase here is the qualifier, “a certain degree of.” Business ethics help to keep us from crossing the line from legitimately self-interested behavior, over to unethical and/or illegal behavior.
Third, business ethics emphasize the obligations we owe not only to our friends and family, but also the obligations we owe to people with whom we have only an “arms-length” business relationship, and even obligations owed to total strangers. Indeed, sometimes business ethics go further still, and teach that we have obligations to intangible legal entities like corporations. This aspect of business ethics can raise some practical difficulties. It is relatively easy and natural for a person to remember the interests of friends and family whom she likes, and with whom she interacts on a daily basis.
However, as we discuss more in Chapters 8 and 9, it is often more difficult for us to stay aware of, and respect, duties owed to people whom we don’t know well or even may have never met—much less duties owed to intangible legal entities. Business ethics help us find our way through this minefield.
Finally, a fourth distinguishing characteristic of business ethics is that ethical problems in this context tend to involve unique concepts and rules specific to the business world. Many of these concepts and rules are based on, or draw upon, legal rules that apply primarily to business institutions and business dealings. For example, in this book we will discuss fiduciary duties, rules against fraud, duties owed to corporations and other legal entities, and the resources and legal protections available to “whistleblowers.” Business ethics and the law are deeply intertwined.
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Author Name: Lane Lambert
This article first appeared in www.hbswk.hbs.edu
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