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Ethics as Excellence: A Strategic Management Perspective John Milton-Smith
ABSTRACT. Confidence in Australian business was severely shaken by the corporate scandals and collapses of the 1980s. Many commentators called for more emphasis on ethics education. This paper surveys the initiatives of Australian business schools and professional bodies and fmds them superficial and ineffective. It then presents a case study in 'Quality Improvement' which highlights the need to take a strategic and integrated approach to the development of core values such as quality, trust, ethics and social responsibility. In exploring the process of cultural change, the paper identifies a number of key leader- ship roles, responsibilities and competencies which are distinguished from the more traditional management functions.
Introduction
Now that the dust has settled, it is possible to review and reflect upon the business culture of the 1980s with a reasonable level of perspective and detachment. In retrospect, it was a decade of unsurpassed greed. Many of its enduring images, many of its most prominent people were concerned with extravagant display. Mirroring the rapidly globalizing economy, the dramatis personae were truly international.
One has only to think of Adnan Kashoggi, Malcolm Forbes, Imelda Marcos, Robert Maxwell, the Directors of BCCI - supported by
John Milton-Smith has been Deputy Vice-Chancellor, Curtin Business School, since 1990. He is currently conducting the Australian Business Ethics Project, part of which is reported in this paper. His other research interests include The Strategic Management of Corporate Culture, Global Business Strategy and International Trade Diplomacy.
a huge cast of mainly regional identities - to immediately conjure up images of self promotion and wealth to excess exemplified by decadent parties, the most expensive automobiles, precious paintings and beautiful yachts. Yet, with the benefit of hindsight, it is already clear that they also represented transient achievement and, in some cases, trails of destruction and betrayal of trust. None of them was concerned with build- ing businesses, adding value, creating employ- ment, benefiting stakeholders or improving the community. Their primary concerns were with self-aggrandizement.
The business climate of the 1980s was a rich mine-field for a new type of entrepreneur to exploit financial deregulation in a time of rapid economic growth. In such an environment, when conditions were volatile and public under- standing was limited, anything seemed possible. Upstarts and opportunists could invent their own rules and then proceed to play by them. Michael Lewis, author of Liar's Poker, which was based upon his experience as a bond trader in the 1980s, has described the "fast money" business culture of those times as having 'the general ambience of an American football locker room'.
An interesting and instructive example of a classic 198O's parvenu was Michael Milken, the chief executive of Drexel Burnham Lambert, who created a totally new industry with new rules based upon "junk bonds" and insider trading. Although Milken had many of the characteristics of the traditional entrepreneur, it was also both significant and disturbing that he was a product of both Berkeley and Wharton (Bruck, 1989).
In Australia, the deregulation of the financial system triggered a period of reckless bank lending
Journal of Business Ethics 14: 6 8 3 - 6 9 3 , 1995. © 1995 Kluwer Academic Publishers. Printed in the Netherlands.
684 John Milton-Smith
which was characterized by an orgy of takeovers, negatively geared property investments and paper shuffling. High profile entrepreneurs became folk heroes and, one suspects, the most influential business role models for the community. When the bubble finally burst and the crash came, it soon became clear how corrupt and leaderless the Australian system had become.
Since the stockmarket crash of October 1987 there have been royal commissions in every Australian state. What has emerged has only served to confirm the already deep disquiet about the standards of public life in Australia.
In the wake of corporate collapses involving well-known companies such as Bond Corpora- tion, Qintex, Rothwells, L. J. Hooker, Tri- continental, Elders-IXL, Adelaide Steamship, Estate Mortgage and Spedley Securities, many questions have been raised about the integrity of business and government leaders. There have been disturbing revelations of unethical and, in some cases, illegal practices including non- disclosure, deception, false accounts, secret commissions, conflicts of interest, lack of duty to shareholders, creative accounting and inap- propriate relationship between business and government.
The professionals have also come under a cloud. In the case of the accountants, serious criticism has been levelled at some of Australia's largest and most respected audit firms for failing to report the corrupt activities of their clients and hiding behind cloaks of professional confiden- tiality. For example, Mr Malcolm McCusker, QC, reporting on the activities of Rothwells, a prominent merchant bank, and of its chief executive, Mr Laurie Connell, concluded that:
In the course of the years 1985, 1986 and 1987 Mr. Laurie Connell . . . borrowed huge sums from Rothwells. No hint of these borrowings appeared in the published annual reports of Rothwells for any of those years. At the year's end, Connell's indebtedness to Rothwells was removed from the books of Rothwells by journal entries based on transactions which were either totally or substan- tially fictitious.
Despite the obvious shortcomings of the auditing role during these years, the auditors have
tended to avoid responsibility by complaining about the ambiguity of the law and the exces- sive powers of chief executive officers (Lawson, 1992).
The impact of business schools and professional bodies on ethical standards
In the face of widespread community disen- chantment and criticism in the 1980s, business schools and professional bodies came under increasing pressure to address the issue of business ethics and to "develop and educate" a new generation of more ethical business-people. As a means of monitoring these developments and evaluating the effectiveness of the institutional responses, the author established the Australian National Business Ethics Project (Milton-Smith, 1991, p. 5).
The first phase of the National Business Ethics Project focused on business schools and business educators. The study targeted all Australian university and other tertiary level business schools. Two questionnaires were used. The first, 'Business Ethics - Education' was directed at Deans/Heads/Directors of business schools (hereafter described as "Deans"). The second, 'Business Ethics - Attitudes and Opinions Survey' was directed at academic stafT of all classifications in Australian business schools (hereafter described as "lecturers").
A total of 65 "Deans" were contacted and 45 responded. Approximately 1600 copies of the second questionnaire were distributed and 343 were returned, and found to be acceptable, giving a response rate of 21%.
There was clear evidence that Australian business schools had provided little leadership in areas relating to ethics and social responsibility. Although a majority (52%) of "lecturers" rated the overall standards and practices of the Australian business community as 'unethical', only slightly more than half the business schools (55%) systematically integrated ethical issues into the curriculum for core business disciplines. Furthermore, very few business schools (9%) offered compulsory units in business ethics or even electives (11%).
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While the great majority of "Deans" sup- ported more emphasis upon teaching business ethics in the future, only a few (3%) are planning to introduce new compulsory units or electives (22%).
It seemed from the study that major barriers to the introduction of business ethics were the lack of qualified academic staff and the inability of existing staff to define what was ethical and what was not. Indeed, a significant minority of staff and students opposed the teaching of business ethics on the grounds that unethical behavior had become the norm and profit max- imization was the critical business value.
The narrow vocational orientation of Australian business schools has failed to produce business leaders with vision, insight and moral authority. In many ways Australian business schools have been followers rather than leaders in shaping the business education curriculum. However, the time has now come for business schools to place greater emphasis upon the development of ethical values and leadership skills and to design courses which identify and explore the complex ethical dilemmas which increasingly confront professional practitioners and managers operating in today's turbulent business world.
In the second phase of the National Business Ethics Project, 82 Australian professional bodies and industry associations ("professional bodies") responded to a questionnaire seeking information about codes of ethics, ethics education programs and the handling of ethical breaches. The respon- dents included a wide spectrum of professions and industries (Milton-Smith, 1992). Although 73% of "professional bodies" claimed to have developed a code of ethics, the evidence sug- gested that they had had only a hmited impact.
A significant number (67%) of "professional bodies" have had a code in place for ten years or more, including the worst years of professional misconduct and business corruption. Of those "professional bodies" with a code currently in place, few (12%) are confident that their mem- bers are 'very familiar' with its contents. More than a quarter (28%) predicted that their mem- bers would be 'fairly unfamihar' with the code.
Most codes of conduct (52%) offer only general principles and less than a quarter (23%)
contain both general principles and specific "do's and don'ts". About one-third (33%) of those with codes actually believe their code is 'very helpful' in assuring ethical business conduct. Despite this, the great majority (75%) of "professional bodies" do not offer ethics education programs such as lectures, seminars, workshops or any other kind of professional development.
The need for ethical leadership
There is a danger that Australian managers will wittingly or unwittingly allow ethics to be used as window dressing or as a smokescreen. Apart from rushing to develop superficial codes of conduct, many Australian companies are now adopting a strategic approach to corporate phil- anthropy as a means of demonstrating their ethical commitment and social responsibility. This in itself is not a bad thing. If corporations are actually doing good, it is not only reason- able but desirable that they should be seen to be doing good. Concern for reputation can be a healthy symptom of ethical awareness and sensi- tivity. However, it can also be an unhealthy symptom of a purely 'bottom line' approach to ethics; that is, the reason for doing good is that it is good for business (Labich, 1992, pp. 83-84).
Ethical organisations develop, encourage and enable people at every level to exercise ethical judgement. They, are led by executives who promote and practice the covenantal ethic as part of a long-term shared vision (Robert, 1991, p. 18). In the words of Laura Nash (1990, p. 20), 'they subordinate self-interest to other motiva- tions, the most prominent of which are value- creation and service to others'. For them, honesty and integrity are ends in themselves. They are fully aware that doing the right thing does not always pay but, on the other hand, they know the cost of doing the wrong thing. Above all, they have the conviction and the courage to proceed on the basis that, only by subordinating profit to higher values in the short-term. As Chester Barnard (1964, pp. 5, 282-284) argued many years ago, it is the quality of cooperation around high ideals and adding value that ensures an organization's durability and success:
686 John Milton-Smith
Organizations endure, however, in proportion to the breath of the morahty by which they are governed. This is only to say that foresight, long purposes, high ideals, are the basis for the persis- tence of cooperation.
Barnard demonstrated that ethics and the highest standards of leadership were inseparable. Picking up this point, Ciulla (1993, p. 60) highlights the way in which both of these dimensions are concerned with creating trust and quality rela- tionships.
There is clear evidence that Australian managers are not acting as leaders in anything like the way Barnard advocated. They have according to Barry and Dowling (1984, p. 14) a highly pragmatic, short-term focus. Overseas and local surveys rated them poorly on key leader- ship functions such as providing vision, decisive- ness, teamwork and self-confidence (Porter, 1994). This is a major handicap for Australian organizations attempting to regain confidence and to operate in markets which are increasingly competitive. According to David Karpin (1994), the Chairman of the task force reviewing lead- ership and management skills in Australia, com- munication is the vital competency which Australian managers must learn to master urgently in order to improve relationships at every level:
The CEO needs to be able to effectively commu- nicate with the company at large. The general manager must be in a position to express her or his leadership through effective communication within their (sic) division. Department managers must do the same with their workers, and team leaders of smaller work teams must also be able to do the same with their team. In such a complex commu- nication matrix, the need for clarity and simplicity of the overlying vision is evident.
Based on these findings, the new management development agenda will need to focus heavily on all types of communication skills.
Leadership as an influence relationship
The responsibility of senior management for shaping the ethics of their organizations goes far
beyond simply setting a code of ethics in place. The narrow focus on business and professional ethics, as reflected in codes of ethics, has done little to influence positively either individual or organisational behavior. The mere recitation of lofty principles, rules and exhortations in itself does not lead to deeper ethical awareness, under- standing or commitment. Furthermore, a recent study of Australian codes has found that few actually apply to top management or company directors (Farrell, 1994). This is ironical given that the major cause of corporate collapse in the late 1980s was 'poorly trained, inexperienced and aggressive chief executive officers' (Nelson, 1994). The real objective of most codes of ethics is 'to maintain control and avoid government restrictions'. Indeed, a 1993 survey of British business executives found that, while 43% worked for organizations with codes of ethics, 44% 'had not had a boardroom discussion on ethics for seven months or more' and 22% had never had such discussions (Raven, 1994, pp. 131-132).
It is the role and responsibility of senior management to provide ethical leadership. Not only do they have a duty to provide a positive example but they must also endeavour to influ- ence their colleagues to follow this example. Ethical leadership is an on-going process of building relationships around shared visions, values and learning. As Joseph Rost (1993, p. 174) stated:
In developing a mutual purpose, leaders and followers are going to have to let go of self-interest criteria for making ethical judgements and move to a consensus on common criteria for evaluating the ethics of the changes they intend for an organ- ization or society.
According to this view, senior managers have the responsibility for initiating and managing a continuing search for the common good. In attempting to work for and realize the common good, managers need to convince the key stake- holders that this is their goal. They must clearly demonstrate their ethical integrity and good faith. In the words of Stephen R. Covey (1991, p. 108), this involves:
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honestly matching words and feelings with thoughts and actions, with no desire other than for the good of others, without malice or desire to deceive, take advantage, manipulate or control.
The issue of ethical integrity, as a leadership quality has been inadequately dealt with by management scholars. Even Kotter (1990, p. 107) only gave cursory treatment to integrity, ethics and moral values in his important study of the differences between leadership and management. However, he did stress the importance of the leader's integrity as a factor in direction-setting and alignment.
The second challenge for the manager who would be leader is to establish a successful influence relationship with followers or, as Rost (1993, p. 10) has redefined them, 'associates' or 'collaborators'. Again, this is a process which relied heavily upon communication skills and involved motivating people to share and work for the same goals.
Finally, there were the ethical dimensions of leadership and the common good. Rost pointed out that the so-called 'industrial paradigm' of leadership focused upon content and relied upon utilitarian rather than moral or ethical perfor- mance criteria. The 'post industrial', on the other hand, focused increasingly upon the influence process. However, there was no neces- sary ethical dimension to this process. According to Rost (1993, p. 124):
An influence relationship among leaders and followers who intend real changes that reflect their mutual purposes can be moral or immoral.
Therefore, he points to the need for both scholars and practitioners to explore the ethics of leadership as an influence process. The following case study identifies a number of key domains, roles and competencies which are critical vari- ables in influencing the shape of corporate culture and ethical behaviour.
A culture change program
A recent culture change program conducted by the author within a division of a Western
Australian government utility provided a practical demonstration of the leadership effort and the influence process required to shift the dominant values of an organization (Silcox and Milton- Smith, 1994, pp. 68-79). It also highlighted the superficiality of the initiatives taken by Australian business schools and professional bodies and their failure to address the broader issues of socialization and culture transmission within organizations.
Although more service-oriented than other divisions within the same organization, the division under scrutiny nevertheless shared many public sector values and practices. These included an emphasis upon bureaucratic procedures, rew^ards based upon seniority and classification, formal hierarchy, job security and risk avoidance. In addition, there was a strong "us and them" mentality in union-management relations.
Following early signals by government that it intended to deregulate, commercialise and, in some cases, privatize a number of government activities, the senior management of the division decided to take a proactive approach by antici- pating the impending changes.
The immediate, instinctive response by senior management to sudden and unexpected conflicts, shocks or changes is vital and probably deter- mines the sequence of events that unfolds from the point of the initial crisis or change. Of course, frequently the response is defensive and the organization gets locked into a long period of costly and generally damaging confrontation. Important examples of such negative reactions include the famous 'business-society' conflicts involving Nestle, Union Carbide and Exxon.
As Sethi (1994, pp. 9-10) has shown in his study of the Nestle infant formula controversy, a strong corporate culture shapes the way an organization responds 'to external pressures' and can create extreme difficulties in addressing major changes or crises. The organization easily becomes 'a prisoner of its own value set and operational philosophy'.
In the Western Australian case, the senior managers were already committed to quality improvement. However, they quickly realized that more radical changes were required. They saw the need for a 'market-oriented' culture in
688 John Milton-Smith
the much more competitive, deregulated envi- ronment being mooted by the government. Accordingly, they decided to adopt a total quality management approach and to design a cus- tomized system after reviewing the relevant literature, examining benchmark organizations and assessing input from a number of consultants.
It was significant that this initiative was taken by a group of managers within one branch of a much larger organization during a period of considerable turbulence and uncertainty. The corporate administration gave only token support and itself adopted a much more passive wait-and- see approach in the face of impending changes. Strong conviction, considerable courage and great determination was required by the execu- tives involved in leading the change. They were 'transformational leaders' in the sense that they 'confronted and challenged the prevailing culture and explored the changes needed to support the new strategies around quality and service'.
Managing change is notoriously difficult. The most successful change or 'turn-around' strate- gies are frequently associated with new chief executives. Outsiders often have a better per- spective of problems, can create a sense of urgency and enjoy a 'honeymoon period' during which harsh judgement is suspended. In this case the 'change agents' were well-established, rela- tively long-serving executives. However, they were all respected within the organization as innovative and diligent and, given their extensive use of external consultants as trainers and facili- tators during the early phase of the process, they were able to create a widespread anticipating and acceptance of fundamental change.
The Western Australian managers were skilful in developing and communicating their vision of how the organization would flourish in a com- petitive market environment. They developed a series of explicit assumptions about the successful implementation of total quality management from a practical management perspective. The most important assumptions were that corporate culture had to be managed strategically and that, in developing a culture committed to quality and service, a major training program would be required to develop new competencies and the ability to sustain continuous improvement.
The managers' vision also included an imple- mentation model based upon six sequential phases: commitment and awareness, establishing strategic intent, attitude change, development of skills, application and review. High priority was given to winning the support and commitment of supervisors and foremen because successful implementation of the changes clearly required their assumption of new leadership roles. It was also necessary to break down the highly seg- mented sub-cultures which had formed within a number of small departments. These en- trenched groupings were a major impediment to the kind of teamwork which a total quality approach requires. Therefore, a large number of cross-functional project teams were established with the dual aim of improving communication and cooperation. As Sethi (1994, p. 367) has stated:
The success of a strategy presupposes the existence of a supportive organisational structure that facili- tates its implementation. Strategies fail because they are hostile to the self-interest and culture of the organization that is called upon to implement them.
The culture alternative: The ethical leader's roles, responsibilities and competencies in managing change
Part of the change program included the use of an instrument, 'The Culture Alternative', designed by the author to analyze, monitor and development corporate culture. This instrument is based upon five primary and five related secondary domains of culture. The primary domains are identical to the major sources of competitive strategy and include: goal orienta- tion, people centredness, commitment to client service, inclination to innovation and perfor- mance drive.
The related secondary culture domains are the means for embedding the primary domains and of converting competitive strategy into compet- itive advantage. They are best presented as a series of questions: to what extent is the organisation activated by ideology, inspired by trust, leveraged by learning, obsessed with quality and pervaded
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by pride? Whereas the primary domains are the shadows of the manager as strategist, secondary domains are the imprints ofthe leader as culture- builder. Taken together, they provide an inte- grated model for organizational excellence (see Fig. 1).
In today's highly competitive environment it is vital to avoid weaknesses in any domain while establishing at least one major area of strength. In the case of the "Western Australian organiza- tion, there was an across-the-board improvement in all culture domains following the implemen- tation of the total quality management program reflecting the quality of leadership provided by senior management. Not surprisingly, 'service/ quality' were the most positive domains but, despite significant new initiatives in human resource management, 'trust' continued to be a relative weakness.
In building a more positive corporate culture, and strengthening the commitment to service and quality, the Western Australian managers have recognised the need to acquire new leader- ship skills at both senior and supervisory levels. This requires a major revision of job descriptions, decision-making processes and training programs based upon the roles, responsibilities and com- petencies ('dimensions') associated with the five secondary culture domains. The following out- line of 'dimensions' is an indicative but incom- plete list which will vary in content and emphasis depending upon the particular organization.
Whereas strategic planning and goal-setting are essential managerial tasks, it is the role of the leader to transform the corporate mission into an inspiring, integrated ideology. An effective ideology according to Walton (1988, p. 68) will need to reconcile business efficiency and social responsibility and will include:
• the "big picture": an idealistic statement of common purpose and direction aiming to transcend the current position in the medium to long-term;
• a succinct summary and regular communi- cation of the organization's philosophies, core values, ethical standards and social responsibilities;
• messages that will win the cooperation and harness the energy of all stakeholders;
• regular celebrations and ceremonies to rein- force priorities, core values and teamwork;
• values which will off-set the dangers of indoctrination, dogma and conformity.
Most competent managers recognize that people are the organization's most valuable resource. Accordingly, they invest heavily in recruiting and developing staff. But, without trust and com- mitment, staff capabilities will not be fully realised. Furthermore, trust is the essential pre- condition for addressing or introducing change.
Leaders inspire trust in their people because, through their behavior, they demonstrate com- petence, integrity, consideration and consistency.
Domains and dimensions of culture
a ct
io n
fo r
M G
T IS
a re
a s
T ie
n s io
r O
R G
d ii
Goals
Direction
Communi- cation
Organisa- tion clarity
Personal targets
Ideology
Mission
Celebra tions
Ethics
Social responsi- bility
Performance
Rewards
Responsi- bility
Standards
Feedback
Pride
Corporate identity
Staff com- mitment
Progress reports
Loyalty
People
Personal develop- ment
Participa- tion
Coopera- tion
Staff welfare
Trust
Integrity
Team spirit
Keep promises
Lateral information sharing
Innovation
Proactivity
Autonomy
Creativity
Risk-taking
Learning
Envirion- mental scanning
Mentors
Compe- tencies
Adaptation
Clients
Market research
Client service
Value
After-sales service
Quality
Bench- marking
Strategic approach
Guarantees
Continuous improve- ment
Fig. 1. Domains and dimensions of culture.
690 John Milton-Smith
Other key factors or variables according to Ciulla (1991, pp. 77-80) relating to the leader's abihty to inspire trust include:
• developing effective dyadic relationships; • maintaining confidentiahty and promises; • behaving honestly and telling the truth; • displaying openness, sincerity and genuiness
in all dealings; • showing respect by means of appropriate
warmth, intimacy and availability; • acting in the interests of the group and
caring for the welfare of members; • sharing information, promoting teamwork,
creating task forces and taking every oppor- tunity to encourage collaboration and cooperation.
• being able to function effectively in different business cultures and with colleagues from different cultural backgrounds.
Servicing the needs of customers and stake- holders is the rationale for an organization's existence and for the manager's appointment. However, a commitment to total quality products and service requires a very special kind of organizational culture. Only leaders can inspire large groups of people to devote themselves to serving others. The challenge for leadership with respect to quality includes:
• creating a strategic focus and environment where everyone is striving to identify and satisfy the customer's needs;
• ensuring the whole organization is devoted to the concept of continuous improvement;
• empowering individuals and teams at all levels of the organization to take initiative in solving problems and providing quality service;
• identifying best practice in every area of activity and making it the minimum standard;
• making a commitment to all customers and stakeholders that best practice will be guar- anteed.
Setting, monitoring and reviewing performance is one of the manager's most fundamental tasks. However, it requires an entirely different skill to move the organization from the point where
performance is simply viewed as a control mechanism to one where it becomes a matter of personal challenge, self-regulation and pride. Effective leaders recognize that a high level of genuine, healthy pride is likely to develop in organizations where, as indicated by Ashford and Tshi (1981, pp. 251-252):
• there is a widespread use of project teams; • work gives people a high level of confi-
dence, self-esteem, belonging and identity; • all stakeholders get a high level of satisfac-
tion from providing the community with quality goods and services;
• regular, constructive feedback is provided both on a group and individual basis;
• false or excessive pride, in the sense of arrogance, boastfulness and pretension, is strongly discouraged.
Good managers are always seeking to find better ways of satisfying customer needs through new products, processes, services and technol- ogies. They recognize that innovation is a major source of competitive advantage. However, it requires more than conventional management to create a learning organization in which innova- tion becomes a culture rather than simply a management function. In creating a learning culture, leaders, according to Bennis (1989, p. 56) recognized that learning was the source of personal and organization transformation. There- fore, they gave priority to:
• ahgning staff development with corporate strategy;
• facilitating the continuous learning of every member of the organization;
• encouraging the sharing and diffusing of new ideas at every level;
• constantly monitoring and interpreting the environment in order to identify opportu- nities, address threats and adapt to changes;
• expanding the mentoring roles and respon- sibilities of all managers and supervisors;
• reflecting upon values, experience and the process of solving problems.
In reviewing the Western Australian case study, a number of insights can be made regarding organization structure, the role of the leader and
Ethics and Strategic Management 691
the need to see ethics in the context of the overall corporate culture and value system.
With respect to formal organizational struc- ture, it has become clear that, while formal hierarchical structures are useful for performing routine work in stable situations, they are not effective in achieving high standards of perfor- mance in complex, rapidly changing environ- ments where strategic alliances, networks and outsourcing arrangements are increasingly common practices.
The organizations that work best in these contexts are both centralized and decentralized. On the one hand they are 'loose' in that implementation is devolved and left largely to the discretion of units which are given both authority and responsibility. However, on the other hand, they are also extremely 'tight' in that they are strongly controlled around a shared vision of the future, explicit medium-term goals, well-defined core values and strong ethical standards.
In a 'loose-tight' organization the units are responsible for achieving and reporting outcomes or achievements against targets and standards that are monitored and audited by the central admin- istration. The role of the central administration is largely to empower, facilitate and coordinate a devolved strategic planning cycle and, in addition, to handle a limited number of report- ing, compliance and public relations functions. The chief executive is therefore ultimately responsible for the extent to which core values bind the organization together and for the achievement of collective medium and long-term goals.
As Peters and Waterman (1982) have demon- strated, it is shared values - beliefs and attitudes - not policies or directives, which make an organization excellent. Organizations which are driven by values such as serving others, quality, teamwork, innovation, trust, risk-taking, humility and high ethical standards are inevitably led by people who spend most of their time modelling, communicating and reinforcing these values in practical ways on a day-to-day basis.
The executives of excellent organizations are leaders rather than typical managers. Whereas managers spend their time planning, directing and controlling, leaders delegate most of these
tasks to teams and concentrate of motivating, empowering and building teams to perform these functions in line with a shared vision. From a strategic management perspective, as Piper et al. (1993, p. 127) have argued, leadership, ethics and social responsibility cannot be approached in isolation and, to perform these roles successfully, executives require outstanding communication and interpersonal skills as well as the ability to inspire trust and develop self-esteem throughout the organization. Based on past performance, there is an urgent need in most Australian organizations for a major new training and devel- opment agenda that addresses these priorities.
Building trust: The foundation stone of the ethical leadership process
Successive generations of management theorists have given scant attention to the manager's very specific leadership role in shaping a positive and ethical corporate culture. This failure can be traced through all of the major approaches which have been taken to the subject over the past century. These include general principles of management and work design, human relations, organisation processes and behaviour, situational theories, strategic planning and business strategy and, in more recent years, strategic management. Widely read management writers such as Peter Drucker (1993), for example, are especially guilty of this omission. Furthermore, since the Second World War, there has been increasing specialisa- tion in functional areas such as marketing, fmance, human resource management, informa- tion systems and logistics, which has exacerbated the trend towards short term, pragmatic criteria for defming the manager's job.
Sir Russel Madigan, former Deputy Chairman of CRA, recently observed that 'business now puts a high price on management, and manage- ment is opposed to leadership', this is nowhere more apparent than in the way Australian chief executives, while rapidly increasing their own remuneration packages, have almost competed to outdo each other in 'down-sizing' their organi- zations and closing down poor performing plants with virtually no regard for the long-term social
692 John Milton-Smith
costs. Such short-term thinking is probably explained by a recent survey which shows that 41 per cent of leading Australian organizations had appointed their chief executives in the past two years.
In contrast, the remarkable success of Body Shop International and Ben and Jerry's Home- made illustrates the difference between leadership and management. These business are driven by corporate philosophy and strong values. Their chief executives are tireless and consistent in articulating their visions and in fmding new ways to implement them. In particular, both Anita Roddick and Jerry Cohen have adopted a part- nership rather than an adversarial approach towards employees, franchisees, suppliers, cus- tomers and the community. Both have been extremely successful in reconciling ethical integrity and social responsibility with long-term business objectives.
Unfortunately, most of the academic work on leadership has been arcane and unimplementable from the perspective of the practising manager. And, not only does it fail to deal adequately with even the most basic aspects of relationship- building and communication, but it is also devoid of any ethical dimension. The most prominent models have little practical use or moral integrity in that they include too many contingencies and require managers to be unduly reactive and infmitely adaptable. Furthermore, the heavy concentration on matching style with situation has distracted managers from the more funda- mental issues relating to the proactive roles, responsibilities and competencies involved pro- viding leadership.
The manager's ability to develop dyadic rela- tionships is the foundation stone upon which ethical leadership and a positive corporate culture is built. There is now an imposing body of research to confirm that members of organiza- tions will tend to resist change if they do not trust those proposing the change. In the context of work relationships the most effective way to build trust between the manager and employees is through the behavior perceived in one-to-one transactions. Mass or even smaller group com- munications proposing change will only be
effective if trust already exists at a more personal level.
If the dyadic relationship is the foundation stone for culture-building, it is also the starting point for developing leadership skills. The leader as communicator and mentor is skilful in presenting a vision, transmitting ethical values, sharing information, teaching cooperation, giving feedback, counselling, demonstrating genuine empathy and consideration on an indi- vidual basis, and generating optimism and enthu- siasm. It is in this way that employees obtain a sense of direction, an understanding of how they are contributing to the corporate mission and confirmation of whether or not the organization's espoused values really are its priorities for the purposes of everyday decision making.
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Ashford, S. J. and A. S. Tshi: 1991, 'Self-Regulation for Managerial Effectiveness: The Role of Active Feedback Seeking', Academy of Management Journal 34(2), 251-280.
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Barry, B. and P. Dowling: 1984, An Australian Management Style (Australian Institute of Management, Melbourne).
Bennis, W.: 1989, On Becoming a Leader (Addison- Wesley, Reading, MA).
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