ETHICS
aoel.meg
unit_i.docxIs employing children in the labor market ethical on the basis of virtue ethics, fundamental rights, or utilitarianism? Why, or why not? What factors would you consider and why? Your response must be at least 250 words.
Here is the hyperlink to assist with completing this assignment:
http://businesstheory.com/child-labor-ethical/
Explain whether the ethical leaders at your current or at a previous employer act/acted as positive or negative role models in their visible ethical actions? Give an example in your analysis. How are/were ethics communicated in this employment culture? Your response must be at least 250 words.
Moral relativism states that basic ethical beliefs of different people and societies are different and possibly conflict. Moral universalism claims that some moral standards are universally valid independently of individuals and culture. Between moral relativism and moral universalism, which paradigm do you agree with and why? Give an example to support your thesis. Your response must be at least 250 words.
In your view, what is the best philosophical approach (capabilities, ethical, economic, corporate citizenship, or utilitarianism) underpinning corporate social responsibility and on what basis? Give an example in arguing your viewpoint. Your response must be at least 250 words.
Corporate Social Responsibility,
Utilitarianism, and the Capabilities
Approach Cecile Renouard
ABSTRACT. This article explores the possible conver-
gence between the capabilities approach and utilitarianism
to specify CSR. It defends the idea that this key issue is
related to the anthropological perspective that underpins
both theories and demonstrates that a relational concep-
tion of individual freedoms and rights present in both
traditions gives adequate criteria for CSR toward the
company’s stakeholders. I therefore defend ‘‘relational
capability’’ as a means of providing a common paradigm,
a shared vision of a core component of human develop-
ment. This could further lead to a set of indicators aimed
at assessing corporate social performance as the maximi-
zation of the relational capability of people impacted by
the activities of companies. In particular, I suggest a way
of evaluating the contribution of extractive companies to
the communities close to their industrial sites in extremely
poor areas, not from the viewpoint of material resources
and growth, but from the viewpoint of the quality of the
social environment and empowerment.
KEY WORDS: capabilities approach, corporate social
responsibility, Mill, Nussbaum, relational capability, Sen,
utilitarianism
Introduction
Several studies on CSR highlight the lack of a shared
definition of corporate social responsibility and
performance (McWilliams et al., 2006). Windsor
(2006) defends the idea that there are three main
moral and political perspectives on CSR: the first
two are opposed, one called ‘‘ethical’’ and the other
‘‘economic’’; the third, ‘‘corporate citizenship’’
(Moon et al., 2003) falls between the two, wavering
between the ‘‘ethical’’ perspective that puts emphasis
on the ideal role of the company within society and
toward its different stakeholders (Freeman, 2001),
and the ‘‘economic’’ view that maintains that the
firm must first maximize the value creation for its
shareholders, and only subsequently, may be
accountable to society (Carroll, 1991, 1998; Jensen,
2002). Very often authors either try to demonstrate
that CSR can be used as a tool to improve the
competitive advantage or the financial performance
of the company (Husted and de Jesus Salazar 2006;
Jones, 1995) or maintain that it is impossible to
demonstrate a connection between financial and
social performance and insist upon a normative
perspective (Donaldson and Preston, 1995; Vogel,
2005). Two philosophical schools of thought
underpin these conflicting conceptions: on the one
hand, the reference to the utilitarian perspective as
related to the maximization of global or average
well-being (Bentham, 1815; Mertens and Dhillon,
1999); on the other hand, the defense of human
dignity and of individual rights and capabilities
(Kant, 1785; Sen, 2004).
Each one of these two perspectives encounters
difficulties in defining CSR in a satisfying and stable
way. As far as utilitarianism is concerned, insisting on
maximizing economic value may lead to three dif-
ficulties: first, increasing the inequalities between
people and between groups; and second, putting too
much emphasis on material wealth and economic
value creation, and thus neglecting other aspects of
well-being (Sen, 1999) and of social value creation.
For example, regarding a company’s compensation
scheme, utilitarianism may not criticize the increase
of salary discrepancies within the firm and the level
of ROE (return on equity) for shareholders, so long
as profit growth is ensured. However, the legitimacy
of such practices, which will reduce the share of
the profits directed toward employees and other
Journal of Business Ethics (2011) 98:85–97 � Springer 2010 DOI 10.1007/s10551-010-0536-8
stakeholders may be questioned (Bowie and Werh-
ane, 2005). Third, utility is usually considered in
atomistic terms, paying little regard to the norms
prevalent in more collectivistic cultures (Velasquez,
2006). The same criticism can be applied to the
capability approach, which is principally centered on
individuals. Moreover, focusing on individual free-
doms, entitlements, and capabilities may lead to
underestimate the role of collective structures and
institutions in promoting the social development of
people affected by economic activity (Deneulin
et al., 2006). The rights of some stakeholders, at the
individual and collective level, may be ignored
(Mellahi and Wood, 2003), and the responsibility of
the company toward those who are most vulnerable
remains unclear. As Ananya and Darryl Reed point
out (Reed and Reed, 2004, p. 3), ‘‘this approach
does not explore in any substantive sense the nature
of the corporate economy, the relationship between
state and capital and how they interact to impose
constraints on human development. Nor does it
specifically address CSR.’’ To sum up, these two
philosophical schools may fail to recognize the ten-
sions experienced by corporations dealing with
economic and social objectives (Margolis and Walsh,
2003).
By looking at the internal debates within each
tradition in order to face these problems, I make the
assumption that there may be some common ground
for these two theories (passing from atomistic
anthropology to relational anthropology), allowing
us to specify the content of CSR in a consistent
manner. The following pages defend the idea that a
critical aspect of CSR concerns the anthropological
perspective that underpins both theories and dem-
onstrates that a relational conception of individual
freedoms and rights which is present in both tradi-
tions gives adequate criteria for orienting societal
policy toward the maximization of the relational
capabilities of the company’s stakeholders.
The article is organized as follows: first (‘‘The
insufficiencies of utilitarianism and of the capabilities
approach toward CSR’’ section), I analyze the
insufficiencies of the mainstream utilitarian and
capabilities approaches for providing adequate
guidelines for CSR. Second (‘‘In defense of a rela-
tional anthropology’’ section), I defend the idea that
the capabilities approach points toward a relational
anthropology. I show how this anthropology exists
not just with the proponents of a virtue ethic
(Bertland, 2009) or a deontological conception of
morality (Bowie, 1998, 1999), but also with certain
utilitarian thinkers who have been forgotten in
the debate (especially Mill, 1861): thus, internal
resources exist within the utilitarian tradition which
counter the simplistic conception of the homo eco-
nomicus maximizer of his utility and defend the social
finality of the economic activity. Finally (‘‘Rela-
tional capability as the backbone of CSR’’ section), I
define relational capability – in reference to Martha
Nussbaum’s approach (Nussbaum, 2000) – and show
how such a conception of human development
allows us to make explicit the social responsibility of
companies toward stakeholders: for example, in the
case of setting up extractive industries in extremely
poor areas, philanthropic actions as well as programs
that are intended to buy short-term social peace have
very often had pernicious effects. If they were able to
improve the living conditions of some inhabitants,
they also created dependence and corruption and
increased the existing inequalities. Focusing on the
relational capability of persons and groups allows for
an evaluation of the contribution of companies to
the communities close to their industrial sites, not
from the viewpoint of material resources and
growth, but from the viewpoint of the quality of the
social environment and of empowerment.
The insufficiencies of utilitarianism and
of the capabilities approach toward CSR
Utilitarianism is a philosophical line of thought
whose aim was defined by Bentham (1815) as
maximizing the utility or happiness of the greatest
possible number of people. It has had many
important consequences on reflection about moral-
ity: it is a consequentialist perspective which focuses
on the outcomes of an action and has little regard for
its intentions. This philosophy has led to economic
and political choices focused on economic growth.
Social ethics is thus understood as the maximization
of the global or average well-being or material
growth in a society, and can justify a certain kind of
relativism. As Mandeville (1714) puts it, private vices
make public virtues: that is to say that economic
growth is due to the expenses made by very rich
people who behave in morally contestable ways, but
86 Cecile Renouard
these same people are useful to society through their
habits of consumption which provide employment
to the poorer members of the working class.
The utilitarian perspective encounters difficulties
in defining CSR with precision: utilitarianism may
lead to the moral justification of the prevalence of
profit-making and economic value maximization. It
is completely consistent with Friedman’s approach
concerning CSR (1970) and even with Carroll’s
pyramid (Carroll, 1991, 1998), according to which
the first goal of CSR is to make profit. This per-
spective raises many problems. Let’s focus on the
criticism of Rawls and Sen that have given rise to the
capabilities approach.
Sen’s perspective is rooted in a critical discussion of
utilitarianism following the debates initiated by John
Rawls’s Theory of Justice (1971). Rawls’s criticism
focuses on the sacrificial dimension of utilitarianism –
maximizing global or relative utility doesn’t take into
account the distribution of wealth and creates an
increase of inequalities in the society. 1
This critique
can be applied to CSR: focusing on the global or
average well-being of the stakeholders may increase
the inequalities among certain groups or between
them. In response to this sacrificial perspective, Rawls
defends a difference – or maximin – principle, which
aims at maximizing the situation of the worse off.
Rawls establishes a list of primary goods which every
human being may desire and to which he is entitled to
have access. The list entails political freedoms and
many other goods. Maximizing the situation of the
worse off implies trying to establish their access
conditions to all these primary goods.
In contrast, yet without denying the importance
of this list of primary goods, Sen gives priority to the
defense of individual freedoms. He criticizes utili-
tarianism, which focuses on the maximization of
collective well-being and reduces or ignores the
importance of freedoms. This also can be true as far
as CSR is concerned: some programs implemented
by multinationals in order to foster better living
conditions around their industrial sites have led to
paternalistic behaviors, without increasing the free-
doms of the people who are dependent on the good
will of the company. In Sen’s exposition of the
consequences of the utilitarian approach on the
evaluation of societies (Sen, 1990), the critique of
utilitarianism is the following: utilitarianism leads to
a social planning which may weaken or prevent
individual freedoms. Indeed, it doesn’t take into
account a bias: poor people may underestimate their
privations (their lack of pleasure or utility) because
they adjust to their situation (even if their condition
is objectively miserable). As a consequence of these
‘‘adaptive preferences,’’ utilitarian calculation raises
practical issues, and Sen gives two examples in the
Indian context: According to a utilitarian view (as
interpreted by Sen), the unequal condition of
women compared to men may not be a problem
because the former do not envy the latter’s situation,
and the same would apply to uneducated people
who do not consider their situation as unjust.
However, according to Sen, the objective situation
of women and uneducated people shows that they
enjoy fewer personal freedoms than men and edu-
cated people, respectively. Alone, the evaluation of
individual pleasures, according to their subjective
perception, may lead to underestimating their lack of
freedom and justifying the status quo. The same
phenomenon can be seen in companies where CSR
programs focus mainly on stakeholders’ expressed
expectations: this can lead to undermining the situ-
ation of the worse off, who have less ability to
analyze their situation. Subsequently, Sen agrees
with Rawls in his criticism of utilitarianism and
suggests an alternative: instead of focusing on the
primary goods as the necessary means to achieve
freedoms, he favors the effective possibilities that a
human being can choose, i.e., his capabilities: the
whole set of functionings of each individual must be
considered, taking into account the diversity of the
society. The capabilities approach aims at assessing
the situation of an individual or a group in terms of
abilities to do and to be, to convert their resources
into actual functionings which enable them to lead a
meaningful life (Alkire, 2002). Capabilities are sets of
combinations of functionings and express the real
possibilities of choices that people have. Sen (1990)
gives priority to individual freedoms, in intrinsic as
well as instrumental ways, and in particular, to
human agency. As in most liberal theories of soci-
ety, 2
John Rawls and Amartya Sen’s viewpoints fa-
vor a somewhat atomistic anthropology, where each
individual first seeks to develop his or her own
capabilities, and only subsequently, enters into rela-
tionship with others.
Certainly, as Robeyns (2005) has emphasized, it’s
important to distinguish between methodological
87CSR, Utilitarianism, and the Capabilities Approach
and ontological individualism. Sen and a number of
defenders of individual freedoms do not deny the
social dimension of human beings. In the same way,
works emanating from commentators of Sen under-
line ‘‘the quintessentially social nature of individual
freedom and agency’’ (Herdt and Deneulin, 2007,
p. 179) and look to see how social factors influence
individual capabilities (Longshore Smith and Seward,
2009). Nevertheless, it is vital to recognize that liberal
thought stresses the clearly separated rights and free-
doms of rational individuals, in order to protect
against excessive control by a social or political
community. It almost seems as though nothing pre-
vents these theories from cultivating the illusion that
people can develop their capabilities in a completely
solipsistic fashion. Of course, one immediately real-
izes that this makes little sense: Who would be capable
of anything without entertaining relationships with
others?
The starting point of this article consists in incor-
porating this remark within the very definition of
one’s capability. Unlike most of the various liberal
approaches just alluded to, a conception of freedom
defined as autonomy and interdependence can be
defended, as Martha Nussbaum has already shown.
Before developing this perspective, we have to
explain why the capabilities approach, when it is
centered on individual freedoms, is simply too weak
to specify CSR content.
According to Sen, social organization has to
enable the growth of capabilities while preventing an
excessive pressure of political power on the society.
Utilitarianism may favor a certain political constraint
in order to implement the fastest growth for the
greatest number of people.
Sen tries to articulate the priority that consists in
developing individual freedoms with an appropriate
social order. The anthropology which sustains this
approach denies the utilitarian conception of the
human being as a selfish maximizer of his sole
interests. According to Sen, this model doesn’t fit
with real life. On the one hand, passions are strong,
and on the other hand, human beings have a moral
sense: a capability of both indignation and altruistic
behavior. However, Sen only takes this altruistic
capability into account in a marginal way. This is
one of the reasons why one might consider that
Sen’s perspective insufficient: it is typical of liberal
atomism, which tends to weaken the idea that a
truly human life is reached through human
relationships and social contribution. 3
As a matter of
fact, Sen dissociates the defense of individual free-
doms from the individual contribution to social
goals (Sen, 1990). Human capabilities are seen by
Sen as rather different from people’s social goals.
On the contrary, one can favor the integration of
the social and inter-subjective dimension in the
definition and implementation of these individual
freedoms. Otherwise, one is led to defend an
atomistic view of freedom as independence, a
freedom that can be reduced by the freedoms of
others. That’s why liberalism focuses on the limi-
tation of the prerogatives of the State, which has the
unique task of imposing the law in such a way that
my neighbor’s freedom does not infringe on mine.
It does not give rise to any group project.
This appears to be very problematic when we
think about CSR. It may not lead to the criticism
of the economic institutions and corporate behav-
iors that infringe on some individual capabilities.
Focusing on individual rights may not be conducive
to specifying how different groups that are stake-
holders in companies can either improve their
capabilities by defending their collective rights or be
neglected. The games of power may not be clearly
identified. For example, a recent article (Reed and
Reed, 2009) assimilates the capabilities approach
with a liberal perspective on CSR, paying little
attention to the most vulnerable persons and
groups.
Nevertheless, current debates among capabilities
approach researchers show that there may be a way
to link CSR with a perspective that focuses on the
capabilities of individuals and groups by defining
relational freedom as the key component of a truly
human life. A definition of personal freedom can be
proposed: a relational freedom that flourishes not
only when a subject acts in an independent way, but
rather, when he is both autonomous and interde-
pendent and contributes to the implementation of
social goals. I will show that this relational anthro-
pology, present in Kant’s work (Kant, 1785), – and
has an impact on the way some capabilities approach
thinkers speak of CSR – can already be found in
utilitarian works such as Mill (1861), even though
utilitarianism is often superficially understood as
favoring an understanding of the human being as a
homo economicus aiming to maximize his own interest.
88 Cecile Renouard
In defense of a relational anthropology
I would therefore like to develop the utilitarian
perspective centered on a quantitative and material
measure of happiness, as viewed by Bentham (1815).
It is important to stress that such a critical perspective
was already presented by Mill (1838, 1861), who
developed his own account of utilitarianism. The
question is raised whether we can find within the
utilitarian traditions an openness to a relational
anthropology. If so, we could find some intellectual
resources within the utilitarian school of thought
which would enable it to counter the maximization
of personal utility and the sacrifice of freedoms and
capabilities of the most vulnerable.
Indeed, Mill (1861) not only leaves open the
possibility of altruism, but he even defines utilitarian
ethics as the effort to shape people’s altruism and to
find happiness within it. Relationship to others is
essential for Mill. He raises the problem in his pre-
sentation of utilitarianism: Are human beings natu-
rally inclined to care for others? Under what
conditions or with which incentives do they apply
the utility principle, i.e., the search for the greatest
degree of happiness for the greatest number of
people? Mill’s thesis is very clear: there are both
internal and external incentives, as well as sanctions.
He stresses the inner feeling experienced by the
educated person that enables him/her to recognize
his/her social being and the importance of altruism.
The arguments used by the philosopher consist in
emphasizing the importance of education to instill in
one’s character the feeling of being united to one’s
fellow human beings. What shapes a society is the
importance and the nature of the bonds between
people. Human progress is rooted in the strength-
ening of social bonds and the care for the others’
interests. Even more, the challenge is to help people
discover that looking for the good of others is a
source of personal flourishing and happiness.
‘‘Not only does all strengthening of social ties, and
all healthy growth of society, give to each individual
a stronger personal interest in practically consulting
the welfare of others; it also leads him to identify his
feelings more and more with their good, or at least
with an even greater degree of practical consider-
ation for it. …The deeply rooted conception which every individual even now has of oneself as a social
being, tends to make him feel it one of his natural
wants that there should be harmony between his
feelings and aims and those of his fellow creatures’’
(Mill, 1861). Education is the core of the problem:
virtue has to become desirable, if understood as the
personal development of intellectual and moral
abilities and being linked with the search for the
other’s good and for the common good. Never-
theless, aside from this self-detachment and this
impetus toward the common good, establishing
safeguards through external legal constraints, regu-
lations, and sanctions is necessary in order to guar-
antee the realization of common interests.
Mill fights against a utilitarian conception centered
on the maximization of individual pleasures, while
refusing a moral perspective sacrificing the sensible
inclinations. The idea is to orient the individual desire
toward the care of others, so that the search for personal
happiness and the quest for the other’s good merge.
The same perspective can be found among contem-
porary thinkers, trying to make the most of the modern
claim for autonomy and personal flourishing. Bellah
(2007), for instance, defends a paradoxical thesis in the
context of what he considers as society’s gradual slip-
ping into a narcissistic cult of the self: self-love, rightly
understood, implies concern for the other. Self-fulfill-
ment has to be found in openness to the other, in an
attitude made of kindness and cooperation.
Mill stresses that the highest level of self-fulfill-
ment and happiness is reached when relating to
others. ‘‘The utilitarian morality does recognize in
human beings the power of sacrificing their own
greatest good for the good of others. It only refuses
to admit that the sacrifice is itself a good. …The only self-renunciation that it applauds, is devotion to the
happiness, or to some of the means of happiness, of
others’’ (Mill, 1861). In this regard, Mill’s view joins
the Kantian view according to which morality
encompasses a disinterested relationship with others,
but Mill takes into account human psychology: the
aim is not a total self-renunciation of the individual,
but his fulfillment in the care for both the other’s
good and the common good.
Whether it is embedded in a Kantian line of
thought or in a utilitarian one, relational anthro-
pology defines human relationships as the substance
of human identity: being is relational and a flour-
ishing human life is experienced in autonomy and
interdependence. With this conceptual background
we can define relational capability as a core human
89CSR, Utilitarianism, and the Capabilities Approach
functioning and then show how this perspective can
be applied to the definition of CSR toward society.
Relational capability as the backbone of CSR
Definition of relational capability
Relational anthropology states that personal identity
is shaped in the relationship with otherness. The
implementation of relational capability is a key
condition of human development. We draw on the
debates among Capability Approach researchers
concerning individual, collective, and external
capabilities (Foster, 2008; Ibrahim, 2006; Robeyns,
2005): these thinkers reflect upon the growth and
implementation of capabilities at a social and col-
lective level. They analyze how some personal
development can be achieved only in cooperation
with other human beings (external capabilities) and
how some collective capabilities can be defined as the
expression of more than the aggregation of individual
ones. Relational capability involves both individual
and collective capabilities; it tries to capture the
relational condition of human beings. It can be
applied both to individuals and groups: it fosters the
recognition of autonomy and individual rights as well
as the quality of the social climate and of the inter-
dependencies within a given group or political
community; thus it can be applied to the assessment
of the relationships within a company and between a
company and its stakeholders (Bowie and Werhane,
2005). Before detailing the consequences of this
relational capability approach in terms of CSR
implementation, let’s specify exactly what this means.
We distinguish four components of this capability 4 :
– to be integrated into networks.
– to commit oneself to a project within a group,
aimed at serving a common good, a social inter-
est; to take part in decision making in a political
society.
– to have specific attachments to others: friend-
ship, love.
– to try to value others’ objectives, considering
them as ends.
Integration into networks is the first component of
relational capability. A network is defined very
broadly as a set – open or closed – of relationships –
horizontal and vertical – organized within a society.
From the first network where the newborn is inte-
grated, his/her family, to the community that gathers
around the deceased person, human life is spent in
networks. At this stage we consider imposed and
inherited networks as well as chosen networks. Part
of our identity forms through given networks and
part of it through our voluntary commitment to
others (Coleman, 1988). The lack of freedom,
which is the very definition of prison, is a means of
preventing people from belonging to networks that
constitute social life. The characteristic of exclusion
consists in the absence of participation in networks
due to isolation and the inability to escape it
(Boltanski and Chiapello, 1999/2005). The lack of
exercise of relational capability can be measured
through a weak participation in networks – whether
institutional or not. Companies can be viewed as
networks of interrelationships that have an effect on
the different interrelations between individuals and
groups that are affected by their activity (Bird, 2006).
The quantity and the quality of relations within a
company and between the company and its stake-
holders have an impact on both social and economic
networks.
The second component is related to the voluntary
commitment with others for a specific project con-
cerning a common good or a collective interest. It
implies participation in the decision-making process
within a political community. We focus here on
chosen networks and, more specifically, on personal
commitment in society. This commitment can take
different forms: political, social, cultural, and asso-
ciative (Alkire, 2002; Nussbaum, 2003). It is a way
of participating in social development and it enables
the development of this relational capability toward
social utility. Stressing the importance of any such
commitment is closely related to the definition of a
fair society as a society promoting a complex
equality (Walzer, 1983) among citizens: it implies
the assessment of the capability owned by anybody
in a given community to be recognized in one or
another sphere of his life, and this recognition is
facilitated by the active and autonomous involve-
ment in a social network. This perspective implies
that measures be taken to avoid the pre-emption of a
few over certain functions and their domination on
different domains of social life, for example, when
90 Cecile Renouard
the richest are also the ones who lead the political
game, control the access to the best education for
their children, etc. This commitment to different
networks in a pluralist society can be measured by
several indicators: political vote, participation of the
worse off in the decision-making process at a local
level, voluntary commitment to a group or associa-
tion within the community, and the nature and
objective of the decided project. This second aspect
of relational capability can be applied to the study of
the active commitment of a company as a moral
person within society (French, 1979) and/or of its
members with various stakeholders.
The third component of relational capability
concerns the feelings for the others in an interper-
sonal relation, namely, developing friendship and
love. Human growth is favored by the quality of
love a human being receives and gives. This love
may be more or less exclusive; it implies the relation
between two free persons in the above-defined
sense. Love is the highest expression of human
freedom as autonomy and interdependence. Thus,
we can measure this by different indicators: by
whom a person feels he/she is loved, the number of
close friends, the number and the nature of the
persons to whom he/she could turn in case of dif-
ficulties (financial, professional, etc.). The quality of
interpersonal relationships within a company and the
respect for the private life of its members are also of
interest when assessing this dimension of relational
capability. This can also be related to the importance
given to human capital and to the human quality of
the leaders within a corporation (George, 2003).
The fourth component of relational capability
consists in seeing value in goals of another person, by
considering him/her as an end: this attitude consists
in extending the special care one might have for an
individual – through friendship and love – to any
interpersonal relation, either direct or mediated by
institutions. This is exactly what Paul Ricœur calls
the logic of overabundance, concerning the imple-
mentation of the biblical Golden Rule in social
networks (Ricœur, 1990). The negative definition
of the Golden Rule (‘‘Do not do to others what you
do not want them to do to you’’) is close to a
minimal and negative ethical principle (‘‘do no
harm’’) and expresses a logic of equivalence. But the
Golden Rule in its positive side (‘‘do unto others as
you would have them do unto you’’) has a broader
meaning: it is an invitation to contribute actively to
the other’s good without any reciprocity. It opens
the door to an excess: give according to your mea-
sure without expecting an equivalent gift in return.
This attitude involves face-to-face encounters but it
may also be integrated in social, economic, and
political institutions: it enables the respect for the
uniqueness of every person and expresses the
objective of a social organization serving the dignity
of each of its members. We can measure this com-
ponent by the level of gifts given or received, by the
time and energy freely given to community projects,
and by the level of trust in a given community. This
component may also be used to assess the quality of
the relations between groups within a society and
between societies. This, of course, points to the
philanthropic actions engaged by a corporation
within society; however, from a moral perspective it
has to be linked with a consideration of justice
principles (Bird and Velasquez, 2006; Bowie and
Werhane, 2005; Freeman, 2001); otherwise, charity
could just be a way of avoiding serious reflection on
the duties corporations must fulfill in terms of
implementing their societal responsibility toward
various stakeholders (Renouard, 2007).
This relational capability brings together several
dimensions necessary for a flourishing human life in
the list of central capabilities given by Martha
Nussbaum (Nussbaum, 2000), and among them,
emotions and affiliation. Emotions and affiliation are
defined as follows:
Emotions: ‘‘Being able to have attachments to
things and people outside ourselves; to love
those who love and care for us, to grieve at
their absence; in general, to love, to grieve, to
experience longing, gratitude, and justified
anger. Not having one’s emotional development
blighted by overwhelming fear and anxiety, or
by traumatic events of abuse or neglect. (Sup-
porting this capability means supporting forms of
human association that can be shown to be cru-
cial in their development.)’’
Affiliation: ‘‘Being able to live with and toward
others, to recognize and show concern for other
human beings, to engage in various forms of
social interaction; to be able to imagine the situ-
ation of another and to have compassion for that
situation; to have the capability for both justice
91CSR, Utilitarianism, and the Capabilities Approach
and friendship. (Protecting this capability means
protecting institutions that constitute and nour-
ish such forms of affiliation, and also protecting
the freedom of assembly and political speech.)’’
Two ideas advocated by Martha Nussbaum are of
major importance regarding relational capability: her
invitation to focus public policy on the capabilities of
individuals and not on their functionings: this is not
about dictating to the members of a society their
modes of socialization and affiliation, to make sure
that they can choose to enter into relationships and
to make free choices within their political commu-
nity. Moreover, the insistence placed on affiliation
allows us to bring together attention to others in
terms of care with the political conditions of a
struggle against exclusion in terms of social justice
(Nussbaum, 2002, p. 134).
The present definition of relational capability
complements Martha Nussbaum in three different
ways.
First, the priority is given to this relational capa-
bility as being the core of a truly human life: in this
sense, the priority given by Sen to the notion of
freedom is favored; but this freedom is understood
differently, as autonomy and interdependence, in
accordance with Martha Nussbaum when she stres-
ses the fact that the capability approach for all implies
limiting certain freedoms in order to diminish
inequalities (Nussbaum, 2003, p. 44).
Second, the personal dimension (the immediate
relationship to others as fellow human beings) is
linked with the political dimension (the mediated
relationship to others as ‘‘socii’’ through institu-
tions). On the one hand, any human being is
immediately embedded in a culture, in a political
society. His relation to others is influenced by the
ethos, the system of norms and values, and the form
of the social bond in this particular society. On the
other hand, the interpersonal relations may con-
tribute to transforming political relations through the
diffusion of the logic of overabundance inside the
collective rules.
Third, this capability is considered within a group
(bonding) and between groups (bridging). The first
level deals with social inclusion and with the
implementation of a complex equality between cit-
izens of the same political community – or of
the same company. The second level entails the
consideration of the relational capability when ap-
plied to relations between different citizens or
groups from different communities or states and
between groups, between communities or between
states, particularly in economic matters concerning
distributive justice challenges.
Relational capability as a tool for promoting corporate social
responsibility
We have just seen how the capabilities approach,
based on relational anthropology, provides the cri-
teria of judgment for personal or collective action: it
concerns seeing in which measure the foreseen ac-
tion or project contributes to increasing the rela-
tional capability between persons and groups more
or less directly concerned by them. In this perspec-
tive, which makes the improvement of relational
capability the essential vector of human develop-
ment, the economic structures should be considered
according to this criterion. Applied to the social
responsibility of the company, it allows us to ask if
and how the measures taken by the company con-
tribute to improving – or not – the relational
capability of individuals and groups, the quality of
social relations in the company and between the
company and its stakeholders. Utility maximization
often understood, in the classic utilitarian perspec-
tive, by the optimization of profit for the share-
holders, is complemented by the research of the
maximization of people’s relational utility, which
brings up the issue of fair sharing of the value created
by the company in order to increase the relational
capability of the stakeholders – or, at least, to not
harm the quality of social relations in and around the
company.
Take the example of the societal activity of mul-
tinational extractive companies in extremely poor
areas such as Nigeria. These companies are charac-
terized by the significant impact they have on their
natural and human environment. Very often, the
actions taken in the villages close to the production
sites have encouraged dependence and corruption.
Not only are the multinational corporations operat-
ing in the developing world ill-equipped to tackle
development issues (Blowfield and Frynas, 2005;
Frynas, 2008) – because of the past confusion
between philanthropy and real contribution to local
92 Cecile Renouard
development, and because of their lack of internali-
zation of negative externalities within their core
business activities (Bird and Herman, 2004) – but
they also have to deal with local governance problems
and weak or failed states. Thus, most of the recent
attempts by oil companies to set up partnerships with
NGOs and development agencies to fight against
poverty in the Niger Delta result in failure and a
deterioration of the social environment (Idemudia,
2009). Nevertheless, some projects are creating hope,
as they are based on personal and collective empow-
erment, on an understanding of the measure of the
contribution of the oil activity to development with
the goal of preserving and improving the relational
quality between persons and between groups, and not
simply with the goal of improving living conditions
in the villages.
To support this perspective, I draw on the research
conducted in Nigeria since 2004 (Renouard, 2007)
and, in particular, on the results of an in-depth study
that I carried out in 2008, with 2000 people in two
areas: Onelga, an onshore oil production area – run by
the French company Total and by the Italian com-
pany Agip – in the State of Rivers; and Eastern
Obolo, in the State of Akwa Ibom, a coastal area in
which Shell has extracted oil since the end of the
1990s, and which is one of the communities affected
by the offshore activity of Total. Like the other oil
companies operating offshore, due to a 2002 regu-
lation, Total must contribute to the development of
areas that suffered collateral damages linked to oil
extraction (especially pollution). Total’s societal ac-
tion is direct in the onshore production area and
indirect in the coastal area: in this latter area, it is led
by Pro-Natura, a Franco-Brazilian NGO in Nigeria
which started a participative development project in
Akassa, in the state of Bayelsa, in 1996 (Maier, 2001).
Based on the same model, two local development
foundations were created by Pro-Natura in two
coastal local Governments, including Eastern Obolo.
The social–political context of the Niger Delta is
characterized by great insecurity, largely provoked by
the oil ‘‘manna’’: an increase in the number of acts of
sabotage and attacks on the onshore oil production sites
by armed groups like Mend (Movement for the Eman-
cipation of the Niger Delta), a high level of crime, an
upsurge of borderline social practices such as cultism and
prostitution involving young people, a low quality of
education set against a backdrop of uncontrolled
demographic growth, a strengthening of inter-clan
and interreligious tensions and an absence of national
unity and civic virtues. The combination of ‘‘strate-
gic’’ nationalism – oriented toward profit – and liberal
modernization, without ethos apart from favoritism,
has contributed to toughening the ethnic identities
and ‘‘retribalizing’’ Nigerian citizens.
In order to identify the social responsibilities of the
oil companies, the in-depth analysis of the situation
in the local governments of Onelga and Eastern Obolo
is instructive. It highlights the different models of
relations between oil companies, NGOs, govern-
ment institutions, local communities and different
types of partnerships aiming at local development.
The research carried out in 2008 was completed by
qualitative interviews conducted in 2009 in the two
areas. Regarding the statistical work in the study,
after having proposed a first version of an index of
relational capability at the individual level (based on
components detailed supra), we have also developed
an index which allows measuring the collective
empowerment, the relational capability within a village
– the density and the quality of the relations in the village
and between villages. In addition, we have established
an index of escaping poverty, based on the model of
Mohammed Yunus 5
– in the context of Bangladesh –
and adapted it to the Nigerian context, which allows
us to confirm the interest of measuring the devel-
opment in relational terms and not only in terms of
material living conditions. 6
All of our work is based on an analysis in terms of
‘‘relational capability,’’ aiming to measure the
development of an area in terms of empowerment of
populations: according to this approach, a community
is all the more ‘‘developed’’ if its members have more
opportunity to enter into relations of trust, integrate
into networks, get involved in community projects,
and worry about the future of their community. One
of the major conclusions reached in our analysis of the
qualitative and quantitative inquiries is that one of the
explanatory factors of the increase of violence in the areas
where the oil companies are established (in our research,
Onelga) is linked to the reduction of the relational capability
of the populations who live there. This reduction is the
result of the increase of inequalities in these areas as
well as between these areas and those which aren’t
directly affected by the oil activities – inequalities
perfectly compatible with the improvement of the
average standard of living in the oil regions.
93CSR, Utilitarianism, and the Capabilities Approach
This is where the approach in terms of relational
capability is interesting, where the more traditional
indices (such as the human development index –
HDI – or the index of ‘‘escaping poverty’’ of Yunus
and Weber, 2008) are limited to pointing out that the
populations living in the oil regions enjoy better
living conditions. But how are we to understand this
undeniable increase in the average well-being of
populations living in the oil areas compared with the
level of violence in the Niger Delta? By proposing a
criterion which considers both the autonomy of
people and their interdependence, relational capa-
bility makes the relational inequalities emerge as one of
the major explanatory factors of the degradation of
the social environment. Finally, these inequalities
themselves are, to a large extent, the product of a
reorganization of the networks of socialization within
the populations concerned due to the abuse of wealth
and power by the leaders placed in positions of ‘‘benefit
captors.’’ As far as CSR is concerned, a key challenge
for oil companies is to find ways of promoting
the increase of people’s relational capabilities. The
problem is primarily not one of knowing whether the
company has to spend more money on societal issues,
even if distributive justice questions have to be raised
(Bird, 2006); it is to change the mindset, both within
the company and within local communities, in order
to favor another type of relationship between
the company and the communities and among the
communities. This change of mindset involves the
promotion of moral imagination – the ability to
conceive of other new possibilities in a given situa-
tion – (Werhane, 1999) and ethical leadership
(Bowie and Werhane, 2005). It also points to a new
way of promoting cooperation among stakeholders
and even among competitors, in order to give rise to
a new economic order based on empathy (Rifkin,
2009). This may become all the more possible if
development in a given society is understood as the
increase of relational capabilities and not of material
well-being (when a certain threshold is achieved).
Concluding remarks
Connected in this way to relational anthropology, the
capabilities approach makes questioning possible
within companies about the criteria of a positive
contribution to development. It doesn’t make the
company a development agency or a substitute for
government institutions, but is in line with the goal of
liberal societies which are fairer and better organized
(Smucker, 2006). It reinforces the idea that economic
development is an auxiliary to social development:
the social responsibility of the company, in this per-
spective, is not a marginal aspect but results from the
core business of the economic actors. From the moment
that the increase of the relational capability is under-
stood as the essential criteria of development, CSR
will be carried out all the more if it favors the rela-
tional quality of people and groups in the company
and between the company and its environment.
Aspects of this thesis will require more details,
especially concerning the difficulties that arise from
the reality of the unequal relations between stake-
holders and, in general, the balances of power (Reed
and Reed, 2009). It is also necessary to satisfy pos-
sible conflicts between competing conceptions of
the good and between different assets – social, cul-
tural, environmental, etc. – for companies to pro-
mote in an area and/or at the planetary level. From
this viewpoint, our reflection, which is based partly
on the thought of John Stuart Mill and Martha
Nussbaum, aligns itself (by applying them to the
economic field) with contemporary debates – rarely
mentioned by the theorists of the capabilities ap-
proach – between liberal and communitarian phi-
losophers about the construction of personal and
collective identities and relations between what is
fair and good in liberal societies. By defending a
dynamic conception of the construction of personal
and collective identities and by stressing the social
and political conditions of the expression of these
identities, the position adopted in this article could
initiate a dialog with both Charles Taylor’s civic
humanism (1985) and Michael Walzer’s communi-
tarian or social liberalism (1991), which try to get
past the opposition between liberal atomism and
communitarian collectivism: the construction of a
just society goes with the recognition of shared
values among its members, and particularly of free-
dom as a ‘‘common good’’ (Honneth, 1992). This
article provides the primary elements for establishing
the criteria of economic organizations and CSR
consistent with these ethical and political values
centered on relational capabilities, i.e., the quality of
social bonds within a society. We have stressed that
this perspective is consistent with the utilitarianism
94 Cecile Renouard
of John Stuart Mill: this means that there is a possible
social critique from within liberal societies, replacing
the maximization of the individual material utility by
the maximization of the relational-social capability.
The defense of the relational capability of all citizens
and the improvement of the quality of human
relations in a society can’t be ensured without cor-
rective measures applied to economic institutions
and organizations in order to promote the fight
against unfair inequalities (Deneulin et al., 2006),
and especially against relational inequalities linked to
structures of oppression or exclusion.
Notes
1 This point has been further illustrated by Harsanyi
(1953). 2
E.g., Locke (1679) and Rousseau (1762). 3
Of course, altruism has already been formalized
within a neo-classical framework (cf. Becker, 1974).
Thus, our shift of viewpoint goes deeper than simply
adding altruism into people’s behavior. Altruism
remains, however, one of the key aspects of our
approach. 4
See Giraud and Renouard (2009). 5
The following criteria are given by Yunus and We-
ber (2008) in order to appreciate the efficiency of pro-
grams fighting against poverty:
a tin-roofed house (or a value equivalent to $370),
access to drinking water,
clean toilets,
grammar school education,
three complete meals per day,
sufficient clothes and protection (mosquito nets),
possibility of having medical expenses taken care of
in the case of illness,
a savings account with at least $75, and
sources of additional income possible in case of diffi-
culty.
6 For a detailed presentation of this study, see Giraud
and Renouard (2010).
Acknowledgments
I am grateful to Gaël Giraud and Gerhard Schmetzer
for helpful comments.
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Study guide.pdf
BBA 4751, Business Ethics 1
Course Learning Outcomes for Unit I Upon completion of this unit, students should be able to:
1. Analyze the philosophical concept of ethics, its practical applicability to business, and its distinction from the law.
9. Identify ethical considerations related to child labor and sweatshops.
Reading Assignment In order to access the resources below, you must first log into the myCSU Student Portal and access the Business Source Complete database within the CSU Online Library. Gogoi, P. (2008, October 10). Wal-Mart supplier accused of sweatshop conditions. Businessweek Online, 5. Renouard, C. (2011). Corporate social responsibility, utilitarianism, and the capabilities approach. Journal of
Business Ethics, 98(1), 85-97. Trevino, L. K., Hartman, L. P., & Brown, M. (2000). Moral person and moral manager: How executives
develop a reputation for ethical leadership. California Management Review, 42(4), 128-142. Watson, A. (2014). Ethics vs. compliance: Do we really need to talk about both? InsideCounsel, 24(266), 23. Navigate to and read the following sources on the Internet: Mojonnier, T. (2012). When child labor is ethical. Retrieved from http://businesstheory.com/child-labor-ethical/
Unit Lesson
Click here to access an introduction video.
Click here to access the introduction video transcript.
Click here to access a video that briefly introduces topics in this unit.
UNIT I STUDY GUIDE
Introduction to Business Ethics
BBA 4751, Business Ethics 2
UNIT x STUDY GUIDE
Title
Click here to access the video transcript. Lt. Commander of the Star Trek Enterprise, Mr. Spock, part Vulcan, part human, famously suppresses his “human” side to his “rational” side in making decisions that profoundly affect the Star Trek’s exploration, mission, and success. Mr. Spock—on more than one occasion—risks his life stating "The needs of the many outweigh the needs of the few or the one." Mr. Spock engages in the same reasoning when he is willing to sacrifice his life to ensure that the prime directive of the mission is not violated. Revealing an alien presence to the native people of Nibiru would contaminate their entire culture. Mr. Spock believes that the needs of the Nibiru natives outweigh his need to live and risks his own life. Even in seemingly smaller decisions that do not affect life and death, Mr. Spock espouses this theory that if the benefit to a few or even one, is outweighed by the benefit to the many, the few must be sacrificed. Mr. Spock believes that individuals should act to serve the greatest good for the greatest number and determines what is best by looking principally at the end result. Does the end justify the means used to effectuate the goal? In this unit, we will explore what it means to be an ethical person and why it is important in both personal and business settings. We will read about the foundational concepts of ethics as well as the character and power of an ethical leader. Socrates said, “[t]he shortest and surest way to live with honor in the world is to be in reality what we appear to be.” Whom do you want to be and why? How will you become the person you want to be? On what basis will you judge what is ethical? These crucial questions serve to guide us during this course as well as help you to grow as individual leaders within your organizations. For example, corporate cultures, as we will examine later in the course, are comprised with a myriad of different aspects but the most important is you. Your actions and non-actions, as well as your verbal behavior, will ultimately determine the character and direction of your organization. In this unit, we will explore various principles of ethics, including ethical relativism, utilitarianism, and fundamental rights. Is ethics a fixed concept, or is it fluid? Does it take into consideration another’s culture, or are there some issues which are steadfast and nonnegotiable? For example, is cannibalism acceptable? Is it acceptable in some cultures? In 1972, a flight carrying 45 passengers from Uruguay to Chile crashed high in the Andes. The 16 survivors lived in sub-zero temperatures waiting to be rescued for 72 days. After the food on-board was consumed, and with no wildlife to catch because of the winter conditions and the fact that they had no tools with which to catch any animals, the survivors turned to eating the corpses of the dead passengers, since they all agreed without which they surely would have died. Due to their survival instincts, the survivors were later rescued. Was it unethical to have sustained themselves off of the dead bodies? Did it matter that they had already died, and they did not kill anyone? What if they had killed someone or let him or her die in order to use them as food? You will be asked to think about the hard, sometimes uneasy, questions of ethics in this course. Some will take a relativist approach by arguing that ethical decisions depend upon certain factors such as the situation or one’s culture. Such an approach asserts that we must look at the decision to be made from the perspective of the individual in the situation. From this viewpoint, using the corpses as food was ethical because no one was killed in the process, they were already dead, and they were providing nourishment for their bodies. From a utilitarian lens, some will argue that the actions were morally justified by the end result, as the benefits were great while the sacrifices were few. Some will argue that as a fundamental principle, cannibalism is wrong in any situation as people have fundamental rights—not to be defiled after death and to be properly buried. Based on the first two concepts, the theories differ though the end result is the same: cannibalism is acceptable in that situation. In addition to foundational concepts of ethics, we will explore corporate social responsibility (CSR) and theories surrounding how organizations should operate in the market, as there is a lack of shared definition as to what CSR means. What is the ideal role of for-profit organizations? We will think broadly and delve into the various key roles of an organization as it relates to CSR. Should an organization donate part of their profits? Engage in community-building within their area? Support the arts? Focus mainly on maximizing value- creation for its shareholders and then only subsequently focus on the community in which it operates? We will apply these concepts in moving from the moral person to the ethical manager, from the individual to the organization. We will address whether the same measures should be applied and how one becomes a leader and transmits his or her values in the organization. Is “walking the walk” enough? Will the organization grow and properly evolve through action alone? Will the action be understood as it was intended, or will there be confusion and ambiguity? You will be given the tools to decide how best to be the ethical leader you want to be.
BBA 4751, Business Ethics 3
UNIT x STUDY GUIDE
Title
Lastly, we will apply the concepts in this unit to the issues currently being debated in employing children as labor workers within developing countries and operating “sweatshops.” For example, we examine those involved in the child labor market and whether the issue is as “clear-cut” as it may seem. Both are bad, right? What if a child in a developing country has no opportunity for education and working is his or her only choice? What are the ramifications of seeing the issue through our lens of a first world country in taking away this child’s job in a third world country when she contributes to her destitute family’s financial well-being? How would you decide based on fundamental, utilitarianism, or relativist principles, for example? In this unit, we will challenge ourselves and our way of thinking. President Abraham Lincoln said “[w]hen I do good, I feel good; when I do bad, I feel bad, that is my religion.” We will explore our personal ethical “religion,” and likely discover it is not as easy as “doing good or bad.” We will analyze how, as individual leaders, we decide what is “good or bad,” and decide which of those involved are affected by these choices and in what ways.
Moral person and
moral manager.pdf
Moral Person and Moral Manager: H o w EXECUTIVES DEVELOP
A REPUTATION FOR
ETHICAL LEADERSHIP
Linda Klebe Trevino Laura Pincus Hartman Michael Brown
P lato asked, which extreme would you rather be: "an unethical person with a good reputation or an ethical person with a reputation for injus- tice?" Plato might have added, "or would you rather be perceived as ethically neutral—someone who has no ethical reputation at all?" Plato
knew that reputation was important. We now understand that reputation and others' perceptions of you are key to executive ethical leadership. Those others include employees at all levels as well as key external stakeholders.
A reputation for ethical leadership rests upon two essential pillars: per- ceptions of you as both a moral person and a moral manager. The executive as a moral person is characterized in terms of individual traits such as honesty and integrity. As moral manager, the CEO is thought of as the Chief Ethics Officer of the organization, creating a strong ethics message that gets employees' attention and influences their thoughts and behaviors. Both are necessary. To be perceived as an ethical leader, it is not enough to just be an ethical person. An executive ethical leader must also find ways to focus the organization's attention on ethics and values and to infuse the organization with principles that will guide the actions of all employees. An executive's reputation for ethical leadership may be more important now than ever in this new organizational era where more employees are working independently, off site, and without direct supervision. In these organizations, values are the glue that can hold things together, and values must be conveyed from the top of the organization. Also, a single employee who operates outside of the organizational value system can cost
This article is based upon the findings of a study initiated by and supported by the Ethics Resource
Center Fellows Program.
128 CAUFORNIA MANAGEMENT REVIEW V O L 42, NO. 4 SUMMER 2000
Moral Person and Moral Manager: H o w Executives Develop a Reputation for Ethical Leadership
the organization dearly in legal fees and can have a tremendous, sometimes irreversible impact on the organization's image and culture.
Moral Person + Moral Manager = A Reputation for Ethical Leadership
These ideas about a dual pillar approach to ethical leadership are not brand new. As the opening quotation suggests, the emphasis on reputation goes back to Plato. Chester Barnard addressed the ethical dimension of executive leadership sixty years ago. Barnard spoke about executive responsibility in terms of conforming to a "complex code of morals"' (moral person) as well as creating moral codes for others (moral manager).
If Plato and Barnard had this right, why bother revisiting the subject of ethical leadership now? We revisit the subject because, in our 40 structured interviews (20 with senior executives and 20 with corporate ethics officers), we found that many senior executives failed to recognize the importance of others' perceptions and of developing a reputation for ethical leadership. To them, being an ethical person and making good ethical decisions was enough. They spoke proudly about having principles, following the golden rule, taking into account the needs of society, and being fair and caring in their decisions. They assumed that if they were solid ethical beings, followers would automatically know that. They rejected the idea that successful ethical executives are often perceived as ethically neutral. Furthermore, they assumed that good leaders are by definition ethical leaders. One senior executive noted, "I don't think you can distinguish between ethical leadership and leadership. It's just a facet of leadership. The great leaders are ethical, and the lousy ones are not."
However, a reputation for ethical leadership can not be taken for granted because most employees in large organizations do not interact with senior exec- utives. They know them only from a distance. Any information they receive about executives gets filtered through multiple layers in the organization, with employees learning only about bare-bones decisions and outcomes, not the per- sonal characteristics of the people behind them. In today's highly competitive' business environment, messages about how financial goals are achieved frequently get lost in the intense focus on the bottom line. We found that just because executives know themselves as good people—honest, caring, and fair— they should not assume that others see them in the same way. It is so easy to forget that employees do not know you the way you know yourself. If employ- ees do not think of an executive as a clearly ethical or unethical leader, they are likely to think of the leader as being somewhere in between—amoral or ethi- cally neutral.
Interestingly, perceptions of ethically neutral leadership do not necessarily arise because the leader fs ethically neutral. In fact, many of the senior execu- tives we spoke with convinced us that it was impossible for them to be ethically
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neutraf in their jobs, given the many value-laden decisions they make every day. Rather, the perception of ethically neutral leadership may exist because the leader has not faced major public ethical challenges that would provide the opportunity to convey his or her values to others. As one executive noted, "They haven't had to make any decisions on the margin . . . once you're faced with [a major public ethical dilemma], you bare your soul and you're one or the other [ethical or unethical]." On the other hand, a reputation for ethically neutral leadership may exist because the leader has not proactively made ethics and values an explicit and evident part of the leadership agenda. Executives must recognize that if they do not develop a reputation for ethical leadership, they will likely be tagged as "ethically neutral." As a result, employees will believe that the bottom line is the only value that should guide their decisions and that the CEO cares more about himself and the short-term financials than about the long-term interests of the organization and its multiple stakeholders.
Figure 1 provides a summary of our study's findings.
Pillar One: Moral Person Being an ethical person is the substantive basis of ethical leadership.
However, in order to develop a reputation for ethical leadership, the leader's challenge is conveying that substance to others. Being viewed as an ethical per- son means that people think of you as having certain traits, engaging in certain kinds of behaviors, and makitig decisions based upon ethical principles. Further- more, this substantive ethical core must be autfientic. As one executive put it, "If the person truly doesn't believe the ethical story and preaches it but doesn't feel i t . . . that's going to show through. . . . But, [a true ethical leader] walks in [and] it doesn't take very long if you haven't met him before [you think] there's a [person] with integrity and candor and honesty."
Traits
Traits are stable personal characteristics, meaning that individuals behave in fairfy predictable ways across time and situations and observers come to describe the individuaf in those terms. Tlie traits that executives most often asso- ciate with ethical leadership are honesty, trustworthiness, and integrity. A very broad personal characteristic, integrity was the trait cited most frequently by the executives. Integrity is a holistic attribute that encompasses the other traits of honesty and trustworthiness. One executive said that the average employee would say that the ethical leader is "squeaky clean." They woufd think "I know that if I bring an issue to him or her that I can count on their honesty and integrity on this because I've seen their standards and that one, integrity, is one that's very important to them."
Trustworthiness is also important to executives. Trust has to do with consis- tency, credibility, and predictability in relationships. "You can't build a long-term relationship with a customer if they don't trust you." Finally, honesty, sincerity.
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^BffljJr
F I G U R E I . TheTwo Pillars of Ethical Leadership
Moral Person
Traits
• Integrity
• Honesty
• Trustworthiness
Behaviors
• Do the Right Thing
• Concern for People
• Being Open
• Personal Moralrty
Decision-Making
• Hold to Values
• Objective/Fair
• Concern for Society
• Follow Ethical Decision Rules
E
1 Moral Manager
Role Modeling Through
Visible Action
Rewards and Discipline
Communicating About Ethics
and Values
1
and forthrightness are also important. "An ethical leader . . . tends to be rather candid, certain, [and is] very careful to he factual and accurate. . . . An ethical leader does not sugarcoat things . . . he tells it like it is."
Behaviors
"Your actions speak so loudly, I can't hear what you're saying." That is the sentiment expressed hy one' executive. Although traits are clearly important to ethical leadership, hehaviors are perhaps more so, and these include: "The way you act even when people aren't looking." "People are going to judge you not hy what you say hut hy what you do." "People look at you and understand over time who you are personally as a result of their ohservations." Important hehav- iors include "doing the right thing," showing concern for people and treating
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people right, heing open and communicative, and demonstrating morality in one's personal life.
First and foremost, executives said that ethical leaders do the right thing. One retired CEO talked ahout the founder of his firm, a man who "was known for his strong helief that there is only one way to do husiness and that's the right way."
Second, executive ethical leaders show concern for people through their actions. They treat people well—with dignity and respect. "I think [the ethical leader] treats everyhody with dignity—meaning everyhody—whether they're at the lowest level or higher levels . . . everyone gets treated with dignity and respect. I've also found that if you treat people with dignity and respect and trust, they almost invariahly will respond in that fashion. It's like raising chil- dren. If you really don't trust them, they don't have much to lose hy trying to get away with something. If they feel you trust them, they are going to think long and hard hefore they do something that will violate that trust." Several of the executives used the military example. "In the military, the troops eat hefore the officers.. . . Leaders take care of their troops. . . . A leader is selfless, a leader shares credit, a leader sees that contrihutors are rewarded." -
Being open means that the executive is approachahle and a good listener. Employees feel comfortahle sharing had news with the ethical leader. One exec- utive said, "An ethical leader would need to he approachahle so that. . . people would feel comfortahle raising the tough issues . . . and know that they would he listened to." Another put it this way: "In general, the hetter leaders that I've met and know are more than willing to share their experiences of rights and wrongs, successes and failures." These leaders do not kill the messenger who hrings had news. They encourage openness and treat had news as a prohlem to he addressed rather than punished.
Finally, personal morality is associated with ethical leadership. We asked explicitly ahout personal morality hecause our interviews with executives took place during the Monica Lewinsky scandal in the Clinton Presidency and the topic was prominent in everyone's mind. When we asked whether personal morality was linked to ethical leadership, most executives answered yes. "You can not he an ethical leader if your personal morality is in question. . . . To he a leader . . . what you do privately reflects on that organization. Secondly, to he a leader you have a greater standard, a greater responsihility than the average person would have to live up to."
Decision Making
In their decision-making role, executive ethical leaders are thought to hold to a solid set of ethical values and principles. They aim to he objective and fair. They also have a perspective that goes heyond the hottom line to include concerns about the broader society and community. In addition, executives said that ethical leaders rely upon a numher of ethical decision rules such as the golden rule and
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the "New York Times Test." The "New York Times Test" says that, when making a decision, ethical leaders should ask themselves whether they would like to see the action they are contemplating on tomorrow morning's front page. This ques- tion reflects the ethical leader's sensitivity to community standards.
To summarize, the "moral person" pillar of ethical leadership represents the suhstance of ethical leadership and it is an important prerequisite to develop- ing a reputation for ethical leadership hecause leaders hecome associated with their traits, hehaviors, and decisions as long as others know ahout them. With the moral person pillar in place, you should have a reputation for heing an ethi- cal person. You can think of this as the ethical part of the term "ethical leader- ship." Having a reputation for heing a moral person tells employees what you are likely to do—a good start, hut it does not necessarily tell them what they should do. That requires moral managing—taking the ethics message to the rest of the organization.
Many of the executives we interviewed thought that heing an ethical person who does the right thing, treats people well, and makes good decisions was necessary and sufficient for heing an ethical leader. This is not surprising hecause executives know other executives personally. They have served under them, worked with them, and ohserved their hehavior at close hand. Therefore, in their minds, an executive's ethical traits, hehaviors, and decisions are auto- matically associated with a reputation for ethical leadership. However, some of the executives and even more of the ethics officers noted that heing an ethical person was not enough. To develop a reputation for ethical leadership with employees, leaders must make ethics and values a salient aspect of their leader- ship agenda so that the message reaches more distant employees. To do this, they must he moral managers as well as moral persons. As one executive expressed it: "Simply put, ethical leadership means doing the right thing, and it means comimunicating so that everyone understands that [the right thing] is going to happen at all t i m e s . . . I think that most of the people I've heen in husi- ness with adhere to the first hut do less well with the second. And, in my experi- ence, it is something that has to he reinforced constantly . . . the second part is the hardest."
Pillar Two: Moral Manager In order to develop a reputation for ethical leadership, a heavy focus on
the leadership part of that term is required. The executive's challenge is to make ethics and values stand out from a husiness landscape that is laden with mes- sages ahout heating the competition and achieving quarterly goals and profits. Moral managers recognize the importance of proactively putting ethics at the forefront of their leadership agenda. Like parents who should explicitly share their values with their children, executives need to make the ethical dimension of their leadership explicit and salient to their employees. Executives who fail to do this risk heing perceived as ethically neutral hecause other more pervasive messages ahout financial success take over. One CEO put it this way: "We do
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some good things [turn down unethical husiness opportunities, develop people, champion diversity], hut compare the numher of times that we recognize those [ethical] achievements versus how much we recognize financial achievements— it's not close. I mean, I cringe . . . saying t h a t . . . I'm not saying we don't work at these other things, h u t . . . the recognition is still very much on financial per- formance and . . . it's true in almost all organizations . . . And that's what's wrong. That's what's out of kilter."
Our study identified a numher of ways moral managers can increase the salience of an ethics and values agenda and develop a reputation for ethical leadership. They serve as a role model for ethical conduct in a way that is visihle to employees. They communicate regularly and persuasively with employees ahout ethical standards, principles, and values. Finally, they use the reward sys- tem consistently to hold all employees accountahle to ethical standards.
Role Modeling through Visible Action
Role modeling may seem similar to the "doing the right thing" category ahove. However, role modeling emphasizes visible action and the perceptual and reputational aspects of ethical leadership. Some ethical hehaviors will go com- pletely unnoticed while others will he noticed and will contrihute to a reputation for ethical leadership. Effective moral managers recognize that they live in a fishhowl of sorts and employees are watching them for cues ahout what's impor- tant. "You are demonstrating hy your example on and off the joh, in other words, 24 hours a day, seven days a week, you're a model for what you helieve in and the values." In addition, "if you're unethical. . . people pick up on that and assume hecause you're the leader that it's the correct thing to do . . . that not only are you condoning it, hut you're actually setting the example for it."
The effective moral manager understands which words and actions are noticed and how they will he interpreted hy others. In some cases, visihle exec- utive action (without any words at all) is enough to send a powerful message. One executive offered the following as an example of the power of executive action. "Some years ago, I was running one of our plants. I had just taken over and they were having some financial trouhles. . . . Most of our management was flying first class. . . . I did not want. . . my first act to he to tell everyhody that they are not gonna fly first class anymore, so I just quit fiying first class. And it wasn't long hefore people noticed it and pretty soon everyhody was flying coach. . . . I never put out a directive, never said a word to anyhody . . . and people noticed it. They got the message. . . . People look to the leader. If the leader cuts corners, they say its okay to cut corners around here. If the leader doesn't cut corners, we must he expected not to do any of that around here."
Negative signals can also he sent hy visihle executive action and moral managers must he particularly sensitive to these. For example, what kind of signal does it send when your organization's ethics policy prohihits employees from accepting any kind of gift from a prospective client and then employees see a group of senior executives sitting in a client's hox enjoying a professional
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foothall or haskethall game? Unless the CEO is wearing a large sign that says "we paid for these tickets," the message is clear. Ethics policies do not apply equally to everyone. It hecomes much easier for an employee to rationalize receiving gifts. According to one interviewee, many executives "wouldn't think twice ahout it hecause you don't intend to do anything wrong." However, employees are generally not aware of your intent. They see the actions and make inferences hased upon them.
Communicating about Ethics and Values
Many executives are uncomfortahle talking ahout ethics and wonder ahout those who do. In our interviews, some executives expressed concern ahout the leader who talks ahout ethics too much. "I distrust people who talk ahout it all the time. I think the way you do it [ethical leadership] is to demon- strate it in action . . . the more a person sermonizes ahout it, the more worried I am . . . sometimes you have to talk ahout it, hut mostly you don't talk ahout it, you just do things." However, moral managers need to talk ahout ethics and values, not in a sermonizing way, hut in a way that explains the values that guide important decisions and actions. If people do not hear ahout ethics and values from the top, it is not clear to employees that ethics and values are im- portant. You may not feel comfortahle talking ahout ethics if it means discussing the intricacies of Aristotle or Kant. However, talking ahout ethics with your employees does not mean that at all. It means talking ahout the values that are important to you and the organization. It is a hit like teaching children ahout sex. Parents can choose to avoid the uncomfortahle suhject, hoping that their children will learn what they need to know in school; or, they can hring an expert home who knows more than they do ahout the physiology of the human reproductive system. However, what parents really want their children to know ahout and adopt is a set of values the family helieves in such as love, respect, and responsihility. To he most effective, that message must come from parents, in words and in actions. Similarly, the message ahout the values guiding deci- sions and actions in husiness should come from senior leaders.
The Reward System
Using rewards and discipline effectively may he the most powerful way to send signals ahout desirahle and undesirahle conduct. That means rewarding those who accomplish their goals hy hehaving in ways that are consistent with stated values. "The most senior executive should reward the junior executive, the manager, the line people who make these [ethical] decisions . . . reinforce- ment is very important."
It also means clearly disciplining employees at all levels when they hreak the rules. A financial industry executive provided the following two examples. "If there's a situation within the corporation of sexual harassment where [the facts are] proven and management is very quick to deal with the wrongdoer . . . that's leadership. To let the rumor mill take over, to allow someone to quietly
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go away, to resign, is not ethical leadership. It is more difficult, hut you send the message out to the organization hy very visihle, fair, halanced hehavior. That's what you have to do."
"If someone has taken money, and they happen to he a 2 5-year employee who has taken two hundred dollars over the weekend and put it hack on Mon- day, you have to . . . fire that person. [You have to make] sure everyhody under- stands that Joe took two hundred dollars on Friday and got [fired] . . . [they must also] he assured that I did have a fact hase, and that I did act responsihiy and I do care ahout 25-year people."
Another financial industry executive talked ahout how he was socialized early in his career. "When I was signed . . . to train under a tough, hut fair part- ner of the firm . . . he [said] there are things expected from you . . . hut if you ever make a transaction in a client's account that you can't justify to me was in the hest interest of the customer, you're out. Well that kind of gets your attention."
An airline executive said, "we talk ahout honesty and integrity as a core value; we communicate that. But then we hack it up . . . someone can make a mistake. They can run into the side of an airplane with a haggage cart and put a hig dent in i t . . . and we put our arm around them and retrain them. . . . If that same person were to lie to us, they don't get a second chance . . . When it comes to honesty, there is no second chance."
The moral manager consistently rewards ethical conduct and disciplines unethical conduct at all levels in the organization, and these actions serve to uphold the standards and rules. The ahove reward system examples represent clear signals that will he noticed and that demonstrate clearly how employees are held accountahle and how the leader hacks up words with actions.
In summary, to develop a reputation for ethical leadership, one must he strong on hoth dimensions: moral person and moral manager. The ethical leader has a reputation for heing hoth a suhstantively ethical person and a leader who makes ethics and values a prominent part of the leadership agenda.
What Does Ethical Leadership Accomplish?
The executives we talked with said that ethical leadership was good for husiness, particularly in the long term, and avoids legal prohlems. "It prohahly determines the amount of money you're spending in lawsuits and with corpo- rate attorneys. . . you save a lot of money in regulatory fees and lawyer fees and settlement fees." They also said that ethical leadership contrihutes to employee commitment, satisfaaion, comfort, and even fun. "People enjoy working for an ethical organization" and it helps the organization attract and retain the hest employees. "If the leadership of the company reflects [ethical] values . . . people will want to work for that company and will want to do well." Finally, employ- ees in an organization led hy an executive ethical leader will imitate the hehav- ior of their leader and therefore the employees will he more ethical themselves.
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F I G U R E 2 . Executive Reputation and Ethical Leadership
Strong
Moral Manager
Weak
Hypocritical Leader Ethical Leader
Unethical Leader |
? -^— Ethically Neutral Leader — • ?
Weak Strong
Moral Person
Next, we combine the two pillars of ethical leadership into a two by two matrix that can help us think about the kinds of reputation an executive can develop (see Figure 2). As noted, the combination of strong moral person and strong moral manager produces a reputation for ethical leadership. However, what happens if the leader falters in one of these areas? The matrix suggests the following possibilities: one may develop a reputation as an unethical leader, a hypocritical leader, or an ethically neutral leader.
The Unethical Leader
A leader who is perceived to be weak on both dimensions will develop a reputation for unethical leadership. A number of executives we spoke with named Al Dunlap as a prime example of someone with a reputation for unethi- cal executive leadership. Business Week recently published excerpts from John Byrne's book about Dunlap entitled Mean Business.^ The article describes Dunlap as the "no-nonsense executive famous for turning around struggling compa- nies—and sending their shares soaring in the process." However, Dunlap was also known for tirades against employees "which could reach the point of emo- tional abuse." "He was condescending, belligerent and disrespectful." "At his worst, he became viciously profane, even violent. Executives said he would throw papers or furniture, bang his hands on his desk, and shout so ferociously that a manager's hair would be blown back by the stream of air that rushed from Dunlap's mouth." He used the promise of huge rewards to get "employees to do things they might not otherwise do." In order to make the numbers that Dunlap demanded, creative accounting techniques were employed and "dubious tech- niques were used to boost sales." He also lied to Wall Street analysts. "Despite the chaos inside the company. Sunbeam's chief kept up a steady drumbeat of optimistic sales and earnings forecasts, promises of tantalizing new products, and assurances that the Dunlap magic was working." In the end, the lies could
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no longer cover up what was really going on. Wall Street abandoned the com- pany and the board of directors fired Dunlap. Sunbeam was left crippled and the company continues to struggle today.
On the moral person dimension, Dunlap was found to be dishonest, he treated people horribly and made decisions based upon the financial bottom line only, disregarding the interests of multiple stakeholders in the process. On the moral manager dimension, his own behavior, communications, and the reward system were used to send a single consistent message. The bottom line was the only thing that mattered.
The Hypocritical Leader
A leader who is not perceived to be a strong ethical person but who attempts to put ethics and values at the forefront of the leadership agenda is likely to be perceived as a hypocritical leader who "talks the ethics talk" but does not "walk the ethics walk." In such cases, people tend to see the talk only as window dressing. They watch for actions to match the words and if there is a mismatch, the words are dismissed. As suggested above, some executives expressed concern about the leader who talks about ethics too much. In terms of the leader's reputation for ethical leadership, communicating about ethics and values, without the actions to match, is probably worse than doing nothing at all because talk without action places a spotlight on the issue that would not other- wise be there. As a result, employees become cynical and distrust everything the leader says. They also figure that they too can ignore ethical standards if they perceive that the leader does so.
The Ethically Neutral Leader
This category generated a lot of comment. Half of the executives rejected it out of hand. The other half recognized its existence and almost all of the twenty corporate ethics officers we talked with readily acknowledged it. On the moral person dimension, it is most appropriate to say that this person is per- ceived to be not clearly unethical, but also not strongly ethical. Consider what peo- ple say about ethically neutral leaders. In terms of traits, the ethically neutral leader is seen as more self-centered than other-centered. In terms of behaviors, ethically neutral leaders are less open to input from others and they care less about people. They are less compassionate. In terms of decision making, ethi- cally neutral executive leaders are thought to have a narrower yiew than do ethical leaders. They focus on financial ends more than the means that are of interest to ethical leaders. They also are more likely to base decisions upon the short-term bottom line and they are less concerned with leaving the organiza- tion or the world a better place for the future. Interestingly, much of the empha- sis seems to be on what the ethically neutral leader is not (not open to input, not caring, not focused on means, not concerned with leaving a legacy). This is important because it means that to perceive ethical leadership, followers need evidence of positive ethical traits, behaviors, and decision processes. Lack of
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awareness of these positive characteristics leads to the perception that the leader is ethically neutral. Clearly, employees must be aware of these positive attributes in order for them to infer the existence of ethical leadership.
When asked to talk about ethically neutral leaders, people said virtually nothing about moral managing (role modeling, communicating, the reward system). Given that employees make sense of the messages they do get, the ethi- cally neutral leader's focus on the short-term bottom line gets employees' atten- tion by default. If that is what the leader is focusing on, it must be the only thing that is important. One executive said, "Ethics hasn't been on the scorecard for what's important here . . . It's kind of like quality. Quality is something that we slipped away from and someone had to say, 'It's important.' Maybe the same is true of e t h i c s . . . we need a Deming . . . to remind us of how important it is."
Perhaps the most important outcome of ethically neutral leadership is that employees then think that ethics is not particularly important to the leader, "So they're left deciding on their own what's important in a particular situa- tion." This means that they are acting without clear guidance about the ethics and values of the organization. The leader has not demonstrated it, has not thought through it, has not given an example of it, has not talked about it, and has not discussed it in an open forum.
Cultivating a Reputation for Ethical Leadership
Given the importance of ethical leadership, we offer the following practi- cal steps executives can take to cultivate a reputation for ethical leadership.
Share Your Values: Who You Are as an Ethical Person "Ethical leadership is not easy . . . the temptations and the rewards for
unethical behavior are great. So, ethical leadership requires a discipline, a men- tal and personal discipline that is not easy to come by." Some senior executives arrive in their leadership positions with all of the necessary cognitive and emo- tional tools to be an active ethical leader. Part of the reason many of them ascend to senior leadership positions is because they have a reputation for integrity, for treating people well and for doing the right thing. They have likely had a lifetime of personal and work-related mentors and experiences that have molded and reinforced their values. By the time they reach the executive level, these values are so solid, that when challenged, the leader holds to them with- out question.
On the other hand, senior executive positions have a way of challenging your values in ways you may not have been challenged before. If you think that this aspect of your leadership needs work, devote energy to developing this side of yourself. Read books. Attend workshops and seminars with other senior exec- utives who share your concerns. Work with a personal coach. Talk with your spiritual advisor about how your values can be applied in yojir work.
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It then becomes particularly important to share this side of yourself. Find out what employees know about you and how they think of you in ethical lead- ership terms. You may be a strong ethical person, but your employees may have no way of knowing that. Most people do not have an accurate view of how oth- ers see them, especially when it comes to ethics. Surveys consistently find that most people think of themselves as above average and more ethical than their peers. However, the only way to honestly assess where you stand in terms of others' perceptions is to ask for candid input. A leader should "always have someone who can tell the emperor that he has no clothes." So, ask those closest to you. You can also survey your employees to find out how much they know about you as an ethical leader. Be open to what you learn and do not be sur- prised if employees say they simply do not know. For example, if you have not been outspoken on ethics and values issues, or you have not managed a highly public crisis that provided an opportunity for employees to learn about your values, you may be surprised to learn that employees do not know much about this aspect of your leadership. They may even see you as "neutral" on the ethics dimension. Talk to your communications people and your ethics officer, if you have one, about how you might successfully convey your values to employees on a regular basis. Figure out a way to open the lines of two-way communica- tion on ethics and values issues. Ask employees to share the ethical dilemmas they face and to let you know what kind of guidance they would like from you.
Assume the Role of Moral Manager- Chief Ethics Officer of Your Organization
"Ethical leadership means that the person, the leader, who is exercising that leadership is well-grounded in a set of values and beliefs that we would view as being ethical. However, in a leadership sense . . . it means that the leader sets an example because ethical leadership doesn't just mean that leader, it means the entire organization. If there isn't an observed ethical leadership at the top, you won't find it in the organization."
As noted, moral management requires overt action on the part of the executive to serve as a role model for ethical behavior in highly visible ways, to communicate about ethics and values, and to use the reward system to hold people accountable. James Burke, former CEO of Johnson & Johnson provides an excellent example of highly visible action that gets everyone's attention. Soon after Burke assumed the presidency of Johnson & Johnson, he brought together 28 senior managers to challenge the age-old corporate credo. He asked them to talk about whether they could really live by the document that had been hang- ing on corporate walls for years. "If we can't live by this document then it's an act of pretension and we ought to tear it off the walls, get rid of it. If we can live with it but want to change it that's okay too, if we can agree on what the changes should be. And, we could also leave it the way it is." According to Burke, people "stayed up all night screaming at each other." When they were done, they had updated the credo. They then took it to J&J sites around the
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world, released a revised credo in 1979, and committed the organization to it. Less than three years later, the Tylenol poisoning occurred and lots of folks were waiting to see whether management would live up to the credo values. As every student of business ethics and corporate crisis management knows, they did, and the case is now held up as a premier example of good business ethics. Burke does not take credit for J&J's success in handling the corporate crisis. He attrib- utes the success to the value system that had been articulated. However, clearly he was responsible for guiding the organization through the values articulation process and for making the credo prominent in the corporate culture and con- sciousness. As another executive put it, "all the written statements in the world won't achieve ethics in an organization unless the leader is perceived as being very serious and committed."
Following the Tylenol crisis, in 1985 Burke launched the credo survey process. All employees were surveyed regarding the company's performance with respect to the credo. Based upon the results, managers held feedback and problem-solving sessions with their employees and developed action plans to address problems. The survey process continues today on a biannual schedule under Burke's successor, Ralph Larsen, and remains a valuable way to keep attention focused on the credo and the values it represents.
To better integrate the Credo into the reward system, Larsen instigated a "standards of leadership" program which holds leaders at all levels accountable to the credo values. "At the important succession planning meetings, when upward mobility in the company is discussed, 'Credo Values' is first on the agenda. 'Business Results' is next in line. The following behaviors associated with Credo values are noted: 'Behaving with honesty and integrity. Treating others with dignity and respect. Applying Credo values. Using Credo survey results to improve business. Balancing the interests of all constituents. Managing for the long term.'"'
Finally, violations of Credo policy are handled swiftly and clearly. In one incident that involved infiltration of a competitor's sales meeting. President Larsen wrote the following to his management, "Our behavior should deeply embarrass everyone associated with Johnson & Johnson. Our investigation revealed that certain employees had engaged in improper activities that violated our policies. These actions were wrong and we took steps, immediately, to disci- pline those involved and guard against a recurrence of this kind of activity.""
Conclusion
Being an ethical leader requires developing a reputation for ethical lead- ership. Developing a reputation for ethical leadership depends upon how others perceive the leader on two dimensions: as a moral person and as a moral man- ager. Being a moral person encompasses who you are, what you do, and what you decide as well as making sure that others know about this dimension of you as a person. Being a moral manager involves being a role model for ethical
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Moral Person and Moral Manager: Hov\^ Executives Develop a Reputation for Ethical Leadership
conduct, communicating regularly about ethics and values, and using the reward system to hold everyone accountable to the values and standards. Ethical leadership pays dividends in employee pride, commitment, and loyalty—all par- ticularly important in a full employment economy in which good companies strive to find and keep the best people.
Notes 1. C. Barnard, Functions of the Executive (Cambridge, MA: Harvard University Press,
1938andl968), p. 279. 2. J.A. Byrne, "Chainsaw," Business Week, October 18, 1999, pp. 128-149. 3. L. Foster, Robert Wood Johnson (State College, PA: Lillian Press, 1999), pp. 645-646. 4. Ibid., p. 646.
142 CALIFORNIA MANAGEMENT REVIEW V O L 42, NO. 4 SUMMER 2000
Ethics vs
Compliance.pdf
c:cx> By Ashley Watson
Ethics vs. compliance: Do we realiy need to taik about botii?
ASHLEY WATSON IS SENIOR VICE PRESIDENT AND CHIEF ETHICS AND COMPLIANCE OFFICER
AT HEWLETT- PACKARD COMPANY.
SHE CAN BE REACHED AT ASHLEY.WATSON®
HP.COM.
I n the ethics and com- pliance profession, some companies use the title, "Chief Ethics and Compliance Of-
ficer," others use "Chief Ethics Officer" while others choose "Chief Compliance Oflicer." The terms "ethics" and "com- pliance" are often used sjoion- yinously; as a result, drawing a distinction between the two concepts may seem unimport- ant. In fact, the difference between the two can be very important for your training, communications and overall culture. Indeed, the conscious choices that companies make about these concepts often define their business.
Ethics and compliance are es- sentially difl̂ erent sides of the same coin. Compliance is following the law, while ethics is doing what is right regardless of what the law says. Compliance is something that the government requires you to do. Ethics, on the other hand, is some- thing you choose to consider when taking action. As an example, vari- ous countries have environmental laws that require products to be labeled in a certain way and may include font requirements, place- ment rules, etc. Eailing to properly label a product or follow some other technical regulation is not unethical or immoral, but it is noncompliant, meaning that the company may face fines, liability or other government action. By contrast, a government may not dictate whether a company makes its products more environ- mentally safe or easier to recycle, but doing so may be the ethical thing to do.
If your policies and training place great emphasis on high-level values of right and wrong, you may not be properly pushing a culture of compliance. Of course, too much focus on legal standards without strong ethics messaging may inhibit the kind of values-based culture that makes employees proud and companies great. It is important to think about and convey the impor- tance of both ethical considerations and compliance.
The distinction between ethics and compliance becomes even more interesting when you are dealing with a compliance issue that has an ethical component. The most obvi- ous example is corruption. Besides being prohibited by the Foreign Corrupt Practices Act(ECPA), U.K. Anti-Bribery Act and scores of other local laws (and thus a compliance issue), most people would agree that corruption is wrong and has an ethical component. But even with a seemingly obvious ethics is-
Ifyqur policies and training place great emphasis on high- level values of right and wrong, you may not be properly pushing a culture of compliance.
sue, using a "do the right thing" message to drive your anti-cor- ruption program may not be the right move in every circum- stance.
Eor example, you likely have a policy that prohibits employ- ees ft'om giving cash, lavish gifts or favors to public sector employees. The policy is part of your anti-corruption pro- gram, and messages about right and vwong, values and moral- ity, should be the most effective way to motivate employees to follow the policy. After all, ev- eryone knows bribery is wrong. But actually, such a message may lack credibility with many
of your employees who live in cul- tures where lavish gifts are expected or cash gifts on certain occasions are appropriate. It may actually feel wrong to them to refrain ftom giving an expensive gift as part of a business relationship. Similarly, employees sometimes rationalize their actions as right because they believe the ends justify the means. Isn't it better to give a lavish gift and help the company get business than to let the work go to a competi- tor? What is really "right" here? For these employees, the more eflective message may be about compliance with the FCPA and similar laws, emphasizing the potential liability, brand impact and business risks of non-compliance.
The best programs will recog- nize the difference between ethics and compliance and drive both as integral components of company culture and successful performance. In the end, companies that follow the law and prioritize ethics have a competitive advantage.
February 2014 • INSIDE COUNSEL 23
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Corporate Social
Responsibility.pdf
