Ethics and Corporate Leadership

By Keith Darcy

The world in which we live

We live in a world changing at hyper speed. The landscape that was once familiar has been turned upside down. The Berlin Wall is gone. The Germanys are united. The “Evil Empire” – the Soviet Union – does not exist anymore. Communism is dying. Apartheid is dead, and Nelson Mandella is not only free, but he is President of the free Republic of South Africa, which has completed a public forum – the Truth Commission – to openly discuss its worst sins.

It is an age of globalization. Economic cooperation is replacing ideological differences. EU, NAFTA, and APEC evidence regional cooperation. The introduction of the “euro” signals the first step toward a united economic state of Europe. The World Trade Organization represents the emergence of economic cooperation and free trade around the world. The implications to business are staggering: Chrysler Corporation is owned by Daimler Benz; Amoco was purchased by British Petroleum; Bankers Trust Company is soon-to-be-part of Deutsche Bank; Random House is owned by Bertelsmann; and Citigroup is everywhere.

It is an age of technology. Fiber-optics and satellites are moving us to a single world-wide information network. We can now communicate anything, to anyone, anywhere, and by any form – voice, data, text, and image – at the speed of light. Our desktop PCs have more computing capacity than the mainframes that NASA used to put a man on the Moon.

It is an age of re-engineering, restructuring, rightsizing, reorganizing, and flattening of organizations. As employees reluctantly trade the comforts of the old social contract for some yet-to-be defined understanding, the toll on human worth and dignity has been harsh. Dependence upon, and loyalty to, the company has been replaced by estrangement and cynicism. We are challenged to find new ways to recreate interdependencies and search for new ways to experience “community” in our organizations.

It is an age of information. Knowledge, it is said, doubles every five years, and we sometimes wonder why we make short term decisions. Information is now instantaneously available and globally abundant. The secret of leadership, we discover, is that there are no secrets. Quite simply, in this age of information, there is no place to hide anymore, whether it is:

• An oil spill in Alaska;
• A nuclear meltdown in Chernobyl;
• An intern’s relationship with the President in the White House;
• Child labor practices in Vietnam;
• Corruption in the emerging markets;
• Unacceptable sales practices in the securities and insurance industries;
• The absence of women and minorities on boards and in top management;
• The growing compensation gap between the executive suite and the plant floor.

Information is like a virus that requires truth, and truth demands freedom. When people become aware of alternatives, revolutions occur. This is, indeed, an age of revolutions.

Perhaps, as Alvin Toffler (1970) defined the title of his best selling book, we are experiencing “future shock,” i.e. “disorientation due to premature accelerated change.” Given the velocity of change in today’s world, we have become confused and disorientated. As the once familiar maps and guideposts blur, we grope into the future, seeking some new understanding of the world and our place in it.

We stand at the end of an age, and at the beginning of a time not yet defined. Uniquely, we have an opportunity to participate in defining it. Thus is the call of leadership.

Leadership today

All this change begs the deeper question: “What kind of leadership is required to lead us in this new age?” Indeed, who are today’s leaders? Is it Bill Clinton or Tony Blair? Is it Lou Gerstner, Bill Gates, or Al Dunlap? Or perhaps it is Libby Dole, Sandra Day O’Conner, or Martha Stewart. What makes these people – or anyone else – a leader? Is it fame, status, money, power?

Leadership today has become a celebrity watch. Newsweek, Time, Business Week, Fortune, and Forbes all regularly feature personalities who are “hot.” As we peer into their private lives, we observe their reading lists, their work habits, their food tastes, and their hobbies as if these small details carry messages of profound significance about leadership (Burns, 1978, p.1). One thing we know for sure: in this age of media and information, the closer we know our leaders, that more apparent it becomes how little we truly know about the subject matter of leadership.

Ethics today

Ethics comes from the Greek word ethos, which means “customs” or “traditions.” Ethics represents the customary beliefs, social norms, and common values of society. In a world changing at hyper-speed, however, our common understanding is no longer common.

For example, witness the seismic events in Washington through the “Monicagate” impeachment hearings. Our reaction to them clearly suggest that we – as a nation, and as individuals – were divided and left straddling either side of the moral fault line, more concerned with our economic well-being and self-interest than the obvious failures of leadership.

Indeed, at the heart of the political circus in Washington are much deeper questions. They are not political questions. They are personal questions: questions about us; questions about values; questions about beliefs. They are the most fundamental questions in our life’s journey:

• Who am I?
• What are the values and beliefs that define who I am?
• How do I act on those values and beliefs?

Following these are even larger questions:

• Who are we as a community of people?
• What do we value, hold to be important?

Ultimately, however, it is not important what we say we believe in. It is what we do with our beliefs that matter. Clearly, words without actions are an empty chalice.

Values and beliefs are the sub-atomic particles that make up our ethical DNA. How we behave, according to the ancient Greeks, expresses our character. Ethics, therefore, represents the choices we make – and the way we express our choices is both through our actions as well as our inactions, i.e. when confronted by a situation and we do not act, we choose not to act – no one is uncommitted.

Erich Fromm, the 20^th century German philosopher and psychoanalyst, once wrote (1976), “We are what we are devoted to, and what we are devoted to motivates our conduct.” Indeed, what are we devoted to? Is it our economic status? Are we devoted to our jobs? Is it our title, our committees, prestige, fame, or perhaps power?

Fromm follows with an even deeper question: “If I am what I have, and what I have is lost, who then am I?” If someone takes away my job, money, title, and concomitant power, who am I?

Indeed, it is these deeper questions that evoke our character, and our character is our foundation of leadership.

What is leadership?

The dictionary tells us that to lead is “to go before, or with, to show the way; to guide in direction, course or action” (Barnhart, 1963). In business, who are these people? Where are these people? How do leaders distinguish themselves from managers and followers?

Managers plan, organize, schedule, budget, and facilitate the completion of tasks necessary to achieve corporate objectives. Managers, it has been said, are responsible for the physical resources of the firm.

Leaders, on the other hand, are said to create visions, inspire, are committed and evoke commitment, see opportunities that evade others, look at what is possible, translate vision into action, and have aspirations and empathy. Leaders are responsible for mobilizing the emotional and spiritual resources of the firm (Kouzes and Posner, 1995).

Posner and Kouzes, in their research on leadership, have regularly asked the question, “What values do you most admire in leaders?” The answers over many years and many different groups include such values as honesty, competence, vision, inspiration, intelligence, fairness, etc. Interestingly, and perhaps not surprisingly, “honesty” is always the most important values among individuals and groups. Some of the quotes from their research are noteworthy (Kouzes and Posner, 1995):

• “We appreciate people who express values, even on tough positions. At least they stand for something.”
• “We simply don’t trust someone who does not tell us their values or standards.”
• “People must walk the talk, do what they say. Where agreements are not kept – where there are false promises – there are deceptions.”

For sure, there are many different “schools” of leadership. Trait theory suggests that leadership is rooted in biology, and is naturally endowed. Leaders, it is believed, are born. Situational leadership suggests that leadership is not biologically determined, but rather a function of matching the appropriate skill s to situational conditions. Organizational leadership is a function of role in a hierarchical organization where skills and responsibilities at each level are clearly defined. Visionary leadership believes the critical ingredient is vision, and the ability to mobilize people toward a meaningful future (Bennis and Nanus, 1985).

Warren Bennis, alternatively, suggests there are several myths of leadership of which we must be wary:

• Leadership is a rare skill.
• Leaders are born, not made.
• Leaders are charismatic.
• Leadership exists only at the top (Bennis and Nanus, 1985).

We must pay careful attention to this message. Bennis is telling us as clearly as we can listen that leadership is not limited, but pervasive. It exists everywhere in our organizations from the CEO right down to the custodian. Also, leadership derives from our experiences, not biology. The word “character” comes from the Greek character, which literally means “engraving tool.” We are, indeed, the sum of our experiences, which are indelibly engraved upon us – and our character is shaped by, and speaks from, these experiences. Viktor Frankl (1959) even suggests that man’s search for meaning may be found in the midst of our most painful experiences. It is the fuel that propels us to lead. Leadership, thus, is born in the midst of our deepest experiences. To be actualized, these experiences must be evoked and nurtured.

For sure, there has been an evolving understanding of leadership. One such definition suggests that leadership is making followers do what followers would otherwise not do (Burns, 1978, p. 18). This is sometimes referred to as Theory X leadership. It assumes people are lazy, do not want to work, and will not unless some strong action is taken. This understanding of leadership underlies some of Frederick Taylor’s early work in management science.

Yet another understanding of leadership suggests it involves making followers act for certain goals that represent the values and motivation, wants and needs, goals and aspirations of both followers and leaders (Burns, 1978, p. 19).  Leadership here introduces the importance of relationship between followers and leaders. It is, in fact, seen as an inseparable relationship, which is based upon shared values and purpose – and the absence of that relationship is nothing more than raw power.

Power, of course, is well understood in organizational life. Power is a zero sum game. The way the game is played, simply is: “If I have more, you have less.” It is built upon self-interest and the desire to destroy the competition or any perceived threat (Burns, 1978, p. 18). It is a very dangerous game.

It is only in contrast to this zero sum game of power that we can begin to understand the real significance of “empowerment.” Empowerment understands that each of us is born with unlimited human potential, which we barely, under the best of circumstances, utilize in our lifetime. In contrast to the dark game of power, empowerment suggests we can unleash the unlimited human potential that resides within the fullness of all of our people. In doing so, we open up our organizations to the extraordinary diversity of skills, backgrounds, and experiences people bring to work each day.

 There is an emerging bias towards understanding leadership as a relationship based upon shared values and purpose. In addition, we are evolving towards a sense of leadership that can also be transformational, i.e. where leaders and followers raise one another to higher levels of motivation and human understanding (Burns, 1978, p. 4). By satisfying the higher needs, it engages the full person.

This is the essence of integrity. Integrity has its origins in the Latin “integer,” which means “whole” or “complete.” What does it mean to be a whole or complete person? What does it mean to know who you are, what you value and believe, and how to live out those values and beliefs wholly and completely in this world? Integrity, therefore, is that sense of alignment we seek between our deepest held beliefs and everyday actions and decisions. Our challenge is to shrink the gap in this world of everyday contradictions between our stated beliefs and values. For, what are the words without actions but an empty chalice?

Leadership ultimately involves authenticity, and authenticity demands integrity. Therein lie the seeds of the leadership paradox.

The human materials of leadership

No matter how we define this evolving definition of leadership, more important may be the task of discovering where we find the human materials to produce such leaders for our organization.

Maslow, in his Hierarchy of Human Needs, offers us some challenges and clues. Maslow, in his landmark work, suggests there is a hierarchy of human needs, and each must be satisfied before we can experience the next level. The first stage of human need is for food, shelter, clothing and the very fundamentals of life, without which we die. Having satisfied, we evolve to the need for safety, i.e. to be free from fear and insecurity. Having satisfied this, we will seek out affection and belongingness, that sense of being in community with others. Having satisfied this, we will seek to achieve self-esteem, that deeper sense of who we are. Finally, Maslow held out the unattainable goals of self-actualization, the fulfillment of our human potential (Mahesh, 1993).

Observing Maslow in the context of organizational life, we must ask the question: How are companies doing in developing people through the stages of Maslow’s hierarchy? We need no go too far in groping for an answer: “Not very well.” In this age of downsizing, rightsizing, RIFs, reengineering, and restructurings, we are threatening a community of people at the very core of their existence. For those who are the lucky “survivors,” how can we possibly feel free from fear and insecurity? In fact, we have replaced security – the old social contract – with fear, competition, and cynicism. How do we, in wake of mass destruction, help people experience the beginning of self-esteem?  Where will our highly evolved, principle-centered leaders come from? The challenge in terms of organizational development is clear.

Lawrence Kohlberg, the late Harvard professor, also offers us some clues in the genetic development of leaders through his work on the theory of moral development. Kohlberg indicates there are essentially three stages of moral development: pre-conventional, conventional, and the post-conventional stages. He is signaling to us on his language that there is a norm – a conventional phase – and that something precedes it and something may follow from it. Not unlike Maslow, Kohlberg (1981) suggests we must satisfy one phase before moving on.

The pre-conventional phase of moral development is sometimes referred to as the pre-adolescent phase. It is the phase in which we learn to defer to power and punishment. It is where we learn there are rewards and  punishments for good and bad behavior. It is where we develop a sense of personal responsibility.

The conventional phase emphasizes conformity. We seek to gain acceptance through conformance with standards and norms. We understand the formal and informal rules that guide and govern our behavior, e.g. the laws of society; the policies of the organization. It is, similar to Maslow, where we seek affection and belongingness. Right and wrong are often determined by the group , rather than the merits of the action.

The post-conventional phase is where we develop an orientation toward a more principled life. We begin seeking higher moral ground. It is the phase where we seek logic and consistency in our actions and behaviors. One does good for no other reason that it is intrinsically right, regardless of the consequences. It is the phase in which we seek alignment of our deepest values and beliefs in our day-to-day actions,  decisions, and the way in which we engage the world.

Kohlberg’s first two phases of moral development are externally derived. It is where our understanding of what’s right and wrong is developed external to ourselves, e.g. parents, laws, policies. We comply with the rules of order, and conform to group norms. It is not until we reach the post-conventional phase that we begin to internalize our values, our sense of right and wrong.

In observing organizational life, almost all corporations are mired in Kohlberg’s first and second stages. Compliance with external laws and regulations, or with internal company policies, is the norm. By itself, this is useful and necessary, but how can we help people to develop their sense of values, their deepest held beliefs? How can we institutionalize the values, and help people internalize them? How can we develop policies, practices, procedures, financial goals, compensation and reward systems, and corporate goals that reinforce these values? How can we contribute to the development of whole and complete people? What do we need to do differently to treat people as ends unto themselves, rather than automatons that are merely a means to some corporate end, some short-term financial gain?

Ethics and corporate leadership

For corporate leaders, it is becoming increasingly difficult to navigate the waters of today’s uncertain, ever-changing environment, which point toward the exciting yet frightening possibilities of the twenty-first century. Change is an unwelcome stranger, and despite the steady economic growth of recent years, fear and uncertainty continually permeate our organizations. In the midst of extraordinary change, leaders must paint a meaningful and compelling vision. Leadership derives from trust, and trust is built upon a common understanding between people. As our common understanding becomes increasingly blurred, ethics is the language that realigns leaders with their employees, customers, shareholders, suppliers, regulators, and the communities in which they operate (Bennis, 1998). Ethics, therefore, is not just a personal matter, but interpersonal.

Developing a sense of share values – a set of beliefs against which all decisions can be measured an tested – is increasingly the basis on which all long-term strategies and their successful implementation are built. In this environment, the failure of leadership to align ethics and values to their business strategies and operating plans bears potentially heavy costs and certainly many lost opportunities.

Anyone who has spent five minutes in the executive suite knows that a strategy that is incompatible with an organization’s culture will be difficult, if not impossible, to achieve The Street is littered with many unsuccessful mergers and acquisitions between companies whose cultures are different. Successful implementation of a strategy requires not only the physical and intellectual commitment of its people, but also a shared of shared values and purpose, along with their emotional and spiritual commitment.

Times of great change in organizations add stress and anxiety, which can contribute to an environment of wrongful behavior, often beginning in innocence and without awareness. Absent a strong value system in organizations, where there is a culture that openly acknowledges what is right and wrong, loyalty blunders can be commonplace. There are many examples where a conspiracy of silence has been costly in organizations.

Recent new legal challenges have raised the stakes even higher and make the failure to integrate ethics and values into a corporation’s business plans increasingly dangerous and potentially fatal. For example, The US Sentencing Commission issued guidelines in November 1991 that have fundamentally and irrevocably altered the scope, definition, and relationship of management and corporate responsibility (Kaplan, 1994).  In the most significant government campaign ever waged against white collar and other economic crimes, top executives and others responsible for the management and policy making of the company may now be subject to substantial personal risks – including fines and jail sentences – where there have been legal violations by employees conducting business. Willful ignorance is no longer a defense.

Companies, along with officers and directors, may now be held criminally liable for the behavior of their employees, even though an employee may have acted contrary to explicit instructions. Mandatory fines – up to $290 million or more, as some companies have experienced – may be levied against the company. These guidelines now clearly place the responsibilities for corporate values and employee behavior squarely on corporate leadership. Those leaders who ignore these guidelines do so at their own peril. Just ask some former executives at Solomon Brothers, Daiwa Bank and elsewhere.

These risks are even greater to given the universal availability of information. Corporations are increasingly subject to criticism by the media, competitors, social critics, the general public, regulators, and even employees themselves. Telecommunication advances have virtually eliminated the communication “float,” which formerly acted to cushion the company and its stakeholders from the shock of awareness. Society today is more informed. Gaps are emerging in our common understanding, and misalignment of our stated values is becoming increasingly visible. These contradictions, at a minimum, breed credibility gaps that call into question our relationships with other stakeholders. At stake is our trust with one another.

Clearly, leaders and their organizations will not be able to buy the loyalty of this generation of workers. Today’s employees are loyal to their profession, and to the people they trust and respect, not necessarily to the organization. They want to work with leaders whose actions they can trust and who, in turn, trust them. Today’s workers want to be respected and valued not just for their expertise, but also for the diversity of their backgrounds, perspectives and experiences.

In the midst of this changing environment, employees are increasingly saying they want to be identified with a company that stands for something more than just short-term financial gain. They want to work for a company that has a meaningful vision, a true mission, in which the organization’s goals and values align with their own. They want to take pride in what they produce. They want to admire the people they work with.

Leaders must develop a culture where employees are encouraged to discuss their day-to-day dilemmas. Lines of communication must be open to stakeholders inside and outside the firm. Today’s leaders must create an organizational culture unhampered by fear. Such leaders are committed to problem finding, not just problem solving. They must embrace error, even failure, because it teaches more than problem solving. They encourage healthy dissent, and reward those brave enough to say no.

The payoff is even more significant. This trust, once developed, will extend to customers, regulators, and the public. It will develop a renewed sense of pride, dedication, and loyalty to the company.

The starting point for all this begins with the words and actions of top management. A CEO that acts on and openly discusses values and concerns for the various stakeholders is a crucial first step in aligning a company’s culture with its business objectives. However, where there are actions that cannot be spoken about, or words that cannot be put into action, corporation moral development will be undermined by cynicism. Top management must be prepared to “walk the talk,” and to set the standards for the company, no matter what the price. As Dante once wrote, “The hottest places in hell are reserved for those, who in times of great moral crisis, maintain their neutrality (Mandelbaum, 1980).

Leaders must find ways to integrate ethics and values into their day-to-day decisions. The risks of failing to do so are extreme, as are lost opportunities. Policies, practices, procedures, financial goals, and compensation and reward systems must be examined for the values they signal, and must reinforce the desired culture and values an organization seeks. Leaders must find ways to shrink the gap between the formal organization – the published policies – and the informal organization, i.e. the silent, invisible “way thing really get done around here.”

Leadership in the twenty-first century

Where are these people that provide us with this sense of leadership that our organizations so desperately need? Where will we find them?

A company is simply a community of people with common interest and shared values that have banded together to achieve a common goal. The leaders of tomorrow are sitting there in our organizations right now. They are on the floor below us, down the hall, or even in the next cubicle right now. In looking closely at them, what we discover is that there is no distinction based upon social class, organizational rank, gender, race, national origin, color of skin, ethnic background, religion, sexual preference, age, or physical or mental condition. The common mark of these leaders are the deep inner values they have formed through years of experiences, and their commitment to stay true to those values that have been forged and hardened by change (Bennis, 1988). They are people who have devoted their professional lives to service, and meeting the needs of others. They are people who are committed to something beyond themselves.

The ultimate challenge for today’s leaders is to prepare the leaders of tomorrow. The laurel will go to the leader who is not focused on personal achievement, but is committed to unleashing other people’s talents, creativity, and unlimited human potential. These leaders know that life is not a problem to be solves, but a mystery to be lived. These leaders know that we must be faithful to something greater than the sound of our own voice (Campbell/Moyers, 1988). These leaders know that if we want our companies to be successful and vitalized, they must be inhabited by growing and vitalized individuals.

References

• Barnhart, C. 1963: The American College Dictionary. New York: Random House, p. 693.
• Bennis, W. 1988: Leaders on Leadership. Harvard Business Review, Boston, MA, p. 36.
• Bennis, W., and Nanus, B. 1985: Leaders. New York: Harper & Row.
• Burns, J. MacG 1978: Leadership. New York: Harper & Row.
• Campbell, J. with Moyers, B. 1988: The Power of Myth: The Hero’s Adventure. PBS. A production of Apostrophe S. Productions in association with Public Affairs Television and Alvin Perlmutter Inc. Series producer: C. Tatge. Executive producers: J. Konner and A.H. Perlmutter. Executive editor B. Moyers.
• Frankl, V. 1959: Man’s Search for Meaning. New York: Washington Square Press.
• Fromm, E. 1976: To Have or To Be. New York: Bantam Books.
• Kaplan, J ., Murphy, J., and Swenson, W. 1994: Compliance Programs and the Corporate Sentencing Guidelines. New York: Clark, Boardman & Callaghan.
• Kohlberg, L 1981: The Philosophy of Moral Development. San Francisco, CA: Harper & Row.
• Kouzes, J.M. and Posner, B. 1995: The Leadership Challenge. San Francisco, CA: Jossey-Bass Inc.
• Manesh, V.S. 1993: Thresholds of Motivation. New Delhi, India: Tata McGraw Hill.
• Mandelbaum, A. 1980: The Divine Comedy of Dante Alighieri, Vol. 1, Inferno. New York: Bantam.
• Toffler, A. 1970: Future Shock. New York: Random House, p.2.

Further reading

• Colby, A. and Kohlberg, L. 1987: The Measurement of Moral Judgment, Vol 1-2, New York: Cambridge University Press.
• Collins, J and Porras, J. 1994: Built to Last, New York: Harper Collins.
• Conger, J.A. & Associates 1994: Spirit At Work. San Francisco, CA: Jossey-Bass.
• Covey, S. 1990: Principle Centered Leadership. New York: Fireside.
• De Foore, B. and Renesch, J. (eds): Rediscovering the Soul of Business. San Francisco, CA: Sterling & Stone.
• Fox, M. 1994: The Reinvention of Work. San Francisco, CA: Harper.
• Fukuyama, F. 1995: Trust. New York: The Free Press.
• Gardner, J. 1990: On Leadership. New York: The Free Press.
• Gilligan, C. 1982: In a Different Voice. Cambridge, MA: Harvard University Press.
• Greenleaf, R. 1970: The Servant Leader. Newton Centre, MA: The Robert K. Greenleaf Centre.
• Handy, C. 1994: The Age of Paradox. Boston, MA: Harvard Business School Press.
• Hesselbein, F., Goldsmith, M. and Beckhard, R. (eds) 1996: The Leader of the Future. San Francisco, CA: Jossey-Bass.
• Kotter, J. 1988: The Leadership Factor. New York: The Free Press.
• Liebig, J. 1988: Merchants of Vision. San Francisco, CA: Berret-Koehler.
• Noer, D. 1995: Healing the Wounds. San Francisco, CA: Jossey-Bass.
• O’Toole, J 1995: Leading Change. San Francisco, CA: Jossey-Bass.
• Scherer, J. 1993: Work and the Human Spirit. Spokane, WA: John Scherer & Associate.
• Solomon, R. 1992: Ethics and Excellence. New York: Oxford University Press.
• Teilhard de Chardin, P. 10980: The Heart of the Matter. New York: Harcourt Brace & Company.
• Walton, C. 1988: The Moral Manager. Cambridge, MA: Ballinger.
• Wheatley, M. 1992: Leadership and the New Science. San Francisco, CA: Berret-Koehler.