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ChangingMinds Blog! > Blog Archive > 13-Dec-06


Wednesday 13-December-06

Creating ethical organizations

I was asked recently how one could create an ethical organization and it made me think about this tricky subject.

My answer was simple, although making it happen is not that easy.

Ethical organizations are created by senior managers who:
  1. Are all consistently ethical in their beliefs and practices.
  2. Do not tolerate a lack of ethics and will change or remove people who are unethical, even if they are otherwise brilliant performers.

I was lucky to work for Hewlett Packard, which was a pretty ethical company -- for example they were an early user of recycled materials in their packaging. Doing the right thing was a constant concern and not just a nod in the direction of appearances. It all came down from the founders, of course. Bill and Dave grew up in the 1930s depression and were decent people who wanted to make a difference.

This highlights a significant point: companies will generally act in accordance with their owner's wishes. When a company goes public and effectively fall under the control of corporate investors, their sole concern is money, and so the company becomes primarily money-focused and ethical concerns are driven more by keeping the journalistic and regulatory wolves from the door than a true concern for doing what is right.

The silver lining of the Enron cloud was that this single-minded focus on money was interrupted. One of the effects of the expos?was that companies became a lot more concerned about ethical behaviour, particularly of senior managers. 'Make money at any price' is no longer a valid proposition when it results corporate collapse and the boss (and maybe a few others) going to prison.

Ethics, it seems, is now big business, as evidenced by the now-familiar 'CSR' (Corporate Social Responsibility), and which also includes issues such as global warming and pollution. A worry with this is that companies may be still as bad as they were, but are now being more careful with PR to give a face that seems to show an ethical concern.

It is also curious (and perhaps worrying) that religious fundamentalism is on the rise. This should lead to better ethics but can also bring along its own can or worms. It also raises the question as to who the guardians of ethics might be. Is it religious leaders? When 'ethics' includes intolerance of other groups then the result is very destructive conflict. Is it the United Nations? Who decides what is 'right' and 'wrong'? Newspapers often trump about good and (mostly) bad, but seldom discuss how they decide on the difference.

In the end, it does all come down to leadership. If I can persuade others that I have discovered the right way to be, then they will follow me. The only question then is what I will persuade of them as to what my form of ethics will be.

Your comments

Certainly the principal-agent problem is a driving factor in some of the more outrageous scams involving rapacious managers, insidious coteries, etc.

As you say, the fact that the companies are run by people who have nothing invested in them emotionally, and no grand plan for the enterprise bodes ill for the likelihood that the professional manager will do much other than behave opportunistically.

At the same time, however, professional managers in companies that are led by founders, (i.e. the principal holds a controlling stake, or is clearly defined), can often be zealously devoted to the cause of the firm! This is evidenced in several Asian economies, where family led conglomerates (often gigantic in size) are still common.

The rot starts at the beginning, in my opinion. The young management trainee joins a company, and hopes to make it big. He or she is offered enticements such as expense accounts, travel reimbursements, etc. To a kid who has never seen so much money, spent in so cavalier a manner, this is heady stuff. The urge to splurge is exacerbated by the fact that enforcement is often carried out loosely (what is an extra 100 pounds to a harried cost controller?) As the young trainee grows into a manager, he or she becomes more adept at milking the system for ever larger sums. Until he views his jobs as one big gravy train. When such individuals reach the very top, we have the makings of a first rate scam.

As to religious fundamentalism, it can scarcely be counted upon to increase ethical behavior. The texts of the worlds religions are open to interpretation by fallible human beings, who are as easily corrupted by power and lack of accountability as any other. Newspapers have their own (usually leftist) agenda.

I agree with your conclusion. People follow the leader. Within oneself, it is not so difficult to see what is ethical at root. However, as it comes to the fore, it is difficult to practice what one may well preach.

-- Iossif V

Dave replies:
Well said, Iossif, and I agree that the young manager is critical. Leadership is important here too. In HP I knew a number of people who had worked with Bill and Dave over a period of time and they were different, somehow. There was a wisdom that suffused them. The founders were not soft, but they were fundamentally good people.

 Ethical organizations should be developed very well. From the religious point of view moral actions of everyone in a society will influence on each other, so we should try to live without bad nature.

--kaung htut aung (Myanmar)

Thanks a lot for this place, where people can leave their ideas and opinions, it's great!

With the best regards!

-- Jasonvc

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