Why Ethics Is Essential to Your Organization
Susan Liautaud, JD PhD
Ethics appears lately in almost every news story, social media entry, blog, major University department listing, and dinner party discussion – explicitly or implicitly. A quick Google search of the word “ethics” yields approximately 186 million results (excluding spoken content). Ethics is no longer the stuff of philosophical classics (Aristotle’s Nicomachean Ethics…), religious sermons, or theoretical academic treatises (important as they all are). However, despite the feeling that ethics seems everywhere, we still frequently fail to integrate it intentionally and thoughtfully into our organizational and personal decision-making.
My view is that ethics is a concrete endeavour – not an isolated philosophical, religious, or theoretical construct but a real world issue – your world’s issue. It is not a negative, judgmental automated filter that organizations “just have” but a positive, deliberate, process for your organization. It is not someone else’s problem but rather your opportunity. So why is ethics essential to your organization and to you personally?
What is ethics?: Ethics is an on-going determination of moral principles guiding conduct, taking into account all relevant information, values, and current and future impact on all stakeholders. The input is the most complete, accurate information and the values of the decider, together with consideration for the current and future impact on all stakeholders. I believe in most cases society at large is a stakeholder. The process requires reflection on a mix of information, the law, organizational values and objectives, and practical considerations. The output yields the decision (principles – including outcomes of applying the principles and evaluation method) and follow-through (implementation of principles (i.e., conduct), on-going oversight and evaluation, and adjustment in accordance with changing input over time).
What isn’t ethics? In my view, ethics is not about telling people what to do. Nor is it about dictating absolute rights and wrongs. It is never “done” but rather a continuing process. Most of the challenges we face today we would not have imagined even five years ago (e.g. corporate and venture capital ethical responsibility in on-line bullying through social media or Olympics rules integrating racism through Twitter). It is not exclusive, judgmental, or self-centered. It is not about being perfect or guaranteed results. Indeed ethics provides a foundation for weathering imperfection or undesired outcomes or events. It is not obvious but rather requires addressing uncomfortable, uncertain, and unexpected issues.
Ethics touches every aspect of for-profit and non-profit organizations. Ethics affects strategy, operations, governance (including risk management), human resources, external relations, social responsibility efforts, and virtually every decision every stakeholder of every for-profit and non-profit organization makes.
- Strategy. Strategy includes an ethical analysis of the strategic objectives and the methods for achieving them, as well as opportunities to use ethics competitively or defensively. Consider the ethical scrutiny over various foreign countries doing business or delivering development aid in Africa; the negative fallout of strategies of NGOs using street violence at the 1999 Seattle World Trade Organization talks versus those engaged in the successful land mine ban efforts; or investment funds or charitable foundations with ethics as a key criterion for their investing or giving strategy.
- Operations. The operations opportunities of effective ethical engagement are endless, but so are the pitfalls. Operationally we see a range of corporations ethically managing supply chains (or not); customers choosing ethical corporations (Fair Trade coffee versus sweat shop shoes); questionable pharmaceutical industry incentive structures for selling drugs – and the cooperation with authorities to clean them up (sometimes); venture funds influencing portfolio company products and management behavior; corporate reaction (or not) to on-line privacy violations, hate messaging, or fraud through social media; and non-profit organizations attracting donors with scrupulously respectful treatment of medical humanitarian aid patients or, conversely, facing media and rating agency scrutiny by overpaying their CEO or continuing to fund-raise when the need in question is already met (e.g. the 2004 tsunami).
- Human resources. An ethical organizational culture and mode of doing business has become important in recruiting and retention, especially with younger employees. Many young graduates have found their University and graduate school curriculum dotted with ethics. They want to be proud not just paid. Volunteers are even more challenging: there is no financial incentive to balance ethical compromise. Recently an employee of a major bank quit and then published a scathing editorial on the bank’s ethical practices. In the non-profit sector there is fierce competition for jobs from internships to the C-suite for the most thoughtfully ethical organizations. Other organizations see post-scandal departures – too much of a career risk. Conversely, recruiters scour social media and references for ethical background of potential hires. Ethical human resources practices also establish a culture that addresses preventively sexual harassment, wrongful termination, or other such claims.
- Risk management. Simply put, no organization is above ethical risk. No risk management process is complete without an overarching ethics analysis, together with one that addresses the ethical implications of every specific risk category.
- Governance. Governance includes an ethical lens through which board policies and practices, as well as board oversight of the strategy and the CEO, are considered. It also includes myriad examples of boards stepping in to enforce ethical matters: integrating ethics into CEO evaluation; firing a CEO or a Head of Compliance who failed to oversee scrupulously financial transactions with criminal or terrorist organizations; internal audit procedures to assure appropriate allocation of restricted donor funds; preventing operations plans for repatriating African orphans to Europe who are not proven to be orphans; insisting on real application of the whistle blower and not just a mechanism on paper; or supporting a CEO who steps up and immediately takes responsibility and action to remedy unethical behaviour.
- External relations. A rock solid ethics infrastructure and approach to addressing business opportunities and challenges can be additional protection in the event a challenge occurs. Facing the organization’s stakeholders, the media, and even regulatory authorities in the event of a transgression is easier armed with a foundation of ethical policies, practices, and oversight. So is remedying the transgression. Conversely, failure to keep promises even when not legally enforceable almost always ultimately affects reputation.
Ethics is essential to identity. Ethics is an on-going process of forging a culture and identity to reflect changing times, objectives, values, and circumstances. Ethics affects two key questions – both organizationally and personally: (1) What do you want your identity and reputation to be? (2) What do you want your legacy to be? Some banks are known as bastions of conflicts of interest irrespective of business success. Some corporations are known for building schools and hospitals for local communities while they install pipelines. Some non-profit organizations are known for iron clad donor policies protecting independence. Others suffer from a scandal regarding misuse of donor funds (and even worse, failure of the board to act decisively to remedy the situation and implement new policies). Other organizations’ behavior offers valuable learning. Somebody else’s scandal is an opportunity for you to avoid one in your organization: to build a positive, strategically ethical identity rather than a dangerous negative reputation for judgmental attacks of others.
Ethics is an essential complement to law and regulation. In the earlier days, ethics was tied to the law. Everyone remembers the early corporate child labor issues in Southeast Asia (that were subsequently cleaned up by many companies that became proactive ethical models). Today, business and non-profit best practice almost always exceeds the law. Legal is the lowest common denominator – not what’s right – or enough – or good business. Moreover, there are countless examples of ethical misjudgement overshadowing fundamental legal transgressions – lying to federal officials about a minor or even inadvertent securities sale (so the lying becomes the main legal and ethical issue); non-profit organizations failing to report errors in regulatory filings (so again hiding the error outweighs a clerical reporting error or even intentional misreporting); regulators aggressively pursuing a legal claim prior to full investigation such that corporate and individual reputations suffer significantly, along with shareholder impact; corporations or major academic institutions pointing to the behaviour of others as an “everybody else does it” excuse rather than taking immediate and full responsibility for any misdeeds.
Ethics mitigates contagion of unethical behavior. What will the fallout be from the banks involved in the summer 2012 LIBOR scandal on the non-profit organizations they support? On their employees? Customers? Stakeholders affected by LIBOR rates past and future? Similarly, the London Olympics shows how contagion also yields variants and shades of grey ranging from clear cut rule violations (illegal performance enhancing drugs) to evolving technology (excluding an Olympic athlete for tweeting racist remarks) to practices widely considered necessary to win that technically violate rules (e.g. winning the gold in the butterfly with too many dolphin kicks). The greyer decisions still affect everyone from the athletes involved to future athletes, teammates, sponsors, children watching the Olympics, the Olympics as an institution, and the general public watching this ethical drama in parallel with sport. In fact, the greyer areas are more contagious as the belief that everyone is “adding dolphin kicks” increases the risk of normalization (i.e., the “everyone is doing it” justification).
Today every ethical transgression literally goes viral through social media and other technology. First, ethics spreads through industries: the aforementioned LIBOR matter, the sub-prime crisis lending and trading practices, the handling of Iranian funds through US banks, accepting donor funds from questionable sources, aggressive NGO advocacy practices, or athlete drugging all are industry-prevalent. A recent Economist article noted that a drug company’s bribery “seems to have been normal for the industry, not an aberration” (August 11, 2012, “Taking its medicine”). Hypothetically taking it one step further, what happens when the drug company’s reputation in turn affects a non-profit organization it supports, which in turn makes decisions that affect its beneficiaries, volunteers, and employees? Or how does it affect the institutional investors in the company and in turn their own investors? (Incidentally, this contagion is the focus of my current research.)
Ethics is everywhere in the real world… in the news and in our own organizations and personal lives. So whatever the size, sector, location, or structure of your organization – and whatever your organization’s strategic, operational, governance, or human objectives and values – add the essential ethical analysis. Make sure yours is the organization with the strategy, operations, and governance that reap the benefits of ethics in results and reputation and lead society; the organization everyone wants to work for; the organization in the news for the right reasons (or at the very least the right foundation for, and reaction to, any errors); and the organization with the identity, reputation, and legacy to which you want to hitch your own identity, reputation, and legacy.
Susan Liautaud, JD PhD
 Please note that I deliberately omit specific names of organizations and individuals when citing examples. This is both out of respect and a firm philosophy that mistakes are internal learning opportunities not fodder for outward-focused judgment or criticism. It is also in part because I believe that every single example offered has, or could have been, repeated by others, and the content rather than the organization counts most.