Management Futures: An ethical dilemma, and a dilemma of ethics

03 April 2014

Shortly after the banking crisis, commentator Umair Haque observed in a Harvard Business Review blog that: ‘Every financial collapse is really just an ethical collapse that happened a few years earlier.’ For example, the honourable principle of holding debt to maturity was replaced by looser rules to allow debt to be parcelled up and traded, leading to ‘a chain of invisible intermediaries who were buying and reselling the most toxic of stuff’.

It was just one example where the guiding principle of ‘maximising shareholder returns’ has led to crisis. For decades, business schools have taught that firms simply needed a rational strategy, efficient operations, and to maximise financial returns. It was even at times argued that managers should not seek to exercise a moral or social conscience, as in a widely influential 1970 article by the economist Milton Friedman. To do so is to depart irrationally from the duty of the executive as agent of the shareholder, the theory went.

It is easy to see, in hindsight, that this narrow approach sowed the seeds of scandals: Enron, miss-selling of financial products, allegations of interest-rate fixing in the City, horsemeat in lasagne and so on. Doubtless there will be more over the coming months and years. Even the public sector has not been immune, with the BBC suppressing a report on sexual abuse by the late Jimmy Savile, and NHS managers found wanting at Mid-Staffordshire NHS Trust.

Despite all this, some people can be wary of urging a more ethical approach to management. One problem is a fear of appearing ‘holier-than-thou.’ If you call for a more moral approach, then the existence of anything so much as a speeding ticket on your record could result in the accusation ‘hypocrite’. At a practical level, it can sometimes be difficult to be certain that a practice is unethical, if information is limited and those implicated in wrong-doing have not had the chance to have their say.

Nonetheless, given the shocking nature of recent scandals, the issue cannot be ducked any more. As the CMI’s new report Managers and their Moral DNA notes: ‘We don’t face a crisis of politics, of religion or of economics, we face a crisis of ethics.’

Ethical conduct should be acknowledged as important, but also complex – not treated as taboo. No one person or authority has infallible judgement on the right thing to do; rather the wise approach is to facilitate debate. Sometimes, values can clash, but if so it is better if differences are discussed openly. Roger Steare, co-author of the CMI’s new report, describes the typical corporation as being like a feudal monarchy, often suppressing debate, and restricting discussions to a tiny elite at the top.

In the light of this, some of the new report’s findings are disturbing. They reveal that managers have less empathy than most, and many are ‘robotically compliant’, insufficiently inclined to exercise judgement.

This is a problem, because rules cannot cover every eventuality. A common reaction to scandal is to call for new guidance or legislation. Regulation is often necessary, but rarely sufficient. So the challenge is in two dimensions: policy and law; and a company’s internal practices and culture.

Martin Wheatley, chief executive of the Financial Conduct Authority, is quoted in the report as observing that ‘policymakers have typically responded to scandal with rules and regulations without considering that it was the “obedience culture” that failed in the first place’.

On health and safety, for example, it is well established that employee engagement strongly correlates with reduced accidents. One study by Gallup indicated 62% more accidents in employers registering bottom-quartile scores on engagement.

Managers and their MoralDNA takes the discussion on management ethics into areas rarely discussed. We found that managers tend to be more caring to people at home than at work. Also, women are more likely to be caring, upholding the desire for more diverse leadership teams. On political affiliation, those towards the left are more likely to be caring, but those on the right more likely to obey rules. Older people are more likely to be confident to place their own principles above the rules.

The challenges at a personal level are considerable: to be aware of the rules, but also the principles behind them. Sometimes, personal courage is required to ‘blow the whistle’ on unethical practice. A useful guide is: would we be happy if the truth was public? The report contains practical advice on individual practice.

Last September’s blog highlighted how managers cannot afford to leave their personal conscience at home, and included guides to the CMI’s own code of professional practice, and advice on whistle-blowing. The new report, to be followed in late 2014 by another publication focusing more on organisational culture, hopefully gives managers more insight into their decisions, and to understand how values and morality affect the business as well as society.

Next month we take a look at social responsibility.

Submitted by William Bushby

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