Posts Tagged ‘Ethics’

A new global ethic

Friday, March 25th, 2011

Business leaders who embrace societal issues that transcend themselves and their organization will drive change that echoes through history. No longer is it sufficient to work for purely institutional goals such as profit, market dominance and stakeholder return.

It is a great privilege to be part of a moment in history where society and the environment shift from being servants of the economy to the economy being a servant of society and of the environment. That privilege brings a challenge for leaders who have been operating in the old paradigm to not only embrace the shift but show genuine leadership through the transition.

Every institution, and its leaders, has a responsibility to the society in which it resides. At one level that responsibility is to be a good corporate citizen, and to not damage people, the community or the environment. But the deep interconnections between the purpose of the organization, the purpose of its leader, and the needs of the society they inhabit allow the corporation to have an impact on an entirely different level that fosters profound social wellbeing.

There is no shortage of societal challenges that a motivated, purpose driven leader, could positively influence – particularly those beyond the reach or capability of charities. Purpose driven leaders can touch major systemic challenges like effective infrastructure, equality of women, fair pay, trade, cultural and racial harmony, global conflict, cross border worker mobility, access to education, technology and medicine, global financial systems. The list is endless, limited only by the imagination of those who take the time to look beyond the institution and see the wider community of which they are an integral part.

“What meaningful contribution can I make to the world in which I belong?” is perhaps the most compelling question of our age. We cannot fully exist without understanding this purpose. It is more compelling and carries greater societal significance for contemporary business leaders, who have an opportunity to define their time, in the same way that great religious, political or military leaders did in the past.

The focus of great business leaders needs to be bigger than the here and now or the institution towards building a better world, not just a better business. This is done by aligning personal purpose, corporate mission, and societal challenge. Finding this alignment creates an impact point that leverages the contribution of individuals and the enterprise of which they are a part to transform wider societal systems.

Leaders operating by a new leadership ethic will define themselves in a number of important ways. In addition to mastering the art of business and creating sustainable enterprises which operate by timeless values they will exhibit a number of personal traits, including self mastery, global awareness, strength of character and societal involvement.

True leader masters themselves before assuming a role of leadership over others. They demonstrate a deep and broad awareness and understanding of the world, cultures, nations and businesses, gained from moving outside one’s comfort zone and visiting places and people that are not on the normal radar. Their actions are founded on strength of character, exhibited by a set of good habits, such as honesty, integrity and authenticity.

But the big shift is they recognise they can be a catalyst for good, and don’t wait until retirement to act. They make wise choices about where they can have the greatest impact today and align themselves with influential agencies to support them in this work. This is no longer after hours work on the periphery of business. This is core business for great leaders in great firms, which has a positive impact on both engagement and profitability.

Paul Polman, Group CEO of Unilever, is a wonderful example of such a leader. His call to “double the size of the business while using less of the world’s resources” created a compelling vision which is delivering outcomes for the traditional stakeholders of the firm, the communities of which Unilever is a part, and for future generations.

Blake Mycoskie of Tom’s Shoes, giving one pair of shoes to the poor for every pair they sell, is another example. Society needs leaders who will engage and provide leadership on questions like:

  • What kind of world do we want to both live in and leave for our children?
  • Should quality of life come before quantity of profit?
  • How much is reasonable profit?
  • How do we ensure equitable distribution of profit, and recognise and reward all workers appropriately?
  • How do we ensure people are treated as human beings with inalienable rights, rather than as economic assets to be used for productive outcomes?
  • How can we embrace systemic life-cycle thinking in the provision and costing of goods and services?

These questions don’t start with those who enjoy hierarchical positions of leadership. They start with each of us, for we are all leaders in our own right, and cannot stand idly by and allow others to agitate for change. Those who step up and engage with these issues will create an enduring legacy for themselves and their firms.

Today’s societal challenges ask for business leaders of courage and conviction to master the art of being human, and to master the art of running a successful enterprise, while becoming a servant to society by fostering a new global ethic within their sphere of influence.

This is a summary of “A new global ethic”, Journal of Management Development, Volume 29, no. 5

Does corporate social reputation matter?

Saturday, November 20th, 2010

Would you work for a landmine manufacturer? How about Big Tobacco? Or a business with a poor human rights record? We all like to believe that ethical considerations affect our choice of employer, but Professors Timothy Devinney and Grahame Dowling suggest corporate ethics is not as high on the list of priorities as most people think.

No one wants a bad reputation, and the same goes for companies. Tom Albanese is probably not proud of Rio Tinto’s behavior in the Stern Hu affair, and Steve Jobs certainly wasn’t happy about the revelations about worker suicides at Chinese Apple supplier Foxconn.

No one likes to think their company is doing bad things, but the question is: How much does it actually matter when it comes to attracting the best talent?

Researchers at UTS and Melbourne Business School, funded by an Australian Research Council Discovery Grant, wanted to find out to what extent business graduates take into account the reputation of a company when considering prospective employers.

To do this, we worked with the placement services of two major global MBA programs examining how graduates choose companies with which to interview and the components of the job contracts they preferred — taking into account the reputational aspects of job, the more mundane components of the job offer (such as salary and workload), and the characteristics of the company making the offer.

Our study had three parts.  First, the MBA students outlined what they looked for in a job and a job contract using a series of standard survey questions.  Next, they described what their dream job and dream employer looked like. Finally, using a structured experimental approach, we presented them with potential contracts from companies, from which they were to choose.

The contracts varied in a number of aspects: job location, salary and working conditions (for example travel time and workload demands), promotion opportunities,  further training and so on.  n addition to these relatively standard variables, we varied three types of reputation as measured in global ratings — social reputation of the potential employer (issues such as environmental sustainability, human rights, and so on), its workplace reputation (picking up on ‘best places to work’ types of issues and overall corporate reputation (issues such as product quality, financial health, and general reputation).  The reputations varied from ‘one of the top 25 in the world as rated by X’ to ‘an adequate reputation locally with some negative issues that periodically get into the press periodically’.

Speaking generally we found that MBAs tend to discount reputation significantly when making their career choices. We also found that when they do account for it they do so at the extremes.

In other words, what matters, when it matters, is either a top global reputation or a very negative reputation. Having a good local reputation may sound good to the locals but does not resonate with MBAs. According to our findings, MBAs will overall choose to avoid firms with negative corporate and workplace reputations and have a slight preferences for firms with globally recognised corporate reputations. When it came to a firm’s social reputation, we found no effect either for good or bad. Despite the strong anecdotal belief that companies can ‘do well by doing good’ and that employees will seek out companies with a strong corporate social responsibility strategy, our results reveal that MBAs do not put much stock in a company’s social positioning.

These findings are consistent with our work on ‘ethical consumers’ . In that research we show that what matters to consumer choice is usually a complex mixture of attributes about the product they’re buying. In the case of MBA job and contract choice the same is true. Potential employees take into account complex mixture of attributions and associations in relation to the jobs they are considering. We believe that over emphasising reputation is a mistake, particularly with respect to aspects of reputation, such as a company’s social positioning, that do not relate to what people are seeking from an employer.

What is perhaps most interesting about both our research on MBAs and consumers is that when you question them in a survey or an interview they invariably indicate that a company’s or product’s social positioning does matter. For example: ‘I want to work for [or buy from] a company that’s good to children, to women, to the environment, that’s good to this, that’s good to that.’  However, when you compare these statement or the survey results to the choices made, there is almost no relationship at all.

The problem is that surveys or interviews do not require people to make a trade-off or pay a price for their opinions. The reality is that we all make trade-offs that may or may not be related to a company’s social activities. Our work research indicates that these trade-offs are the key to understanding the impact of social aspects of companies. Ultimately, the question is whether when you see a company that has a good social reputation, a good corporate reputation and a good workplace reputation and you could take the social reputation component off the table, would it affect the decisions people make with regard to that company – whether they’d buy from it, or choose to work for it? We believe that it would not materially do so.

Certainly, companies don’t want to have bad reputations. But do they need to have stellar social reputations? Not if they are seeking out MBA graduates or consumers, it seems.

This creates a real conundrum for companies and managers. Many justify their corporate social responsibility activities based on a direct link to value, a long the lines of: ‘social reputation pays because consumers will pay more for our products or we will get the best graduates.’ This is a ‘have your cake and eat it too’ fallacy. Companies should make decisions about their social positioning based on what trade-offs managers view as fundamentally appropriate. Ultimately, whether the relevant stakeholders believe their decisions are correct or reasonable gets worked out over time through the rough and tumble of the marketplace, political system and court of public opinion.

Does compassion have a place in the boardroom?

Wednesday, July 7th, 2010

Although Australia has long been called the ‘lucky country’, Katrina Sharman, Corporate Counsel at Voiceless, believes that the good luck does not extend to its animals, especially those born and raised in intensive or ‘factory’ farms. Voiceless believes that Australian law sanctions systemic cruelty to farm animals, because a certain level of suffering is reasonable, justifiable or necessary. Katrina Sharman puts her case.

Many Australians are not aware that animal welfare laws treat some animals as more equal than others. Farm animals in particular fall largely outside the protective reach of legislation when compared with the dogs and cats with whom we share our lives. This results in close to half a billion animals each year, who are owned by giant agribusinesses, spending their lives indoors in close confinement. The law classifies animals as property and they are treated accordingly as commodities. Piglets, for example, are routinely subjected to tail docking and teeth clipping or castration without pain relief. In this sunburnt country of ours, the majority of farm animals never even see the sky.

The veil of secrecy surrounding the treatment of Australia’s farm animals in factory farms is the reason that Voiceless, the animal protection institute, was formed. After attending an animal rights conference in the United States in 2003, Brian Sherman AM, together with his daughter Ondine, decided to found and organization committed to ensure that animal protection moved to the forefront of Australia’s national agenda. Their aim was to grow the social justice movement of animal protection in Australia through awarding grants and prizes, conducting in-depth research and analysis of animal industries, and through the creation and fostering of networks of leading lawyers, politicians and academics to influence law and public policy.

While significant obstacles remain in place, Voiceless has been successful in creating a groundswell for change. In recent years there has been a ‘seismic shift’ in the way Australians think about animals. This can be seen in a number of areas, including the rapid growth of the animal law movement, with nine Australian universities offering courses in animal law and a dramatic shift in consumer spending patterns towards animal-friendly products.

These changes are strong indicators that business leaders need to give greater consideration to animal protection. A demand-led revolution is taking place, with consumers increasingly dictating to corporations the need for greater accountability and ethical behaviour when it comes to animals. Woolworths’ 2009 Corporate Responsibility Report showed an increase of 33.6% and 32% on the previous year’s sales of free-range chicken and free-range eggs respectively. This is perhaps why the company has begun the process of incorporating animal protection into its corporate social responsibility strategy, having phased out the production of caged or ‘battery’ eggs for its Woolworths Select brand.

There are many other ways for companies to incorporate animal protection into their corporate social responsibility strategy. For example, ING refrains from financing companies operating fur farms or those involved in the manufacturing of fur products. Rabobank Group has previously made a policy decision not to fund Foie Gras producers. Similarly, Macquarie University has just launched a sustainable catering guide that encourages staff and students to minimise their consumption of animal products.

The level of institutionalised suffering in the factory farming system is sanctioned by law, but this does not make it right. Indeed, laws have previously sanctioned slavery in America and apartheid in South Africa. Companies who go beyond what it legal and do what is ethically and morally right will be the ones to reap the benefits. As Anders Dahlvig, CEO of IKEA, has said, ‘It is not good enough to do what the law says. We need to be in the forefront of these [social responsibility] issues.’

Animal protection is an area in which corporations can assume a leadership role, irrespective of whether they are directly implicated in animal suffering through production or trade in animal products, or indirectly involved via investments, purchasing decisions, marketing or other means. With the growing number of consumers becoming aware of the inherent cruelty in the factory farming system, now is the time to act on this issue which is becoming increasingly important to companies’ customers, employees and other stakeholders.

Voiceless is leading the way in lifting the veil of secrecy around factory farming in Australia, informing consumers and enabling them to make ethical purchasing decisions. Proactive corporations that tap into this community sentiment and demonstrate inspired thinking by taking up animal protection, will be the ones who strengthen their brand, challenge their competitors and demonstrate that compassion in the boardroom makes good business sense.

Leaders not models

Tuesday, June 15th, 2010

Business school graduates preparing to take their place in the working world should rely on critical thinking, integrity and their strength of character to shape their business success. These attributes will always be more important than blind faith in financial models, according to former chair of the Commonwealth Bank and chair of the Future Fund Board of Guardians, <i>David Murray,</i> OA.

Murray was addressing the UTS Business graduation ceremony on 12 May. He took the opportunity to consider what failures in business leadership contributed to the devastating financial crisis, the ramifications of which are still spreading across the globe.

According to Murray, current business education is still influenced by the pre-financial crisis environment. Post-crisis thinking is yet to fully emerge. A business degree awarded today has been earned in a world which had come to revere the power of mathematical modelling, and hold firmly the belief that any risk can be quantified and traded – even when market signals inferred an extreme risk.

True leaders need more than the ability to model outcomes – they need thinking skills, judgement, and a moral code that relies on more than ego or popularity. Business graduates must ask themselves: Have we learned how to think, or have we learned how to model?

Murray used three examples of failures in leadership thinking that, in his mind, contributed to the financial crisis.

#1: Government bonds are not risk-free

Government bonds are not risk-free. Governments can go bankrupt, default and find themselves unable to pay. Even governments underwritten by the power of the robust and wealthy European Union. Just ask the holders of Greek bonds. Yet a key assumption behind the capital asset pricing model (CAPM), the mathematical model that underpins the valuation of assets today based on future cash returns and which determines the rate at which cash flows are discounted is that government bonds are risk-free.

We hold this belief in risk-free government bonds because sovereign governments have the power to raise revenue and/or reduce expenditure if faced by the prospect of default on their bonds. Even if they refuse to act, there has been a belief that another government will bail them out, and because they will need future funding, they will see the error of their ways and fall into line. In human terms, people forget that those who lend their savings to others are entitled to be repaid.

The implications of this misplaced assumption are considerable. If you do your maths based on an incorrect set of figures, the outcomes will be unreliable. If you calculate investment risk, based on an arguably false sense of security that the CAPM model offers, then you will not have an accurate picture of the risk you are taking.

#2: Rating is not an exact science

When a ratings agency rates a bond or mortgage as triple A, the model assumes a probability of default of 4 in 10,000. That figure gets input to the computer program, on the assumption that the rating is an exact science. If a subsequent rating is lower, many large institutional investors in the world are forced to sell the lower-rated assets because their portfolio model requires that they only invest in triple A rated assets. This can set in motion a downward spiral in prices.

#3: Loss + declining ratings + mathematical models + leveraging = dangerous spiral

Banks incur a probability of loss on loans from the day they fund them. Yet, the ‘mark to market’ model which underpins accounting standards, does not allow banks to build reserves in good times for future losses. Thus the huge losses brought to account during the crisis had the affect of exacerbating it. Even worse, the declining market prices reflected a market momentum driven by the ratings, the mathematical models and super leverage – a dangerous spiral.

How could our financial leaders (public and private) allow spirals to develop with such serious cosequences both now and for many years to come?

Outcomes flow from inputs and systems. Without examining the nature of systems, it is impossible to assess likely outcomes. This requires critical thinking because every system is governed by people who need and respond to leadership, symbols and signals – all of which will affect the systems.

Leadership requires the exercise of judgement, and this relies on the values and beliefs of leaders.

Successive Greek generations have come to believe that tax avoidance and government indebtedness are okay. Greek leaders thought it was acceptable to lie to the rest of the world about their fiscal position – and they weren’t telling small lies. The outcome is that people have been killed in riots in Greece, as the size of the adjustment is so large and people try to get to grips with what it will mean in terms of their personal financial security.

In Britain’s case, a hung parliament coming after an enormous budget deficit means that firm fiscal action will probably be deferred, and an early next election may still not produce a clear mandate and decisive action. This is not about credit default swap prices, it is about people, their political systems, beliefs and behaviours.

How then do our graduates of today – the leaders of tomorrow – think about their role in the future?

In Australia, 16% of school leavers earn a university degree and only 4% a postgraduate degree. Because leaders need thinking skills to operate at higher levels of complexity of work, we should assume most will come from the graduate cohort.

Imagine our future if our leaders think everything can be modelled, and that the models are flawless.

No doubt, every graduate is thinking about promotion. At UTS, history tells us that business graduates acquire substantial skills and are more likely, on average, to get good work and get on the experience curve. But this leaves the exercise of judgement which requires exposure to critical thinking and an understanding of people and human systems.

Pre- financial crisis, two large systemically important banks in the United States had the same strong credit rating. They were both SEC- (US Securities and Exchange Commission) and Sarbanes–Oxley-compliant. They both complied with the Fed’s supervisory requirements and were capital adequate. Their PE ratios were similar.

Why is it that one virtually failed and the other did not? Clearly the leadership of one bank made some superior judgements about what they would and would not do. Not only that, the people in this bank trusted their leaders and had confidence in their judgement. This culture of trust and confidence turned out to be more important than all the regulation.

Leaders require an additional dimension – a moral code and strength of character which is not based on neediness, ego or popularity. There is no textbook on this but there is one good way to get on the path to good leadership.

Remember that ultimately, reputation is all you have. It can only be nurtured and be preserved by integrity of behaviour.

Do you really care? The myth of the ethical consumer

Monday, March 15th, 2010

Professor Timothy M Devinney thinks the idea that people will change the world through what they buy, enabling companies to save the world through their actions, is hopelessly naïve. But that doesn’t mean corporations can’t view the world through ethical lenses. In fact, marketers and strategists need to know much more about their customers’ ethical preferences.

Katy Perry, singer of ‘I kissed a girl’, declares herself a ‘Red artist’. Georgio Armani, American Express, Starbucks, Apple, Dell – all these companies consider themselves to be ‘Red’, as do Converse, Bugaboo and Hallmark. They have pledged themselves to the Red initiative, spearheaded by U2’s Bono and politician Bobby Shriver. They have specified that 50 percent of the profits from designated ‘Red’ products and services will go towards buying and distributing antiretroviral medication to AIDS patients in Africa.

Since its inception in 2006, the Red initiative claims it has raised more than $140 million for its partner The Global Fund so that this fund, in turn, can provide medication to nearly 80,000 people in Ghana, Lesotho, Rwanda and Swaziland. As Katy Perry says: ‘It’s not just like they are coming to my concert: when they purchase a ticket, they are helping out someone across the world – someone who needs medication, who doesn’t have resources; someone to help in the fight against HIV and AIDS.’

Inspirational stuff.

With numbers like those, it would be churlish to argue that initiatives such as Red are not worthwhile. Yet such high-profile activities hide the fact that products with ethical or social dimensions have far more limited uptake than many executives and social activists might hope, leaving many in business expressing uncertainty, in private, about the financial efficacy of ethical consumerism and the role their customers play in sharing obligations to social ethics. Despite the hype it has generated, there is strong evidence to suggest that even Project Red hasn’t had the impact on consumers its partners had hoped for.

In fact, our research shows that the ideal of the ‘ethical consumer’ – that person who is guided in their purchasing decisions by broad ethical or moral concerns – is a myth. That doesn’t mean people aren’t influenced by issues other than price and product – they are. But we find that when you look carefully at people’s purchasing behaviour, it does not tally with what those who promote the idea of the ethical consumer would expect. All too often, survey radicals can turn into economic conservatives at the checkout.

Horses for courses

The ethical consumer, as an ideal, fails to match reality in a number of ways. When you examine how people purchase, you find that they do so in a much more utilitarian way than promoters of the idea of the ethical consumer claim. As our coffee-shop experiment shows (see Fair Trade Coffee, Sir, page 27) how ‘ethically’ people decide to consume is a socially determined factor, and a subsidiary one at that.

People may care about a variety of issues that form part of a broad ethical agenda: third-world debt, child labour, pollution, animal welfare and so on. But they tend to be hard-nosed when they trade these things off against matters that are more salient, immediate and mundane: children’s schooling, healthcare, their mortgage – even simply spending less time at the checkout counter.

The question, it seems, is a relative one: ‘How important are social issues when compared with other economic issues?’

Consumer social responsibility

These findings might tempt strategists to side with the financially driven sceptics. If ethical consumers are a myth, why cater to them – particularly if it is going to cost you money? It may be true that the ‘ethical consumer’ is a myth, but consumers are influenced nevertheless by their social concerns, in the same way that they are influenced by other aspects of the consumption landscape: price, branding, taste, positioning and the context within which consumption occurs. It’s just that you can’t rely on a simple conception of ‘ethicism’ in your marketing strategy.

Instead of conceptualising an ethical consumer, it may be more helpful to think about ‘consumer social responsibility’. This differs from the ‘ethical consumer’ construct because it recognises that consumers’ decisions are influenced by many factors and that the social component of a product is just one. What’s more, it doesn’t attribute a broad and generic ‘ethicism’ to individuals, who are likely to have far more subtle social preference delineations than we give them credit for.

Individuals reveal their social preferences through their patterns of consumption; in fact, it would be almost impossible for them not to do so, since social preferences are an inherent aspect of consumerism.

But you can not determine from their consumption patterns whether or not someone is ‘ethical’.

One person may reveal that he cares deeply about animal rights but is indifferent to the ‘right-to-life’ cause. Another may be a passionate right-to-lifer but have no position on the destruction of the Amazon rainforest. Which of these people is ‘ethical’? Both, surely.

People actively decide the extent to which they will support one social cause over another, and these decisions are reflected in their consumption behaviour. But you can’t use these decisions to predict from one social category to another. Ethicism is not generic.

Nor are people’s ethical concerns strongly influenced by their cultural heritage. Europeans do not appear to be significantly more socially aware than Americans. Consumers from developing countries seem to be no less concerned about environmental issues than those hailing from richer countries.

The reality is more complex than that: our research shows that the rationalisation of behaviour and a person’s understanding of the idea of ‘ethical consumerism’ are culturally informed – but behaviour is remarkably similar.

Ethics is a much more granular subject than the proponents of the ethical consumer would have us believe. It does a disservice to the human race to categorise some aspects of consumption as ethical or unethical.

Instead, it’s better to think about individuals revealing their social preferences through their behaviour. In turn, these preferences are useful in understanding how marketers can influence behaviour.

The socially responsible corporation

Understanding that social ethics is a complex and relative concept that differs markedly among individuals and communities sheds much light on the idea of the sociallyresponsible corporation. Many commentators have promoted the idea that companies can ‘do well by doing good’.

But if we understand that ethics are a complex and individually determined phenomenon, we realise that the idea that corporations can determine what is ‘good’ is naïve.

In fact, taking this argument to its logical conclusion reveals that handing over social policy decisions to corporations would lead to what most would consider to be an unacceptable loss of democratic rights.

To see why, it’s only necessary to take a walk down my street. I have neighbours who were born in China, Korea, India, Syria, Japan, the Netherlands, Croatia and 10 or so other countries. The local election ballot has to be printed in more than 20 languages. Yet, in the same street where several wives were imported for arranged marriages lives a lesbian couple and a dozen individuals cohabiting in de facto relationships, some with ‘illegitimate’ children.

Would corporate policies and choices that appeal to one of these families be likely to appeal to all? Certainly not. Any attempt to do well by doing good among my neighbours would get bogged down immediately in an energetic debate about what was and wasn’t ‘good’.

Corporations, by their very nature, have conflicting virtues and vices that ensure they will never truly be socially responsible, even by the broadest of definitions.

Would you want Walmart running society? The answer is, ‘Probably not’, for two reasons: firstly, because you can’t guarantee that what Walmart decides to do for society will in any way match your conception of a social good; and secondly, because there is a strong likelihood that instead of the corporation being forced to act in ways society deems ‘good’ (even if we could define such an idea), society will be forced to act in a way the corporation thinks is good. What’s more, you can’t vote Walmart out of office – there is no governance mechanism limiting the actions of a corporation in the way there is around a democratically elected government.

As Elizabeth Taylor said:

‘The problem with people who have no vices is that generally, you can be pretty sure they’re going to have some pretty annoying virtues.’

Social marketing

From an overall strategic perspective, it is important for corporations to understand that there are social responsibilities within all aspects of their businesses – whatever that means for the societies in which they are operating. Better companies work to enable these responsibilities to be fulfilled, however they arise (not simply through giving to select charities or enabling particular programs favoured by the CEO).

Corporate social responsibility, as it is traditionally defined, implies that there is a responsibility at the level of the corporation as a whole. But the company is not a being; it is simply an entity that allows humans to interact. It is the humans who have social preferences and responsibilities – as individual customers, workers, owners, investors and executives. Companies that put out glossy brochures proclaiming their extensive environmental, social or ethical activities are not being socially responsible – they are engaging in public relations.

More important is understanding the social links that exist across the corporation, understanding their interplay, and being able to understand and act upon the opportunities that arise from them.

This means enabling workers to have fulfilling lives and time with their families, customers to contribute to a variety of social causes through their consumption decisions, executives to create value for shareholders and investors to contribute to economic growth. The most ethical companies enable all of these and more, in concert, and profit over the long term as a result.

Fair trade coffee, sir?

One experiment we undertook in investigating whether or not the ethical consumer exists took place at a coffee shop in central Sydney over a period of several weeks.

This coffee shop displayed a large and prominent sign indicating the products available, their prices and active specials. To this we added, quite obtrusively, another special, indicating: We have Fair Trade coffee! No extra charge. Just ask.

Unprompted, with only the sign to notify them of the availability of the ‘ethical’ alternative, less than one percent of customers bothered to ask for Fair Trade coffee, even though it was free.

When we opted for the McDonald’s strategy – prompting customers with a reminder that the ‘ethical’ alternative was available – the number of customers opting for the Fair Trade option rose to 30 percent.

We then went a step further and took the customer’s privacy away: each time the clerk prompted a customer with the Fair Trade option, we ensured there was someone standing next to that person at the counter. In this situation, the number of ‘ethical consumers’ rose to 70 percent.

Throughout the experiment, we gave different coloured cups to customers who indicated that they wanted the Fair Trade product. We then questioned those remaining in the coffee shop about the meaning of fair trade and what they thought they were doing by purchasing, or not purchasing, Fair Trade coffee. On the whole, we received informed and insightful answers: customers talked about fair trade; they talked about the conditions of Guatemalan farmers; they could cite many reasons why they had opted for Fair Trade coffee.

None of this meant anything, however. When a customer chose the Fair Trade alternative, his or her decision was based entirely on the context we had created; it had nothing to do with that person’s values or preferences.

What this reveals is the degree to which ethical consumerism, like all consumerism, is strongly determined by the social context in which it is served up: something the marketers behind the Red campaign, and Katy Perry, are likely to have taken into account.

Timothy M Devinney is a Professor of Strategy at UTS Business. His research interests include international business, corporate and social responsibility and social consumerism, corporate strategy and technology/knowledge management. He has also published a number of papers regarding ethics and the role of ethics in consumers’ lives.

Timothy M Devinney’s latest book, The Myth of the Ethical Consumer, is available from Cambridge University Press.

Expertise or ethics: What should business schools teach?

Monday, March 15th, 2010

Who is responsible when markets crash, banks implode and companies collapse? David Deverall argues that business schools are guardians of business competency, not a moral compass. Interview by Kirsten Lees.

Should business schools be held accountable for any or all of the transgressions that led to the Global Financial Crisis (GFC) – transgressions that range along a spectrum from matters of simple incompetence through to fraud and criminal behaviour? It’s a core question and one that’s getting a lot of discussion.

A good place to start is with an understanding of what the job of any business school entails from the customer’s point of view. For business schools, the main customer is the prospective student.

I believe that when students choose to study for graduate business degrees, they are after three things. Firstly, and most importantly to my mind, is that it’s a signalling exercise. By choosing a graduate business education – and the costs and commitment this involves – students are signalling their commitment to progress their careers.

A graduate business qualification is a stripe on the shoulder, a stamp in the passport of life, a ticket to a faster road forward, an intention to take career seriously and to be taken seriously.

Secondly, a business school education is about unlocking access to what might otherwise remain the ‘hidden secrets’ of business activities. Studying the full range of business disciplines – strategy, finance, organisational studies, marketing, accounting and so on – provides confidence that the map of business activities has been disclosed and its mysteries revealed. It enables a manager to see an issue from a cross-functional perspective and not be constrained by the perspective of the discipline in which he or she has the most in-depth knowledge.

Thirdly, a business school education gives the student a network of people, a peer group with which to work or compete over the years as everyone’s careers move forward. It also provides the student with valuable experience in working in groups and in learning to understand and benefit from a diverse set of perspectives in decision-making.

Indeed, it has been said that students at good business schools learn as much from each other as they do from their lecturers.

That is what business school students are doing in graduate business education. And it is in this context that business schools should understand their capacity to influence and to shape their graduates in the limited time that they are under any business school’s sphere of influence, especially when it comes to forming – or being accountable for forming – a student’s moral compass.

By the time students arrive at business school, they are, to a large extent, who they will be. Their values, which will guide their ethical perspectives, are formed by their life’s experiences and the role models that are significant to them. By the time individuals arrive at business school, they have been influenced by their home environments, their school lives, their time as undergraduates and various experiences in their working lives. Their moral compasses are, to a large extent, set.

A business school will influence an individual’s development on both the dimension of business competencies and on the dimension of values and perspectives on issues of ethics. It is on matters of business competence, however, that business schools have the greatest opportunity to influence, assist and improve their students’ behaviour.

Since this is the context in which business schools operate, it is the context in which we should consider the great mistakes of the GFC and the role business schools had to play in them.

My own experience of business school was in the 1990s, also just following a recession. As it is now, the great debate then was on what business schools could do differently. Ethics courses were incorporated into business school programs. But the truth then, as it is now, was that the main purpose of business schools is not to build ethical sense. Their core value is in creating business and management competence and in attempting to develop work readiness.

But this does not get business schools off the GFC accountability hook entirely.

Many of the contributors to the GFC, were, of course, businesspeople behaving badly. But there were a lot of activities and screw-ups that were a result of people not knowing what they were doing – of not operating competently. The GFC was essentially a credit crisis; it resulted from people lending money to people who could not pay it back. When it comes to lending money, there is a simple law of appropriate business behaviour: lend only to people who can pay you back. It’s a matter of competence.

If there is something business schools should focus on in the light of the GFC, it is how competent their students are on graduation in a range of relevant areas – such as having a sound understanding of risk-management frameworks.

Business should not be studied simply as a set of subjects that must be passed to get a qualification. Accounting, for example, is not simply a matter of balancing the books. It should be studied and understood as the powerful business tool it can be – one that gives insights and perspectives into all aspects of business activities. Business schools must be rigorous with regard to the competence base on which any subject is taught, and on which the qualification is dependent.

If high moral value is to become a differentiator for any business school, it is changes in the selection process (rather than setting too much store in the school’s influence on its students) that is most likely to make an impact.

It is at the entry point – who it lets in – that a school can most readily change the nature of graduates that emerge. The best way to produce graduates with high moral fibre is to select people with high moral fibre.

This is certainly an approach that has been considered, and in some instances adopted, in the selection of medical students – by increasing the amount of psychometric profiling undertaken as part of the selection process, for example. Arguably, there are benefits for a school’s branding if it achieves this aim.

Psychometric testing, however, is a course of action fraught with limitations. To start with, a school would need to know what it was testing for, and this isn’t something that is easily and simply defined.

One test of ethics is what individuals reveal about themselves. Business schools may use various methods to seek information about the values prospective students demonstrate through their past behaviours.

In addition to basic ‘smarts’, the school may take into account factors such as the results of interviews, the perspectives of referees on prospective students’ character traits, and individuals’ participation in various extracurricular activities.

An individual’s choice of activities may reveal something about his or her values and commitment to larger issues – such as a commitment to making a broader social contribution or a capacity for leadership.

While a business school is not well placed to change the ethics of its pupils, it can seek to choose students who demonstrate sound core values in addition to the potential to build strong management skills and technical competence.

Quality business schools and the academics who teach in them are themselves leaders of thought and role models for their students.

A further contribution they may seek to make is to encourage their students to consider how they might make a contribution to better public policy, while encouraging public institutions to value the skills of their graduates.

The GFC arose from collective behaviour and challenged regulators to measure and keep pace with financial innovations, and to evaluate the risks inherent in the system, such as too much leverage. Encouraging individuals with strong business competence to contribute to public policy and public institutions to value their skills may help to create a less crisis-prone system.

High moral purpose is not the differentiator that employers have been looking for in their business school recruits, however. They are after competent individuals who can hit the ground running. To employers, ‘work readiness’ is a powerful term. When it comes to moral fibre and cultural fit, businesses have their own recruitment practices to help determine the fit of competent recruits to their particular cultural values and business requirements.

In the post-GFC business world, I believe employers will continue to recruit from business schools that give their students:

  • technical competence;
  • the confidence that comes with knowledge and ability;
  • a deep understanding of how
  • to apply their knowledge in
  • a business context; and
  • a strong capacity to work effectively with and influence others.

ANOTHER POINT OF VIEW

‘The arts of business are largely quantitative and are about analysis and deductive reasoning; the arts of design are about innovation and visualisation; and the arts of rhetoric-humanities are about conceptual thinking and communication. Combined, these provide a powerful set of skills not just for the leaders of organisations, but for anyone – from engineers to corporate middle managers to government ministers – who seeks to inspire innovation. The mix of the three pillars will be intoxicating if we can get it right and promises to revive a Renaissance-style integration.’

Tony Golsby-Smith, CEO, 2nd Road