We recently reviewed John Di Frances' book Reclaiming The Ethical High Ground: Developing Organizations of Character, and now have had opportunity to interview him. Drawing on his successful business career John has become a celebrated keynoter and source of ideas for business leaders. We ask him 5 questions about ethics and enterprise.
Every few years it seems, a prominent business school goes on record as strengthening their curriculum to focus more on ethics. Why doesn’t it seem to work?
The approach to ethics by B-Schools following the collapse of Enron, Arthur Anderson and the 2001 recession was very interesting and demonstrated the prevailing dichotomy in thinking on this critical issue. While some schools immediately rushed to shore up their ethics curriculum and make an ‘ethics course’ a graduation requirement, others moved away from teaching ethics at all, claiming that ‘ethics’ was not properly a B-School issue--a matter best left to philosophy and religion departments. Since then, not much seems to have changed, other than whatever emphasis on ethics the events of 2001 and 2008 engendered, appears to have faded with a ‘business as usual’ attitude and success measured by the incomes of alumni once again becoming the central focus of most MBA education in the U.S.
This is indeed unfortunate and bodes ill for our future. Our society has flourished with ever expanding modes of open commerce and new technology driven forms of non-face-to-face interactions fueling economic growth. We have not needed to ‘personally know the individuals’ we transact business with in most instances. Contrast this to many societies in the developing world where this is not the case and people will rarely deal with anyone who is not part of a trusted relationship network that is usually family based. We take for granted that ‘trust’ factor everyday, when we use our credit and debit cards in person and online, with little thought of who may be processing our confidential financial transactions.
‘We TRUST’ and that has enabled our economy to grow at an ever increasing pace. But what if that trust were to be lost? What if each of us would only deal with people or businesses that we personally know or that are known by someone close to us, a relative or close friend, whom we trust implicitly? That is the very real prospect we face if ‘TRUST’ is lost on a large scale. You might think of the ‘HeartBleed’ virus as just another face of the threat.
I wonder how many people will now think twice when buying a new vehicle, given that most car and truck models are basically equivalent between the automakers, and will opt not to buy from GM. First, because of the many year cover-up of the ignition switch problem impacting millions of cars sold and secondly, the apparently falsified bankruptcy filings that failed to disclose the pending liability. Most concerning of all to buyers should be the ‘New GM’s’ recent leadership’s decision to attempt to shield itself from ignition switch liability through that bankruptcy? I for one would not buy a GM vehicle as long as its present executive leadership remains at the helm and that includes the new CEO, whose congressional testimony was less than candid and who is clearly part if the current attempt to shield GM from liability.
Do ethics in business really matter? “YES!” And if B-Schools don’t champion it as a key part of their core curriculum, then they are merely training the next generation of ‘corporate pirates,’ who view ‘maximum profitability’ as their god and economic plundering of society as the ultimate goal. It simply becomes a matter of economic darwinism and survival of the fittest is the greatest and highest B-School good.
Far more important than every B-School mandating an ethics course as a requirement, high ethical behavior should be instilled as foundational throughout the entire curriculum. Ethical behavior is not the whip cream on the top of the of the three scoop B-School educational sundae. Ethics emersion in every course offered should be the standard. But, of course, that would require that all the professors would need to believe that ethical behavior is central to achieving true business success.
You wrote your book in the aftermath of 9/11. What would you have changed or added following the economic crash of 2008?
I don’t really think I would have written it any differently in 2008 or even today, as unfortunately, I think little has changed in regard to corporate ethics. The 2008 problem only demonstrated that although 2001 brought a great deal of ‘lip-service’ by way of corporate response to ethics as well as more regulation, real corrective action has once again been rare. A swindle is a swindle no matter how you dress it up or what industry spawns it. The epidemic of underwater mortgages that were written simply to generate massive loan application and underwriting fees by the large banks, intent on passing the obscene risk on to others regardless of whether the borrower had even a hope of meeting their mortgage obligations, is but another Enronesque episode.
Reclaiming The Ethical High Ground: Developing Organizations of Character was, as the name implies, designed to focus the ethics discussion on the issue of character, first individually and then organizationally. Legislation and regulation are both necessary to an extent, but more of the same will not change the mindset and even before the ink is dry, legions of accountants and attorneys are engaged in finding quasi-legal means of circumventing those laws and regulations in spirit, if not directly.
What I said in 2001 was that we need a ‘corporate change of heart.’ And as I stated then, one of the most powerful factors working against this happening are corporate boards and equity markets’ fixation with short term results. The average longevity of a typical public company CEO is about three years and analysts and investors are enamored with monthly and quarterly results. This only serves to drive the greed factor. America was built by individuals who took a long term view, for many that viewpoint extended beyond their own lifetime. Such a view allows one to focus on character (value) based goals vs. merely short term results.
Our Washington National Cathedral required eighty-three years to build. Many of the great European cathedrals required hundreds of years and those who designed, financed and laid the cornerstones for them knew they would never see anything even remotely resembling a completed structure in their lifetime or even the lifetimes of their children and grandchildren, yet they had the vision to proceed with such enormous undertakings. The cathedral of Florence, Italy, was begun in 1296 with a design by Arnolfo di Cambio, which included the largest dome ever attempted at that time and for which their was no known method of engineering and constructing. With great vision and ‘in faith’ the work continued until the dome was successfully engineered a hundred years later by Filippo Brunelleschi, who also personally oversaw its construction and eventual completion in 1436. Today, can we even comprehend that level of vision and commitment to the future?
You hold a lot of experience in a variety of business sectors, do any seem to be more ethically challenged than others?
Ethical challenges are everywhere in business as well as the nonprofit and government sectors. Each has been rocked frequently by scandals and ethical breeches. In business in particular, as the pace continues to increase and global competitive pressures build, the temptation to cut corners and bend on core beliefs will only intensify and this is not limited by industry or marketplace. We have just seen it once again in the automotive sector with GM. Just a couple of years back it was Toyota. Financial firms, pharmaceuticals, the tech sector again in April 2014, saw yet more antitrust settlements; it appears to be ubiquitous. The Air Force was rocked late last year and again in 2014, by multiple scandals, from widespread officer cheating in the Strategic Missile Command to repeated instances of sexual abuse extending across all of the DoD. It is pervasive in our organizations, just as the decline in ethical behavior is permeating our society in general. Sadly, even the ‘faith’ sector has not emerged unscathed.
Is there a set of best practices for organizational leaders who want a strong ethical foundation in place? Should the question be framed differently than this?
The real question is how to counteract the internal and external forces in the life of the individual and organization which are the root of unethical behavior. One of the methods is to turn an unshakable commitment to absolute ethical behavior into a business advantage. Charles Schwab is doing just this with marketing that presents itself as the ethical leader and example of their industry, an industry that has been plagued by repeated, high profile lapses of wrongdoing, using the motto: “Does accountability exist? It does here.” Building upon this is the “Schwab Accountability Guarantee™” and yes, they have trademarked it as an integral part of their image and marketing.
But doing so is only effective if and where the organization’s executive leadership is actually committed to it in reality, not just in image. Is this the case at Schwab? I do not know, but I suspect so, as Charles Schwab is appearing in TV ads himself, personally putting his name and reputation on it. I certainly hope that he is strongly backing it up internally with action.
The type of very front-and-center public stance he is taking is exactly what is required, at least internal to the organization, if not before the general public. I have said for years that “Leadership is top down.” Leaders cannot effectively lead from the rear and for an organizational commitment of ‘ethical behavior’ to prevail throughout it at all times, that ethic must be viewed by everyone inside as an absolute Prime Directive. In too many organizations, I have witnessed the tendency to hold to high ethical standards when all is going well, but to lower standards when there is a substantial financial risk in not doing so. To become the most pervasive and recognized organizational value, high ethical conduct in the form of ‘organizational character’ must be immutable, regardless of circumstances or pressures to bend.
Where and how have you seen an enterprise go from being ethically challenged to being exemplary?
I wish that I could say I have witnessed such a turnaround often, but alas, I cannot. The only time this happens is where the executive leadership, and that means the very top of the organization - the Chairman, CEO, President, Managing Partner - those who both speak for the organization and set the course for all others to follow, either newly join the organization or experience a true ‘aha’ moment and ‘get it.’
For example, some years ago I presented an ethics keynote to a group of business executives at an association meeting and afterward I was talking to attendees. An older man accompanied by a young woman came up to me, just as I was about to leave. I noticed that he was entering the ballroom, not leaving it. He told me that during my keynote, he had recalled a phone conversation he had with his office earlier that morning, wherein he directed his CFO to expense a certain very large cost, rather than depreciating it, as the CFO had wanted. He further told me that he was so convicted by his action, which he knew to be wrong, but which until he heard me speak he had justified, that he left the meeting with his assistant to call his CFO and countermand his earlier directive. He wanted his assistant with him when he did so and also when he returned to talk with me, so that she would know and could attest to the fact that he had decided to make upholding high ethical behavior a foundational premise of the company going forward.
That is what it takes to create an ‘organization of character,’ whether in commerce, the nonprofit or government sector. Sometimes, as with the gentleman that morning, it costs financially to make such a commitment, but I’m certain that he slept better thereafter, knowing that he was setting a standard for all of his employees, for which he would never be ashamed.
Yes, there will always be a price to acting ethically, but likewise, there is also always a price to be paid for unethical behavior, whether it becomes known publicly or if you alone must live with the knowledge of your actions.
Moreover, there is a tremendous reward and satisfaction in knowing that you have created and are leading an organization where you are respected as a person with true character as well as an organization of character. It is the foolish ‘boss‘ who thinks that his people do not see and disdain him or her for acting in an ethically duplicitous manner. They may not speak up, but word does get around and employees are not as ‘blind’ or ‘naive‘ as such executives may think. And you can be certain that whatever they see you ‘get-away-with,‘ many of them will use that knowledge as a rationale for doing likewise. If your employees believe you to be highly ethical and a person of your word, they will reward you with loyalty and a personal commitment to you and the organization that no amount of money can buy.