The Ethical Leader

Why Doing the Right Thing Can Be the Key to Competitive Advantage

Morgen Witzel

• Publisher: Bloomsbury Business
• Year: 2018
• ISBN:
  9781472956583
• Edition: 1
• Topic: Business
• Subtopic: Business Ethics
• Index: Business

The Ethical Leader showcases the necessity and practicality of using an ethics-based business model for competitive advantage and long-term organizational success. Ethical behaviour by businesses, or their staff, is often seen as the corporate and social responsibility icing on an organizational cake – something that is nice to do but never really essential. But by turning this view around – and making ethical behaviour a primary focus – Witzel shows how businesses can create and maintain long-term competitive advantage. Trust and respect among key stakeholder groups, particularly employees and customers, cannot be overstated in their importance to an organization's success: trust engenders loyalty and good reputation, which in turn builds brand value. However, while ethical behaviour is key to trust-building, in order for an organization to see lasting, positive outcomes it needs to go deeper than something managers do out of a sense of moral duty. The Ethical Leader shows why ethical practice has to be the platform on which a strong and enduring business can be built, and leaders and managers need to provide the necessary tools and insights to enable this to happen. Witzel offers a practical introduction to some of the key concepts in ethics, including how to deal with ethical paradoxes and making ethical decisions. The book explores the specifics of what makes an ethical leader, and how leaders can communicate values and standards across an organization in order to engage the trust of employees, consumers, shareholders and the wider community.

1

Creating Value: Why Ethical Leadership Is the Future

Oh, no. Not another book about ethics. Not another snowflake pleading with business leaders to be more ethical because, you know, it’s the right thing to do and all that. If we were all just a bit nicer to each other, and hugged a few trees, and knitted our own yoghurt, the world would be a much nicer and kinder place.

Well, stuff that. Who cares about being nice? Business is hard, and there is no place for sentiment. The only reason we’re all here is to make money. Isn’t it?

Actually, this book is all about making money. It shows how behaving and acting ethically, far from being some sort of costly luxury, is actually a powerful source of long-term competitive advantage. Being ethical creates trust. Trust builds strong relationships, and out of relationships comes value. If we can build strong and lasting relationships and create value effectively and efficiently, day in and day out, year in and year out, we will make money. End of story.

Or, not quite. The process is a simple one, but to paraphrase Clausewitz, everything in leadership is very simple, but that does not mean that everything in leadership is very easy. Establishing standards for ethical behaviour and then sticking to those standards and living by them is hard work and requires quite a lot of courage. And ethics itself is not a matter of black or white, right or wrong. It can be hard, sometimes painfully hard, to know what the ethically correct thing to do is.

Sometimes, indeed, it can be too hard. Sometimes it seems easier to accept that the world is an imperfect place, let ethical standards slip and just let things happen. Maybe we won’t get caught. If we do, we’ll hold our hands up, say we’re sorry and promise to learn lessons for the future. Or we’ll just say the whole thing is fake news, and pretend it isn’t happening.

Stop people in the street and ask them what ethics means to them, and most will tell you that ethics is a matter of right and wrong. Being ethical means following the rules, telling the truth, keeping your promises, doing the right things.

But, of course, this is far easier said than done. Most of us don’t follow all the rules, all the time; when the pressure is on, we take shortcuts. A few months ago, driving down a dual carriageway in the West Country, I realized I was late for a meeting. The only way I could get there on time was to break the speed limit. Ironically, I was on my way to a meeting of a police ethics committee, of which I am an independent member. What are the ethics, I wondered, of breaking the law in order to avoid being late for an ethics committee?

Faced with the complexities of ethics in an already complex world, business leaders have an unfortunate tendency to try to sidestep the issue. There is a lot of special pleading – things are different in business; you can’t possibly expect us to live up to the same ethical standards as the rest of society; we have to cheat sometimes in order to survive – or even flat-out statements that ethics has no place in business. Luke Johnson’s famous article in the Financial Times, ‘Lies, Damned Lies and Running a Business’ argued that firms can prosper only if their leaders are devious, manipulative and unafraid to use deceit as a tactic.¹

UBER: NEEDING LEADERSHIP HELP

In June 2017 the charismatic CEO of ride-hailing company Uber, Travis Kalanick, was forced by his shareholders to resign. One of the co-founders of Uber, Kalanick became CEO in 2010 and presided over Uber’s rapid worldwide expansion. During that time Uber became almost a household name in some parts of the world. Business academics rushed to study the company, describing it as a ‘disruptor’, using technology to break down the walls of existing categories and transform an industry. Complaints from traditional transport businesses that Uber was wrecking their business were shouted down; Uber was the future.

But behind the scenes, the picture was far from healthy. The culture at Uber was one of win at all costs, or, as the company itself put it, ‘always be hustling’.² Machismo and aggression were part of the atmosphere. Another of the ‘values’ was called ‘principled confrontation’. When an Uber driver complained to Kalanick about poor pay, Kalanick demonstrated how ‘principled confrontation’ worked by losing his temper and shouting at the driver. Unfortunately for Kalanick, the video of the incident was posted on the Internet, and went viral. Kalanick apologized for the incident and admitted he ‘needed leadership help’ to modify his style and change the culture of the company.³

Allegedly, bullying and sexual harassment were widespread, and female employees who complained of sexual harassment were silenced. When a woman passenger filed an accusation of rape against an Uber driver, a senior Uber executive attempted to get hold of her medical records in order to discredit her. The executive was later fired, but only when the case came to light in the media.⁴ Finally an ex-employee, Susan Fowler, started a blog detailing the experience of herself and others, and belatedly the company took action. Twenty employees were fired for sexual harassment, and more were put under investigation.

Externally, too, the company was running into trouble. Authorities in several American cities as well as in France and Brazil refused to grant Uber licenses to operate. Uber’s response was to enter some of these markets without a license, using a software tool called Greyball to spoof the regulators into believing it was not actually in the market. When the transport authorities in Portland, Oregon, found out about this, they reported the breach to the US Department of Justice, which opened an official inquiry.⁵

By now, investors in Uber were beginning to grow worried. So too were senior executives, who feared being tarred with the same brush. After Kalanick agreed to join President Donald Trump’s economic advisory council – he resigned soon after – a steady stream of top managers departed the company, decimating its leadership team. Far from being able to change the company and reform its aggressive, bullying culture, Kalanick was struggling to maintain his own credibility. Eventually, the pressure became too much. Investors, fearing a collapse in the company’s share price if any more scandals came to light, demanded Kalanick resign.

What did Travis Kalanick do wrong? He didn’t lie to anyone or break any promises. Yes, he created an aggressive culture, but no secret was ever made of this. Nor was the culture of Uber drastically different from that of Silicon Valley in general, notorious for its male-dominated, highly competitive atmosphere. Kalanick could argue with some justice that Uber was no worse than many other companies.

What Kalanick did was let that culture get out of control. The New York Times later called Uber ‘a prime example of Silicon Valley start-up culture gone awry’ (although one could also argue that the entire culture, not just of Uber but of the entire Valley, is fundamentally flawed).⁶ When that culture and its consequences – bullying, sexual harassment, insulting and abusing employees, stealing medical records, using software to deceive regulators – was exposed and became public knowledge, Uber’s reputation started to suffer. And for a company like Uber, which has only limited physical assets, reputation is everything. Losing that reputation has toxic consequences. Good people no longer want to work for you; innovations suffer; customer service starts to go downhill; share price begins to slip and before long the downward spiral begins. Kalanick was closely associated with Uber’s culture, and, once the shockwaves of scandal began to spread, Uber’s shareholders had little choice but to throw him overboard.

Of all the things that went wrong at Uber, it is the internal culture, the atmosphere of bullying and harassment and intimidation, that was probably most damaging and has the potential to bring Uber down. A company staffed by loyal employees who believe in their leaders can usually ride out most shockwaves.

Would Uber have fared any differently had Kalanick chosen to create a more inclusive culture that valued all employees equally and emphasized harmony rather than confrontation? Almost certainly yes. Indeed, there is a strong argument to suggest that such a culture would have enhanced the company, making it more resilient and giving it a stronger reputation, and that the abuses and scandals that destroyed Kalanick’s own reputation and his career could have been avoided.

Modern management theory has largely taken refuge in the positivist paradigm and declaring that management is a pure science and, therefore, anything which cannot be studied scientifically to be outside its purview. You can’t manage what you can’t measure, the famous dictum goes, and because ethics is one of those things like culture or market sentiment that cannot be accurately measured (you can measure ethical compliance, but that is not the same thing), we are therefore justified in pushing it to one side. Management theorists are supported by some economists, who argue that markets are beyond morality; economics is a pure science, and therefore ethical judgements do not apply.⁷ Steven Levitt and Stephen Dubner in their book Freakonomics glibly sum up the popular position: ‘Morality represents the way we would like the world to work, economics sums up how it actually works.’⁸

Under the positivist influence, business leaders have over the past fifty years or so detached ethics and ethical behaviour from their core business models. Sure, there are codes of ethics, and everyone tries (or pretends to try) to abide by them. But they are a separate subject, not part of the mainstream of business thinking. This is strongly reflected in business school curricula. The University of Exeter Business School, where I teach part-time, has ethics as a core module on its MBA programme; every student has to attend ethics classes. But Exeter is one of the few business schools in the world that does so. Most only offer ethics as an elective subject, meaning students don’t have to study it unless they want to (and I’ve always argued that the people who say they are not interested in ethics are precisely the people who should study it). Far too many business schools don’t teach ethics at all.

Why be ethical?

This detachment of ethics from the business core shows a fundamental lack of comprehension as to what ethics actually is. First of all, the positivist idea that science is somehow value-neutral is nonsense. What scientists do affects the lives of us all, sometimes for the good, sometimes also for the worse. Scientists themselves are fully aware of this. The physicists who worked on the Manhattan Project knew that their work could result in hundreds of thousands of deaths, and many of them wrestled with inner demons. One of them, J. Robert Oppenheimer, reportedly told President Harry Truman that he felt he had blood on his hands. Years later, he recalled reactions to watching one of the first tests of the atomic bomb:

We knew the world would not be the same. A few people laughed, a few people cried. Most people were silent. I remembered the line from the Hindu scripture, the Bhagavad Gita; Vishnu is trying to persuade the Prince that he should do his duty and, to impress him, takes on his multi-armed form and says, ‘Now I am become Death, the destroyer of worlds.’ I suppose we all thought that, one way or another.⁹

The scientists who worked on the human genome project were also fully aware of the abuses to which their work could put.¹⁰ Sir Tim Berners-Lee fought to keep the World Wide Web a public space because he was worried about what could happen if it fell into the hands of a controlling oligarchy. And so on. Ask most scientists about the ethical dimensions of their work, especially those working in applied disciplines, and they will tell you that ethics is very often front and centre in their thinking.

Business is no different, or, rather, it should be no different. Whether we recognize it or not, every decision we make has ethical implications, and that includes business decisions. All actions have consequences. Any decision we make concerning our business will impact on other stakeholders in the business. That is a given; there is no getting around it. Our actions as business leaders affect the welfare of those stakeholders, positively or negatively, and this has ethical implications that cannot be avoided.¹¹

FACEBOOK: A BREACH OF TRUST

‘I’m really sorry’, Facebook CEO Mark Zuckerberg told the media in March 2018.¹² He was referring to the scandal raging around Facebook and the consultancy firm Cambridge Analytica, which had accessed the personal data of more than 50 million – possibly as many as 70 million – Facebook users to provide advice to the Leave Campaign during the Brexit referendum, and later to Donald Trump’s successful campaign for the US presidency.

Accounts vary as to what really happen. There have been claims that Facebook knew Cambridge Analytica had acquired and was using personal data as early as 2015, but Zuckerberg denies this. According to him, when Facebook learned Cambridge Analytica was holding personal data, it insisted the data should be destroyed. Cambridge Analytica (which has since gone into liquidation) said it had done so, but Facebook failed to verify this. ‘This was clearly a mistake’, said Zuckerberg.¹³

Not just any old mistake, either, but a whopper, tarnishing Facebook’s reputation and leaving users wondering how many other organizations had access to their data. ‘This was a breach of trust between … Cambridge Analytica and Facebook’, Zuckerberg said. ‘But it was also a breach of trust between Facebook and the people who share their data with us and expect us to protect it. We need to fix that.’¹⁴ In another interview he commented:

I think it’s a clear signal that this is a major trust issue for people, and I understand that. And whether people delete their app over it or just don’t feel good about using Facebook, that’s a big issue that I think we have a responsibility to rectify.¹⁵

In a hasty attempt to shore up confidence and regain the trust of Facebook users, Zuckerberg announced a raft of measures to protect users’ data in the future, acknowledging as he did so that these steps should have been taken much earlier. Yet questions remained about Zuckerberg’s own behaviour. The use of unauthorized data by Cambridge Analytica had been headline news on both sides of the Atlantic for several weeks, and it took a long time for Zuckerberg and Facebook to confront the issue and make a public statement. Even after admitting responsibility, Zuckerberg remained elusive. Although he agreed to appear before the US Congress and, later, the European Parliament, he refused to meet British legislators, even though several million Facebook users in the UK had been affected.

Facebook is one of those once-in-a-generation phenomena, a company that changes not just the business landscape but the world we live in. Like Ford Motors in the early twentieth century, Facebook has had a profound impact on global culture; and, like Ford Motors, it became so enamoured of its own power and importance that it has forgotten that actions have consequences. The belief that social media is a ‘good’ thing because it links people together and helps them build communities has blinded not just Facebook but other social media platforms as well to the fact that there are people in the world who will use social media for malign purposes. For example, social media companies have also come under fire for allowing their platforms to be used to for hate crimes, and failing to do enough to prevent this.¹⁶

Again, it is hard to say that Mark Zuckerberg acted in a way which is deliberately unethical. The sin here was one of negligence, of failing to see which way the winds were blowing and take action to prevent Facebook’s users from being exploited. Having created these online communities, Facebook has a moral responsibility towards them, in the same way that parents do towards children and employers do towards employees and customers. Facebook must protect its people and keep them from harm.

And if it had done so from the beginning, what would have happened? The Cambridge Analytica scandal would never have occurred, Zuckerberg would not have had to apologize all over the media and appear before Congress, and Facebook’...