The Challenge of Developing Ethical Leaders
Ethics, values, leadership and trust are issues of immense timely importance to executives attempting to recover from a substantial downturn in the national and global economies. The challenge of promoting and maintaining ethical leadership has become a ubiquitous issue for executives and academics in a variety of fields.
Within the recent past, we have read or seen disappointing reports of Olympic judging caught up in controversy. Award wining journalists have been fired for fabricating credentials, sources, and stories. Politicians have been brought before the bar of justice or tried by the court of public opinion. Church leaders have been discovered to be covering up crimes committed by their subordinates. And, of course, corporate America and Wall Street are feeling the sting of accusations that go to the heart of investor and public trust.
This article features four leaders from the ranks of senior business executives, academic thought leaders, and human resource development specialists who detail their perspectives and approaches to the current epidemic of unethical behavior in corporations.
Daniel Burnham, Raytheon’s former chairman and CEO, puts the recent emphasis on ethics in dramatic context:
“Business integrity is not an oxymoron; it’s what smart companies insist upon to sustain their cultures — and to guide the individuals they select for leadership positions…
“Corporate scandals have been a big contributor to the climate of investor anger and mistrust. Since 9/11, unethical behavior is perceived as unpatriotic. When people feel that our country is under attack from terrorists, when fire fighters and police officers are asked to lay their lives on the line, when we send our young men and women in harm’s way abroad, we need to ask ourselves, ‘What are we asking them to fight for?’ Cast in this light, shady, greedy, unethical behavior seems even more shabby and intolerable.”
The Role of the CEO
Senior management sets a tone; managers serve as role models for their values and priorities—good or bad. At Raytheon, managers are encouraged to benchmark what companies they admire are doing – to look beyond the walls and structures of their own company and industry. They try to document how the company has handled similar problems in the past and to address challenging situations in a consistent manner. Burnham describes a serious challenge:
“Of course, the real test of ethical leadership comes when an organization is being investigated by the SEC – (or is accused in contentious litigation of wrongdoing by former employees or other companies). When such things happen, the CEO and his or her team have an opportunity to demonstrate their true values. They should communicate as openly as possible without violating laws or regulations. If they tell the truth, assume responsibility, and continue to speak up for the values they believe in, they and the firm enhance their reputations for integrity.”
Burnham further suggests:
“With thousands of employees, the CEO can’t personally review the behavior of every employee. Nevertheless, CEOs do set the tone and establish expectations and standards. Ralph Larsen, the former chairman and CEO of Johnson & Johnson, said that his company’s famous credo really boiled down to one core thought: ‘personal responsibility through the ranks.’ “
Tools and Initiatives for Organizations
A firm whose CEO demonstrates strong ethical values and commitment has a head start in creating an ethical organization. Yet, as Dan Burnham has pointed out, the CEO can’t review the day-to-day decisions and behavior of each employee. Consequently, successful firms will translate the desire for ethicality into concrete and pervasive institutional policies and practices.
Burnham emphasized the importance of making integrity a part of the assessment system and described a similar system at Raytheon.
“Good companies have defined leadership competencies — standards by which talent is hired, retained, recognized, rewarded, and promoted. If you take a standard ‘4-blocker’ — with results running across one axis and leadership behaviors running up and down the other axis — Tom and Tina Tiger might wind up squarely in the block for ‘strong results’ and ‘deficient leadership behaviors.’… Any member of my leadership team will tell you that the block they look in for new leaders is ‘strong results’ and ‘great behaviors’ — that’s the leadership block.”
Boards of Directors
Corporate governance has frequently failed to meet acceptable standards of stewardship. During the past two years, various groups within the National Association of Corporate Directors have challenged their members to better meet their responsibility of representing society and shareholder interests by emphasizing high standards of conduct. At one of these meetings, Burnham described how Raytheon had recently completed a thorough review of their board policies and recommended that other firms consider the following policies:
- “Have fewer board meetings, but give opportunity for lots of interaction.
- Focus on large questions without ignoring details.
- Conduct frequent reviews of the strategic landscape.
- Have no former [Raytheon] CEOs on the Board…
- Insist that a substantial portion of the Board is independent (non-executive).
- Name a ‘lead’ director.”
As Burnham concluded:
“Integrity must be felt and lived. But these values don’t substitute for strategies that stretch managers, for risks that are managed and become rewards, for disciplined and predictable execution. Good governance cannot fix a lousy business; however, bad governance can ruin a great business.”
Managers may have an intellectual understanding that they need to balance the pressures for the short term and the long, between personal and professional demands or between the need for profitability versus socially responsible behavior. However, when only one of these “trade offs” is measured or rewarded, others are likely to be overlooked or forgotten.
Nancy McGaw, associate director for a key policy program at the Aspen Institute – the Initiative for Social Innovation through Business (Aspen ISIB) – reports:
“Our organization came into being because of the perception that more balance in corporate life was required. Aspen ISIB initiated a series of small conferences to learn from experts in leadership development programs around the world.”
The Challenge for Business
McGaw reviewed the seminars and interviews conducted by Aspen ISIB. She suggests:
“For too long it has been customary to solve problems using economic and other technical tools to the exclusion of other values. Many business activities require judgment of a ‘different sort.’
“For example, how should a project’s financing be structured in a disadvantaged area that needs the jobs and tax revenues that will be generated even though the project is going to disrupt communities and ecosystems? How can one decide how much tax avoidance is enough, and what crosses the ethical line?”
McGaw recounted that the dean of a leading business school had recently explained how his school had built its MBA curriculum around the core query: ‘What Does Every MBA Need to Know?’ McGaw argues:
“No one would dispute the need to equip MBAs [or managers] with the technical skills required to do their jobs well, but I wonder if someone shouldn’t also be building curriculum/business practices around the theme of ‘What Every MBA/Manager Needs to Ask.’ “
Aspen ISIB has moved beyond inquiring what managers need to know and is beginning to explore what leaders need to ask. The current consensus in MBA or executive education programs around the country has implications for business.
“The consensus seems to focus on four questions that every program design should consider:
- “What is the purpose of the enterprise?
- “Is it possible to articulate that purpose in a way that engages the hearts as well as the minds of employees?
- “How should we measure success?
- “What is it that we do as a business when we are at our best that allows us to say that our life has meaning?”
The Chinese symbol for change contains symbols for both danger and opportunity. The widespread public concern about ethics in business suggests danger if the voice of the public is not heard. However, such concern also contains a positive opportunity for change that can improve the quality of management practice and the quality of life in general.
Mila Baker, director of Worldwide Organizational Effectiveness at Pfizer, reports:
“Pfizer has attempted to create an understanding of the importance of ethical behavior by incorporating ethics in all its change management initiatives. The company builds ethical awareness, skills, and knowledge among all employees by encouraging dialogue and conversation about ethical dilemmas.
“Management leaders also institutionalize stories about those in the firm who have dealt successfully with an issue of integrity, and [the policy is to] try to make that person a ‘hero.’ Of course, managers also stress through training and performance assessment the degree to which a leader models the values he or she is attempting to instill.”
Blair Shepherd, CEO of Duke Corporate Education–recently named the world’s leading company in executive education  –comments:
“Firms that know what kinds of developmental needs their people have and are committed to providing developmental opportunities to those people are obviously ahead of companies that simply assume that ‘the fit will survive’ —without asking, ‘fit for what?’… Integrity is a more important developmental need than the ability to understand foreign exchange or transfer pricing.”
A Propitious Moment
We are at a propitious moment. We have seen how quickly perceptions change and how great the impact of disclosures about malfeasance has been. The widespread public concern about ethics in business suggests danger if the voice of the public is not heard. However, such concern also contains a positive opportunity for change that can improve the quality of management practice and the quality of life in general.
Management education, both corporate and academic, must seize this opportunity to take a key role in contributing to a restoration of confidence in business leadership’s ability to lead with honesty, integrity and consideration for all stakeholders. There exists a customer mandate to begin producing balanced leaders to fill a void in the market place.
The major insights, practices, and strategies suggested here by leaders such as those cited should stimulate continued thinking, contemplation, debate, and most importantly — thoughtful action. The issues raised in this article are summed up in the following six commissions for business educators and business managers—from CEOs and “through the ranks”:
- Balanced executive leadership must embrace complexity, diversity, and social responsibility.
- Each business must establish a pervasive culture of corporate responsibility ranging from the highest executive levels throughout the organization.
- Executives must choose to incorporate values and responsibility in succession management rather than emphasize performance at all costs.
- Boards of directors must act as facilitators and enforcers of responsible corporate governance.
- Managers must consistently work to achieve balance between the pursuit of improved performance and profitability along with the institution and practice of ethical codes of conduct.
- Mid-level managers must be cultivated and chosen for their ability to accept the responsibility for implementing the corporate mission, vision, and values.
For some practical ideas on how to create an ethical business culture, see “Creating and Sustaining an Ethical Workplace Culture” by Charles Kerns in this issue of GBR.
 Financial Times, May 19, 2003.