There was a time when Nobel Prize winning economist Milton Friedman guided executives on social responsibility by his declaration their main goal was to satisfy shareholders through gaining the maximum possible profit. These days, it’s not quite that simple. There’s a long list of policies, behaviours and goals corporations are expected to meet from various stakeholders, often contradictory. Not just corporations: Ask the former presidents of Harvard University and the University of Pennsylvania, gone after being grilled by a Congressional committee.
Alison Taylor, a New York University professor specializing in corporate responsibility and business ethics, says her students are shocked to learn corporations were once expected to be politically neutral. Her students count on their employers and organizations they do business with to have the correct political stance. So do many older workers.
“Reputation management now involves playing Whac-A-Mole with faceless activist groups on the internet, whose viral successes spring from nowhere,” she writes in Higher Ground.
It’s a labyrinth of expectations, beyond (but still including) profits. Working with various organizations across the globe, she stresses that none gets everything right and she cannot name good or bad businesses – only better and worse ones. Indeed, they get better by responding to ethical friction. In fact, some of the best new ideas have been generated in controversial sectors by companies facing existential challenges as they strive to recover from serious mistakes.
Her definition of ethics reflects that. It comes from the Ethics Centre in Sydney, Australia, which describes ethics as collective exploration – “the process of questioning, discovering and defending our values, principles and purpose.”
Mistakes – and attacks – are inevitable as the effort to be a responsible business has become what she calls “a tangle of traps.” She notes that Yvon Chouinard came under attack after announcing in 2022 that he would transfer the ownership of Patagonia Inc. to a non-profit trust, with the Earth as its only shareholder. “Gotcha” commentators noted the underlying business model still relied on plastics, the deal would make tax avoidance easier, and Patagonia’s employees would receive no stake. “There is no reliable way to avoid criticism, please all shareholders and manage reputation risk,” she observes.
Many of the traps emanate from clichés, myths and misunderstandings we have about responsible business. They include:
- Trap 1 – Companies can balance the interests of their stakeholders: This is a vague if not banal statement, falsely implying win-win solutions are always possible. The term stakeholder is also an elusive buzzword – is it referring to someone today or in future, for example? “If you’re a leader trying to execute this in practical fashion, you will quickly be overwhelmed,” she warns, by employees who don’t want you doing business with oil companies, union leaders demanding higher wages, politicians opposing “woke capitalism,” and people who see animal rights or plastic waste as your greatest priority, just to name a few constituencies and demands. Instead of seeking balance, be curious, identifying blind spots and alternative angles and having the courage to make tough calls.
- Trap 2 – The argument that environmental and social responsibility is always good for the bottom line: She was asked to provide evidence to some companies on this point and although initially exhilarated by the opportunity she realized it was actually a circular argument – shareholder returns are the best way to evaluate an approach which in fact was originally conceived as a counterweight to the overwhelming obsession with shareholder returns. Moreover, companies are lurching to grapple with any sustainability issue that might present a risk. She recommends companies instead identify a tiny number of issues to tackle – “one is ideal” – that are strategically significant because they present existential threats and potential opportunities.
- Trap 3 – The belief of some that business ethics is a simple matter; just don’t break the law: Even where that prescription might fit, in blocking corruption, it fails to be sufficient since bribery scandals continue and corruption remains a societal challenge. Companies need to examine whether their goals and targets encourage employees to operate unethically. Zero tolerance on bribery also doesn’t help much in countries where corruption is so endemic that your staff is consistently facing extortion or physical threats. The response must be deeper.
- Trap 4 – The derisive putdown that business ethics is an oxymoron: This is often used by critics of ethics programs or those who simply see business ethics as an approach to deflect regulatory risk rather than a commitment to values. At the same time, she urges you to recognize that even with the best of intentions, focusing on values actually carries risks because values are contentious, political and ideological. That’s why executives are often vague, issuing pledges to “lead with integrity.” Again, she stresses that being an ethical business is about undertaking a process of discovery about your real-world impacts and then basing your values and supporting principles on what you find.
- Trap 5 – The claim that responsible business isn’t about politics: This statement is often made by both opponents and proponents of responsible business. But she feels we can’t return to the days of Milton Friedman and politics are inevitably involved. Companies must deal with the harm they create. They also have to look at their lobbying efforts – which are definitely political – and the trade associations they belong to and candidates for election they donate to, too often contrary to the best interests or preferences of their employees. “It is simply disingenuous to treat corporate responsibility and political influence as unrelated topics, not least because every company confronts environmental and social dilemmas it cannot solve alone,” she writes.
Yes, it is a tangle of traps – a confusing area where glib comments are too common. We all have individual opinions on being ethical and responsible in this world, but bringing that together in an organizational strategy and stance at a time of tumult and polarization is tricky work.
Cannonballs
- Toronto management consultant Donald Cooper says there’s no “silver bullet” in business: Success is about doing dozens of big and small things better than your competitors. He asks: What are at least 10 things that you consistently do better?
- Jen Wolf, managing partner at Initialized Capital, has found the best leaders are people who are okay with being wrong.
- Executive coach Dan Rockwell offers these three comments as signals to your direct reports in a one-on-one meeting that they don’t matter: “Let’s hurry up. I have a lot on my plate.” Or: “I don’t have much time; let’s get down to business.” Finally, the classic: “I have to reschedule.”
Harvey Schachter is a Kingston-based writer specializing in management issues. He, along with Sheelagh Whittaker, former CEO of both EDS Canada and Cancom, are the authors of When Harvey Didn’t Meet Sheelagh: Emails on Leadership.