The moral dimension of business leadership

  • Date:01 Oct 2013
  • Type:Company Director Magazine
Anthony Howard argues that boards should be focusing on the moral dimensions of their organisations, rather than just the technical.

Is business primarily a technical or moral enterprise? Our answer determines whether we choose a CEO based primarily on intellect and competence, rather than virtue and value; whether we focus primarily on doing what is permissible, rather than what is proper; and whether we look first to profit and pragmatism, rather than purpose and principle.

Boards are right to focus on strategic direction, financial well-being, proper resourcing and effective risk management. But they should also focus more on the moral dimension of business, since business is a community of people, existing in a network of relationships inside and outside the company. Moral perspectives and values inform each person’s character. Corporate culture is the sum of the character of past and present employees.

This moral perspective starts with the board and cascades through the organisation. DuPont is legendary for its approach to safety. It started more than 200 years ago with the DuPont family insisting its sons perform every function in the munitions plant before any employees being asked to risk their lives, and this still influences the company today.

Most directors insist they are ethical, pointing to codes of conduct and strict compliance regimes. They uphold the law and believe they do the right thing. They extend this confidence to their fellow directors and senior managers and trust them to ensure employees are similarly trustworthy and ethical. But this approach is fraught with danger. It overlooks examples that show some people follow a faulty moral compass, guided more by greed than good.

Most directors can engage in a technical discussion about an organisation. They may also have specific strengths, strong strategic insight, financial acumen and risk-management skills. But very few seem able to advance a cogent moral argument or develop a sound moral framework. Indeed, the moral has been largely overlooked in favour of an emphasis on the technical. There is a tendency to think morality is a private affair or only something to do with corporate social responsibility or environmental, social and corporate governance. This limited view fails to appreciate the moral dimension of the actions undertaken by an organisation. Furthermore, many people assume their moral perspective is both correct and shared by others around the board table.

It is crucial to understand the moral capability directors and the CEO bring to the organisation. This capability is a reflection of one’s character. There was a time when it was reasonable to assume one’s cultural upbringing, with the positive influence of church and society, would have fostered sound character. Although those days have gone, directors have not yet fully grasped the need to understand the character of the people who lead the firm.

Asking managers how they have resolved moral dilemmas will provide rich insight. Questions like these highlight whether they are guided by an inner moral compass or an industry code of practice, how easily they observe moral risk in the actions of themselves or others, whether they have a moral framework for decisions and whether they consider morality a vital or irrelevant dimension of business.

Morality is often assumed to involve questions of right and wrong and long lists of what we cannot or should not do. This is a very narrow perspective. In its fullest sense, morality is about “human flourishing” and shows us a pathway to human excellence. It helps us answer questions about how we don’t just live a good life, but live the best possible life we can. Plato and Aristotle provide a framework for this with their work on the virtues — good actions done repeatedly until they become habitual. And these apply to corporate life as well.

How one CEO and board wrestled with the question of staff retention during the depths of the global financial crisis shows virtue in action. While circumstances suggested the need to minimise costs, virtues influenced the decision-making. Justice indicated the obligation to look after staff who could suffer quite badly if made redundant; wisdom helped with strategies to navigate the crisis while retaining staff that would be needed after the crisis, and courage allowed them to stand firm against markets and competitive forces arguing for cuts.

In one company, behaviour is constantly on the agenda and one of its key principles is: “If in doubt, you have an obligation to ask.” Lack of clarity is understandable, but acting when in doubt is unacceptable. It assumes one is prepared to tolerate the wrong thing. A company executive says integrity and trust are as crucial to success as technical capability. He quotes the question Warren Buffett is said to have asked a graduating class of MBAs: “Who would you rather do business with — the person who is intelligent or the person who is honest?”

Business is a technical and a moral enterprise — not either/or. It requires people who are intelligent and honest, who can lead and manage the firm while being guided by a strong moral compass, who will do not just what is permissible, but what is proper.

To have focused on the technical aspects of business is the right thing. But when the moral dimension is overlooked, on the assumption this is a private affair, we are exposed to significant risk throughout the organisation and into society.

The board’s responsibility is to understand, and regularly review, the underlying purpose for which the business was founded, the principles that inform its behaviour, the moral frameworks that guide its decisions and the moral competence of those they entrust with leadership and management of the firm.