Why integrity is key to high performance and lasting success
- Dominik Heil and Louise Whittaker
Companies need to escape the circle of having PR campaigns prop up their image until people have an exaggerated expectation of their ethical performance.
The pages of this newspaper give ample reason to see that corporate SA, and corporations globally, face a significant challenge in the area of ethics. This is despite a regulatory framework of governance and ethics codes that should, in theory, guide managers in avoiding unethical practices.
Such frameworks are proving ineffective, not just because they are routinely ignored but because ethics as a constraint of business does not work; managers will work around constraints or ignore them altogether.
The orientation of private business is to be productive and profitable to the largest degree possible. Therefore, imposing ethics in the form of rules with a threat of punishment will always be only of limited success.
Ethics are about action and the production of good outcomes, and good ethics ought to inspire good action and the production of good outcomes. We should pass judgement on any approach to business ethics not by whether it is agreeable to our convictions, but by its ability to inspire constructive action.
Rarely have ethics been recognised as the key factor of high performance and sustainable success. Rather than constrain, ethics and integrity when properly understood will liberate people and organisations to make extraordinary contributions to shareholders and a variety of stakeholders.
Most of us associate ethics with guilt and shame and a constraint on productivity. We cut corners only to then spend lots of time in a bid not to get caught or managing a crisis when our carefully crafted cover is blown.
Companies need to escape the circle of having public relations campaigns prop up their image until people have an exaggerated expectation of their ethical performance, which is disappointed when the next scandal hits and demolishes their reputation.
Understanding what constitutes good ethics in your business starts with establishing the contribution the company seeks to make. This requires executives to explore and define the company’s role in its broader sphere of influence.
Most managers only look at the people and organisations a company transacts with directly. But this hardly captures how far the effects of corporate actions reach and the contribution it actually makes or potentially could make.
A sphere of influence encompasses every person and entity affected by the existence and actions of the organisation, whether in its extended value chain, the community within which it operates, or within the greater society to which its own employees, suppliers, customers and shareholders themselves contribute.
Within that sphere of influence, each company has a role, a reason to exist. If it has no role to play it cannot sustain itself. There needs to be a need for its product or service, a means of fulfilling that need, and people who find it beneficial to be engaged in that fulfillment. In providing the space for the coalescing of these needs, means and engagement, the business finds its specific role.
To orient the company around fulfilling its role in its sphere of influence obviously includes engaging with the individuals and companies it deals with in that very same spirit. Aligning the company culture around the company fulfilling its role will make it much less likely that there will be misbehaviour and will make it a magnet for positive collaboration within the organisation and around it.
To orient the company around fulfilling its role as the ethical driving force is not a luxury. Bad ethics are very expensive — ask the CEOs embroiled in scandals, or those who spend sleepless nights because they know it is only a matter of time until they are exposed and don’t know whether the price of ethical malpractice is too high to survive.
Nor is an ethical orientation a "social responsibility" extra. US economist Milton Friedman wrote: "There is one and only one social responsibility of business – to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say engages in open and free competition without deception or fraud."
This statement narrowly demarcates what may not be done, but provides no orientation for ethical action, and as such collapses ethics right out of business.
It is time to rephrase: "The one role of business is to define and fulfil the appropriate and inspiring contribution in its sphere of influence. Being profitable is a critical condition for this as it makes this role sustainable and allows the company to fulfil its responsibility towards those who have invested their time, energy and money in making this contribution."
Dominik Heil is a sessional lecturer at Wits Business School and a programme director at Cranfield School of Management. Louise Whittaker is a professor at the Gordon Institute of Business Science. This article was first published on https://www.businesslive.co.za/bd/.