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Q&A: How to Instill an Ethical Corporate Culture

More than half of the largest corporate bankruptcies have occurred due to unethical business practices – just one of hundreds of reasons why a robust culture of ethics is important for companies. To learn more, we spoke with Dr. Chris MacDonald, a professor at the Ted Rogers School of Management at Ryerson University and a leading expert on business ethics. A philosopher by training, he is co-editor of the Business Ethics Journal Review and maintains a business ethics blog. He chatted with ASI about how to instill a culture of ethics, what interview strategies can help identify ethical candidates and why we’re currently in a “Golden Age of Business Ethics.”

Q: How widespread is the scope of business ethics dilemmas?

CM: There’s a huge range. There are ethical issues in every single aspect of business. There are HR issues, like how you treat your employees to fairness in hiring and compensating your employees. There are all kinds of things with your responsibility for your supply chain, such as where you source your material from and your environmental responsibility. It goes all the way through to more complicated stuff like corporate governance.

Q: With large corporations and small businesses, who is ultimately responsible for defining the way the company should act ethically? Does it have to start with the owner or CEO?

CM: There are two key lessons with regard to the role of leadership and setting the tone. One of them is that ethics has to come from the top down. You can hand people a code of ethics, and tell them this is what we believe in, but if people don’t see it put into action by senior management, there’s not going to be any respect for it. But ethics can’t simply come from the top down. We know that the tenure of the average CEO these days is in the single digits, depending on what level you’re talking about. It may be three or four or maybe five years. If you don’t have that culture of ethics being carried forward by that solid, long-term, career-oriented middle management, if all you think about is the tone at the top – well the tone at the top can change pretty radically every 3-4 years every time the CEO changes. That’s going to be trouble.

Q: What’s an example of that?

CM: The most famous example is Enron. They had a very robust code of ethics, 60 pages long, very fancy, quite detailed. And it didn’t matter a lot because the people at the very top were getting the board to give them personal exemptions from various conditions of the code. The culture they fostered within the organization was not one of careful attention to ethical rules – it was about profit, pretty much at all costs, and about fierce competition among employees. It’s a pretty clear example of the failures of senior management to do anything except pretty much give lip service to their ethics.

Q: Any business owner wants to find people who will safeguard the idea of acting ethically. When they’re evaluating and interviewing candidates, is it about getting a read of what type of person they are, or are there strategies they can implement beyond that?

CM: Getting the right people on the bus, so to say, is crucial. More companies these days are doing interviews that are scenario-based. Give candidates scenarios that involve some sort of ethical choice – an opportunity for the person to show their moral character or explain how they would sort through a complex ethical decision. You can learn a lot more through someone’s answer to a scenario than you would by saying “So, what do you think about ethics?” or “How important is telling the truth to you?” If you just ask those kinds of questions, you’re going to get fairly predictable answers. Whereas if you give someone a fairly sophisticated case study (and there are lots of those available online) and ask what you would do in this situation, I think that can be a much more telling indicator.

Q: What advice can you offer small businesses when it comes to ethics?

CM: Small businesses may feel like they don’t have the internal capacity to do what a lot of big businesses can do in regard to ethics. Big companies tend to have things like ethics hotlines and sophisticated ethics training programs. They may even have someone whose job title is chief ethics officer. That’s going to be something a smaller company will feel it won’t be able to do. But there are lots of things smaller companies can do. I remember visiting a small health-care biotech company in Boston that had a weekly brown bag lunch. Sometimes they would also watch a movie with an ethical twist or theme and they would just talk about it. There are lots of steps you can do to build an ethical, healthy culture, and that starts by putting ethics on the table and making it a topic of discussion. Talking about ethics doesn’t mean talking about who has done something wrong recently, but rather what our values are.

Q: With each generation, there’s always this perception of the degradation of morals, no honor in business anymore, etc. Has there been any change in the level of ethics?

CM: People have been complaining of the sliding moral values of the younger generations since ancient Greece. For more than 2,000 years, we have direct quotes of people saying it’s all going to hell in handbasket and young folks these days don’t have values like we did back in our day. I’m pretty skeptical about those types of claims. I don’t know about a single bit of evidence that in a reliable way says our basic values are substantially weaker today than they were 50 years ago. But one thing is true: I think that in terms of the behavior of companies, I think clearly companies act better on average than they did 20, 50 or 100 years ago. In fact, I’ve referred to this as a Golden Age of Business Ethics. Think about the average company today compared to 50 years ago. Far less sexist. Far less racist. Far more egalitarian in their hiring practices. Far more respectful of the natural environment. We’re ethically and morally better off than we’ve ever been before.

Q: Why is that?

CM: Public scrutiny and regulation. We passed laws that said certain types of sexist and racist behavior are not OK anymore. That led to some prosecutions, but it also changes the tone and the tenor. And the public is much more aware now. We live in an age of social media where there’s nothing you can do anywhere on Earth to escape someone with a smartphone who can upload what you just did. People realize that the eyes of their community are upon them and they need to recognize that. And culturally we’ve learned that a bunch of those types of behaviors – racist, sexist, disregard for the environment – just didn’t make sense. There was no good argument for it other than the people who benefitted from it in the short run.

Q: We’ve seen recent stories of businesses refusing to serve customers because of their beliefs. How often do you think that occurs?

CM: It’s hard to say because it’s hard to measure. It’s notoriously hard to look in people’s hearts and figure out why they do what they do. People either buy things or they don’t. Very often it’s not going to be put on the table and will be more of a covert thing.

It’s important to differentiate between two different things of what we might call moral objections. One set has to do with moral objections grounded in the ethics of doing business. If I say I’m not going to do business with you because I’ve seen you act dishonestly in the past, and honesty is fundamental to getting business done, then I’m declining to do business with you on moral grounds, but in an entirely suitable and proper kind of way.

On the other hand, what’s much more controversial is to say I’m not going to shop at Whole Foods because John Mackey is a Libertarian, or Trump supporters don’t need to come into my coffee shop, as some coffee shops recently said. Or to say I disapprove of homosexuality based on my religious beliefs, therefore I’m not going to bake a cake for your wedding. Those are what might get called moral objections, but they’re ones based in moral beliefs that are entirely foreign to the conduct of commerce. They’re much more controversial. There’s substantial debate over whether businesses or customers should they consider themselves as voting with their dollars, as opposed to saying “Look, we’re all here to carry out commerce and we can disagree about how we conduct our personal lives, but that doesn’t affect how we do business.”