Business Ethics Special Edition I: Ethical Leadership

Within my last post I wrote about ethical decision-making. Within this post I would like to broaden the ideas of ethical decision-making and add the factor of ethical leadership. I think that ethical decision-making and leadership are the basis of ethical organisations, corporate social responsibility, ‘fair trade’, sustainability, the ‘triple bottom line’, and other similar concepts. This post shall introduce the concept and reasoning behind ethical leadership and ethical organisations.

Ethical principles provide the foundations for various modern concepts for work, business and organisations, which broaden individual and corporate priorities far beyond traditional business aims of profit and shareholder enrichment. Ethical factors are also a significant influence on institutions and public sector organisations, for whom the traditional priorities of service quality and cost management must now increasingly take account of these same ethical considerations affecting the commercial and corporate world.

The modern concept of ethical organisations encompasses many related issues including:

  • Corporate Social Responsibility (CSR)
  • The “triple bottom line”
  • Ethical management and leadership
  • Fair trade
  • Globalization (addressing its negative effects)
  • Sustainability
  • Social Enterprise
  • Mutuals, cooperatives, employee ownership
  • Micro-finance
  • Well-being at work and life balance

Any other aspects of good modern leadership, management and organisations which relate to ethics, could be added to the list. Ethics is a very broad area. You will see very many different definitions and interpretations of the concept, and you should feel free to develop your own ideas about ethics in terms of meaning, composition, methods and implications.
There are no universally agreed rules of ethics, no absolute standards or controls, and no fixed and firm reference points. This is fascinating given how hugely important ethics have now become in modern life and society.

What is ethical?
This explanation attempts to go deeper than the usual descriptions of ethical organisations, because ethics in work and business are both a reflection of and influenced by ethical aspects of life and the wider world. The aim of this article not to tell you what’s ethical and what’s not. The aim is to help you to determine better for yourself what is ethical and what is unethical.

What is ethical anyhow? The short answer is that there isn’t an answer. There is no absolute rule of what is ethical and what isn’t. Defining what ethical and unethical mean is only a little easier. A simpler broad definition of the word ethical is ‘fair’. And ‘fair’ to fair-minded people, especially those affected by the situation. This is not a scientifically robust definition, but as you will see, when we peel back the layers of what is ethical, it’s very difficult to be scientific and firm about what it all means.

The modern Oxford English Dictionary says
“Ethical – Relating to moral principles or the branch of knowledge dealing with these…”
Interestingly the definition continues by way of example: “…Morally correct: Can a profitable business ever be ethical?…” This is merely an example of the word in use – it’s not an opinion – nevertheless it’s an example which reflects modern attitudes and the context in which ethical questions now arise which would not readily have done so a generation or two ago.

Morals and morality appear commonly in attempts to define what ethical means, although given the difficulties of defining the word morality without using quite subjective terms, this is not terribly helpful. Morality incidentally is defined in the OED as ‘…principles concerning the distinction between right and wrong or good and bad behavior.. See what I mean? Not especially firm or scientific.

More helpfully the OED adds some extra explanation about ethics, summarized thus Western ethical philosophy can be divided roughly into three types:

  1. Virtues such as justice, charity and generosity benefit the person and the person’s society. (Largely based on Aristotle’s ideas).
  2. Ethics are central to morality – a human duty – based on rational people’s respect for other rational people. (Notably supported by Kant).
  3. The guiding principle is based on conduct which produces the greatest happiness or benefit to the greatest number of people. (Referred to as utilitarianism – this might be also be considered ‘the greater good’ concept).

A single precise definition of ethical is not easy to agree. Moreover to show how ideas change over time, the 1933 Oxford English Dictionary says first of ethics (when seemingly the word ‘ethic’ was used as an adjective like today’s use of the word ethical):

  1. Relating to morals 1581.
  2. Treating of moral questions or of moral science 1589.
  3. Characterized by ethos 1848.

This significant definition of ethos is offered, since it suggests the relative component within ethics
“The prevalent tone of sentiment of a people or community…”
Extending this theme, in a practical sense, aside from what is covered by law or other clear standards, whether something is considered to be ethical by people (markets, customers, media, etc) is generally a matter of opinion. The same might be said of morality. Both concepts – ethics and morality – are subjective and a reflection of society and civilization, which of course implies that precise meanings will change. Both are relative in time and situation.

Certain ethical issues are represented in law, and in this respect are firm, to a point. Ethics which are not covered clearly by law are usually a matter of subjective judgement, especially, but not exclusively, by the reasonable majority, whose view is significant in deciding whether something is ethical or not. Such a vague way of judging whether something is ethical is not to diminish the importance of ethical factors. On the contrary. In work and life, opinion – especially large scale opinion – can be more influential than rules and law, notably in relation to markets, publicity, and people’s attitudes, which manifest especially in the behavior of customers and employees.

The law can actually have a theoretical or marginal effect, whereas large scale opinion is an unavoidable powerful reality. For example it is unlawful to drive a little faster than the speed limit. But the vast majority of people consider it to be acceptable, and so do it. The UK poll tax of the 1980s was lawful, yet public reaction (much of it unlawful) against it caused the law to be changed.

Ultimately people’s attitudes are more powerful than law. Law is a reflection of public tolerance and views, not a cause of them (unless to produce a reaction against the law of course). So do not for a moment underestimate the importance of ethical considerations on the basis that they could be subjectively judged and difficult to define in law. Popular public opinion is the sternest most unforgiving measurement of all.

Ethical Business and ethical Investment
As previously stated, the purpose of this article is not to define or describe ethical business in an absolute sense. The explanation thus far should demonstrate why such a pronouncement is impossible. Ethical business – as other ethical issues – are a matter of individual and collective judgement. It is possible to go so far only in outlining ethical considerations, and to give some modern examples of interpretation which seem generally to be accepted.

Ethical investment is a useful aspect for considering ethical business, since large scale investment is ultimately subject to market forces, which largely reflect public opinion. As such ethical investment criteria and examples tend to be a good guide towards ethical attitudes of large sections of people and society, rather than the ‘expert’ views of leaders and gurus.

Ethical investment has been a growing aspect of business investment since the 1970s, although arguably the first types of ethical businesses can be traced back to the Quaker and Methodist movements of the 1800s. Then as now ethical business and investments regard socially responsible activities and aims with far greater priority and emphasis than the traditional profit and free market business approach. Traditional profit-based business models, which arose and came to dominate global commerce from the beginnings of industrialization  inherently do not require a socially responsible element, other than compliance with the law, and a reflection of public reaction for pragmatic marketing (and ultimately profit) purposes. Ethical business or investment is concerned with how profit is made and how much profit is made, whereas traditional profit-centered free-market based business is essentially only concerned with how much profit is made.

Traditional profit-centered business seeks to maximize profit and return on investment with no particular regard for how the profits are made and what the social effects of the business activities are. The ethical approach to business and investment seeks to maximize profit and return on investment while minimizing and avoiding where possible negative social effects. In this context ‘social’ and ‘socially responsible’ include related factors such as:

  • the environment
  • sustainability
  • globalization effects – e.g., exploitation, child-labor, social and environmental damage anywhere in the world
  • corruption, armed conflict and political issues
  • staff and customers relations – for instance education and training, health and safety, duty of care, etc
  • local community
  • and other social impacts on people’s health and well-being

Typically the above are interpreted within ethical investment so as to regard the following sectors and activities as being difficult to reconcile with profit and investment. As with other perspectives on this page, this is not a definitive list or set of absolute criteria. It’s a set of examples to illustrate typical (modern Western) concerns of ethical investors and ethical business people:

  • armaments
  • nuclear power
  • animal experimentation
  • oppressive or corrupt national regimes
  • tobacco

This is not an exhaustive list and is subject to change – as the world changes. As stated, this is not a pronouncement of what’s unethical. It’s a reflection of current attitudes, which you can use in your own way alongside the other information on this page to develop your own ideas as to what’s ethical and what’s not.

Also as stated, things change with time and situation. For example if technology is developed enabling nuclear power to be safer and less impactful on the future then obviously concerns in this area would reduce and the ethical implications would decrease or disappear. Standards of what is considered ethical change over time, and generally these standards become more humane as humankind develops greater tolerance, awareness, and capacity for forgiveness and compassion.

Humankind’s – or any society’s – capacity for ethical behavior increases with its own safety and confidence of survival and procreation. Hence the human tendency to become less ethically flexible when under threat. Thus ethical behavior is a relative judgement, as well as a subjective one. We cannot impose one society’s moral code onto another society with different needs and demands. Interestingly what is considered unethical in present times, commonly becomes unlawful in the future. The leading ethical thinking of any time tends to pioneer social and civilization change.

And so here lies substantial advantage for corporations and other groups and bodies which anticipate such changes. They adapt quicker, and are seen generally to lead rather than follow. They also manage change more successfully, since they have time to do it. Organisations and institutions which fall behind public ethical expectations find catching up a lot more difficult.

Ethical Leadership
Ethical Leadership (Picture source: http://lindafisherthornton.files.wordpress.com)

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