The efficacy and/or necessity of Codes of Ethics

No one who wants to be evil (or ethically non-compliant) is going to be persuaded to do so by a Code of Ethics. There are very few of those people, though. Most employees want to do the right thing, they just need to be reminded of the importance of doing it and given some guidance in how to. That’s why we need Codes of Ethics.

Think back. Ethics codes were introduced in corporate governance by active shareholders who thought an ethics code would be useful, in court or otherwise, in proving that executives had been sinning. Next thing we knew, half the corporate world had ethics codes, only no one was sure what to put in them. Directors and senior managements, on the whole, figured ethics codes were harmless and gladly created them as a no-cost concession to activists. Only a few companies (probably mostly the Minnesota contingent) took ethics codes seriously.

I listened to debates on ethics and ethics codes ad nauseam in the days when a session on ethics preceded (but wasn’t fully part of) the national conference of the then American Society of Corporate Secretaries. At the time, “corporate ethics” was an oxymoron. The term literally lacked meaning. Lots of discussion since is beginning to create some consensus on ordinary usage. As I keep pointing out, we need to be schooled in Wittgenstein to make sense of this topic (admittedly a difficult challenge). Wittgenstein said, if people apply a term in ordinary usage in the same way or at least in ways that can be linked to one another, then the term gains meaning, and its meaning or meanings solidify over time.

What really interests me, however, aside from question of how all this fits with Milton Friedman’s theories of economics, is this: How about thinking about ethics codes, not in terms of what action they DETER, but in terms of what action they INSPIRE.

The one thing that troubles me after all this is that I seem to have to keep explaining Wittgenstein’s impact on business theory to so many business audiences, over and over, and I wonder why we don’t just make it a required part of the MBA curriculum. The closest I know to it (and a lot easier and more fun) is Fritz Roethlisberger’s “The Elusive Phenomena.” (It’s out of print, hard to get, and costly, but worth every penny.) Roethlisberger’s recitation of how he learned to think is a pretty good way to stumble one’s way to Wittgenstein, though I think Roethlisberger’s chapter on conceptual frameworks is slightly off, with consequences that could be more than slightly important.

And finally, yes, let’s think about how to “incentivize” desirable behavior. Lord knows, compensation committees would be glad to have this knowledge.

I guess I do considering maximising shareholder value as equivalent to maximising profit since thats where profit accrues in a corporate system. I think Friedman (and those who support the “economic man” theory) is just wrong on the evidence. There are two kinds of ethical misbehaviour (at least): actions that are clearly wrong in any context (these are the sorts of things I was talking about) and those actions and attitudes that you are referring to, things like greed, lack of empathy, etc. The economic man theory tends to justify the latter, you are right. There are a ton of problems with that theory (as behavioural economics and history have borne out) and I think it’s been mostly discredited except among the libertarian zealots. One attraction to the economic man theory is how simple and consistent it is. One thing I think those of us who disagree that (selfishness + selfishness == good for everyone) is to come up with a compelling alternative theory. That’s why aspirational business ethics is so important, I think.

I hope that made some sense…now it’s late here, too. 🙂

I like some of what LaDon Berndt-Kuncewicz said. I think it’s especially important, when a senior manager is fired for ethical misconduct, whether or not the company has a code, that what he or she did wrong should be crystal clear to employees and also to the outside world. I don’t think that’s the case at HP. I suspect there’s still a lot more to that story.

I also like James Meacham’s attack on economic man. When I took my MBA and doctorate, economic man was still almost universally respected. People like me who said, “Whoa, lots of people don’t act like economic man,” were considered dim. I’m delighted that current research seems to have debunked economic man. However, note that the only rewards doled out by Compensation Committees (with rare exceptions) are dollars. That suggests that those attracted to the top of our corporations will be the ones who most love dollars, and these people are as close as you can get to economic man. Peter Goldman tells us that managers in “the real world” must produce “‘hard’ results.” Well, what about producing soft results? Doesn’t that also matter.

And so we turn back to ethics. Is ethics concerned exclusively with producing hard results, or do soft ones matter, too? And if soft ones also matter, precisely how are they to be taken into account in evaluating behavior? Should (and do) we evaluate differently within corporations?

To be an ethical company in a system (market capitalism) that militates against ethical behaviour takes an extended, concerted effort that doesn’t stop. It has to be top of mind, or close to it, for it to be something your company is known for excelling at (like cross-sell). Clearly, as we’ve seen in the discussion above, there are levels of effort which will correspond roughly with the outcome. There’s a continuum, I think, that goes something like this, one’s place on the continuum is suggested but what paradigm of ethical behaviour you follow:

1) Ethical Leader Paradigm: Where there is a code of ethics that is talked about, kept at top of mind, reinforced through both aspirational statements and enforcement. A supererogatory view of ethics.

2) Evil Avoidance Paradigm: Where there’s a code of ethics but it is not at top of mind. It is reinforced primarily through enforcement and compliance, but the efforts in this area are universal, consistent, and well-understood. A deontological view of ethics.

3) Legal Avoidance Paradigm: There’s a code of ethics but it mostly shelf-ware.You might have to do your “yearly compliance training” but the language is always in terms of compliance and compliance is seen as something that is imposed from without. A pragmatic view of ethics.

4) Compliance-only Paradigm (I need a better more descriptive name for this one). This is the company that probably doesn’t have a code of ethics because they are silly, fluffy, and add no value. If it does it’s only because they have to. It’s never talked about again. Compliance is seen as a burden and this company wouldn’t think about it if it weren’t for the Sentencing Guidelines. In the marketplace, it views whatever it can get away with as ok. A lassiez-faire, relativist or Nietzschean view of ethics.

My point is that while you can get into trouble with a code of ethics, I don’t imagine a company that falls on the exemplary end of the spectrum without one. Indeed, you can even be an evil- or law-breaking-avoidant company without one. Again, I think it’s necessary but not sufficient. Enforcement, to Roy and others’ point, is necessary but not sufficient either. And to really be an ethically great company, you need both, while if you want to be an ethically mediocre company, you can try it with enforcement alone.