Leadership and Ethics

Can Chief Executives and the Boards of FTSE 100 companies really operate with the greater good in mind and regard for society when profits must be made? And in today’s economy, is this really possible?

Raymond V Gilmartin, former chairman and CEO of the pharmaceutical company Merck, seems to think so.

Conventional wisdom
In his recent blog for the Harvard Business Review, he suggests that many CEOs have relied on a flawed set of beliefs in the last 25 years that include too much emphasis on maximising shareholder value and not enough on generating value for society.  Acting in line with these beliefs has compromised the creation of long term value and has increased distrust of corporations.

There is a paradox, identified by the economist John Kay in his 2004 essay on Obliquity, that the most profitable companies are not the most profit-oriented.  For example, when ICI, long a pillar of the FTSE100, shifted from a broad vision of its role in society to the narrow vision of ‘maximising shareholder value’ it embarked on a rapid decline towards extinction.

A new set of beliefs
In fact, Gilmartin believes the recession should be the catalyst for CEO’s to discard the conventional wisdom and subscribe to a new set of beliefs to restore trust in organisations.  Research on trust and leadership by the Institute of Leadership and Management (cited in my blog last week) certainly shows that this trust does need restoring.

And while Merck operates in the medical arena, which is intrinsically linked to benefits for society, I do think Gilmartin’s ideas on new guiding beliefs that CEOs should adopt are valid across other sectors. In summary, he suggests;

• Shareholders benefit most when CEOs and boards maximise value for society and act as agents of society rather than shareholders
• The market favourably receives projects with long term pay offs, particularly those in research and development
• Purpose, meaning and recognition are more powerful motivators than economic self-interest, and large external rewards can reduce intrinsic motivation
• Actions to address societal issues should be an integral part of strategy and operations and should not be isolated as corporate social responsibility initiatives

It comes down to integrity
To be a trusted leader when purporting to be concerned with wider society, one has to genuinely believe that businesses should operate ethically and within the context of the greater good. Putting on a show or trying to be seen to do the right thing to restore faith in your organisation while at odds with your personal set of values and beliefs simply won’t ring true and people will see straight through you.

The ILM research quoted above highlighted “a clear trust benefit attached to improving ethical attitudes and approach of the organisation, its workforce, managers and leaders”.  In order to gain this trust, leaders need to set the ethical agenda and integrate ethical behaviours into the culture of the organisation.

Many of the most trusted and inspirational CEOs and Managers I’ve worked with have cracked this dilemma by developing their own unique leadership style that fits the needs of their organisation and sits comfortably within their own moral compass.

Jo Ouston
October 2011