Ethics & Corporate Social Responsibility

I wrote this for my final paper for an Ethics/CSR MBA class….

The most important learning from the course centers around the fact that there are several schools of thought on ethics and corporate social responsibility. No matter what one believes or what ancient philosopher’s thinking you follow, ethics is simply about human behavior – how we behave and how we treat other people. While Machiavelli talks about how Princes should behave, Aristotle talks about the balance between excess and efficiency. Or maybe you believe in pleasure over pain. Centuries of ethical evolution even led to the founding fathers of the United States of America to draft a constitution outlining how people should treat one another within a country.  In today’s society there is also much discussion about how corporations should behave. When one talks about corporate social responsibility (CSR), they are really referring to how a corporation in the modern day should act within the greater context of society. Should a corporation feel any responsibility to anyone except its shareholders? One way to view CSR is to believe that profits are the only thing that matters. Once a corporation has profits, then and only then can they behave in a socially responsible way. Or should it feel it has a responsibility to all the stakeholders involved in its value chain? In today’s changing global business climate involving communities of interest, this thinking does have some merit. Unfortunately there is no one set of rules which all organizations must follow and each corporation must determine the values and behaviors that will allow it to compete within their respective industry.

No matter what your viewpoint on business ethics and corporate social responsibility, the question is how do you get a corporation to behave in a certain way in a free market economy (beyond strict Government regulation)? I think it was Diamond who was most correct when he stated that if companies want employees to act a certain way, then managers must also behave that way. Generally the founders or CEOs are the ones who set the tone for the corporation. Well known business leaders like Jack Welch established a management culture at GE for almost 2 decades. John Mackey of Whole Foods believes in declaring a clear sense of interdependence among our various stakeholders which translates into how Whole Foods operates as a business. Starbucks is another example of a company who believes in putting people before products and focusing on connections in communities as well as suppliers/farmers. The company even publishes an annual “Corporate Social Responsibility Report” in which founder, former CEO and now Chairman Howard Schultz states “…relationships with external stakeholders can be strengthened by focusing much of our communication on Starbucks commitment and passion to improve the world and the ways in which we are demonstrating this.” Schultz also talks about Starbucks’ commitment to its internal partners (partners is the term the company users for employees). He believes that all employees should be entitled to healthcare because he grew up poor and his father got sick, didn’t have healthcare, and he witnessed firsthand the hardships associated in the absence of healthcare. In an interview, Mr. Schultz even talked about a time when the company board was thinking about eliminating the healthcare benefit for employees, but he stood his ground in favor of it for all partners. Dave Packard and Bill Hewlett, founders of HP, were another example of leaders and CEOs who believed in certain values and principles translating into how they ran their business. They created an “HP Way” outlining a commitment to a corporate culture with specific values including respect for individuals, integrity, flexibility, etc… With benefits like profit sharing and flex time, HP was decades ahead of its time in its thinking.

When these founders or CEOs, who have committed themselves and their companies to certain values, leave the company or pass on, the company takes on new leadership. New leadership means differing schools of ethical thought may influence the company either positively or negatively. One of the biggest challenges, therefore, is sustaining the very culture and values the company was founded on and evolving them as time goes on and as society changes. In the case of HP, the passing of its founders and new leadership in the last decade changed the corporate culture, eliminated employee stakeholder benefits like profit sharing, and led to the ousting of the CEO, and even a public board room scandal. In recent months, Howard Schultz, former CEO and now Chairman of Starbucks, wrote an open letter to now CEO Jim Donald in which he talks about the Starbucks experience becoming commoditized and a need to reconnect with customers and the local neighborhood. In this open letter, Schultz states that “…no individual or company gets everything right all of the time. But I want to assure you that we are committed to living by our values and our guiding principles. They provide the framework for each and every decision we make as a leadership team.”

Yet how does a company retain its culture as new leadership emerges and how does it ensure their ethical compass continues to point in the direction first identified by its founders? How do you ensure a company’s leadership team is committed without the founder and former CEO writing an open letter and stating “you have my personal commitment that as Starbucks grows we will continue to embrace our values.”? When John Mackey leaves Whole Foods, how will they continue to foster their corporate philosophy to “lead the movement to sustainability, not just in their advocacy of organic food, but in all aspects of their relationship with the social, business, and environmental communities?” Without these founders and company leaders being committed to these principles to guide their decision making throughout the entrepreneurial growth of the business, would these businesses have lost “their way”? While it is easy to answer a resounding “YES” to these questions, what other methods or resources are available to address the challenge of new leadership altering the ethical compass of a corporation? To answer this question, one must look to the collective school of ethical thinking that has evolved over the centuries and formulate a method that will help businesses sustain and nurture the values set forth by its founders. I have outlined 5 Methods of Sustainability:

1. Commitment to trying. As the CEO of Patagonia stated that his company will never be completely socially responsible and will never make a totally sustainable, non-damaging product, it is committed to trying. Howard Schultz of Starbucks also admits that no company is perfect and mistakes happen, but he is committed to living by the values and guiding principles of the company. If a company isn’t committed to at least trying to be socially and ethically responsible, then they simply are focused on being committed to its shareholders,

2. Lead by example. Companies must not only talk the talk but walk the talk. According to Aristotle, intellectual virtue “owes both its birth and its growth to teaching while moral virtue comes about as a result of habit”. Yes, Aristotle is indeed correct in saying that habit is one way for a corporation to ensure its moral virtue. Beyond Aristotle, there are far too many books to read that identify highly effective habits. The important thing is companies simply practice what they preach.

3. Manage the relationship and maintain trust with customers. In his recent open letter, Howard Schultz also talks about focusing on preserving the trust that Starbucks has built with its customers and each other over the years. Customers don’t expect perfection but it is how a company manages that imperfection and the relationship with the customer that matters.

4. Respect for persons. This is one of Kant’s many imperatives and is particularly important if a company is to sustain their culture, ethics, and sense of responsibility to society. Starbucks Chairman describes this as “creating a place where people feel comfortable and welcome….a place that cherishes quality and puts the highest value on people and their contributions.” Whole Foods takes this one step further and describes this as respect for “all forms of life” as part of its corporate philosophy.

5. Accountability and enforcement. Whole Foods also includes this as part of its corporate philosophy and companies must have some form of this if they are to sustain an ethical and socially responsible organization. If there is diffusion and fragmentation of information and responsibility without checks & balances, bad things may happen in the absence of a strong morale leadership. There needs to be some accountability and enforcement of the core ethical values and principles first set forth by the company founders.