Conscience and Corporate Culture Kenneth E. Goodpaster, Ph.D. April 15, 2005 There is a certain ambivalence about business ethics in American society. We begin with skepticism about the moral credentials of the profit-driven market system. As Irving Kristol wrote: “Two cheers for capitalism!” In business, as in campaign politics, we witness too often an unbalanced pursuit of goals and objectives. Over the last 35 years we have seen this pathology at work from Watergate to WorldCom. We have seen it in the career crashes of inside-traders such as Ivan Boesky, in the corporate crashes of Enron and Andersen, and in the literal crashes of the World Trade Center and the space shuttles Challenger and Columbia. Call this the stimulus problem: a business system that lends itself to certain kinds of excess.The ambivalence becomes evident when we recognize our reluctance to prescribe the most obvious cure for the stimulus problem: the use of moral criteria (beyond economic and political competition) to balance managerial (and political) decision making. Both our laws and our social norms caution managers and boards of directors (as agents of the corporation) against thinking that strays too far from a strict duty of care to shareholders. Perhaps we fear that incompetence might parade as virtue, or that ethical judgment might mean moral fanaticism. Either way, we seem to resist our most obvious alternative to amorality. This could be called the response problem.Is there a way to overcome – or at least mitigate – this ambivalence with conscientious decision making, especially in the wake of the corporate scandals and the Sarbanes-Oxley Act? Yes, but only if we can achieve in some measure a shared moral consciousness, trusting that we can tell integrity from its counterfeits – and wisdom from misguided zeal.Ethics as a Response to a Common PatternThere is a common pattern underlying the tragic events mentioned at the outset (the stimulus problem) and we need to develop an ethical response to that pattern. This is the theme of the first half of my forthcoming book. The second half of the book takes up the moral agenda that this understanding presents (a) to practicing executives, and (b) to business educators in the academy.I believe that the pattern behind the tragic events is this: Take an organizational culture that is fixated on certain goals whatever the cost; combine it with the group’s rationalization of its behavior in the name of those goals, and repeat this behavior again and again until the protesting consciences of the participants become detached, anesthetized. These are the symptoms of a pathology – I call it teleopathy – that can infect our most treasured institutions, including not only those in the privateand public sectors but also the moral-cultural sectors of religion, the media and education. We see these symptoms in the fanatical behavior of terrorists but we also see these symptoms in the obsessive behavior of corporate executives and in the driven behavior of NASA decision makers.Fixation. Rationalization. Detachment. These are symptoms of a hazard to which both individuals and groups can succumb. Objectives become idols; obstacles become threats; second thoughts are not allowed – and eventually, second thoughts disappear.Despite the behavior of individual decision makers, the larger reality is a cultural reality, and this viewpoint has been characteristic of diagnosis after diagnosis of corporate wrongdoing in recent years. Warren Bennis, Professor of Management at the University of Southern California, wrote about Kenneth Lay’s role in Enron’s collapse (New York Times, Feb. 17, 2002), stating that:Mr. Lay’s failing is not simply his myopia or cupidity or incompetence. It is his inability to create a company culture open to reality, one that does not discourage managers from delivering bad news. No organization can be honest with the public if it is not honest with itself. (Emphasis added.)Others have commented in more detail on the Enron culture. Malcolm Gladwell, in an article in The New Yorker titled “The Talent Myth,” observed that:This “talent mind-set” is the new orthodoxy of American management. It is the intellectual justification for why such a high premium is placed on degrees from first-tier business schools, and why the compensation packages for top executives have become so lavish. In the modern corporation, the system is considered only as strong as its stars, and, in the past few years, this message has been preached by consultants and management gurus all over the world. None, however, have spread the word quite so ardently as McKinsey, and, of all its clients, one firm took the talent mind-set closest to heart. … The company, of course, was Enron. (Emphasis added.)The role played by moral reflection (conscience) in the lives of each of us as individuals offers helpful clues for understanding the corresponding role played by conscience in the culture of an organization. Conscience is our primary check on the unbalanced pursuit of goals and purposes. And corporate conscience is not in the end a matter of external compliance or competitive advantage; it is a matter of internal self-assessment and improvement. Internal moral compasses are much more reliable than external sanctions – legal or economic.The Moral Agenda of LeadershipOnce we understand the ideas of teleopathy and conscience, we can shift the focus from questions such as What? and Why? to operational questions such as Where? and How? It is the leader who must ultimately make ethical awareness “happen” when the values and behavior of the organization are at stake. The leader is the principal architect of corporate conscience and the one who must manage the stimulus and response problems. He or she is the person most responsible for giving substance to the moral agenda of the organized group. That agenda includes three broad imperatives: orienting, institutionalizing and sustaining conscience in the corporate culture.Orienting means giving direction, setting a course. Getting there from here, however, is impossible if “here” is a mystery. Leaders need to appreciate where their organizations are, ethically, to begin with. Orienting (or reorienting) shared values in a culture is like orienting (or reorienting) corporate strategic planning. A thoughtful teacher once observed some years ago that “the question that has not been asked cannot be answered.” As the orientation of a culture becomes clear in relation to a company’s current position, however, questions about the legitimacy of that orientation may arise. What we called in Part I the response problem may be felt as an operating challenge requiring special attention.Institutionalizing means making the company’s value orientation part of its operating consciousness. An organization must align its ethical aspirations with its incentive and reward systems. This process includes communication, motivation and discipline, relating ethical values to operations at every turn. It also means reinforcing them with symbols, ceremonies and celebrations. A conundrum in this domain may be that conventional management incentives and rewards often appeal more to self-interest than to other kinds of motives.The third item on the moral agenda is extending and sustaining shared ethical values over time. This means continually renewing corporate conscience in the face of a kind of entropy. As with individual character, organizational character can weaken with the passage of time and under pressures to compromise. Like physical processes in nature, social processes such as orienting and institutionalizing values have a tendency to wear down. This means ongoing attention not only to the next generation of leadership but also to the forces in the external social environment that influence the values of the company. A potential barrier appears in this context: Can corporate conscience be sustained without imposing values on others? If not, how are ethical values to be propagated in organizations over time?From Companies to ClassroomsThe moral agenda of leadership cannot ultimately succeed without educational support structures, what I call the “three academies.” The first academy, the modern business is to avoid defaulting on the moral formation of future leaders. I argue that the three imperatives of corporate leadership (orienting, institutionalizing and sustaining shared values) must be mirrored in business schools’ curricula: imperatives to initiate, integrate and continue ethics education.The second academy, corporate management education programs, must also address the moral agenda – both in general and as it relates to the institutionalization of company-specific values. The corporation is a business school in many ways and needs to incorporate ethics education just as the first academy does.The third academy is comprised of associations of distinguished leaders that oversee and set global standards for corporate ethics. I have in mind the Caux Round Table and other organizations that offer transcultural ethical principles and a self-assessment and improvement tool analogous to the Baldrige process for quality management. The Center for Ethical Business Cultures at the University of St. Thomas is another example. Such associations are as essential to professional management as are their counterparts in medicine and law. The moral agenda of the corporation requires scrutiny and stewardship from the generation of leaders most experienced with its possibilities and challenges.I hope that my book will serve as a platform for communication between doers and thinkers on a subject that is as difficult as it is important. We must find ways to discourage moral blindness and thoughtlessness in the competitive environment of corporate decision making. The stakes are high, for defaulting on this moral agenda could mean, and arguably should mean, the erosion of the corporation itself as we know it. As my former Harvard colleague Kenneth Andrews put it nearly three decades ago: “If organizations cannot be made moral, the future of capitalism will be unattractive – to all of us and especially to those young people whose talents we need.”We should perhaps ask no more of corporations than we ask of ourselves ethically, but neither should we ask less.