Why business leaders need a moral compass

In a powerful opinion piece, Hari Tsoukas, Professor of Organisation Behaviour at Warwick Business School and the University of Cyprus, speaks up for ethics and responsibility

The times they are a changin’

The economist Milton Friedman famously said: “The business of business is business.” In other words, business leaders should focus on making money, not moral stands. How times have changed. Several behemoths of the business world pulled out of the Future Investment Initiative conference in Riyadh, dubbed “Davos in the Desert”, amid outrage at the murder of Saudi journalist Jamal Khashoggi. They include the chief executives of American firms JP Morgan, Blackstone, Uber and Blackrock.

Jo Kaeser, the chief executive of Siemens, summed up the feeling of many business leaders when he spoke on CNN, explaining his reasons for boycotting the event. “We are the ones who need to fix the issues,” he said. “We are the ones who have the responsibility to show our people the way and find a win-win solution.” Yet it must have been a tough decision. Siemens employs more than 2,000 people in Saudi Arabia and has significant business interests in the country. You do not easily break away from important clients. Yet, Mr Kaeser, and many other chief executives did. Governments have, by and large, been more reserved. Billions of dollars and huge geopolitical interests are at stake. Saudi Arabia has been a pillar of western interests in the Middle East.

Donald Trump was so keen to defend his allies he initially claimed the Saudi explanation that Mr Khashoggi died following a fight at the country’s embassy in Istanbul was “credible”. Days later he faced an embarrassing climb down when the Saudis admitted the journalist had been murdered. Undeterred, the President continued to stand by the Saudis, insisting the CIA had found “nothing definitive” that showed Crown Prince Mohammed bin Salman ordered the journalists murder. He unashamedly said he was “putting America first” because Saudi arms sales and its influence over oil prices were too important to the US to jeopardise.

Taking a stand, listening to your values

By taking a stand business leaders have shown moral sensitivity in a way the President has not. Though such incidents are rare, it has happened before and it will happen more regularly in future. Several heads of business resigned from Mr Trump’s American Manufacturing Council in protest at the President’s lamentably inadequate response to the deadly violence by white supremacists at Charlottesville in August 2017. Merck CEO Kenneth Frazier put it best at the time, tweeting that he felt “a responsibility to take a stand against intolerance and extremism.”

In the years to come we can expect to see more CEOs feel compelled to take a moral stance, be it about the murder of a foreign dissident, the insensitive behaviour of a sitting President, or the persecution of religious or ethnic minorities. It will be increasingly difficult to avoid.

Friedman’s quote at the beginning of this article suggests that business transactions are separate from the rest of our daily lives. For example, I do not need to approve of my greengrocer’s lifestyle in order to buy from him. As long as he serves me what I want, at prices I find reasonable, the rest of his life is not my concern. Much of the time this may be true. But if I learn that he has racist views, he mistreats his staff, or is known to engage in domestic violence, these are behaviours I do not want to condone, even indirectly, by giving him my money. My sense of responsibility does not stop when I spend my money; on the contrary it is magnified by having a choice in how I spend it.

It is not very different for companies. Most of the time you may not care, or even stop to think about the values or morality of those you deal with, but at some critical point you will. A President who fails to unequivocally condemn a racist killing makes you wonder whether you want to sit on his business advisory board. Similarly, a crown prince with a proclivity for violence, who throws his critics to jail and, most likely, orders the mafia-style killing of an eminent dissident, is not one whose hand you may want to shake. Your intuitive morality does not allow you to stomach it. How would you explain your actions to your children, your employees, and your customers? Your own moral reputation is at stake.

Consumers can shape companies

Society’s expectations of corporate behaviour have changed. A survey by the large public relations firm Edelman found that nearly a quarter of consumers said they chose to buy from brands whose beliefs they shared. To add value, you need to show you have values. A company that does not appear to distance itself from inappropriate behaviour risks tarnishing its reputation.

The rise of 24/7 communications means events in distant places are now beamed to everyone’s living room. Business leaders cannot pretend they don’t know about the barbaric murder of a journalist or the racist killing of a protestor and that knowledge creates a sense of responsibility. What am I going to do about it? Does this mean that business leaders will always need to take a stance to all the world’s problems? Not at all. Morally principled pragmatism is required, not utopian idealism. A CEO need not be a moral crusader with a mission to save the world in order to act as a moral leader.

Companies can decide which issues to take a stance on. If a company risks losing millions by pulling out of the Davos in the Desert conference, that does not mean it has to react similarly every time, say, the Russian or Turkish government throws its critics in jail.

Human affairs, Aristotle noted, are inherently variable, so much so that there cannot be general rules for how a leader should act. Details, history, and context matter. The important thing is to have good judgment: to want to do the right thing in a way that is most effective in the circumstances you face. For that you need a moral compass, not a moral manual.

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