The Ethical Noose Is Tightening

Unbridled greed, selfish behavior, a failure to consider the needs or interests of others … these are the tendencies that have unleashed social and political anger against the world of business and its leaders.

Latest in a long line of complainants is the UK’s Royal College of Physicians, demanding an end to the ‘culture of gifts’ that permeates the world of pharmaceutical sales. Arguably, they are a bit late – the days of profligate gift-giving to doctors mostly dried up some years ago.

But there is no doubt that businesses face a backlash because of the failure by some to make sound moral and ethical judgments. This includes the vast majority of CEOs and the Boards that awarded excessive personal remuneration. Society reluctantly accepted the argument that multi-million dollar salaries and bonuses were merited because of the exceptional growth these individuals were driving (and from which so many benefitted). What dismays everyone is the lack of accountability and the failure to reverse these rewards now that things have gone wrong.

 In the end it became a collective behavior, because so few spoke out on the excesses, even if they privately disagreed with them. Now, if it is to avoid extensive interference from regulators, auditors or NGOs, the corporate sector must work to rebuild social trust. That work must address the new realities of networked communications and technologies that support not only speed of communication, but also greater transparency. Executives who believed that decisions could be hidden from the public view, or that business complexity somehow absolved them from personal responsibility,  need to think again.

The assumption that corporations – and those who lead them –  are innately evil is wrong. While the governance scandals of recent times have certainly revealed some characters who are fraudsters and criminals, much of what has gone wrong is due more to incompetence than dishonesty.  In the excitement of a globally expanding economy, the fear of being left behind transcended good judgment in making business decisions. What the collapse has demonstrated is the failure of today’s organizational structures and management information systems.

Whenever I write about risk management, I recall a very simple principle that we adopted during my time at IBM. The method we used was called ‘Balanced Business Decisions’ and it forced people through several discrete yet simple phases. It also made clear that EVERYONE owned risk and was responsible for its management – unlike the world of today, where ‘experts’ are hired to relieve management of the need to take personal ownership.

First, they had to describe what they were trying to do and what outcomes they wanted to achieve.

Second, they faced a long checklist of stakeholders – internal and external – and had to describe the impact on these stakeholders and what their reaction would be.

Third, they had to develop and document a risk mitigation strategy for any identified issues or dependencies, with particular focus on the steps needed to reduce probability. (Keeping things secret was not an acceptable risk strategy).

Finally, they had to write an imagined press article that resulted from their initiative, remembering that the job of the press is to expose and ridicule, rarely to praise.

I have tried to use that simple system for the last 20 years. I am sure it is not foolproof, but it is easy to understand and to follow, unlike many of the horrifically complex enterprise risk systems imposed by ‘experts’. I suspect many corporate executives would have done well to adopt such a simple yet rigorous approach to their business decision-making.

To restore the credibility of business, three steps are needed:

1. Executive management must de-mystify risk and ensure that all employees and trading partners understand their responsibility for its assessment and management. Ignorance is not an excuse. 
2. Businesses must introduce risk management techniques that do not depend on experts and outsiders, but which every employee can understand and use.
3. Responsibility and accountability for making good decisions – and learning from bad ones – applies equally to everyone in the company and its selected trading partners. And that accountability starts at the top.

The philosophy of ‘Balanced Business Decisions’ was based on concepts of trust, teamwork and collaboration. It demanded thought and consideration of viewpoints and perspectives that went beyond your own narrow interests. What business needs today is not socialism, but social responsibility.