Ethical Leadership is a Choice – The Right One, But Still A Choice

Ethical Leadership - LiveWorld
Peter Friedman post by: Peter Friedman

While applauding Duff McDonald’s effort to cast a light on structural ethics problems in business with his Nov 27 Vanity Fair article on the Miseducation of Sheryl Sandberg, I take issue with his placing the blame on the Harvard Business School (HBS). There is more at work here regarding individual choice and overall culture. The school actually makes an effort to drive ethics into business leadership. The author appears not to have attended, and knows little about what actually goes on there. He has cherry-picked examples to support his thesis.

I did attend the Harvard Business School and have a sense of what goes on there. There was and is an emphasis on ethics and moral leadership in the curriculum, along with a stated concern that business people often—too often—fail on this score. I actually got an A in the ethics class (Look Mom, yay me!). I recall the professor saying, “Your paper didn’t warrant an A, but I awarded you the grade because of your passionate and well articulated position in class that being a business leader doesn’t excuse an ethical tradeoff. Rather it demands an even higher adherence to being ethical and setting an example.”

He went on to say that all too often business leaders don’t hold to this. The school was worried it was turning out leaders who were not genuinely inclined towards ethics, but just giving it lip service. HBS felt an obligation to do something about it, which is why the course was created. The ethical dilemma cases that McDonald references are in the curriculum precisely to make a point of ethics. I recently attended an HBS reunion. An emphasis on ethical leadership was present from the dean’s keynote and throughout the program. A key theme was and is that business leadership is not just about profits and shareholders. Although it has a ways to go, the focus on ethics was much stronger than when I was in school.

While some graduates of the school have gone on to practice ethical failures, others have demonstrated ethical leadership in their actions and words—ranging from driving positive, ethical company cultures and actions to all kinds of community and government service. I have one classmate who created and leads an effort to fight human trafficking, specifically bringing his HBS learned skills and life experience to attacking that awful problem. This isn’t to say the school is perfect; it can do more. Certainly those who come through without a moral compass are better at their game than when they arrived—as are the good ones. Business is in large part about money. I expect business schools attracts a disproportionate number of people who put money above all else.

The article also runs with the recent media hyped assumptions about Facebook’s overall lack of ethics. This theme fails to understand the underlying issues involved, how they developed, and what measures Facebook has actually taken—some right, some wrong. I provide some insight to this in my recently released (and free) eBook, “Is Privacy Dead In The Digital Age? And What To Do About It.” Facebook has made some serious mistakes and done some things wrong. But to say they don’t care about user privacy, and in turn are unethical, is simply a bum rap.

I find completely off base the notion that an ethical leader wouldn’t write the apology posts that Sandberg has. Does that excuse the bad stuff? No. But a critical part of moral leadership is to come clean, identifying failures and problems, acknowledging and taking responsibility for them, and charting a new course. Everyone makes mistakes. Sweeping them under the rug sets the referent example that it’s okay as long as nobody knows, or you dilute and deflect attention, or get away with it. Calling it out, apologizing, and taking action is saying, “It was wrong,” “I was wrong,” “This is not how we want to be,” and doing something about it. That’s the kind of leadership sorely lacking in our world, especially in business. Sandberg is under a lot of pressure, but she didn’t have to do that. Sadly, most businesspeople wouldn’t. She deserves good marks for doing so.

Another hole in the article is the suggestion that Zuckerberg, having attended Harvard, also makes him a function of the Harvard Business School. Indulge me a bit of alumni snobbery. These two schools are separated by a river and have little to do with each other.

Still, there is a serious ethical leadership issue in the business world (as well as in our politics). I attribute this to:

1) The individuals. Ultimately all individuals have to make their own choices, often under great pressure. That’s the essence of leadership. Some make ethical choices; some don’t. All of them must be held to account for the choices they make—moreover, the mix of choices they make over time.

2) The rise of short-term profit and short-term shareholder value as the pre-eminent and all encompassing priority and culture in much of the business world and at the expense of other business purposes, values, and constituencies. Such other purposes and values include serving clients, employees, community, and country—contributing to all of these, including with ethical leadership, even if it doesn’t maximize short-term profits and stock price.

While the business world has always had its villains, this current dynamic was not always the case. It really came to the fore in the 1970s and 1980s, abetted by a bunch of government policy and deregulation. The much-used refrain is, “A business’s first obligation is to maximize shareholder value.” (And everything else, such as our social fabric—and for some, ethics—is a long distance second.) Then that theme turned into short-term stock price value, which subsequently became compromising everything else, including the long-term sustainability and value of a business. The altar of maximizing shareholder value at the expense of all else is just an opinion, or even a rationalization, that sometimes supports questionable decisions.

Certainly shareholder value is important; but one can define this as building lasting value in a business for clients, employees, and the community—including non-financial aspects. Further, one can easily make the case that shareholder financial value is more a function of the long term, rather than short-term gains. The short-term financial focus is a more recent priority and definition, and arguably a false value. One of our early venture capital investors and a personal mentor, Barry Weinman, always counseled, “Take care of the customers right and then the employees right. If you do that well, then in the long term, shareholder value will follow.” On the other hand, another investor’s attitude was, “to hell with all that, get some short-term growth, get the stock price up, and get me a profitable exit.”  Let us note that the two most valuable companies in the world, Apple (another of my alma mater) and Amazon, got that way in part due to leadership that eschews focus on short term profit or any aspect of stock price.

3) Our US conspicuous consumption culture that elevates selfishness to a value. “Greed is good,” said Gordon Gecko. Mass media spread this further; and the Internet—for all its good, including the positive effects of the democratization of media, connecting people, and new economic opportunity—has also democratized, distributed, and intensified the tools for greed. As more people feel they can get rich quick on stocks and speculation, without really working for it, the culture is more susceptible to doing so without regard for ethics.

The Harvard Business School can certainly do more on all this. But to lay the blame on it ignores the school’s focus on this issue and its positive impact—and more importantly, misses the real dynamics at hand.

Our company’s official stance has been, “We are a highly ethical company and we care about the people we work with and for.” We will sometimes make decisions on that basis even if it isn’t best for our short-term financials. We sometimes get a lot of heat for having said that, and for doing it. We’re not perfect; but we stand by it. We made that choice. Our country would be better if more of us would make that choice as well.”

Peter Friedman

Chairman & CEO, LiveWorld

HBS, Class of ‘83