Total ethical management

Total ethical management (June 12, 2003)

The View From Taft, BusinessWorld

Managers often assume that there is a trade-off between ethical behavior and financial performance. Therefore, unless there is enough fear that legal punishment or negative public opinion cannot be avoided, decisions will likely favor the financially rewarding, even if ethically dubious, course of action.

This reminds me of how most managers were thinking until the 80s, when they erroneously assumed that there was a trade-off between improving quality and lowering cost. The root of the fallacy was the assumption that the organization, its product designs and the processes that delivered these products were fixed. The Japanese blew this fallacious thinking out of the water by showing that once quality was properly defined in terms of meeting customer requirements, innovative changes in product design and processes led to better quality and lower cost products.

Thus, the notion that commitment to product and process innovation in order to better serve the need of customers has shattered the false dilemma of low cost vs. high quality. Today’s managers recognize this as the central principle of total quality management.

A false dilemma also rears its ugly head in the area of managing for environmental and social responsibility. The thinking goes this way: being concerned about the environment costs more. Being concerned about people and the community costs more. We must contain our costs to be competitive. Ergo, we can’t afford to be concerned about the environment, people, and the community. Does this seeming forced-choice have a familiar ring?

It should because the thinking has been around for a while. For example, before the US enacted its own Clean Air Act in 1970, Lee Iacocca, then executive vice president of Ford Motor Company, predicted that the law would force US production to halt by 1975 and severely damage the US economy. Iacocca’s predictions proved wrong, as American companies learned to operate more cleanly while staying profitable. Interestingly, similar fears and dire predictions of widespread business collapse were expressed by the Philippine Chamber of Commerce (PCCI) shortly before the local Clean Air Act went into effect.

Edward Freeman and the co-authors of Environmentalism and the New Logic of Business recounts how Edgar Woolard, former Chairman of Du Pont, confronted the false dilemma that is embedded in management thinking with respect to meeting environmental standards. Du Pont had a reputation for being a polluter and its management had just made a commitment to zero pollution. One plant was not able to meet the new environmental standards. The plant engineers assured Woolard that there was no way to change the plant in order to meet the standards. Woolard then suggested that the plant would have to be closed. The engineers came back several weeks later with a solution. When Woolard asked how much the solution would cost, the engineers sheepishly replied that the new methods would actually save money for the company. Needless to say, the solution also saved jobs. Profits, people, and the environment – all in one solution. Despite the PCCI’s concerns, I have no doubt that Filipino businessmen and engineers can do as much.

What about making a positive social impact and enhancing one’s ability to create business value? Is this a forced choice? Hardly. Cisco Systems’ Networking Academy Program is a good example of seamlessly achieving both. While Cisco is best known for producing networking equipment and routers used to connect computers to the Internet, it leveraged on its unique assets and expertise to create an educational program which supports the training and certification of disadvantaged youth in network administration and related IT skills. Cisco has established academies in some of the most economically challenged communities around the world – even in the Philippines. The employability this provides the youth while enhancing Cisco’s competitive capability is an excellent example of what is possible when no-nonsense business thinking meets social commitment.

I propose to call the thinking and methods which achieve financial success together with ethical standards through value-creating innovations in products, services, processes and stakeholder relationships as total ethical management or TEM. TEM recognizes the often-conflicting demands of multiple stakeholders and uses this as a stimulus to achieving win-win solutions which satisfy such conflicting demands. TEM is committed to integrating business and ethics instead of treating them as separate considerations. By weaving ethical thinking into the very fabric of doing business, it harnesses the creative energies of the company, in its totality, towards creating real and long-term value for consumers, employees, investors, the community and society as a whole.

Since innovative thinking is at the core of TEM, it’s natural to ask whether this is sufficiently available among managers. Human history assures us that the potential for innovative thinking is sufficiently available but only the commitment to persevere despite overwhelming odds can trigger its release. As Thomas Edison once said, invention is 1% inspiration and 99% perspiration. Even if a business has what it takes to manage by TEM, it still has to make the commitment to do so. As the local wisdom goes, “Kapag gusto, may paraan. Kapag ayaw, may dahilan.”