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To Be Held to a Higher Standard in Business

According to the Global Ethics Network, moral leadership is when an individual puts the needs of the many above his/her own and leads through persuasion, motivation, self-awareness and, most importantly, their own actions. Similarly, the Centre for Ethical Leadership defines ethical leadership as converting the values of justice, integrity, and respect into effective actions during complex and dynamic situations. More often than not, businesses find themselves in the headlines due to their financial performance rather than their moral and ethical leadership. When they do appear in the news for the latter reasons, we often ignore the headlines or give businesses and their leaders the benefit of the doubt. Recently, however, the question of whether or not big businesses have a responsibility or incentive to lead in a moral and ethical manner has been a stronger topic of focus.

On October 2, 2018 journalist Jamal Khashoggi, columnist for the Washington Post and Saudi dissident, entered the Saudi Arabian consulate in Turkey and was not to be seen again. A little over a month later, it was reported that Khashoggi was murdered at the behest of Saudi Prince Mohammad bin Salman. Why did this horrific event lead to a discussion about ethical leadership in business? Shortly after the murder of Khashoggi, the New York Times exposed the relationship that McKinsey and Company has with the Saudi Arabian government. 

While these reports in no way tie McKinsey, who has been engaged by the Saudi government on over 600 projects since 2011, to the Khashoggi abduction and murder, it does lead to questions about the morality of the work they’ve been conducting across the globe. On one such engagement, McKinsey reportedly produced a nine-page internal report measuring the public perception of certain Saudi economic policies on social media. In particular, the report identified three individuals who were driving much of the largely negative coverage on Twitter: a Saudi Arabia-based writer named Khalid al-Alkami, a dissident living in Canada named Omar Abdulaziz, and an anonymous writer. Sometime after the report was created, Al-Alkami was arrested, and Abdulaziz’s brothers living in Saudi Arabia were put in prison.

McKinsey defended their work, stating they “[have] not and never would engage in any work that seeks to target individuals based on their views” and were “horrified by the possibility, however remote” that the report was misused. Moreover, the firm went on to highlight the numerous government clients they have helped by assisting in the development of policies that create jobs, improve education and alleviate poverty.

In Forbes, Professor Michael Posner, who is the Director of the NYU Stern Center for Business and Human Rights and the former Assistant Secretary of State for Democracy, Human Rights and Labor in the Obama Administration, argues that McKinsey has responsibility. Specifically, the company has the responsibility as a world business leader to seriously question its business relationships with certain regimes.

In responding to the New York Times, McKinsey claimed that they were being held to a higher standard when others, like the newspaper itself, had previously admitted to similar faults. Two things stand out in McKinsey’s rebuttals of criticism. First, even in the remote possibility that the internal report was leaked outside the firm and the client to be ultimately abused, shouldn’t McKinsey have exercised this risk with the utmost care? More broadly, shouldn’t firms with out-sized influence on geopolitical events, particularly those who offer advice to governments, be held to a higher standard?

To McKinsey’s point, many businesses operate across borders, and plenty do business in countries with authoritarian regimes. Why then does this situation stand out? Unlike firms that produce tangible consumer goods, consulting firms are in the business of selling ideas, guidance and recommendations. Not only does this mean that consulting firms have a higher likelihood of directly impacting policies and muddying political waters, but it also means that structurally, these firms operate very differently from those in other industries.

As hard as consulting firms try to control their end product, the final recommendation or guidance is highly reliant on the decisions, judgements and discretion of individual employees. This is a drastically different dynamic than found in most other firms, as it is much easier, for instance, for a manufacturing company to ensure that it adheres to the same operating standard and regulation every time. The closest business-government parallel that can be drawn is between tech firms and the various governments they serve. 

In fact, Google recently came under scrutiny after it had agreed to provide artificial-intelligence services to the Pentagon. Even though the services provided were to our very own government, Google employees protested the agreement and the firm eventually withdrew. In its place, Microsoft eventually agreed to provide the AI to the Pentagon. Clearly, businesses must become more cognizant of their position as moral or ethical leaders or face backlash from both consumers and employees.

Facing more pressure to act morally, can businesses remain profitable while acting as ethical leaders? 

Thankfully, the two do not have to be mutually exclusive. KRW International, a Minneapolis-based leadership consultancy firm, rated the leadership of 84 US companies and non-profits on four major moral principles (integrity, responsibility, forgiveness, and compassion) to determine if higher scores correlated with a higher return on assets (ROA).

According to their results, businesses whose executives scored highly averaged a 9.35 percent ROA over a two-year period compared to a 1.93 percent ROA for those whose executives had low scores. While the study focused on a leader’s ethical and moral character, it became apparent that the decisions of a business flow directly from leadership. By extension, we can infer that moral and ethical business decisions will lead to higher rates of return for companies. In fact, KRW International has applied the study to state that “those leadership teams at the top of the character curve average [approximately] five times ROA, [more than] 26 percent Employee Engagement, and notably less risk compared to peers with a self-focused and leadership reputation.” 

In a world where businesses garner heavy influence, it will become even more important for current and future leaders to take stock of moral and ethical responsibilities. This is particularly true for financial and professional services institutions as they can wield out-sized influences over the behavior of individuals and governments. Fortunately, businesses can remain profitable while acting as moral and ethical leaders. In fact, they will be rewarded for it.

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