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Business ethics can contribute to good management by humanizing business, generating trust, fostering loyalty and favoring social acceptance and reducing transaction costs. There are three other favorable consequences of ethics in management. They are as follows, as contained in the book Management Ethics (Placing Ethics at the Core of Good Management) by Professor Domenec Mele of the IESE Business School:
5. Reinforcing the manager’s moral habits. Since virtues can be defined as habits of doing good, by constantly acting in an ethical way, the manager reinforces his or her moral habits through repeated action. This reality, to which we do not always pay sufficient attention, was already recognized by the Greek philosopher Aristotle more than 2,400 years ago. As he wrote in The Nicomachean Ethics, “For the things we have to learn before we can do them, we learn by doing them, e.g., men become builders by building, lyre-players by playing the lyre; and so too become just by doing just acts, temperate by doing temperate acts, brave by doing brave acts.”
In contrast when a manager decides to accept a shady deal or to act unfairly, he or she will be disposed to repeat similar actions in the future, starting what can become a snowball effect. The notorious Bernard L. Madoff committed a fraud by using a Ponzi scheme, victimizing thousands of investors who lost about $65 billion, through the constant repetition of paying returns to the investors of his firm, not from any actual profit earned by the organization, but from money paid by subsequent investors. If he had done it once or twice and then repented, he could still have avoided the cultivation of the vice of dishonesty. For this massive fraud, he received the maximum sentence of 150 years in the U.S. federal prison. An energetic reaction against wrong behavior is necessary to recover good dispositions.
6. Encouraging responsibility to be more efficient and morally imaginative. Virtue and technical or professional competence are not mutually exclusive. On the contrary, perfection in doing one’s job as a manager is already a virtue in itself. As Professor Mele writes, efficiency basically depends on technical competencies but concern with being efficient is not alien to ethics. Efficiency can bring about wellbeing for people and a better livelihood, which is not out of the ethical scope of concern for the welfare of people. Such considerations provide moral motives which encourage responsibility to develop competencies to be more efficient and to seek the most appropriate means to increase efficiency.
We have to avoid developing the image of a truly moral manager as a “goody goody”, simply a kind soul unconcerned about efficiency and profitability. Integrity or honesty should not be achieved at the expense of neglecting the need for profitability. In fact, a manager who is determined to be moral has to be more imaginative and resourceful in order to resolve false dilemmas of having to choose between making profit and being, say, inhuman towards workers or paying bribes to politicians. Moral managers will know how to face situations in which acting ethically seems incompatible with making profits. They will think of other options and seek alternative courses of action in which they can harmonize ethics and efficiency or profits. This is what some authors call moral imagination: “Moral imagination enables one to assess a situation, evaluate the present new possibilities, and create decisions that are not narrowly embedded in a restricted context or confined by a certain point of view.”
Being morally imaginative is not limited to solving dilemmas involving trying to avoid misbehavior and being efficient. It will also motivate managers to be truly entrepreneurial, that is, to find new ways of meeting human needs in the Schumpeterian tradition. An example of imaginative thinking combining ethics and efficiency cited by Professor Mele is the famous microcredit system introduced by Muhammad Yunus in Bangladesh. This system, which has been adapted in many forms by both NGOs and business enterprises in the Philippines, have made loans accessible to people with no possibility of borrowing from the conventional institutions. Another example of a morally imaginative business strategy is the practice of consumer-oriented companies to cater to the poorest of the poor (the so-called bottom of the pyramid) by developing products or services that are tailored to the cash flow possibilities of the poor (personal care products in sachets or minimum cellphone loads).
7. Developing ethical organizational cultures. In developing an organizational or corporate culture that encourages virtuous behavior, the role of the leaders (especially the founding leader) is crucial. Organizational cultures are deep, shared convictions and values and common practices and behaviors within an organization. Organizational culture has an influence on people involved in the organization, in the way they interact with each other and with people outside the organization.
Professor Mele enumerates the factors which influence an organizational culture: the corporate mission and values; the control system employed; organizational and peer structures; and some practices such as corporate symbols, rituals and routines, stories and myths. As mentioned above, however, the most crucial is leadership, which means that there must be continuing concern for management succession so that the qualities of the founders can be transferred to future generations of leaders. Although organization culture is an elusive concept to measure, the values and moral character of founders and managers who have led a company over time are likely to have great weight in building up ethical organizational cultures. In my almost fifty years of consulting on strategic management with leading Philippine corporations, there are two outstanding founders of businesses that have imprinted a strong moral character on the organizational culture of the enterprises they founded: the late Jose Y. Campos of United Laboratories and David M. Consunji of DMCI Holdings. These two leading business organizations excel in the way they treat their workers in the most human way. For comments, my email address is email@example.com.