Ethics and Employees

Why Ethical Leaders Are Different

by Ronald E. Berenbeim

An ethical leader understands that open and contentious debate is essential to making the best possible decisions. Good leaders don’t just subject themselves to the need to test their ideas—they welcome the opportunity and have a zest for intellectual combat.

In a borderless world in which companies do business in But it is important to acknowledge that this hands-on diverse cultures, it is necessary to develop core business practical guidance is useless, as Enron proved, to a company conduct principles on which the company, its employees, and that does not have ethical leaders who are insistent on agents can rely worldwide. establishing within their companies an environment of trust, accountability, and transparency.

The growing involvement of boards of directors in company ethics programs and how decision-makers weigh and resolve risk and ethics issues in global business practice transcends the notions of corporate citizenship and social responsibility. It is now agreed that this oversight is an essential components of sound management practice.

Building and Maintaining an EthicalCorporate Culture

In the United States, the consensus regarding the need for ethical business practice has been codified in The Revised Sentencing Guidelines (effective November 1, 2004), which is widely accepted as an authoritative business conduct guidance document in the United States and, increasingly, elsewhere (e.g., Italy, Johannesburg Stock Exchange) as the template for sound business practice.

Compliance with The Guidelines requires that a High Level Person (meaning executive officer, director, business unit head, or person with substantial financial interest in the company) be responsible for the company’s ethics program. The most important change in this portfolio is to foster an ethical culture within the company. Such an environment affords assurance that people are free to ask questions and raise concerns.1 Meeting the demands of The Guidelines and comparable
standards already in effect or soon to be enacted, demands ethical leadership.

For example, Australian law requires “an environment of
compliance operating within the company.” A company
can be criminally liable if it fails to maintain a corporate
culture that requires compliance with the law if the
corporate culture directs, tolerates or leads to noncompliance with the criminal provisions proscribing the
bribery of foreign public officials. The Australian
Standard (AS 3806) assists companies in avoiding these
problems with descriptions of the necessary structural,
operational and maintenance elements for an effective
compliance program.2

Ethical Leaders Don’t Hide From Debate

As an example of ethical leadership of the highest
order, consider the case of Jawaharlal Nehru. In 1937,
Nehru had just been elected to a second consecutive
term as President of the Indian National Parliament.
Rabindrath Tagore, the Indian poet, philosopher, writer
and Nobel laureate hailed him as “representing the
season of youth and triumphant joy.” Even a British
official wrote of him at the time, “there is no doubt that
his manliness, frankness and reputation for sacrifice
attracts a large public.” Though widely held, this
favorable view was not unanimous. One anonymous
writer vigorously dissented. In a severe attack
published in the Modern Review, the critic said:

“[He] has all the makings of a dictator in him—vast
popularity, a strong will directed to a well-defined
purpose, energy, pride, organizational capacity, ability,
hardness, and with his love of the crowd, an intolerance
of others and a certain contempt for the weak and the
inefficient . . . His conceit is already formidable. He must
be checked. We want no Caesars.”3

The author of this vitriolic article was none other than
Nehru himself. Recalling this episode is not to make a
judgment about Nehru as an historical figure. Instead, it is
to demonstrate how his behavior in this situation shows an
intuitive grasp of the essence of ethical leadership.

First, and most importantly, Nehru understood that a
leader is most ethical—and effective—when his or her
power is limited both by institutional arrangements and
the criticism that results from harsh public scrutiny. If the
Congress Party and the Indian press lacked these
resources, he believed that it was necessary for him to
supply the discipline that these countervailing forces
ordinarily would have imposed.

1 Remarks of Jeffrey M. Kaplan, Executive Briefing on Compliance and 3 Shashi Tharoor, Nehru,The Invention of India, Arcade, 2003, pp. 100-101.
Ethics Programs, Conference Board webcast, March 23, 2005.

2 Ronald E. Berenbeim, Company Programs for Resisting Corrupt Practices:
A Global Study, The Conference Board, RR 1279 (2000), p. 21.

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An ethical leader understands that open and contentious
debate is essential to making the best possible decisions.
And openly debated decisions result in better outcomes.
Some years ago, a research study focused on the
behavior of members of investment clubs, small and
somewhat informal gatherings of private individual
investors, in the United States. The researchers found that
those groups in which the members enjoyed one
another’s company, reached consensus quickly, and were
unfailingly polite and civil, had a significantly poorer
performance record than the clubs whose investment
choices were the result of contentious debate.4

An ethical leader understands that
open and contentious debate is
essential to making the best
possible decisions.

Although encouraging debate is essential, ethical leadership
must balance the need for robust discussion with the
requirement of commitment to a common purpose. Where
such a consensus is lacking there is a danger of polarization
which will cause people to avoid the risk of winding up on
the wrong side and in so doing limit their comments to
information that everyone already has.5

These findings tell us something that most of us already
know—and often forget—or at least choose to believe is
good advice for other organizations (perhaps even our
competitors) but not our own. Leaders who ignore this
wisdom put their enterprises at great risk. For
confirmation of this view, one need look no further than
the U.S. Presidential Commission report released March
30, 2005, on the intelligence failures in Iraq. The report
recommended moving “away from the intelligence
community’s tradition of searching for consensus, in
favor of opening up internal debate and including a more
diverse spectrum of views.” 6

Ethical Leaders Are Active Participants

The second point to be derived from the Nehru incident
is that leaders need to be active participants in the debate
over alternatives. In some circles, it has become a
fashionable corporate model for the CEO to say to the
senior executives, “You people thrash it out, reach a
consensus, and send me your recommendation.” Such a
decision-making process has serious flaws. The most
robust internal processes are of no avail if the leader is
exempt from them. Good leaders don’t just subject
themselves to the need to test their ideas—they welcome
the opportunity and have a zest for intellectual combat.
They realize that there is more to leadership than giving
orders. Ethical leaders understand that their views and
decisions are in large measure determined by their
contact with the people they lead.7

4 Brooke Harrington, Cohesion, Conflict and Group Demography
(Unpublished ms., 2000), cited in Cass R. Sunstein, Why Societies Need
Dissent, Harvard University Press, 2003, p.2.

5 Sunstein, p. 210.

6 Walter Pincus and Peter Baker, “Dissent on Intelligence is Critical, Report
Says,” The Washington Post, March 30, 2005, p. A01.

7 Thomas North Whitehead, “Leadership in a Free Society,” Oxford
University Press, 1936. Cited in Morgan Witzel, “Vision and ethics at the
heart of training”, Financial Times, April 4, 2005, p. 9.

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Among other advantages, these discussions provide a
necessary dose of reality. Nehru’s self-criticism attacked
his own “conceit” and what he believed to be his
“intolerance of others and [a certain] contempt for the
weak and the inefficient.” He seemed to understand that
however decisive and effective a leader’s decision-
making powers may be, the implementation of a decision
requires great patience and tolerance. Or to put it another
way, as the 19th century Prussian general Helmuth von
Moltke once said, “No plan survives contact with the
enemy.” And one can only add that untested ideas are
likely to be a plan’s first casualty.

Another consequence of the arrogance resulting from a
leader’s isolation and immunity from full disclosure and
accountability is a loss of the public esteem that is
essential for maintaining power. In the end, Enron was
destroyed by the incompetence of its leadership. Had that
not been the case, it is still entirely possible that the
company would have met a similar fate anyway if and
when the public learned of senior management’s greed
and wanton extravagance.

Institutional Sustainability Comes First

The third key principle of ethical leadership well
understood by Nehru entails an understanding of limits—
not those that are imposed by institutional arrangements,
the need for public approval, or even self discipline—but
rather the limits of human mortality.

The final task of ethical leadership is to put in place the
requirements for institutional sustainability that survives
the loss of any one person. Perhaps the best test of
leadership is the state of the enterprise 20 years after the
leader has left. Are decisions made in an orderly way? Is
the leadership accountable? Is the transfer of power
completed without serious disruption? Has the founding
vision survived but also been able to accommodate itself
to changing economic, social, and political realities?

The final task of ethical leadership is to put in place the
requirements for institutional
sustainability that survives the loss
of any one person.

Judged by those standards, Nehru gets high marks. So
does George Washington. Enron’s Ken Lay fails.

Nehru understood that leaders function best when they
are subject to limits, understand those constraints, and
strive in a human way to function within these
boundaries. And as Nehru concluded somberly, the
ultimate limit is mortality. At the head of the epilogue to
his autobiography, he placed this epigraph from the
Talmud: “We are enjoined to labor; but it is not granted
to us to complete our labors.” 8

8 Martha C. Nussbaum, The Founder. Nehru: a Political Life,Nehru,The Invention
of India (Book Review), The New Republic, February 14, 2005, p. 25.

About the author

Ronald E. Berenbeim is a Principal Researcher and
Director of The Conference Board’s Working Group on
Global Business Ethics Principles. An authority on business ethics and corporate governance issues, Berenbeim
is a graduate of Cornell University, Balliol College, Oxford
University (Keasbey Scholarship), and Harvard Law
School. Berenbeim is currently a professor at the Stern
School of Business Administration, New York University,
where he teaches Markets, Ethics, and Law.

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