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India’s Infosys: A Case Study for Attaining Both Ethical Excellence and Business Success in a Developing Country

At conference after conference on corporate ethics, values, governance and social responsibility the major speakers either come from leading European and U.S. companies, or from consulting firms and academia that use Western firms as their models. There is, all too often, an unspoken and widespread sense that companies in developing countries either adhere to lower standards for so-called “cultural” reasons, or just “cannot afford” the luxury of the high model Western norms. Such arrogance is commonplace. The approaches pursued by Infosys of India deserve far greater attention – as a model for all companies, wherever they happen to be headquartered.  

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Infosys Opens NASDAQ, Co-Founder Moves Up to Chief Mentor Post
N. R. Narayana Murthy is as well known as a promoter of corporate governance reform and excellent corporate workplace ethical practices, as he is as the co-founder of Infosys Technologies Ltd., the Mysore-based company that is one of India’s new technology leaders. Murthy, who turns 60 later this month, is relinquishing key executive positions in  the company he co-founded in 1982 to become the enterprise’s Chief Mentor. Much like Bill Gates at Microsoft, Murthy has pioneered a technology revolution and as his corporation has become firmly established and very successful, so he has distanced himself from day-to-day operations.

Infosys, which employs over 58,000 people worldwide, provides consulting and IT services. It is one of the pioneers in strategic offshore outsourcing of software services. Murthy is a fervent believer in globalization, a major influence on the thinking of author Tom Friedman (The World Is Flat: A Brief History of the Twenty-first Century) and a leader of India’s technology revolution. His approach to corporate governance and workplace values has been no less influential on the most dynamic and successful technology companies in India. Infosys highlights its
perspectives at www.infosys.com

On July 31, 2006, Murthy opened the NADSAQ market from his corporate headquarters in Mysore. He said, “Twenty-five years ago, we founded Infosys with a vision of the global delivery model. That vision has been validated as the tide of globalization has swept across the world and businesses are dramatically changing how they run their organizations. Opening the NASDAQ market from India is not only a great honor for Infosys, but also illustrative of the emerging new world.”

The Company’s Vision Is: "To be a globally respected corporation that provides best-of-breed business solutions, leveraging technology, delivered by best-in-class people." And, its Mission is: "To achieve our objectives in an environment of fairness, honesty, and courtesy towards our clients, employees, vendors and society at large."

Infosys’s stresses that its operations are driven by key values that it calls C-LIFE:

  • Customer Delight: A commitment to surpassing our customer expectations.
  • Leadership by Example: A commitment to set standards in our business and transactions and be an exemplar for the industry and our own teams.
  • Integrity and Transparency: A commitment to be ethical, sincere and open in our dealings.
  • Fairness: A commitment to be objective and transaction-oriented, thereby earning trust and respect.
  • Pursuit of Excellence: A commitment to strive relentlessly, to constantly improve ourselves, our teams, our services and products so as to become the best.


Corporate Governance
is an area of critical importance to Infosys and one where it has sought to be a global leader. It is seeking to use its model example to promote far higher standards in India and Murthy has been one of the most vocal and influential advocates of corporate governance reform in his country.

The company states: “We believe that sound corporate governance is critical to enhance and retain investor trust. Accordingly, we always seek to ensure that we attain our performance rules with integrity. Our Board exercises its fiduciary responsibilities in the widest sense of the term. Our disclosures always seek to attain the best practices in international corporate governance. We also endeavor to enhance long-term shareholder value and respect minority rights in all our business decisions.”

The Infosys corporate governance philosophy is based on the following principles:

  1. Satisfy the spirit of the law and not just the letter of the law.
    Corporate governance standards should go beyond the law.
  2. Be transparent and maintain a high degree of disclosure levels. When in doubt, disclose.
  3. Make a clear distinction between personal conveniences and corporate resources.
  4. Communicate externally, in a truthful manner, about how the company is run internally.
  5. Comply with the laws in all the countries in which the company operates.
  6. Have a simple and transparent corporate structure driven solely by business needs.
  7. Management is the trustee of the shareholders’ capital and not the owner.

Infosys stresses that at the core of its corporate governance practice is the Board, which oversees how the management serves and protects the long-term interests of all the stakeholders of the company. It states: “We believe that an active, well-informed and independent Board is necessary to ensure the highest standards of corporate governance. Majority of the Board, 9 out of 16, are independent members. Further, we have compensation, nomination, investor grievance and audit committees, which are comprised of independent directors.”

“As a part of our commitment to follow global best practices, we comply with the Euroshareholders Corporate Governance Guidelines 2000, and the recommendations of the Conference Board Commission on Public Trusts and Private Enterprises in the U.S. We also adhere to the UN Global Compact Programme.” To promote corporate social responsibility the company established a philanthropic foundation in 1996, which is mostly engaged in social, health and education programs in India.

Murthy is the chairman of the governing body of the Indian Institute of Information Technology, Bangalore and the Indian Institute of Management, Ahmedabad. He was the Chairman of the Committee on Corporate Governance appointed by the Securities and Exchange Board of India (SEBI) in 2003. He is a member of the Board of Overseers of the University of Pennsylvania's Wharton School; Cornell University Board of Trustees; Singapore Management University Board of Trustees; INSEAD's Board of Directors and the Asian Institute of Management's Board of Governors. He is also a member of the Advisory Boards and Councils of the William F. Achtmeyer Center for Global Leadership at the Tuck School of Business, the Corporate Governance initiative at the Harvard Business School, and the Yale University President's Council on International Activities.

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Stewardship Ethics – A Model for Reform in Corporate America

“Profit with Honor – The New Stage of Market Capitalism”
book by Daniel Yankelovich, chairman of Viewpoint Learning, of Public Agenda
and of DVG. Inc.
Yale University Press.

Review by Mckenzie Lock, EthicsWorld Editor

In his new book, “Profit with Honor: The New Stage of Market Capitalism,” Daniel Yankelovich, chairman of Viewpoint Learning of Public Agenda, seeks to explain and provide solutions to the current crises of corporate scandals and mistrust in American business. He examines the social and historical context in which these scandals are taking place and which influenced them. Drawing from history, corporate case studies, and his research experience in the fields of public opinion and social values, Yankelovich argues that American society has abandoned its traditional belief in “enlightened self interest” of “doing well by doing good” and has instead adopted a narrow, legalistic view of right and wrong (“If I didn’t break the law, I didn’t do anything wrong”).

According to Yankelovich laws and regulations can only go so far in curbing abuse. He suggests that the performance pressures on business people, combined with the powerful effect of group-think within institutions, ensures that corporate America continues to find ways to avoid and to manipulate even the most draconian of regulations. He offers a normative solution to the current crisis: a model of stewardship ethics, which needs to work in tandem with regulations, and which he believes can benefit and strengthen not only communities and corporate stakeholders, but also the corporations and individuals working in them. Innovative business leaders can advance market capitalism to its next stage of evolution by encouraging business norms that concurrently stress the legitimacy of profit making as well as, and as much as, the importance of the guardianship roles that companies give to employees, customers, and the larger society.

Yankelovich begins by describing how a set of normative and economic trends, namely deregulation, the linking of executive compensation to stock performance, and the introduction of “win for myself” values, have led to the string of corporate scandals that started in 2000 with Enron’s bankruptcy. These trends created the conditions for what he terms a “perfect storm,” the results of which are illustrated by stories of corporate scandal in the media and by mounting mistrust in and cynicism of business.

According to Yankelovich, the current period of mistrust is not unique. He points out that there have been several episodes of low confidence in American business. Following each episode, he writes, the business community worked hard to regain public trust only to betray it once more. Each time this happens, Yankelovich argues, it becomes harder and harder for corporate American to regain the legitimacy it once enjoyed, a phenomenon he refers to as the “screwed again affect.” As a result, we are now in the midst of a record high of cynicism towards the social value and ethical potential of the capitalist system.

What led to this high? Yankelovich attributes the current corporate moral crisis to “seven deadly norms” currently functioning within American corporate culture, many of which are out-growths of larger societal values, such as individualism and laissez-faire doctrine.

These are:

1. The equating of wrongdoing exclusively with illegality.
2. The emphasis on winning at any cost.
3. The belief within the business world that “gaming” the system is a good sport.
4. The belief that conflict-of-interest is for wimps.
5. The treatment of CEOs as royalty, as illustrated in the excessive CEO compensation packages that we see today.
6. The twisting of the concept of shareholder value
7. The belief that free market economies require de-regulation. He writes that this has had its greatest effect on traditional gatekeepers, such as auditors and lawyers, by encouraging them to abandon their emphasis on auditing for more profitable consulting roles, resulting in myriad opportunities for conflict-of-interest.

In order to weaken the stronghold that these norms exert on corporate thinking and practice, Yankelovich argues that business leaders, namely top management and Board Directors, whom he believes have the greatest ability to drive the impetus for change, must aggressively pursue stewardship ethics in every decision they make, all-the-while ensuring that their employees do the same.

In promoting stewardship ethics as a new model for business ethics, Yankelovich is keen to emphasize its differences from the Corporate Social Responsibility (CSR) movement:
 

  • First, he writes that, while CSR arises mainly from NGO’s, who place a higher priority on social good than on profits, which they view with ambivalence, stewardship ethics arises from within business and considers profits both essential and ethically sound as well a necessary precondition for business operations.

  • Second, while CSR often adds an ethical burden to business goals, stewardship ethics reconciles profitability with caring for specific stakeholders.

  • Third, while CSR assumes all good deeds are inherently and equally desirable, stewardship ethics presupposes that good deeds must also advance the company’s core mission.

  • Fourth, while CSR is often adopted as an “add-on” by many companies - an easy-to-meet charitable gesture - stewardship ethics requires genuine transformation within companies.

 

According to Yankelovich, stewardship ethics reflect the widely-accepted idea that more is expected of those of those with substantial resources and economic power: in every business decision, companies and the individuals that manage them must view themselves as “guardians” - protecting and balancing a diverse array of interests for the  long-term. Central to stewardship ethics are the concepts of selectivity and caring – that is, choosing specific stakeholders to care for in business decisions and aligning the companies interests with theirs while at the same time taking into consideration changing societal and industry-specific conditions.

Equally important in Yankelovich’s vision is the idea of “enlightened” self-interest, which resists the short-term, stock market driven incentives that have led many business into scandal, and instead opts for long-term success. To accomplish this he makes several suggestions, including extending the holding period before a CEO can sell his or her stock or linking executive compensation to variables such as return on equity, cost control, and revenue and profit growth, that reflect the company’s actual performance, rather than its stock price.

Long-term self-interest, Yankelovich writes, relates to trust, most importantly from employees and consumers, which, when earned, translates into enormous long-term profitability. Particularly in a democracy, where so many interactions hinge on good status, trust, and more broadly reputation, can constitute a company’s most valuable asset. 

At the end of “Profit with Honor” Yankelovich offers solutions for several vital tactical issues involved in implementing stewardship ethics, such as dealing with the issue of disappointing Wall Street expectations; balancing the interests of other stakeholders with those of shareholders; staving off “win-at-all costs” norms; and, reconciling profitability with stewardship ethics. 

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Moral Person + Moral Manager = A Reputation for Ethical Leadership

By Linda Klebe Trevino, Laura Pincus Hartman, Michael Brown


This is the title of landmark research undertaken several years ago. As the Enron trial is taking place, as corporate ethics are more in the headlines than ever, and as the new National Business Ethics Survey by the Ethics Resource Center highlights the crucial role of corporate culture on perceptions of workplace ethics, EthicsWorld believes that these findings are of particular importance and relevance in today’s corporate environment.

This research by three U.S. scholars was based upon the findings of a study by and supported by the Ethics Resource Center Fellows Program and appeared in the California Management Review  42.4 (2000): 128-142 Copyright University of California, Walter A. Haas School of Business Summer 2000.

The following is the summary and a few selected excerpts from the full article:

Plato asked, which extreme would you rather be: "an unethical person with a good reputation or an ethical person with a reputation for injustice?" Plato might have added, "or would you rather be perceived as ethically neutral-someone who has no ethical reputation at all?" Plato knew that reputation was important. We now understand that reputation and others' perceptions of you are key to executive ethical leadership. Those others include employees at all levels as well as key external stakeholders.

A reputation for ethical leadership rests upon two essential pillars: perceptions of you as both a moral person and a moral manager.The executive as a moral person is characterized in terms of individual traits such as honesty and integrity. As moral manager, the CEO is thought of as the Chief Ethics Officer of the organization, creating a strong ethics message that gets employees' attention and influences their thoughts and behaviors. Both are necessary. To be perceived as an ethical leader, it is not enough to just be an ethical person. An executive ethical leader must also find ways to focus the organization's attention on ethics and values and to infuse the organization with principles that will guide the actions of all employees.

An executive's reputation for ethical leadership may be more important now than ever in this new organizational era where more employees are working independently, off site, and without direct supervision. In these organizations, values are the glue that can hold things together, and values must be conveyed from the top of the organization.Also, a single employee who operates outside of the organizational value system can cost the organization dearly in legal fees and can have a tremendous, sometimes irreversible impact on the organization's image and culture.

We found that just because executives know themselves as good people-honest, caring, and fair they should not assume that others see them in the same way. It is so easy to forget that employees do not know you the way you know yourself. If employees do not think of an executive as a clearly ethical or unethical leader, they are likely to think of the leader as being somewhere in between-amoral or ethically neutral.

Ethical Leader   
Being an ethical person is the substantive basis of ethical leadership. However, in order to develop a reputation for ethical leadership, the leader's challenge is conveying that substance to others. Being viewed as an ethical person means that people think of you as having certain traits, engaging in certain kinds of behaviors, and making decisions based upon ethical principles. Traits are stable personal characteristics, meaning that individuals behave in fairly predictable ways across time and situations and observers come to describe the individual in those terms. The traits that executives most often associate with ethical leadership are honesty trustworthiness, and integrity. A very broad personal characteristic, integrity was the trait cited most frequently by the executives. Integrity is a holistic attribute that encompasses the other traits of honesty and trustworthiness. Trustworthiness is also important to executives as are honesty, sincerity, and forthrightness.

Moral Manager
In order to develop a reputation for ethical leadership, a heavy focus on the leadership part of that term is required. The executive's challenge is to make ethics and values stand out from a business landscape that is laden with messages about beating the competition and achieving quarterly goals and profits. Moral managers recognize the importance of proactively putting ethics at the forefront of their leadership agenda.

What Does Ethical Leadership Accomplish?
The executives we talked with said that ethical leadership was good for business, particularly in the long term, and avoids legal problems. "It probably determines the amount of money you're spending in lawsuits and with corporate attorneys . . . you save a lot of money in regulatory fees and lawyer fees and settlement fees." They also said that ethical leadership contributes to employee commitment, satisfaction, comfort, and even fun. "People enjoy working for an ethical organization" and it helps the organization attract and retain the best employees. "If the leadership of the company reflects [ethical] values. . . people will want to work for that company and will want to do well." Finally, employees in an organization led by an executive ethical leader will imitate the behavior of their leader and therefore the employees will be more ethical themselves.

Conclusion
Being an ethical leader requires developing a reputation for ethical leadership. Developing a reputation for ethical leadership depends upon how others perceive the leader on two dimensions: as a moral person and as a moral manager. Being a moral person encompasses who you are, what you do, and what you decide as well as making sure that others know about this dimension of you as a person. Being a moral manager involves being a role model for ethical conduct, communicating regularly about ethics and values, and using the reward system to hold everyone accountable to the values and standards. Ethical leadership pays dividends in employee pride, commitment, and loyalty-all particularly important in a full employment economy in which good companies strive to find and keep the best people.

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When Is The Top Executive’s Personal Integrity a Board Issue?

RadioShack's CEO's Personal Ethics Raise Questions

(The following report was written on February 16, 2006 excerpted from the Star Telegraph - RadioShack announced on Feburary 20, 2006 that its CEO had resigned.)

The Fort Worth Star-Telegram newspaper in Texas has been investigating the credential of David Edmondson, Chief Executive Officer of the Radioshak Corporation and found that he not only faced drunken-driving charges, but that he claimed academic credentials that he never had. On February 16, 2006 the Star-Telegram reported that Edmondson admitted to the allegations and that the Board of Directors has launched an investigation using outside counsel.

U.S. Boards of Directors have increasingly felt bound to investigate personal ethics issues of top managers when these have become the subject of high-profile rumor. A former CEO of Boeing was asked to resign when rumors spread of an alleged affair with an employee. The new RadioShack case falls into the same category in an era when there is mounting pressure on Boards to ensure that the corporate code of conduct applies to the CEO and that he can serve as an outstanding ethical role model for the company. Research shows that the “tone at the top” has a major influence on a corporation’s culture.

The Star-Telegram had previously uncovered inaccuracies in the executive's résumé, which said he held a Bachelor of Science degree, and in his corporate biography, which said he earned degrees in theology and psychology. The college Edmondson attended has no record of his graduation and never offered psychology degrees.

"The contents of my resume and the company's website were clearly incorrect," Edmondson said in his statement. "It is my belief that I received a THG diploma, not a BS degree as I asserted. I clearly misstated my academic record, and the responsibility for these misstatements is mine alone. I understand that I cannot now document the ThG diploma." A Th.G. degree is awarded for completing a three-year program in theology.

"I apologize to the board and the employees for the confusion I have created by carrying erroneous information on my resume and mishandling my explanation of it," Edmondson's statement continued. "I will provide all information to the board in order to clarify these issues. In a separate statement, RadioShack's board said it will retain counsel "to advise the board on the facts and on RadioShack's employment policies."

The statements were released on the eve of a two-day meeting with Wall Street analysts and investors in Fort Worth. RadioShack plans to release its 2005 financial results Friday, and Edmondson and other top executives are scheduled to address the investor conference that day.

Edmondson told the Star-Telegram last week that he spent the 1977-78 academic year as an on-campus student at Pacific Coast Baptist Bible College and finished a Th.G. program in theology by correspondence while working at a church in Colorado. He said his pastor at the church advised him in his studies and was his liaison to the school during the two years he took correspondence courses. The small college, which moved to Oklahoma City in 1998 and was renamed Heartland Baptist Bible College, had no record of Edmondson being enrolled beyond the fall semester of 1977 and spring semester of 1978 and had no record of him taking correspondence courses.

Edmondson's former pastor, Ron Hoover, who is now retired and living in Missouri, said Tuesday that he did not recall Edmondson working to finish his degree at Pacific Coast Baptist when the two men worked together at Security Baptist Temple in Colorado.

Edmondson told the Star-Telegram last week that his diploma was destroyed in a 2004 garage fire at his home, and he suggested that the school was missing part of his student file. The 46-year-old executive also said he was unaware that his biography, which was posted on the company's Web site and distributed to the news media, said he had a psychology degree. Edmondson said he only minored in the subject. The résumé that Edmondson submitted to RadioShack when he joined the Fort Worth-based electronics chain in 1994 lists his academic credentials as "BS, Pacific Coast Baptist College, San Dimas, CA, Theology-Psychology 1980." A profile attached to the résumé notes that Edmondson "majored in Theology with a minor in Psychology."

The Star-Telegram began looking into Edmondson's credentials after learning that the executive, who started two churches before making the transition to a full-time business career, is scheduled to go to court in April to fight his third drunken-driving charge. Edmondson was arrested in Southlake in January 2005 on suspicion of driving while intoxicated. The last time Edmondson faced a DWI charge, for a July 2000 arrest in Fort Worth, the offense was reduced to obstruction of a highway and Edmondson received deferred adjudication probation. Edmondson also faced a DWI charge in Dallas County in 1988, before he was employed by RadioShack. He was acquitted in 1990.

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 A Model Ethical Business Leader

Aaron Feuerstein Receives Leadership in Ethics Award From ERC Fellows

On January 26, 2006 the Fellows of the Ethics Resource Center awarded the 2005 Stanley C. Pace Leadership in Ethics Award at a dinner in Washington DC.  Mr. Feuerstein, the former owner and CEO of the Malden Mills company in Lawrence, Massachusetts, lamented that “doing the right thing” is not as natural and as immediate a reaction to ethical problems in business as it should be. He asserted that “outsourcing and offshoring” are trends that go against the grain of “doing the right thing” when it comes to honoring the dignity of corporate employees.

Mr. Feuerstein said that the governing principle that employers should have relative to their employees is the biblical notion “to love thy neighbor as thyself.” He said this should be the basis of corporate social responsibility. He said that he always sought to be guided by the core mission statement of his company, which mandated that Malden Mills should be a “caring and ethical corporation that benefits all of its stakeholders – its employees, its community, and its shareholders.”

Mr. Feuerstein, 86, has been awarded a host of honorary degrees and many honors for his ethical leadership in business. At the award ceremony the Fellows of the ERC replayed an interview that Mr. Feuerstein gave to the US prime time television program “60 Minutes” on the CBS network 14 years ago, which underscored the extraordinary lengths to which Mr. Feuerstein went to assist his company’s employees when the major Malden Mills plant was destroyed in a fire. Interviewer Morley Safer asked Mr. Feuterstein why he did not just take the $300 million in insurance money, rather than spending a vast sum to keep paying the wages of employees and while rebuilding the plant. He simply replied, “well it was the right thing to do.”

The ERC Fellows are corporate chief ethics officers and distinguished business ethics professors. Carol Marshall, Chair of the Fellows Program said, "Mr. Feuerstein is being recognized for his extraordinary efforts to support his firm's employees. His commitment to his employees and to the community of Lawrence is a rare and outstanding example of ethical leadership."

It was recalled that immediately after the massive fire the company’s employees all came together and Mr. Feuerstein first assured them that they all would be paid full wages for at least 30 days. He continued to pay the workers. In some respects, as one listened to him and saw the old CBS television segment, it became clear that the bond that the owner of Malden Mills had forged over a lifetime with his employees went far beyond a focus on the maximization of profit for shareholders. He built a deep sense of trust and of “family” which held the company in good shape in difficult times.

Mr. Feuerstein was nominated for the Stanley Pace award by ERC Fellow Professor Paul Fiorelli, Director of the Williams College of Business Center of Business Ethics and Social Responsibility, who noted, “Aaron Feuerstein embodies the best of corporate leaders who are willing to risk their own finances for the benefit of other stakeholders. He and his wife Louise continue to demonstrate outstanding support for ethics leadership.”

The Pace Award was established in 1999 in honor of Stanley C. Pace, former chairman and chief executive officer for General Dynamic Corporation. Previous winners of the Stanley C. Pace Award include the Founders of Transparency International, Sir Mark Moody Stuart, former CEO of the Royal Dutch/Shell Group of Companies, Ira A. Lipman, Chairman of the Board and President, Guardsmark, LLC, John E. Pepper, Retired Chairman and CEO, The Procter & Gamble Company, and Norman R. Augustine, Retired Chairman and CEO, Lockheed Martin Corporation.

Nominations: The ERC Fellows will be accepting nominations for the 2006 Stanley C. Pace Ethics and Leadership Award this spring, with an official call for nominations in May 2006. Visit http://www.ethics.org/fellows/index.html for more information.

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Computer Associates Article on Restoring Reputation

When the company is in trouble, what are the critical actions the new CEO must take to clean up the ethics mess?

Computer Associates
Business Week November 21, 2005


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The BW article highlights actions taken by CEO John Swainson in the course of the last 12 months as he took the helm of ailing Computer Associates International Inc. and rapidly moved ahead with radical changes. The BW article noted: "Swainson's journey at Computer Associates is a case study of how one chief executive is struggling to pull off a disaster-recovery project. No turnaround is easy, but patching up an outfit that has been beset by scandal is one of the most challenging situations an exec will face. While few will ever have to deal with such an extreme case, the hurdles Swainson faces at the $3.5 billion company can provide leadership lessons for any manager.

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Why Ethical Leaders Are Different

By Ronald E. Berenbeim

dPrincipal Researcher and Director of The Conference Board’s Working Group on Global Business Ethics Principles. Mr. Berenbeim has written 33 Conference Board studies and played leading roles in many institutional initiatives on global ethics.

He writes: “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 May 2005 report, the author pointed out that many reforms have been seen in recent times, but their value is questionable if “a company does not have ethical leaders who are insistent on establishing within their companies an environment of trust, accountability, and transparency.”

Excerpts from Mr. Berenbeim’s Essay:

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…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.

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.

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.

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.

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?

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Winners Never Cheat: Everyday Values We Learned As Children (But May Have Forgotten)

By Jon M. Huntsman
Wharton School Publishing

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In 1970, Jon M. Huntsman started a small entrepreneurial firm with his brother. By 2000, Huntsman Corp. had grown to become the largest privately held petrochemical and plastics business in the world. In his new book, Huntsman offers a "moral compass" for business leaders and others to live by that is based on his own experiences.

 

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