Well and good

It seems self-evident that the job of a manager is to ensure that the organization he works for is successful. But what is the purpose of enterprise? When executives are faced with this question, there will be many answers, but there is one thing they will all agree upon: a successful enterprise makes money. To be specific, a successful business delivers a fair return to the investor. That objective, however, does not exist in a vacuum. Neither is it the only objective. Managers also need to deliver long-term growth and a certain level of predictability in profits.

In the business management classroom, we refer to this as doing well. What many are quick to point out, especially when the discussion includes development managers is that companies should also try to do good; that is, they should also create value for society. In the academic literature, this is often called corporate philanthropy, a topic closely related to corporate social responsibility. They are, however, not the same.

Not always good

CSR has, unfortunately, been too closely linked to charitable activities such as feeding programs or scholarships. These are, of course, certainly laudable acts. However, there are at least two difficulties involved in straight philanthropy.

The first concern is what we would call the “executive wife” syndrome. When we ask executives whether they believe it is acceptable for companies to engage in charitable activities, many will say yes. When we begin to ask more specific questions, then the answers become much more hesitant. 

Let’s tackle just the two most important questions.

How much money should be devoted to charitable activities? Is it an amount that is spent regardless of the company’s results or should it be contingent on making a profit? If the company is making a profit, how much of the profit can be devoted to charitable projects? And here is the acid test: if you are not the owner of the company, is this a decision that you should be making without consulting the owner? Here is a critical ethical dilemma: How can an executive essentially give away money that belongs to someone else? When we take into account the fact that many of these corporate giving activities enable executives to create powerful relationships and valuable venues for raising their individual reputations, there is a clear ethical dilemma involved.

What kind of charitable activities? Sports because the president is an avid basketball fan? A particular sports team because that COO is an alumnus of a certain university? A museum or dance troupe because the chairman’s wife is an avid fan?

When does corporate philanthropy begin to be about utilizing corporate resources in order to further one’s own personal interests?

The second important concern around corporate philanthropy is a practice involving what is often called “greenwashing.” This happens when a company engages in charitable activities but continue to operate their business in a way that is harmful to the environment or their host communities. The hope is that their philanthropic activities will provide enough of a reputation effect to balance harmful behavior. This is corporate hypocrisy.

Being good

Companies that truly believe in being responsible have a single answer to what it means to be a responsible business and it is not about “doing good”, although many companies do good, it is about “being good.”

This is a phrase I picked up from Anjan Ghosh of the Intel Corp. It was part of his response to my question of what he thought was the most fundamental requirement for real corporate responsibility.

In the aftermath of the Enron collapse and then again in the depths of the global credit crisis, business schools were criticized about the seeming failure to instill ethics in their graduates.

A paper by Mary Kay Copeland examines the plethora of leadership literature and, in particular, values-based leadership, that emerged around the perceived need for improved ethical behavior among leaders. While Copeland’s paper reviews many theories of leadership including servant leadership, stewardship, contextual leadership, shared leadership and spiritual leadership, she focused on three types of leadership that have gained interest from both scholars and practitioners: authentic, ethical and transformational leadership.

Copeland also considers leader effectiveness and proposes a two-by-two matrix with ethical/authentic along one dimension and transformational along the other dimension.  Based on this matrix, Copeland proposes four categories of leaders. Ineffective leaders score low in both dimensions and maximizers score high in both dimensions. Copeland classifies under unrealized gains leaders who score high in authenticity and ethics but low on being transformational. Finally, Copeland classifies as fakers those who score high on being transformational and low on authenticity/ethics.  Copeland hypothesizes that these leadership traits influence follower behavior and through this enterprise performance. The fly in the pudding, of course, is that the interplay of factors has not been tested.

What the literature supports is that ethical leadership lapses in the ethics of leaders can have costly organizational consequences (De Hoogh & Den Hartog, 2008) and that ethical leadership is a stronger predictor of leader effectiveness than authenticity or being transformational (Copeland, 2009). 

So yes, companies should do well. But they should also be good. Corporate responsibility is ultimately about being good and that begins with managers who are good.


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