Integrative Paper on: Leadership Ethics & Corporate Social Responsibility
Creating shared value
What are your ethical obligations as a leader?
Leaders’ ethical behaviors have a significant weight on an organization's culture. Whether they intend to or not, leaders lead by example. There are many ways an organization’s culture can provoke unethical behavior but perhaps the quickest one is watching the leaders’ unethical behaviors and thinking it’s a norm. As leaders, we have the obligation and responsibility to be aware of our influence. It is true that at times decisions might affect others in a way that feels unfair, and though these may be inevitable or mistakes, it’s trust and sense of safety in an organization that keeps the culture strong.
Ethical Leadership
Ethical behavior is a testament to our personal integrity, our morals and values. People will go far to defend their own, which is why when they perceive a threat to their integrity unethical behavior can occur. Companies that have lost sight of their ethical culture and behavior have faced the consequences that have been growing harsher with the digital era of nowadays. Lawsuits, loss of employees, protests, reputation damage, “cancel culture” are just some of the common consequences of society not tolerating behaviors that in the past were not considered unethical but have always been. As a result of these, companies have made significant changes in their executive levels, as the senior executives are the ones most at risk of suffering those consequences, have also moved away to emerging markets to start fresh and others have not been able to come back from being shunned by the public.
So how exactly does these unethical behaviors get provoked? The most common reasons are feeling oppressed, not being able to speak up out of fear, excessive pressure on unrealistic goals, perceived unfairness, lax compliance policies, and as mentioned before, the examples set. The reading “Ethical Breakdowns” by M. H. Bazerman and A. E. Tenbrunsel, provides ways to be aware of these behaviors, discover what encourages them and remedy the damage.
Ill-conceived goals: Setting goals and incentives to promote a desired behavior but encourage a negative one. An example mentioned in the reading is, maximizing billable hours in law firms could lead to unconscious padding. A remedy for this could be brainstorming the potential unintended consequences when giving out incentives to reach goals.
Motivated blindness: Overlooking unethical behavior to remain ignorant. For example, sport officials ignorantly creating conditions that encouraged steroid use to satisfy self-serving goals. A remedy would be to remove conflict of interests to reduce the negative effect on decision making.
Indirect blindness: Holding others less accountable for unethical behavior when third parties carry it out. Another example from the reading is, a drug company deflects negative attention from price increase by selling rights to another company that imposes the increase. Taking ownership of the implications when outsourcing work that may invite unethical behavior is a good remedy for this barrier.
The slippery slope: Occurs when we are less able to see others’ unethical behavior when it develops gradually. An example is when questionable reports of statements are reviewed and approved ignoring trivial ethical infractions only to provoke the next infractions to be bigger and more often. To remedy this it’s important to be alert for any ethical infraction and address it immediately.
Overvaluing outcomes: Accepting unethical behavior if the outcome is positive. Being results oriented can be dangerous as it invites unethical actions for the sake of the outcome, an example in the reading is celebrating a fraudulent clinical trial that saves lives when condemning an equally fraudulent trial that leads to death. The remedy is to examine both good and bad decisions and reward solid decisions processes not just good outcomes.
It’s important to recognize that a lot of these barriers can occur because of cognitive biases that can blind us to unethical behaviors. Other ways to resist unethical behavior as a leader is to identify the stakeholders in the organization, the indifferent, pragmatic, absentee and ethical, and look to form coalitions with the pragmatic, absentee and ethical types. As an employee, ways to speak up are to practice ethical courage as a skill, however never without asking yourself what your goal is, if this is the best time to bring it up, if you have a support network, the tradeoff and contingency plans. Rehearse what to say, try to understand their perspective, and start by asking questions before directly confronting them.
Moving on from the individual actions to promote ethical behaviors to the large scale company social responsibility actions that so many companies have adopted and done some in a good way others not so much. Those that do it well use something called Creating Shared Value. CSV can be understood as joint company and community value creation whereas Corporate Social Responsibility (CSR) focuses on citizenship, philanthropy and sustainability. Not suggesting those focuses are not good but they are not shared values and only the chosen institutions benefit directly without a real global shared goal to benefit both sides of the coin. Another way to see it is CSR’s impact is limited by corporate footprint and CSR budget while CSV realigns the entire company budget.
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From CSR to Creating Shared Value
The reading “Creating Shared Value” by M. E. Porter and M. R. Kramer, defines shared value as practices that while enhancing the companies’ competencies also encourages economic and social growth in the communities from which it operates. By better connecting companies’ success with social growth it opens up many ways to serve new needs, gain efficiency, create differentiation and expand markets. The three key ways that companies can create shared value opportunities, reconceiving products and markets, redefining productivity in the value chain and enabling local cluster development are as follows.
Reconceiving products and markets: Shared value can be created by refocusing on these basic questions: Is our product good enough for our customers? Or for our customers’ customers? For example in the food industry, companies are refocusing their products to satisfy the fundamental need for better nutrition instead of taste and quantity. In ways such as this society’s gains are greater since companies will often be more effective at marketing that motivates customers to embrace products and services that promote social improvement than governments or nonprofits will. The starting point to creating this kind of shared value is to identify the societal needs, benefits and harms that could be resolved with the company’s product. This will lead to discovering new opportunities for benefiting from differentiation and repositioning while benefiting the consumers.
Redefining productivity in the value chain: For this strategy, shared value opportunities arise when societal problems create economic costs in the firm’s value chain. To create shared value a company can look into their energy use, resource use, procurement, distribution, employee productivity and location.
Energy Use: Improving energy has been a global focus through technology development, recycling and other practices. For example, Marks & Spencer stopped the purchase of supplies on one hemisphere to ship to another, saving the retailer 175 million pounds annually while also significantly reducing carbon emissions.
Resource use: For example, Dow Chemical was able to reduce consumption of fresh water at its largest production site by one billion gallons, giving back enough water supply to 40,000 people in the US for a year.
Procurement: Increasing access to inputs, sharing technology and providing financing, companies can improve the supplier quality and productivity while also ensuring access to growing volume, thus creating shared value. For example, Nespresso worked intensively with its coffee growers, providing advice on farming practices, guaranteeing bank loans and helping secure inputs such as plan stock. They also established local facilities to measure the quality of the coffee and paid a premium for better beans offering quality and convenience (with their sophisticated espresso machine) to their customers.
Distribution: For example, Kindle and iTunes distribute thousands of written work virtually therefore dramatically reducing paper and plastic usage.
Employee productivity: Leading companies have learned that because of lost workdays and diminished employee productivity poor health costs turn out to cost them more than health benefits. For example, Johnson & Johnson helped their employees to stop smoking and implemented several other wellness programs, resulting in a return of $2.71 for every dollar spent on wellness in 2008.
Location: For example, Walmart increased their source products for their food sections from local farms near its warehouses saving them on transportation costs and benefiting the local businesses.
Enabling Local Cluster Development: Recognizing that a company’s success is affected by the supporting companies and infrastructure around it, developing a cluster of industry related companies can result in higher productivity and innovation while also supporting the communities around them in economic and social growth. For example, Silicon Valley hosting IT companies and institutions.
As seen in the live session, we are entering the Consciousness Age that focuses on cultural capital. This focus is based on understanding that every business relationship is a voluntary exchange and cooperation. Building relationships, improving communities, bringing growth to the industry we continuously look for a higher purpose in our daily jobs. This reflection steers us away from unethical behaviors and guides us towards CSV. We aim to provide goods and services based on the why and the how. Unlike the previous ages we introduced the “what” and briefly mentioned the how and even more rarely the why. Leaders, employees and even consumers are looking for these kinds of businesses that have a sense of their impact on society and the world and have plans on what to make with their positions.
A company creating shared value
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When researching more about companies that have dealt with backlash from unethical behaviors I encountered Nestle. The company has faced the public’s scrutiny on several occasions for their actions involving irresponsible use of water in places with scarcity, unethical promotion of baby formula undermining breastfeeding, and abuse of labor in poor countries as well as child labor.
As a corporate responsibility measure, Nestle released a public commitment to in simple words be better. They declared to establish a water stewardship strategy with better watershed management programs, use responsible marketing focused on complying with the World Health Organization’s International Code of Marketing of Breastmilk Substitutes, and more commitments to reduce their carbon footprint. These commitments, although to their credit helpful, have not completely got them out of the public’s scrutinous eye. It has been the following strategies that have actually created shared value and see potential in the company’s process to having a better impact on society and the environment.
Nestle Cocoa Plan: aims to promote sustainable cocoa farming practices and improve the livelihoods of cocoa farmers. This initiative provides training and support to farmers, promotes responsible sourcing, improves productivity and invests in community development projects. Another major reason for this plan is it emphasizes the importance of eliminating child labor and ensuring fair labor practices in the cocoa supply chain.
Nutrition and Health Initiatives: such as partnering with external organizations and experts to promote nutrition education and support public health initiatives while also implementing the Nestle Nutritional Foundation which aims to enhance their own products’ nutritional value.
Rural Development and Farmer Support: initiatives like Nescafe Plan work directly with coffee farmers to provide training, technical assistance and resources to improve coffee quality, increase yields and enhance farmer’s income.
The fact that Nestle has made these initiatives public has made the commitment strong and available to anyone looking for the current status of their progress. The company’s initial responses seemed to “patch things” rather than dig deeper into the company’s impact and the cultural changes that needed to happen to mend the damage caused by accepting and working by unethical behaviors. Recently, the company fired their then CEO after conducting an investigation that proved his involvement with third party brokers of coffee beans in Brazil, which was a violation to Nestle’s Code of Conduct created for precisely these kinds of infractions. Proving that indifferent stakeholders do not make a good team for coalition. So needless to say that Nestle is not done working through this change, and it being an umbrella company with multiple product lines there is a lot of ground to cover. However, their practices creating value has been a step in the right direction.
References
Written content was referenced by using my notes from the asynchronous material, the readings, and takeaways from the class.
Bazerman, M. H., & Tenbrunsel, A. E. (2011). Ethical Breakdowns [Review of Ethical Breakdowns]. Harvard Business Review.
Personal Communication. (n.d.). Chat GPT. Retrieved June 15, 2023, from https://chat.openai.com
Porter, M. E., & Kramer, M. R. (2011). Creating Shared Value [Review of Creating Shared Value].
Images
Freepik. http://www.freepik.com
