November 2000, Volume 69, Number 1

A Question of Ethics A spirited discussion on the complex relationship between business and social responsibility. "Buzz" McCoy Reward character and leadership and not just production. Manage greed. You have to have rewards and punishments. DECADES AFTER Milton Friedman framed the debate over the social responsibility of business with an article in the New York Times Magazine, the discussion continues. Should businesses concentrate on achieving socially desirable outcomes? Can business be guided by the rule of law when governments are sometimes corrupt? How does operating globally affect a company's behavior? These and other issues were the focus of one of the sessions during the School's 75th anniversary celebration in May. The participants included business leader Bowen "Buzz" McCoy, Stanford Business School faculty members Kirk Hanson and David Brady, and Nobel economist Milton Friedman. The following text is an excerpt from that session. The Overview Buzz McCoy I WAS A SUCCESSFUL and pretty aggressive investment banker for about 30 years. I became general partner at Morgan Stanley in 1970, when it had 250 employees, 33 general partners, and $10 million in capital, and we were a leading firm on Wall Street. I became one of a group of people who helped Morgan Stanley transition from a narrowly based, private firm to the global powerhouse it is today. Through all this I maintained a very active connection to my church and to various philanthropic activities, including Stanford. I was a boundary person, a Christian in business striving to be an aggressive investment banker and still be in a relationship with God, and I've come to the view that spirituality and morals, as I define them, are not enough, and that ethics is grounded deeper than cultural norms. Cultural norms can inculcate bad practices. Ethics itself is a result of religion and deeper feelings and of where we stop trading off. I often say facetiously that I teach Christian ethics in business school and business ethics in the church. How do you live out your faith at work? First, be worldly. Be a worker, be an investment banker or a real estate broker or a litigator or whatever you are, and if you can't do that successfully, you're in the wrong job. Don't be afraid to take personal risk. Be open. Tolerate questioning. Create a context. Don't burden your work too much with church or outward signs of religion. I believe in Dietrich Bonhoeffer's "hidden religion." Don't wear your heart on your sleeve: Be authentic. Understand that there are covenants in any kind of an organization, both implicit and explicit. Managing change, breaking covenants, setting up new ones is the hardest job a manager has to do. Be very careful about whom you promote. We spent hours at Morgan Stanley on whom we rewarded and promoted. We never did it perfectly and were always changing the system. Reward character and leadership and not just production. Manage greed. You have to have rewards and punishments as well. Leave room for personal philanthropy. I've always said if you spend 110 percent of your time working, you're in the wrong job. You are competing against people who spend 80 percent and are successful. If you cannot be well balanced and still compete, you're in trouble. Build trust, even intimacy. I used to spend hours with my people setting goals, setting standards. Display a certain amount of calmness. Be tolerant of ambiguity and paradox. In this age of globalization we need a faith-based ethic. We need to understand that the world and globalization of money and capital markets is really based on a Judeo-Christian culture, because it's a British-U.S. system promulgated throughout the world. And it runs head-on into other faiths and other systems. We have to understand more about where ethics come from and where these feelings come from. Culture is shaped by religion, by our deepest feelings about who we are and who we want to become. I see a lot of theology in Peters and Waterman and in Peter Drucker, and a lot of good management in something like the Rule of St. Benedict-obviously a boundary person. We're all people of faith searching for ways to be good. In globalization we can come closer together, but we still don't know one another. We can start up a new business fast, but growing wise in the way of life takes a long time. It's never complete, never right, and never perfect. An ethic is deeper than morality or custom. It comes out of our deepest desire to make meaning out of our lives and hence resides in the areas of spirituality and religion. The deepest and most meaningful relationships develop out of this level of interaction. To have integrity is to bring deep meaning to bear in all aspects of one's life. And to deal effectively in a global arena, one must have some notion of the deep meaning imbedded in various cultures. Bowen H. "Buzz" McCoy is president of Buzz McCoy Associates Inc. and a member of the board of overseers of the Hoover Institution. Kirk Hanson I fall into the camp that believes ethics is good business about 90 percent of the time. The other 10 percent you do have a very genuine conflict. Kirk Hanson MILTON [FRIEDMAN] has set the tone for the debate over business ethics and corporate responsibility for the past 30 years with an article in 1970 that said the social responsibility of business is to increase profits. And so I want to talk a little about what I see as the nature of this debate and where we go from here. What have the last 30 years been like? We've had three different approaches to the role of ethics in business. One is that ethics has really had no role in business and, while Milton's name has been associated with that, I'm not sure he believes all that has been attributed to him. This position holds that the role of business is to be profitable and to be constrained only by the law. Second is the view of Jim Burke and Norman Lear, whom I worked for for five years and who believe that ethics is good business. If you are ethical, you will be a successful business person. I sometimes got a little uncomfortable with how absolute they were in stating it. The third position is that whatever your belief is, ethics is absolute and has to come before self-interest in business decisions. What do we make of these? I fall into the camp that believes ethics is good business about 90 percent of the time, and that the other 10 percent you do have a very genuine conflict, and there has to be some commitment to ethics as an absolute. Today the debate over business ethics is being transformed by globalism. American companies realized in the mid-eighties that they were global companies and had to operate in multi-value, multi-ethic environments. Taking business ethics global, I have come to believe in at least the following four propositions: Doing ethics globally is possible. It is not all related to a particular culture. It is not that the world is adopting the U.S. view on ethics. Rather, it is possible to identify some globally accepted ethical norms. Ethical behavior of companies does affect people throughout the world and does enhance the bottom line. Ethical behavior affects not just people and stakeholders but also the interests and long-term profitability of the firm. You must be aware of and respect the differences in values in various societies. American companies operating in Europe today would not succeed without a sensitivity to Europe's interest in all the stakeholders of the firm. Monsanto clearly did not understand many Europeans' sensitivity about genetically modified foods. Shell did not understand the environmental sensitivity in the rest of continental Europe when Shell U.K. was disposing of the Brent Spar oil platform in the North Sea. So while there are global ethical norms, you also have to have a profound respect for different values. Ethics and values therefore must be managed in the global corporation. It's a matter of survival and self-interest. You must manage your ethics, your ethical norms, and values of your enterprise like all other behaviors in your organization. So where are we today? We still have these different approaches to business ethics as we move into this millennium: one that ethics has no role in business; a second that good ethics is good business; and a third that ethical behavior is an absolute even if it costs you money. We certainly have enough examples that ignoring ethics can cost you money-Columbia Health Care, Coca-Cola, DoubleClick, and others that have not understood some ethical issues facing business in a global society. A global ethic is emerging. Companies must consider transparency, continual self-examination, communication of values, recognizing the obligation to stakeholders, engaging in dialogue with all those stakeholders, continually asking themselves if their actions are ethical. The future role of business ethics in a global society is still uncharted at this point, but it's clear that it is a topic we will be discussing extensively as the millennium develops. Kirk O. Hanson, MBA '71, is a senior lecturer in business administration at the Business School and director of the School's Sloan Program. Continue to "A Question of Ethics: Part 2" Continue to "A Question of Ethics: Part 3"