Creating Moral Organizations

Abstract

A recent movie, The Corporation, presents a diagnosis of corporations as though they were psychopathic individuals. The filmmakers cite the Diagnostic and Statistical Manual of Mental Disorders, which describes the following psychopathic symptoms: deceitfulness, lying for personal profit, aggressiveness, reckless disregard for safety, irresponsibility, and lack of remorse, rationalizing the fact that they have hurt or mistreated others. According to law, corporations are treated as though they were individuals and, regrettably, more than a few have behaved in ways that fit the DSM diagnosis. That's why a growing number of young people believe that one has to bend the rules to succeed in business (Business Week, Sept. 20, 2004). That's why William Donaldson, chairman of the securities & Exchange Commission has accused many U.S. bosses of failing to provide ethical leadership for companies (Financial Times, Sept. 20, 2004). That's why the U.S. Congress passed the Sarbanes-Oxley bill, which imposes costly regulations on corporations. Many CEOs are complaining about the regulations, but unless they start working to raise the ethical and moral levels of their companies, they will remain vulnerable to even more legal constraints. This is what compelled a group of CEOs, legal experts and large investors, together with a sprinkling of government officials and academics, to convene last summer at the invitation of the Aspen Institute and the Conference Board to discuss corporate values. Typically, the corporate leaders focused on incentives that influence the decisions of executives and investors. They reasoned that companies act unethically because they are trying to raise the share price. Because investors are looking for short-term profit, managers cut corners and sacrifice the future for quick gains. For example, they sell off strategically valuable factories in order to show a quick bump in return on capital employed. This pleases the Wall Street analysts and lifts the share price. The theory: if investors were incented to act like owners and executive pay was based on long-term results, there would be better long-term decisions and less motivation to cut corners. Possibly this is so, but it doesn't explain why, given the current incentives, some organizations act ethically and morally while others do not. Behaving Morally There is a difference between ethical and moral behavior. Ethics has to do with obeying the rules. Morality has to do with reasoning and behaving according to values that go beyond narrow self-interest. A change of incentives combined with regulation can improve long-term results and corporate ethics. But it won't create moral organizations. To make both companies and government organizations behave morally, we need to focus on organizational values and leadership. Some people will argue that organizations cannot be moral; only people can be moral. But while some organizations encourage and reinforce moral reasoning and behavior, others do not. The Harvard psychologist Lawrence Kohlberg studied levels of moral reasoning (7). At the lowest level he described unquestioned obedience to authority. At the next level, people conform to a limited view of what is good for their family or organization. At higher levels, they decide what will benefit others, beyond the immediate group. Most organizations espouse idealistic values emphasizing respect and integrity. But all too often, managers in government as well as companies make decisions according to what most benefits them and improves their quality of life, rather than what is best for customers, employees, investors, and communities. All too often, fearful employees follow leaders who stunt their moral development. Raising the Moral Level Why do people in organizations remain at lower levels of moral reasoning and behavior? What needs to be done to raise the moral level? One key factor is whether employees feel it's safe to tell the truth, argue minority views and deliver bad news, especially when telling the truth may be essential to the well-being of others. …