The following is an excerpt from my book, Virtuous Leadership: The Character Secrets of Great Leaders.
According to a global report published by Transparency International, corruption is a serious issue around the world, and studies have revealed that the US rates poorly when compared to other Western nations. Some analysts contend that the US slide is caused by dwindling confidence in democratic institutions and, more lately, by poor oversight of the financial system related to the pandemic under the Trump administration. In the annual Corruption Perceptions Index (CPI), the United States dropped from a high of 76 in 2015 to a low of 67 out of a possible score of 100, far below other Western nations.
A major factor in the United States decreasing ranking, according to Scott Greytak, the advocacy director for Transparency International’s U.S. office, is what he calls a “decay” in its democratic institutions. Gretyak made the important claim that politics, the media, and organizations today appeared to be fertile with misinformation, fake news, and record-setting amounts of untraceable money in the 2020 elections, which contributed to the public’s lack of faith in American elections.
Greytak cited a joint investigation by BuzzFeed News and the International Consortium of Investigative Journalists from last year that revealed “how major banks had knowingly allowed trillions of dollars of suspect financial transactions to go ahead, enabling drug kingpins, kleptocrats, and terrorists,” as examples of the “series of really bombshell exposés by media outlets that are demonstrating how much dirty money is flowing into the United States financial system.”
The Payment Protection Program loans were supposed to support small businesses during the COVID pandemic but instead went to large corporations like defence contractors, the international fast food chain Shake Shack, and the Los Angeles Lakers. And the Trump administration funnelled millions of dollars in coronavirus aid to companies with potential conflicts of interest, including some owned by Jared Kushner’s family and others housed in buildings operated by the president’s real estate company, according to records made public.
Jim Kouzes and Barry Z. Posner published an article in Leadership Excellence which states “But somewhere along the way to the New Millennium notions of ethics, morality, honesty, character and personal discipline came to be viewed as quaint — at least by those from the me-first, free agent school of corporate strategy. People got sucked into the idea that leadership was all about extrinsic rewards, and they started offering very creative ways to attract talent to the good life. The intrinsic reasons for doing something important —really caring about the people and the purpose — too often got lost in the hyperbole.”
They go on to say this about leadership: “Leaders are judged by how they spend their time, how they react to critical incidents, the stories they tell, the questions they ask, the language and symbols they choose, and the measures they use. Nothing fuels the fires of cynicism more than hypocrisy, and leaders will need to be constantly vigilant about aligning what they practice with what they preach. If you dream of leaving a legacy then you’d better heed the Golden Rule of Leadership: DWYSYWD: Do What You Say You Will Do.”
According to financial analyst Steven Pearlstein, who wrote in The Washington Post, “maximizing shareholder value has meant doing whatever is necessary to boost the share price this quarter and the next. This practice is inculcated in many business schools, enforced by corporate lawyers, and demanded by activist investors and Wall Street analysts. Over the years, a sole focus on shareholder profit has been cited as justification for taking advantage of or cheating on customers, underpaying employees and suppliers, evading taxes, and lavishing executives with stock options. This false and perverted idea that business just exists for financial gain for the shareholders (and greedy CEOs) lies at the basis of much of what many find so repulsive about American capitalism, including ruthlessness, greed, and unfairness.”
The U.S. Ethics and Compliance Initiative (ECI), the first non-profit organization in the ethics and compliance field, is also a membership and research organization made up of organizations from all industries, each committed to advancing the highest standards of integrity in their business practices. The ECI has reported on the existence of unethical practices in American organizations, presenting some shocking facts.
The culture of the company, according to ECI, is the one factor that has the most impact on employee behavior. Wrongdoing is drastically decreased in organizations and societies with strong ethical norms. However, according to ECI’s assessment of American businesses, only one in five employees say their workplace has such a culture. Over the previous ten years, this situation has remained substantially constant. Furthermore, a pattern that hasn’t much changed since 2000 is that 40% of employees in 2018 thought that their firm had a bad ethical culture.
“Is America Turning Into a Banana Republic?” is the question posed by Robin Wright in an article in The New Yorker. According to her, “the main tenet of ‘banana-ism’ is that of ‘kleptocracy,’ where people in positions of power use their time in office to maximize their earnings, always making sure that any shortfall is made up by those unfortunates whose everyday life entails earning money rather than producing it.” She concludes that the United States satisfies those criteria.
In the book Intrinsic CSR and Competition, edited by W. Wehrmeyer et al., Mathias Schüz of the School of Management and Law at Zurich University claimed that “there is a comprehensible cause-effect loop between the virtuous behavior of a company, its trustworthy reputation, and appeal to stakeholders.”
According to Schüz, the absence of ethical awareness among senior managers is a common occurrence in business. He claims that ethical leadership is frequently requested but infrequently provided.
According to Schüz, investing in training programs to foster moral behavior will pay dividends for both individuals and companies. “Integrity” is a virtue that allows one to act morally upright in a given circumstance while keeping in mind their capabilities. According to Schüz, moral behavior promotes self-responsibility and excellent character rather than relying solely on compliance-based ethics of responsibilities. Hundreds of laws and tight compliance processes, he contends, only serve to increase distrust and denunciation. They ought to be diminished, and integrity-boosting initiatives ought to be added.
The Role of Business Schools
Professor Sumantra Ghoshal submitted an article for publication in the journal Academy of Management Learning and Education just before he passed away at the age of 55. The piece contains harsh criticism of business education initiatives.
It was included in the magazine together with a piece by Stanford University’s Jeffrey Pfeffer, a leading management researcher in the US and one of the publication’s most vehement critics of business schools.
Business schools merely need to avoid doing a lot of the things they already do, according to Ghoshal: “Business schools do not need to do a great deal more to help prevent future Enrons,” he wrote, “Many of the greatest excesses of contemporary management techniques have their origins in a collection of notions that have arisen from business school academics over the previous thirty years.”
Business schools are specifically targeted for criticism by Ghoshal due to the “dehumanizing influence of contemporary economics on management thought.”
In response to his article, “Bad Management Theories Are Destroying Good Management Practices,” Pfeffer, Rosabeth Moss Kanter of Harvard Business School, Donald Hambrick of Penn State University, John Gapper of the Financial Times, Lex Donaldson of the Australian Graduate School of Management, and Henry Mintzberg of McGill University are among the top management theorists who provided comments.
Pfeffer strongly concurs with Ghoshal’s criticism of economics: if anything, Pfeffer claims, “he [Ghoshal] understates the potential negative consequences of the expanding dominance of economics over the social sciences.” As it has done with political science and law, Pfeffer says, as it is doing with sociology and psychology, economics is undoubtedly displacing management and organizational science.
For shareholders to benefit from limited liability, Ghoshal contends that they “do not own the company – not in the sense that they own their homes or their automobiles.” Additionally, he claims that “the majority of stockholders can sell their stocks much more easily than the majority of employees can find another job.” Employees of a corporation incur more risks than stockholders do in every meaningful sense.
The majority of well-known management theories place little emphasis on the social and moral principles necessary for effective administration, instead favoring considerations of self-interest and opportunism. The façade of knowledge, in Ghoshal’s words, “has caused us to increasingly focus on the negative problem as a result of which we have made little analytical progress on the positive problem in the previous thirty years, at enormous expense to our students, to companies, and to society.”
Ghoshal and Pfeffer contend that business schools should place greater emphasis on “the wisdom of common sense” rather than on mathematical models that are friendly to science.
Economics is a “neat and tidy” field, Rosabeth Moss Kanter of the Harvard Business School adds, “People are messy. The theories Ghoshal criticizes have a scientific, analytical, and statistical bent that makes them appear difficult, but in reality, in practice, the so-called soft concepts, which hold that management is an art involving people, are much tougher. Executives state that. MBAs from Harvard Business School concur. And after five years, they frequently regret not enrolling in more people-focused courses instead of finance courses.”
Pfeffer and Ghoshal present a substantial body of data that indicates that studying business and economics is linked to moral and social flaws. Evidence of that was published by Donald McCabe who conducted a study of 16,000 undergraduate students at 31 schools and universities, and the results showed that business students committed nearly twice as many cheating offences as the average student.
Pfeffer, Fabrizio Ferraro and Robert I. Sutton cite data in an article in the Academy of Management Review that demonstrates students who major in economics are more likely to betray coworkers, act selfishly, and have a stronger predisposition to corruption.
According to Pfeffer, management education needs to become more professional, just like the medical and legal professions. “Ethics and morals are very much a part of medical school or law school, but they tend to fall by the wayside in business schools,” the Pfeffer claims. Although it is unclear whether this will become a widespread trend, some business schools have started to take action.
According to Kanter, “a growing amount of scholarly research demonstrates the link between profitability and considerate treatment of employees and customers, or between sustained financial success and a focus on all stakeholders… Maybe the right theories will win out in the end. If the world requires them, they will.”