Excessive CEO compensation, wage stagnation, and the financial shenanigans in Corporate America have mobilized American sentiment around the need for a more ethical approach to business. While egregious and illegal business behavior is easy to disparage, getting a handle on the nuances of moral behavior in business is a bit more complex. Should these efforts take the form of better profit sharing incentives for a company’s workers, or do green building initiatives show a firm’s interest in being a good corporate citizen? Does it benefit a business to commit money and resources to large-scale philanthropic efforts or even employee work/life programs, for example? Essentially, what should be the moral obligation of Corporate America to its employees, the environment, or even the world-at-large? In this special story for Knowledge@Emory, top researchers and academicians from Goizueta Business School, Emory University’s Center for Ethics, and others give us their definition of the moral commitment of business.

Understanding the Basis of Modern Economics

According to Edward Queen, director of the D. Abbott Turner Program in Ethics and Servant Leadership at Emory University’s Center for Ethics, modern economics rely on business operating in a moral context. He notes, “Adam Smith’s Wealth of Nations only makes sense when you presume business undertakings occur within a moral environment. Promise keeping, for example, is presumed to be the groundwork for the business world in which we operate. It’s functionally important for companies to operate in a moral manner, and if this isn’t the norm, then it becomes expensive to do business. If you put Smith outside of that environment, you get the emergence of a kleptocracy.”

Queen also argues that businesses do owe certain things to their employees, “recognizing that employees commit to and produce the wealth for the organization.” Of course, Wall Street-driven results and a concern for shareholder investment has caused a disconnect between corporate earnings, worker efforts, and employee treatment, at times, he notes. Queen adds, “The push for return on investment above all else is the issue. And, it’s defined narrowly and in exceedingly short-term ways.” He cites record corporate earnings, and how these profits haven’t necessarily translated into increases in wages for workers. Queen notes, “The data shows that organizations that are more respectful of employees, and those that pay them better, can do well by doing good. This isn’t rocket science, since we know this from human interaction. Those who are more likely to get favors from us are those who treat us well.”

The disconnect doesn’t just happen in pay and treatment, notes Queen. The way employees are promoted, and how outside people are often brought in to lead an organization, doesn’t necessarily help the situation either. “There isn’t a connection to the corporation, such as there may have been [a connection] when people were working their way up through the business,” he says. “That’s why companies like UPS work so well. There is less of this disconnect between senior managers and those working on the shop floors, since there is promotion from within.”

Paying Attention to Intuitive Responses

In order to adopt a different approach, Queen notes that giving ethics courses in business or law school isn’t the only answer. He adds, “We are talking about adult moral formation. We need to ensure that in professional schools and businesses, the messages of expectation are not ethically distorting—that they are ethically consistent. It does require a massive shift to challenge individuals in business to think of themselves as ethical leaders. The research seems to suggest that the problem isn’t that people don’t know what the right answer is, but that they don’t know what to do. They need the tools to address moral challenges.”

Robin Koval, president of Kaplan Thaler Group, a New York City-based advertising agency, says that understanding and relying on a more intuitive response might be the answer. Koval and Linda Kaplan Thaler, CEO of The Kaplan Thaler Group, co-authored The Power of Nice: How to Conquer the Business World with Kindness, a business book exploring how kindness can help anyone get ahead in the business world. Koval notes, “Classic business training is often about suppressing intuitive responses. I’ve dealt with commanding and controlling bosses, as have many others. In my advertising agency, I won business by playing into the power of good and using my intuitive responses. People would say that my firm was better connected to them and that they didn’t sense the negative energy at our agency as they felt at other ones. They also said that at the other agencies, there was more time spent managing interpersonal relationships than handling business.” Koval credits a portion of her business success to her commitment to ethical behavior.

The Return on Reputational Capital

Diana Robertson, professor of organization and management at Goizueta Business School, believes that when business owners understand the import of their actions, then there can be a chance for change. She notes, “Corporations do have a responsibility to society. Society grants corporations the license to operate, and in return, it expects corporations to contribute to its overall well being. In more specific terms, corporations have a responsibility to their stakeholders, most usually thought of as customers, employees, suppliers, creditors, the community, and often the environment, as well as the shareholders.”

 

Robertson adds, “There is a ‘normative’ case for corporations to act responsibility, which contends that they should do so simply because “It’s the right thing to do.’” But, she notes, “There is a ‘business’ case, which states that acting responsibly will generate financial return.”

Jill E. Perry-Smith, assistant professor of organization and management at Goizueta, agrees and notes, “There is an interesting body of research related to corporate social responsibility, which sheds some light on this by looking at how corporate involvement relates to the firm bottom line. My research in the work-family area, for instance, tries to understand how involvement in the work-family domain is related to firm level performance. These are really complex questions, because the effects of getting involved with social issues are probably more long term, but it seems that at some level, firms can simultaneously thrive while being socially responsible.”

The success of companies such as Ben & Jerry’s Homemade (makers of the famous ice cream) or The Body Shop indicates financial and social pursuits aren’t at cross-purposes. Unilever purchased Ben & Jerry’s Homemade in 2000 for a reported $326 million, with the company retaining its brand identity and socially conscious efforts. It may be too early to tell if their philosophies will mesh, but giant cosmetics company L’oreal of France bought The Body Shop in the spring of 2006 for a reported $1 billion. Founder Anita Roddick stepped down from the board of The Body Shop, but she continues to work on the marketing efforts, as well as the sourcing of environmentally responsible base materials in the company’s products.

Nonetheless, the level of buzz and customer commitment surrounding socially conscious ventures usually results in an additional benefit to the company’s bottom line. Robertson adds, “There are over a hundred empirical studies that look at the relationship between corporate social responsibility and financial performance, and most conclude that there is a positive relationship between the two. Building long-term reputational capital can help to attract and retain employees and customers, as well as social investors.”