Creating Moral Organizations

By Michael Maccoby

Research Technology Management; Volume 48. No. 1. January-February, 2005. pp 59-60.

A recent movie, The Corporation, presents a diagnosis of corporations as though they were psychopathic individuals. The filmmakers cite the psychiatric manual the Diagnostic and Statistical Manual of Mental Disorders(DSM IV) 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’ve 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, September 20, 2004). That’s why William Donaldson, chairman of the Security Exchange Commission has accused many U.S. bosses of failing to provide ethical leadership for companies (Financial Times, September 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, 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 can’t 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 (1). 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. The U.S. Naval reactor program supports truth-telling and also learns from past failures like the Thresher and Scorpion accidents.

In contrast, NASA’s failure to learn from the Challenger accident in 1986 led to a second catastrophe 17 years later with the loss of the Columbia. Take a look at the Columbia Accident Investigation Report (2), especially chapter 6. “Decision Making at NASA” and 7, “The Accident’s Organizational Causes”. which describes how information gets rolled up, abbreviated and simplified as it moves up the NASA organization, and serious concerns such as the quality problems that led to the disaster are suppressed.

In moral organizations, people speak out, not just to protect the organization and their own careers, but to benefit their key stakeholders: customers, employees, and owners. At GE’s Niskayuna, New York global research and development laboratory, scientists working on long-term projects are encouraged to admit when they have reached a blind alley. According to Michael Idelchik who is in charge of advanced technology programs, “People are not punished for speaking the truth.” (Financial Times, October 11, 2004.)

What Leaders Must Do

Of course, leaders must articulate and model organizational values. At the Aspen meeting, Sidney Harman executive chairman of Harman Industries argued that the CEO should take personal responsibility for what people do at the front lines. “I didn’t know about it,” the excuse of Enron’s CEO, Ken Lay, should be unacceptable.

Lydia Thomas, CEO of Mitretek Systems, believes that moral values start with her company’s mission to improve the lives of Americans by making the government more effective and efficient. At Mitretek, employees are rewarded for defending organizational values, and Thomas leads a continual dialogue about how best to practice these values.

If leaders are serious about raising the moral level, they need to actively engage the organization. They need to show a real interest in learning how people are behaving throughout the organization. This is what Tony Barclay did when he became CEO of DAI, a global development company. He called a meeting of some 200 employees and used the results of a gap survey on the corporate values to invite a discussion about the meaning of the gaps and what it would take to close them. This initiated an ongoing process in which all employees are responsible for implementing the values.

You don’t have to be a CEO to administer a gap survey based on espoused values and initiate a dialogue about what it takes to close any gaps that emerge. Those leaders who have done this, including technology managers at companies like ABB and AT&T not only clarified the meaning of moral reasoning, but also stimulated ideas for improving organizational effectiveness. Of course, I don’t recommend this process unless you are sincere about respecting the results and following through. Otherwise, any exercise in values will dissolve in distrust and cynicism.

To summarize, for a company’s sustainable success, long term thinking is better than short term actions to please Wall Street. But long term thinking doesn’t guarantee moral behavior. That depends on leadership. Leaders who aspire to create moral organizations can start out by taking a hard look at their organizational values. Do these values direct employees to make decisions for the benefit of all stakeholders? Do the espoused values really determine employee behavior? Do these values include truth telling? If you want an answer, it’s easy enough to survey employees on whether or not they are encouraged to communicate truths that could result in lost sales or delayed projects. If you take steps to implement values, you may even discover that moral behavior benefits long-term profitability by increasing customer trust and avoiding costly product recalls, or major corporate wrong-doing.

Wise and visionary leaders will build a culture that rewards value-based dialogue and continual organizational learning. They will take the lead in modeling moral reasoning and decision-making. That’s the best way to create moral organizations.


(1) For a fuller description of Kohlberg's stages of moral reasoning and other views on the subject, see Daniel K. Lapsley, Moral Psychology Boulder, CO: Westview Press, 1996.


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