What some leaders have in common with two-year-olds, according to a corporate philosopher

In Conversation With…Roger Steare on why the current definition of profitability is a fraud, why we need a carbon negative economy to survive and who should set corporate values.

by Kate Magee
Last Updated: 13 Jul 2022
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Food for thought

Can a business ever be truly ethical, or does money always corrupt? Should businesses take political viewpoints or can they remain neutral? Whose ethical values take precedence in an organisation?

These are the difficult questions that corporate philosopher Roger Steare has spent his career trying to answer. He has advised several boards and business leaders on how to tackle tricky ethical issues. His most high-profile assignments include working with BP after the Gulf of Mexico disaster, and advising Barclays, HSBC, Lloyds Bank and RBS after the credit crisis, PPI and Libor scandals.

He spoke at Management Today’s recent Leadership Lessons conference on whether businesses should take a political stance in an increasingly polarised world. Here are some of his key thoughts. 

Do businesses have an ethical responsibility above complying with the law?

It ought to, but we must remember that businesses are designed for the people involved to avoid personal responsibility. It's called limited liability. That was designed originally to prevent them from infinite losses, so if the business went bankrupt they would lose only the value of their stock, they wouldn’t have to discharge the debt incurred by the business. But that whole ethos of avoiding responsibility and simply complying with the rules or the law is where we're at for many. 

Business leaders tend to follow the rules. Harvard psychologist Lawrence Kohlberg called that moral infancy. In other words, if your moral compass means you only comply with the rules of the law, that’s where we start with a two year old infant, who is behaving in ways that are distressing for us and them. 

My colleagues and I assess how business leaders make moral decisions. Unfortunately, many businesses not only work within a complex legal framework in terms of company law, many of them operate in regulated sectors, such as finance or energy, where, in a typical large scale global corporation, they are subject to over 30,000 rules. From a psychological perspective, if you're trying to grapple with what you can and can't do in terms of Mummy and Daddy’s rules, then you stop thinking for yourself. You stop making judgments.

Finally, business leaders are usually genuinely good people who want to do the right thing. But the feudal totalitarian state of the corporation turns them into compliant robots. Not only do they follow the rules, but they suppress their humanity, and actually don't consider the impact of their actions on other people, including not only their customers and communities, but their employees.

What would you say to leaders who still subscribe to Milton Friedman’s doctrine that the purpose of business is to make money for shareholders?

If you believe that, you don't understand what money is. Money is a promise that we trust. If you break promises, you destroy trust and destroy money. If anyone believes Friedman now, they really haven't thought that through.

On the back of every dollar bill, it says “In God We Trust”. That is a really serious point - people do not understand that money only has value because good states and good systems trust each other.

If you think that your purpose in business is simply to create short term profits, then I don't know what century you're living and working in. 

According to current accounting standards, the definition of profitability is a fraud. You have to think about externalities. To assess the true cost of running a business, you have to look at the cost of what you destroy, and what you damage in terms of pollution, resourcing, and so on and so forth. 

There's a long way to go until we get an understanding that we need a very different way of defining whether we're adding to our existence on this planet. The whole ESG agenda is very much part of this. Not just the environmental side, but the “S” being the impact on communities and the impact of employees. The governance side is where the ethics lie.

Who is responsible for ethics in a business? 

I've actually done some research around this point and asked businesses who is responsible for ethics in their organisation. The booby prize went to one organisation who said their group head of communications was responsible. That really nailed it for me in terms of the ethical desert that’s out there. Only two out of the 24 companies I surveyed gave what I think is the right answer, which is that everyone is responsible for deciding what is right. 

Where are the guiding minds of the organisation and the institutional shareholders on this? Get a metaphorical campfire. Engage with investors, non-executive directors, customers, and people who run the business and have fruitful discussions around the right thing to do and how to decide. 

The energy and the political beliefs of younger generations are reshaping this landscape at the moment. If you're not thinking very seriously about ethics, then you're not going to recruit the next generation of talent.

Are you optimistic about businesses’ ability to act morally in the future?

If you read the business press, there’s a backlash against ESG and CSR in general. You’ve got to remember this is all very young in business terms. I like to think the reason there's a backlash is because these early attempts to really bed in these kinds of policies, principles and investments, has often turned out to be a fudge. It’s not very well thought through, too much is being driven by perception over substance, and therefore people are quite rightly saying it's a bit of a mess.

The right conclusion to draw is not “so let's chuck that all out again, all we have to do is make profit, hooray!” It’s to say, we need to improve this and take it to the next level. 

That means you’ve got to get beyond the checklist and the PR and promotion approach. I don't think enough people have gone deep enough with this whole issue, so no wonder they're floundering around when people point out the inconsistencies in the hypocrisy in what's going on.

I'm optimistic but only when we confront the brutal realities that are facing us. We're quite rightly concerned about what's happening in the Ukraine and with inflation. I'm very bearish about the economy. I think we're about to be asked to pay for literally centuries of neglect and abuse of our ecosystem.

We have to transition to not only a carbon neutral, but a carbon negative economy in order to survive. I think we need to look very carefully at our biosystem and the way it's failing and will fail to support us. 

Hope is a very powerful thing. But for me, hope comes from confronting the brutal realities and tackling them, rather than keep sweeping them under the carpet and letting our children and grandchildren fix it. That’s a form of child abuse, frankly. 

 

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