What is ethical leadership and does it matter?

Let’s talk about noodles!

Food giant Nestle in India, is currently battling to preserve its instant noodles brand Maggi. This is a long-standing favourite of millions of consumers.

Surprising evidence the noodles contained unsafe levels of lead and traces of monosodium glutamate (MSG) has proved a direct challenge to the ethical leadership of the company.

Maggi noodles

Sadly, the most senior people failed to give an ethical lead. Consequently this has created a new case study on how not to handle an ethical crisis.  A secondary story arises over what it means to be an ethical leader.

Ethical leadership is about doing what’s right, not just following rules or conforming to codes or regulations. A company might be acting entirely within the law, yet still be doing something entirely wrong. Being an ethical leader is therefore not just a case of staying legal, as the Starbucks, Google and Amazon tax saga  showed.

A good example of how being legal can still be ethically unsound is Mountain Top Removal. This is a cheaper way of digging up coal than mining it. In the US this has done terrible environmental damage, even though technically it’s legal.

MTR2

Faced with difficult choices, ethical leadership asks tough questions, such as “what is the right thing to do? “Would we harm people by taking or not taking action?” “How would we feel if this story hit the headlines?” “Would our employees and stakeholders be proud of what we have done?”

Nestlé’s leadership failed to see the Maggi problem as an ethical one. Rather than answering the obvious question : “Should we withdraw this product since some tests show it’s not safe?” the leaders appeared to hope the issue would somehow go away.

They kept quiet about the issue for three whole weeks, even though facing a demand from regulators to recall the product.  Three weeks later Nestlé’s leadership bowed to the inevitable after facing a social media storm.

The company issued a tardy press release on 21 May admitting receiving a recall order, but then offered a denial carrying little conviction:

“The company does not agree with the order and is filing the requisite representations with the authorities.” It added: “People can be confident that Maggi Noodle products are safe to eat.”

This defensive response was treated with the disdain it deserved. Responding to public anger, several states ordered tests and started issuing bans on the sale of Maggi noodles.

By the first week in June it became a full-blown crisis. The company’s global CEO, Paul Bulcke, flew into Delhi to handle the crisis.

Nestle After his meeting with the national food safety regulators, Nestlé said it was withdrawing Maggi noodles from stores “despite the product being safe”. Almost simultaneously, the national food safety regulator ordered Nestlé to recall all Maggi noodles from store shelves.

Ethical leadership would not have waited to be forced in this way to withdraw the product. Nor would it have tried to deny the problem, when clearly evidence suggested there was a case to answer. The resulting damage inflicted on the brand and the company has yet to be fully quantified, but it is clearly significant and likely to be long lasting.

Doing the right thing and having integrity in your business practices is the best protection of a company and is brand.  It is also why employees remain highly motivated and want to remain with their company.

Can we afford ethical leadership?

JenkinsBut what is ethical leadership these days, and can we even afford it? With the recent departure of Antony Jenkins from Barclays where he was attempting to change the entire culture of the organisation to be more ethical, it is tempting to give in to a degree of depression.

If Barclays cannot afford and tolerate an ethical leader who can? But asking whether a company can afford ethical leadership is much like asking: “Is education expensive?” To which the obvious answer is: “Have you tried the cost of ignorance?”

Today the risks associated with unethical business behaviour are becoming stratospheric, especially if you are a bank or a financial institution. In our hyper speed world, where keeping secrets seems increasingly difficult, there’s growing awareness that being ethical is not just being risk averse, it makes absolutely business sense.

There is now extensive evidence showing companies with ethical leadership that acting in a responsible, or principled way is likely to be far more successful, long lasting and and indeed profitable than less ethical ones.

Here are the top five reasons why it pays to be ethical

top 5 for runing a business

See also: http://tinyurl.com/o6qxjqs for more details

The price paid by companies for behaving badly keeps on rising, as Nestle in India is discovering. So it really pays to get clear about what it means to be ethical in an organisation.

The Trust Deficit

Apart from a stream of enforced exits by CEOs, mounting fines, priceless damage to reputation and loss of customer goodwill, we’ve seen a steady drop in society’s trust in business leaders.

Yet behaving ethically is not just a case of staying legal. As the Starbucks, Google and Amazon tax saga  showed.

No matter what type of organisation you run, every business leader needs to be able to answer just seven basic questions about the ethics of their business. Can you suggest what these might be?

Despite evidence that being ethical makes sound business sense, there  remains a steady stream of people questioning whether business and ethics are compatible. In financial services for example, even some senior leaders seem luke warm about their ability to stay ethical while still making money.

This partly reflects an obsession with short termism which is partly what undid Jenkins at Barclays—the benefits did not come quick enough for the most driven money men. Short termism is the curse of companies trying to be ethical. Just as bad money drive out bad, so greed drives out ethical behaviour.

So how does a leader know they’re actually running an ethical business? At least two dozen formal rating systems exist that try to define an ethical organisation. Each though has a slightly different take on the criteria.

One the most well known assessments is by Ethisphere, a decade old consulting firm based in the US. It issues an annual list based extremely detailed company information and called the “World’s Most Ethical Companies.

To qualify for this list a company must have robust corporate compliance programs and strong social responsibility policies. Those on the list also need to comply with other guidelines, and should be monitoring their supply chain to ensure it meets international law and labour standards.

In 2015 132 companies made the list spanning 21 countries and five continents and representing over 50 industries. Nestle a global company is not on this list.

 

©  Andrew Leigh, www.ethical-leadership.co.uk

 

 

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