Ethical leaders tend to run more profitable companies. Why? One reason is they usually show a strong personal commitment to affecting company culture.
Equally important, there’s a positive link between a company with a strong affirming culture, and individual performance. These same leaders will therefore be good at installing or reviving values that inspire colleagues. They provide their people with a strong moral compass and sense of direction. Consequently they also ensure good governance—the rules of the road. Compliance tends to pervade their company culture.
Further, ethical leaders tend to be personally committed to the long term. They’re willing to give this priority over immediate results and choosing quick fixes. For example, from the start of his tenure Paul Polman the ex Unilever CEO, shocked the City by boldly declaring he did not want shareholders who were mainly interested in short term gains.
While Polman’s stance came back to bite him in the form of a $143bn takeover offer from Kraft, his shareholders backed his long term vision and soundly rejected the unwelcome offer.
Other recent examples show leaders pushing to affect culture, while facing challenging business environments. In doing so they convey integrity and build high levels of employee engagement. The latter too plays an important role in positively affecting a company’s bottom line.
Uber and Out
Uber’s notorious founder Travis Kalanick seemed to have few scruples in his business practices. He advocated dubious cultural norms such as “Always Be Hustlin” and “Superpumped”. Seen as bullying and lacking integrity, his replacement Dara Khosrowshahi set about fixing the culture and giving Uber a moral compass.
As a new leader he earned worldwide respect by publicly apologising: “for the mistakes we have made.” Later he presented Uber staff with a revised set of core values or cultural norms. These were distilled from 1,200 ideas submitted by employees, and voted on 22,000 times. The resulting eight new norms included: “we build globally, we live locally”, and “we celebrate differences”. Most pertinently: “We do the right thing. Period.”
Doug McMillon also a new CEO, at the giant US retailer Walmart in 2014, faced an equally high integrity hurdle. Branded “The Beast of Bentonville”, Walmart had an unenviable reputation for ruthless trading methods. Again with few signs of a prevailing moral compass.
Within months of taking charge, McMillon raised the company’s minimum wage to $10 an hour, with further increases later. He overhauled the health benefits offered to its workers and embraced sustainability. This included initiatives to encourage staff to cycle to work. More recently, the company grabbed the headlines for announcing it would no longer sell ammunition that could be used in military style weapons and handguns.
Playing nice though won’t convince anyone that Walmart takes being ethical seriously. It must first build a new track record of corporate citizenship. It’s good to have plans. Performance though is better–words will not be enough.
The need for performance rather than mere words also applies to Wells Fargo. Progress in restoring its once prized ethical culture continues to falter. The Bank’s former CEO, Tim Sloan, abruptly stepped down in March 2019 after a bruising confrontation with Congress over the bank’s failure to clean up its act after its fake accounts scandal.
The bank continues to seek a new CEO willing to accept the poisoned chalice of leading Wells Fargo into a scandal-free era. Apart from solving straight business issues, the bank’s more ethical business leader must somehow rehabilitate its corporate culture and reputation. Nor will there be much personal kudos from doing so. The task will be made even tougher due to a long list of demands from regulators, plus an unprecedented limit on the bank’s growth imposed by the Federal Reserve in early 2018.
Potential CEO’s giving a bank the brush off, could be catching. Scouring the City for a new boss the UK’s Metro Bank likewise faces recruitment problems. Who wants a top job where regulators are investigating a major loan error and required changes to the bank’s structure? The winner of the top job will need a credible ethical record and a clear ability to affect culture.
In 2019 CEO Chip Bergh, took Levi Strauss private and made an unusual pitch to investors. Like Polman of Unilever before him, Bergh declared the company would now manage for the long term. It too would no longer provide quarterly earnings forecasts. Anyone seeking a quick win should not apply for shares. The favourable reception to this offer confirmed that investors do have an appetite for companies with a strong moral purpose.
Research bears this out. For example, companies investing more than average, and avoid excessive distribution to shareholders, tend to steer clear of scandal. They perform best over the long run. A McKinsey Global Institute Analysis also found that groups holding a long term view generated higher profits and shareholder returns.
Bergh has given an ethical lead or moral compass to Levi’s culture. He has done this through stressing both the long term over the short term, and by intervening in US political debates. For example he has spoken up about immigration and gun violence, defining this as
“…choosing the harder right over the easier wrong…I think we have an opportunity to show that you can run a company with profits through principles.”
The Social Licence
Affecting culture includes making sure the company retains the support of its local community. This is commonly termed a company’s “social licence.” Once dismissed by most mining firms as irrelevant, nowadays it’s real enough to test a CEO’s credibility as an ethical leader able to affect culture and “do the right thing.”
For example, Mark Cutifani CEO of Anglo American the global mining company, claims: the days of mining firms paying little attention or no attention to their social impact have gone. Miners need to “move beyond what we previously thought of as the way mining adds value.” Rival GBH, the world’s biggest mining company also now intends to “hardwire” local interests into its decision making.
Vale, another major mining company is still trying to repair the damage in Brazil from one of the biggest disasters in the history of mining. When a storage dam broke, over 250 people died. The head of Vale’s 400 strong special repair department explains the cultural shift the company must make. Until recently Vale leaders assumed creating jobs and taxes was enough. No longer.
“Our licence to operate will come from a permanent dialogue with society and listening to the community,”
Marcelo Klein, Head of Vale’s Repair and development unit. Reuters
For previous critics of the mining industry, these examples of improved behavior and attempts at transforming culture are merely the companies at last “doing what’s right.”
“Culture was always a vital part of Goldman Sach’s success” claimed the firm’s vice president, Greg Smith in 2012.
Resigning from the business he initially wrote a controversial article explaining that the Goldman culture previously revolved around teamwork, integrity, a spirit of humility and “always doing right by our clients.” This was the “secret sauce” that made the place great and helped win client’s trust. He went on:
“I am sad to say that I look around today and see virtually no trace of the culture that made me love working for this firm for many years.”
Maintaining an ethical culture that conveys integrity and trustworthiness helps define what it means to be an ethical leader. While company cultures may be hard to alter, they can suffer entropy–a gradual decline into disorder. For instance, how Johnson and Johnson handled its sabotaged product Tylenol, remains a much quoted case study in how to win the trust of customers. But the firm’s later leaders allowed the invaluable culture to fray and eventually to break. Today, the company finds itself besieged with numerous costly law suits.
From the wide ranging stories above it’s clear that ethical leaders have many ways to affect culture. So is there at least one that most leaders will need if they are to succeed? A prime candidate for this role is the singular ability to persuade others to follow their direction.
That ability now comes in the form of re-thinking corporate purpose. Today it is bad ethical behavior rather than poor financial metrics that will most likely get a top executive fired. And while “performance with purpose” has long been a business mantra, ethical leaders go much further. They develop a special ability to make companies far more employee and society-centric. In doing so they directly influence corporate culture.
One of the UK’s most ethically committed business leaders explains how bosses should behave in his book, The Ethical Capitalist. Julian Richer, founder of Richer Sounds built a company culture around treating people well and he promoted the importance of ethical behavior. Putting his approach into practice the annual staff turnover in his stores is less than half the average among retailers; losses from shoplifting or employee theft are minimal, at 0.1 per cent. This compares with around 2 per cent at most other retailers.
“I am sick of reading about dreadful entrepreneurs treating their employees badly and not paying their taxes. I don’t believe it works in the long term and gives us all a bad name.”
S. Ashley O’Brien, Uber’s CEO one year in: The one thing I wish I had fixed sooner, CNN August 29, 2018
D. Millward, Changing Times Trigger Attitude shift at Walmart, D. Telegraph, Business, 8th October 2019
J Guerin, Who wants to be CEO of Wells Fargo? No one, apparently, Housingwire.com, June 12th 2019
L. Burton, Troubled Metro Bank on the hunt for a new chairman, Daily Telegraph 9th October 2019
N. Hume, BPH pledges to make local needs count in decisions, “ FT 9th October 2019
N. Hume, Restoring trust proves tough task for Vale after Brazil dam tragedy, FT 10th October 2019
A. Edgecliffe et al, Profits through Principles is right for Levis, FT 11th October 2019
Predicting Long-term Success for Companies and Investors Worldwide, FCLTGLobal 30th Sept 2019
Measuring the economic impact of short-termism, McKinsey Global Institute, Feb 2017
J. Samuelson, Did the Business Roundtable just sound the death knell for shareholder primacy? Reuters, August 19th 2019
J. Moules, Treating staff and customers well pays dividends, FT, 21st November 2019