How to put ethics back into corporate strategy

04 February 2019

By Hari Tsoukas

The numerous corporate scandals that regularly grace the pages of the national media remind us how difficult the challenge is of ensuring organisations, the executives that run them and people who work in them, behave responsibly.

A common cause of these types of problem is the multiplicity of objectives in an organisation: the pursuit of excellence in what its members do, the drive for competitive advantage and success, and the demands of external stakeholders and society. Insofar as there is a misalignment among them the circumstances may be created in which corporate wrongdoing and unethical behaviour can take place.

In the early 20th century celebrated management thinkers were in little doubt that good management was not just about efficient administration but also about empowering individuals within organisations to provide value to society through collective action and common purpose.

Yet recent study of corporate strategy has been largely devoid of ethical concern, focused mainly on process - how to do it - as well as content - how to obtain competitive advantage - rather than on any ethical component of 'doing' strategy.

I believe that it is time to put the ethics back into corporate strategy. In doing so, senior managers will be able to create a better balance between the pursuit of excellence and success in organisations, as well as a better alignment between the organisation and the demands of external stakeholders.

Ethics may seem a remote and academic topic for managers to consider. However, ethics has very practical and meaningful relevance for managers, who, through specific actions to incorporate ethical consideration into the organisation's strategic decision making, can achieve the alignment outlined.

In a broad sense, ethics is about asking certain types of questions - how we ought to act, morally speaking. These are questions we not only ask in our personal lives, but questions that senior executives necessarily ask when determining the strategy of their organisations.

What is the organisation's purpose? What direction should the company go in? How is the firm going to compete with other firms? These are fundamental, practical questions about the strategic interests of the organisation - how they are to be conceived, broadly or narrowly, short term or long term - through which the leadership comes to understand and set the ethical tone for the organisation.

They are also questions that need revisiting regularly, as part of re-purposing the business in a constantly shifting business landscape.

How can Aristotle help in putting ethics into strategy?

To understand how ethics plays into corporate strategy in a way that allows managers to better balance excellence and success I favour an approach that references elements and ideas that date back as far as the work of classical Greek philosophy,  Aristotle in particular.

His work on virtue ethics - "the good life", character virtues and practical wisdom - remains of great importance for us today. As old as these concepts are, they are equally relevant to our 21st century corporate world.

Essentially, for Aristotle, a life is worth living when it aims at becoming a good life. A good or fulfilled life is one that fosters the cultivation of virtues, as without virtues we cannot get on well in life. To have a virtue is to strive to excel at something, and there is a moral dimension to this, as it involves, for example, humility and hard work.

The character (or moral) virtues that individuals develop, such as courage, generosity, and justice, for example, shape the way that individuals conduct their activities and meet collective ends.

In a way, the virtues 'program' people to make good choices of action. However, individuals also have to deliberate and consider what to do in a given circumstance.

What kind of virtuous behaviour is required in this or that particular context? This demands practical wisdom - an intellectual virtue that is the 'master virtue' in the sense that it takes into account the particular circumstances in which the moral virtues, which sometimes may clash (for example kindness versus sincerity), are activated.

Practical wisdom, when developed, provides knowledge of the moral virtues, the circumstances that are being encountered, and an intuitive sense of what to do, acquired and inculcated by previous experience and working with others.

As we are reminded all too frequently, in the corporate world being highly skilled or having a thorough understanding of company policies and procedures are not enough to ensure ethical behaviour. After all, corporate wrongdoing is often perpetrated by highly skilled, exceptionally knowledgeable individuals.

What is lacking are the character virtues and practical wisdom that ensure the right course of action is chosen at the right time.

Elements of Aristotle's work are potentially useful in helping organisations understand how to embed a more ethical approach into their corporate strategy work. But to make these elements more practically useful for managers and organisations we must also add some of the ideas of Scottish philosopher, Alasdair MacIntyre, author of After Virtue.

MacIntyre wrote about "practices", by which he meant coherent, complex forms of socially established co-operative human activity, through which particular "goods" associated with that form of activity are realised.

For the purposes of building an ethical component into organisational strategy work, we can think of practices as the productive core practices of an organisation, without which that organisation would not exist.

Take practitioners such as software writers developing open code, nurses attending patients, or maintenance technicians servicing a mobile telephone network.

All these people are working in their respective "practices" - software development project team, A&E nursing staff and field engineer unit. By pursuing the collective goals of that practice, its members produce and derive satisfaction from the internal goods of the respective practice - software development, nursing care and telecoms engineering.

These practitioners, engaged in their practices, need virtues in order to do their jobs well - virtues such as honesty, diligence, temperance, and fortitude, for example. Virtues also shape the relationships practitioners have with each other as they work together to develop their practices.

MacIntyre also introduced the idea of the "institution", recognising that core practices do not produce organisational success on their own. Core practices need to be institutionalised, to be involved in the competitive allocation of resources and rewards in order to be sustainable over the long term.

In other words, core practices need to be managed for attaining an overall organisational practice. If core practice members carry out the primary task of the organisation, managers carry out institutional work.

The latter is a practice in itself. To put it simply, organisations consist of two practices: the core practices that produce products and services and the institutional practice that seeks to provide coherence, direction, and sustainability to the core practice. 

Although closer to creating a practical framework for executive action, there are still some challenges to overcome. MacIntyre's view of practices is one of inherent co-operation. However, co-operative behaviour towards organisational goals requires specific types of structures and expectations to be in place within the organisation.

Research shows that individuals will often identify strongly with their practice, as an A&E nurse or a telephone engineer, for example, and seek to protect and defend those interests at the expense of the organisation's overall interests. They may, for example, engage in behaviour to protect their local autonomy at the expense of headquarter-led initiatives.

Also, a close and narrow focus on excelling at their own activities, may blind practitioners to what is needed for the organisation to succeed as a whole.

They may create a bubble removed from the realities of the world around them. As a result, they may lose sight of the fact that what they are achieving within their practice, no matter how accomplished, may no longer serve the interests of the organisation's overall purpose or indeed meets the changing expectations of the organisation's stakeholders.

Instead, the practitioners continue to preserve and improve existing standards of excellence, impervious to the fact that their efforts are ultimately unproductive when considered in the context of the organisation's strategy.

How to incorporate values in a corporate strategy

These issues need addressing. The senior management must ensure that both the institution and its core practices work together in a coherent way, serving the interest and goals of the organisation overall and allowing core practices to be successfully sustained over time.

To do this I suggest that managers engage in a few distinct types of decision-making activity, which should be a central part of strategic management in any organisation.

The first of these activities is endowing the organisation, and in doing so the core practices, with a unifying purpose and common values.

I call this values articulation work. Senior management needs to arrive at an organisational purpose that contributes to the good of the community at large. This relates to the idea of the 'good life'. 

The good life is about purpose. Indeed, recently corporations have been asking these types of fundamental question - what is the purpose of our business?

For example, are social media firms just platforms or are they also publishers? Do they merely connect people or do they publish content as well?

How these questions are answered defines what an organisation construes as a good life in the context of their business. A social media platform may believe that its purpose is to connect people, and connectivity is the value it is providing, for example.

Defining a purpose raises the question of how the organisation goes about meeting that purpose successfully. It necessarily involves certain values and in demonstrating those values, behaviours, to be embedded in the various practices that help deliver that purpose.

Such values and associated behaviours might include, for example, being open and honest with customers, being reliable and trustworthy, and taking care not to cause damage to local communities.

While these values may not be explicitly articulated, (although they may be in a narrow way for legal, regulatory and trade purposes, for example), individuals at all levels of the organisation should be aware and understand what they are. Insofar as values are internalised and practiced by the members of an organisation they develop into dispositions for action, namely virtues.

When an organisation avows a purpose and makes a value commitment, creating value for a community, it forms a relationship with that community and the various stakeholders involved.

But, over time, the needs of the community change, prompting further questions. For a provider of a social platform, for example, what personal information is it allowed to share with others? Should certain types of communication be filtered or censored?

The organisation needs to be self-aware since the various ways in which it currently creates value for external stakeholders may be at odds with the shifting interests of those same stakeholders.

An ethically alert senior management can sense the changing shifts in public opinion, in customer requirements, in legislation, in what people want broadly, and rearticulate the organisation's value and purpose and the behaviours required to deliver that purpose and when necessary.

Related course: Warwick Diploma in Strategic Leadership

A second aspect of strategic management should concern capability development. This kind of activity involves putting in place whatever is required to consistently perform the co-ordinated tasks required to achieve the organisation's purpose.

This will include, for example, identifying appropriate rules, structures and routines. It means developing internal capabilities, putting in place skills training that supports the values and behaviours required.

It is not just the technical skills that are important but also a certain orientation to tasks and a particular disposition for action that help fulfil the organisation's overall goals. How should individuals do their job? How should they conduct themselves?

However, capability development may clash with a third type of essential activity, differentiation. Strategy critically includes differentiating one’s organisation from others.

It goes without saying that for an organisation to continue to be successful it must keep differentiating itself from its competitors.

Using conventional strategy tools, senior managers analyse how the organisation can maintain a strategic competitive advantage by meeting changing stakeholder demands. However, in order to do this, especially as this is a constant struggle, there will be inevitable disruption of the organisation's core practices.

 

When core practices get carried away developing their own internal capabilities or self-interests, they risk losing sight of the organisation's purpose and jeopardising competitive success.

At the same time, an organisation driven only by competitive instincts risks compromising the behaviours and attitudes that drive excellence in its core practices.

To put it differently, an overly inward looking organisation risks losing sight of what is acceptable more broadly in the external world, and vice versa.

A critical task for managers in their strategy work, therefore, is balancing different interests - balancing on the one hand the drive to keep differentiating the organisation to remain both competitive and on the other the demands of external stakeholders. On the one hand, balancing the pursuit of excellence internally and the choice and development of internal capabilities on the other. It is a difficult balancing act that requires good judgement - practical wisdom.

The best strategic managers are those that are reflective, aware of the key activities outlined above, the way they interact, and the desired outcomes.

Managers must also outline the broader context within which core practices unfold, defining and disseminating the organisation's values.

Further down the managerial hierarchy, closer to the core practices, practitioners benefit both from the wisdom of and interaction with their managers, as well as their colleagues, by which they are able to understand and develop the skills and behaviours required for the practice to perform well.

It is by mastering the act of balancing excellence with success - balancing the development of capabilities with the need for competitive advantage - in the service of an overall organisational practice that strategic managers make a value proposition to society.

Doing the right thing does not mean narrowly securing the financial interest of the organisation, but acting in a way that is conducive to the good life - both for the society at large and for the members of the organisation in particular.

Further reading:

Tsoukas, H. (2018) "Strategy and virtue: developing strategy-as-practice through virtue ethics", Strategic Organization, 16, 3, 323-351.

Tsoukas, H. and Chia, R. (2011) "Introduction: why philosophy matters to organization theory", Emerald Group Publishing Ltd., Bingley, UK.

 

Hari Tsoukas is Professor of Organisation Behaviour and teaches Leadership and the Art of Judgement on the Executive MBA and Executive MBA (London).

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