Ethics and the Emergence of World Trade

Ethics and the Emergence of World Trade

Ethics and the Emergence of World Trade

The emergence of world trade is revealing much to us about how to succeed in a global economy.  But to understand the global marketing we must learn to think like people first and business executives second.  This of course seems to be easier said than done.

Everywhere we look our senses are bombarded with corporate reasoning that resembles intellectual incest more than logic.  First we are bombarded by boardroom news releases and management consultant incantations that progress requires strategic positioning such as the formation of trading blocks, the acquisitions and mergers of leading brands, the consolidation of distribution systems, or the establishment of restrictive supplier and customer alliances, just to name a few.  Since these strategies are so popular they must work, right?  Do not be so sure of this.

A closer look at world trade reveals that these developments are unsustainable surface tactics at best, and distractions at worst.  The real strategic developments, which will carry the most sustainable advantages, are found in the underlying background factors of technology and human behavior.  As the explosion in information and communication technology brings people closer together in world terms, the power behind global business shifts from structural systems to people systems.   As people systems emerge and interact with other people systems a powerful invisible hand extends its reach to influence whom the new winners and losers will be.  This invisible hand is our system of ethics.

Our system of ethics forces people systems to develop quality in their behavior.  Acting as a filter to remove unwanted behavior while retaining and developing good behavior, this filtering process is achieved through the pursuit of four attributes all human societies strives for:

  1. Logical processes and internal consistency.
  2. Coherence with other strong theoretical positions.
  3. Utility for individuals, groups, and humanity.
  4. Transactional success in a repeatable social system.

When applying the system of ethics we quickly find ourselves doing things differently, and these differences will open doors for world trade.

Our system of ethics forces us to conduct ourselves, as we would have others behave.  If we choose to compete fairly, others will be encouraged to do the same and trade will be a controllable enterprise where marketable products and services thrive in predictable ways.  Conversely, if we choose to reserve certain advantages only for ourselves at the expense of other trading partners, our outcomes at best will be uncontrollable as the market will react to our trickery with trickery of its own resulting in lost opportunities for the system as a whole.

Our system of ethics forces us to think in terms of quality.  In a global economy no sale is just a sale.  In a global economy every sale is linked severely to the endless chain of world suppliers who also participate in that sale.  In this economic environment any degree of non-quality passed along to a single customer creates a ripple effect of failure costs throughout the world system.  Even though the initial poor quality did not harm the original seller financially in that instance, a much greater harm was passed along to society and the world.  Poor quality by others harms us all every hour of every day.  Knowing this, our system of ethics requires us to do quality all the time, not just when it pays us immediately to do so.

Our system of ethics forces global traders to respect the ways of others.  Before any significant trade can be consummated there must exist a certain mutual interest, respect, and trust which underlies all trade.  There must exist the possibility of transactions, which meet the needs of both parties, not just one party at the expense of the other. There must exist a mutual respect for the ways of each so that neither will intentionally nor unintentionally offend the other.  For trade to occur there must be trust between trading partners.  Each party must know the other is committed to the relationship,  that stable operating environments of law, civil order, and commerce will be maintained, and that problems which arise will be resolved by a due process which is fair to all.  Mutual interest, respect, and trust are also central ingredients of people systems, and where there are people systems the power behind the people systems invariably will be their ethics system.

Therefore our success as world traders in the long run will not depend on the structures we organize around as they are shallow, tactical and unsustainable at best.  Our success will follow from strategies that focus on the quality of our people systems and the faithful use of technology and ethics which support them.


Business Ethics: Are they Important?

Business Ethics Are they Important

Business Ethics: Are they Important?

Leading business schools and management experts have stressed the importance of business ethics in the management.  They have stressed the risks associated with blatant ethical failures such as large legal judgments, prison terms, anti-trust litigation, fines, lost sales, lost good will, etc.  They have also stressed the moral need for organizations to do what is right for moral purposes alone.  While these reasons are all legitimate they miss the biggest reason why business ethics are important:  organizational performance.

Business ethics as a field of management has been stuck in “neutral”  or “external failure mode” for decades.  In this mode business ethics seeks to address only the blatant issues at hand, especially those which are associated with high external failure costs.  The reality is this is only the tip of the failure cost iceberg.  The  largest failure cost component in business ethics is actually the internal failure costs, or the failures that go on routinely within the organization every day, which go largely unnoticed and unmanaged.

The leading causes of many organizational problems -customer dissatisfaction, employee turnover, ineffective quality improvement and training efforts, failed mergers and technology projects, weak innovation, and failed product development – all have been linked as much to failures in the operating culture as all other factors combined.

Operating culture can be attributable to over half of all documented Quality Costs (Costs of Poor Quality).  If Quality Costs for world class organizations run between 10 and 15% of total sales revenue, the associated operating culture/ethics component in the best world class companies is costing companies billions annually.  If the average organization is running Quality Costs of 20-25%, the associated operating culture/ethics component is so significant it may pose an extraordinary opportunity for improvement or an imperative for mere survival.

Most quality improvement projects deal with visible processes such as discrete operations.  It is entirely possible to address the processes but still have major unresolved issues, especially people issues.  If people do not want to cooperate and work together, or if tensions are high, process improvement becomes increasingly difficult.  These people issues often are the result of  recurring “mini ethics failures” that need to be prevented.

There is a human tendency in management to seek single (special) causes for failure when multiple, systematic (common) causes are at work.  In such instances blaming failure on “poor leadership,” “poor employee execution,” or  “market externalities,”  may be convenient politically and identify scapegoats but in reality they rarely fix, change, or improve anything.  A major (common) root cause of sub optimum performance in organizations can consistently be traced to patterns of business ethics failures within the operating cultures.  The ability of organizations to manage ethics at this micro level is a process capability that yields significant economic returns.  This is what Ethics Quality is all about.


What is Ethics?

What is Ethics?

What is Ethics?

Ethics is a body of principles or standards of human conduct that govern the behavior of individuals and groups. Ethics arise not simply from man’s creation but from human nature itself making it a natural body of laws from which man’s laws follow.

Ethics is a branch of philosophy and is considered a normative science because it is concerned with the norms of human conduct, as distinguished from formal sciences such as mathematics and logic, physical sciences such as chemistry and physics, and empirical sciences such as economics and psychology.  As a science ethics must follow the same rigors of logical reasoning as other sciences.

The principles of ethical reasoning are useful tools for sorting out the good and bad components within complex human interactions.  For this reason the study of ethics has been at the heart of intellectual thought since the early Greek philosophers, and its ongoing contribution to the advancement of knowledge and science makes ethics a relevant, if not vital, aspect of management theory.  Ethical principles continue, even today, to have a profound influence on many modern management fields including quality management, human resource management, culture management, change management, risk management, mergers, marketing, and corporate responsibility.

Socrates argued that the determination of good or bad behavior depended entirely on the integrity of the rational process.  Plato argued that to know good was to do good, that doing good was more useful and rational than doing bad, and that one who behaved immorally did so largely out of ignorance.  Aristotle argued that ethics was a purely logical outcome of human nature and it was useful because it was logical.  Kant argued that system-wide consistency was a logical requirement of ethics, stating that ethics begins with the rejection of non-universalizable principles, and that any adopted ethical principle must be a desirable universal law to be applied by everybody.  Pareto clarified the win-win relationship into philosophical terms by defining Pareto Efficiency as the transactional state where at least one party is better off, most are as well off, and none are worse off.  These are just a small sampling of powerful ethical principles that, when applied, will improve performance in any organization.

Ethics is much more than just a collection of values.  Values are almost always oversimplifications, which rarely can be applied uniformly.  Values tend to be under-defined, situational by nature, and subject to flawed human reasoning such that by themselves they cannot assure true ethical conduct.  Consider the sought after value of employee loyalty. Should employees be loyal to co-workers, supervisors, customers, or investors?  Since it may be impossible to be absolutely loyal to all four simultaneously, in what order should these loyalties occur?  Employers that demand employee loyalty rarely can answer this question completely.  Regarding the inadequacy of values, consider this.  Murderers, criminals, and liars all have values, so does this make them ethical?  Also, killing can be either unethical or ethical (such as in self defense) depending on the situation (religious arguments aside for the moment).  For these reasons and more, values by themselves are generally insufficient measures of ethics.

Real ethics calls for a more rigorous treatment of the subject than most business ethics approaches take.  Real ethics is a process of rational thinking aimed at establishing what values to hold and when to hold them. Real ethics requires the continuous realignment of values and reasoning patterns in accordance with ethical principles. In real ethics, we must be ready to adjust our values, thinking, and behavior to be ethical and to remain ethical over time.  Hence, ethics demands a willingness to change.  In organizational ethics we find a metaphysical paradox.  Change management requires ethics, and ethics requires change management.  Since both are true at the same time, with each preceding the other, we can only conclude one thing:  that indeed the quickest way to assure poor ethics may be to require fixed adherence to values.

Real ethics is about ordering the complexities of human behavior in the most useful manner for all involved. Subsequently, in every conceivable human endeavor there exists an ethical component that either succeeds in achieving usefulness and good for all involved, or fails to do so in varying degrees.  This gap between reality and the ideal state can be expressed as a quality problem and solved using both ancient and modern management methods.

Ethics Quality occurs when two conditions are met: when a repeatable reasoning process is followed; and when the outputs of this reasoning result in the intents, means, and ends all being “good.”  When the conditions for ethics quality are met the organization becomes capable of preventing ethical failure, not just catching and punishing it.  Without a means of prevention organizations have no means for controlling its ethics quality.  The key to good organizational ethics is awareness and real time detection (before the fact, not after).  Both awareness and detection can be greatly enhanced by basic awareness training, training aids and group diagnostic surveys. It is a regrettable fact that most ethical failures in organizations are detected well after the fact making any realistic prevention unlikely.

Poor ethics can be extremely damaging to organizational performance (ref. Enron).  When ethical behavior is poor it taxes operational performance in many visible, and sometimes invisible ways. The tax can be on yield or productivity, which is easily measured. The tax can impose itself on group dynamics, suppressing openness and communication, which is hard to measure but easily felt.  Perhaps the most dangerous tax is the one placed on risk, which is neither measurable nor easily sensed.  Whether the damage is visible or invisible, poor ethics blinds the organization to the realities of their declining environment leaving any organization vulnerable to setbacks that could be avoided.

Good ethics on the other hand have a surprisingly positive effect on organizational activities and results. Productivity improves.  Group dynamics and communication improve, and risk is reduced. One reason for this is ethics becomes an additional form of logical reasoning, increasing the flow of information, and adding an additional set of eyes and antennae to give the organization needed feedback regarding how it is doing.  Increased reasoning capabilities, coupled with additional information, is a strategic advantage in any business or organization.

Real organizational ethics is a rational process for exploring all possible behavior alternatives and selecting the best possible choices for all involved.  Real ethics, at the organizational level, goes beyond personal ethics and values.  Real ethics is a collective undertaking, or a team sport, with team like demands and results. Ethical issues in organizations can get complicated very quickly, so much that even the best trained ethicists often will not know what decisions to make or what ought to be done. Such times are precisely when the disciplined reasoning of ethics quality pays off the most. Ethical decisions and their corresponding behaviors in organizational settings are never perfect. However, the quality of the processes applied, as well as the usefulness of their outcomes, is precise and measurable with scientific certainty.  It is through the process of ethical reasoning that bad things are preventable and great things become more possible.

Organizations need ethics quality not only to prevent unhealthy behavior but to inspire superior reasoning and performance.  It is only through human nature, and ethics, that we can inspire greater levels of innovation, teamwork, and process breakthroughs that result in sustainable competitive advantages.  Oliver Wendell Holms wrote, “Once a person’s mind is expanded by a new idea the mind can never return to its original form.”  The same is true with management and ethics.  When managers understand how ethics makes them better, their role as a manager changes forever.  Once ethics is learned we all acquire the ability to see what we often could not see before.  We see that using ethics – the reasoning science – to improve individual and group performance is what real ethics -and real management- are all about.

Nine Attributes of Good Ethics Policy

Ethics Policy

Nine Attributes of a Good Ethics Policy

The first objective of any ethics policy is to facilitate legitimate ethical reasoning activity. It is impossible to merely glance at an ethics policy and judge its “goodness.” The true test of any ethics policy is how it actually works within a specific organization. The following attributes are frequently missing in weak ethics policies, and are positive drivers in strong policies:

1. Addressing the “Big E (not just the “little e”)

Policies not only need to address compliance issues (the “little e”) but  the “Big E” issues such as reasoning, prevention and performance.  The “little e” is more about control and compliance, whereas the “Big E” is about assuring that intents, means, and ends are “good.”  For ethics policies to be impactful and truly improve ethics and contribute value to the organization, they need to be more about the “Big E” than the “little e.”

2.  Universality

Ethical policies must be based on sound logic and universal ethical principles (such as The Golden Rule and The Greatest Good), and these universal principles must be capable of trumping compliance policies.

3. Sound Logical Reasoning

Most ethical reasoning flaws begin with logical reasoning flaws. Ethics policies need to reflect a commitment to data driven and logical decision processes, information sharing, effective dialog and examination.  Ethics can not operate without facts and execution between people. See our training aid Organizational Reasoning.

4. Ethical Examination Skills

Ethical reasoning is a process capability that is a component of organizational reasoning capability. Without sound ethical reasoning the organization becomes less capable of solving problems and making sound decisions. Ethics policies need to reflect a commitment to developing ethical reasoning capabilities at every level of the organization, with every employee, regarding how to elevate dialog and reasoning to “right versus right” reasoning modes. Developing and sustaining  such skills requires an organizational commitment to training, practice and rewards. See our training services.

5. Transforming “wrong” to “right” and “bad” to “good”

Good ethics policies promote skills where logical fallacies and ethical lower forms will be identified and transformed into higher forms of universal ethical reasoning. The transformation of wrong thinking, wrong actions, and bad outcomes to right thinking, right actions and good outcomes is the “blocking and tackling” of organizational ethics. See our training aid 101 Fallacies and Lower Forms. To encourage this constructive activity the policy must assure that any employee may freely engage and question the ethics of any action without penalty. The organization needs to actively solicit inputs from all participants to aid in the identification of ethical issues. See our Online Group Surveys and Diagnostics.

6. Prevention

Ethical policies need to emphasize the importance of identifying “bad” ethical rationale and transforming them to “good” ethical rationale, as stated in Attribute #5, but with one kicker:  It must be accomplished before the fact.” Most ethics policies are compliance based and merely catch wrongdoing “after the fact” when many of the failures, if they had been identified earlier, could have easily been prevented. A good ethics policy incorporates early warnings and checks and balances, not merely to catch and punish violators, but to identify emerging risks, facilitate behavior change, and to prevent ethics failures.

7. Organizational Change Orientation

Organizational processes and practices impose a dominating influence on individual ethical behavior in organizations. Ethics policies need to encourage and reward the willingness to adapt values and behavior patterns to improve the organization’s moral maturity. Policies need to confront processes more than individual’s actions, and focus more on awareness and change than just compliance. Adherence to fixed value positions at the exclusion of systematic causes in an organizational context can itself become a cause of unethical behavior, posing an even greater liability to the group than minor issues of noncompliance. Moving the entire group to the next moral maturity level is far more important to organizational well-being than punishing an employee for a petty violation that should have been prevented in the first place.

8. Employee Training

Ethics policies should require uniform ethics training around logically applied universal ethical principles. Furthermore, after initial training the principles need to be continuously emphasized, integrated and promoted by a structured managerial effort, team or committee. Most employees need to be exposed to the ethical principles several times before they can internalize them, and most need to actively practice them with the support of fellow workers to develop proficiency with them. See courses: Basic Ethics Training and Getting Ethics into Organizations.

9. Leadership by Example

Ethics policies are not tactical or symbolic monuments that executives can erect and delegate, or worse yet ignore.  Ethics policies are only as valid as the commitment  management give to them. Management is ultimately responsible for the firm’s moral maturity level, and therefore needs to be held to a higher ethical standard than regular employees, not the lower standard we too often see among corporate leaders. Management’s commitment to organizational ethics sets the tone for the ethical direction and performance of the entire organization. Management determines whether that direction is positive, negative, or stagnant. Therefore, ethics policies themselves are not the primary indicator of an organization’s moral maturity. Management’s commitment  to preventing poor organizational reasoning and conduct, and their willingness to hold themselves to a higher standard and lead by example, are the two greatest indicators of ethics excellence in the organization.


Ethics Tests

Ethics Tests

Ethics Tests: 

  • Determine the quality of your group’s ethical reasoning skills.
  • Serious about getting ethics into your organization?

Quick Test for Organizational Ethics Quality

[answer “yes” or “no”]

  1. Are you proud of your group’s ethics?
  2. Are communications void of false pretexts or hidden agendas?
  3. Do ethical codes, policies and practices work positively for everyone?
  4. Is the group routinely improving processes with high consensus?
  5. Do improvements matter and/or last?
  6. Is current resistance to change normal and/or inconsequential?
  7. Is there sufficient trust and openness to resolve important issues?
  8. Are existing practices and policies free of double standards?
  9. Do your superiors set good examples and reward good ethics?
  10. Are your group’s ethics an asset that contributes to business results?

Count the “No’s.”  How did you do?

0 – 3 = excellent,  4 – 6 = average,  7 – 10 = poor.

If you scored average or worse, your organization probably has significant room for improvement and would benefit from assessment and training services.

Short Basic Test for Applied Ethics Quality.

  1. Are lower forms of ethical reasoning routinely interfering with ethical reasoning and decision making?
  2. Is the group routinely failing to meet it’s highest duties in its everyday decisions?
  3. Do everyday decisions generally fail to meet the Golden Rule and serve the Greatest Good for the Most?
  4. Are involved or affected parties routinely excluded from consideration?

Count the “No’s.”  How did you do?

3 – 4 = excellent,  2 = somewhat deficient,  0 -1 = poor.

Short Advanced Test for Applied Ethics Quality.

  1. Are most decisions refined to “good versus good” alternatives?
  2. Are at least 3 alternatives generally considered?
  3. Do meetings often have false pretexts, claiming to be about making a decision when in fact the decision has already been made and only group buy-in is sought?
  4. Are attitudes and decisions monitored and corrected if found to result in unethical consequences?

Count the “No’s.”  How did you do?

3 – 4 = excellent,  2 = somewhat deficient,  0 -1 = poor.


Corporate Responsibility

Corporate Responsibility

Corporate Responsibility

It takes more than words and policies.  It takes management actively championing ethical reasoning skills and an ethical operating culture.

There is a nexus between ethics, cultural practices, and corporate responsibility.

  • It is not sufficient to just have an ethics or corporate responsibility policy.  If that was all it took, Enron would still be flying high.
  • Culture failure is one of the leading preventable business expenses, yet it gets the least investment in prevention.
  • Culture failure is a leading cause of failing to meet one’s corporate responsibilities to basic governance, environmental and community obligations.
  • Real ethics and corporate responsibility depend on ethical reasoning skills and cultural practices, not policy.
  • Ethics policies often cannot be logically applied to every situation uniformly. Yet corporations expect them to be followed absolutely and tend to enforce them selectively.
  • Bad ethics policies can actually cause unethical behavior to emerge in organizations.
  • Unethical behavior is caused by the convergence of reasoning flaws, attitudes, pressure and opportunity.
  • Severe forms of frustration in the organization are symptoms of ethics and culture failure.
  • Managerial action to merely deal with symptoms of frustration, instead of preventing its root causes, usually makes the culture failure worse than if nothing had been done at all.

Do you want to just appear to have corporate responsibility, or do you want to truly have corporate responsibility?

Is your ethics policy effective?

Read this and find out.