Business ethics: how to do the right thing in a turbulent world

Ethics can be a confusing concept in the business world. Defined as a set of “moral principles that govern a person’s behavior or the conducting of an activity,” in reality ethics can mean many things, depending on your particular company or culture. So is business ethics just a way for companies to improve their reputation? Is it mostly about compliance? And why does it matter?

Alison Taylor is executive director of Ethical Systems, a US think tank and research center that builds bridges between academia and the business world. She teaches professional responsibility and leadership at NYU Stern School of Business and works on “challenges at the intersection of corporate integrity, risk, and responsibility.” She’s currently writing a book on how companies can break down silos to approach integrity in a more global way. Her multicultural, cross-disciplinary background is undoubtedly one of the reasons she learned to talk about ethics in a way that makes sense to non-specialists. So here’s what we asked.

What exactly is business ethics? And what does it take to be an ethics expert?

Alison Taylor: What we have historically called “business ethics” is really much more about legal risk. And so we’ve had ethics dominated by compliance people and lawyers trying to protect their company from regulation, from investigations, prosecution and reputational risk. Obviously, the law does have something to do with ethics, but not everything to do with it. In a recent class discussion I had with undergraduates I asked them about ethics and all of them went off and had a conversation about what banks should do about climate change. So what we think of as ethics is not what it used to be. Now we also think about what companies should do on human rights, climate change, gun control or inequality. Consumers, investors, and employees are becoming much more concerned about the relationship between business and society.

So ethics has moved from something that’s strictly legal to a multi-stake issue that is now being redefined. How would you explain ethics to a 10-year-old?

It’s the question of what we should or shouldn’t do to be consistent with our values. There’s the philosophical approach that discusses what we should and shouldn’t do in different situations, which involves different ideas that people find difficult to agree on. Another approach is based on the psychology behind the decisions we make and aims to determine what people are likely to do in certain situations.

You have to consider how the human brain works, how we act in groups, how we’re influenced by the people around us, and how the ideas in our head translate to how we behave in real life.

So how does it apply to work? What’s the history of ethics in the world of business? When did it emerge in corporate discourse?

Questions of business ethics aren’t new. If you read Cicero or Aristotle, you’ll see people thinking about how business and money should interact with other obligations. The conversation evolved in different ways in different countries. In the US, there were a lot of corporate scandals in the 1950s, 1960s and 1970s, which is when government pressure to do something about these issues started to mount. This led to the rise of what is now called corporate social responsibility (CSR). What leaders were saying with CSR was: “We don’t need to be regulated. We’ll manage our own risks, do the right thing and donate to charities. That’s how we’ll reduce the negative impact we might have on society.” Arguably we can think of the 20th-century origins of business ethics as a form of public relations.

Then the idea emerged that the government ought to be able to penalize companies for doing the wrong thing. What we now call compliance is this idea that the government can evaluate what you did to prevent your employees paying bribes or committing fraud, for example. If you can prove that you made an effort through training policies and oversight, you will be punished less for whatever problems do arise. But from the 1990s onward, companies became much more global. They opened factories in Asia and got their raw material from all over the world. Legal questions became less relevant. A lot of NGOs and activists were concerned about child labor and deforestation, for example. Public pressure started to mount.

At first ethics was solely about the idea that a company is only responsible to its shareholders, and as long as the company isn’t breaking the law, it doesn’t really need to do anything more.

For a long time, the only thing that mattered was legal risk. Today there is more pressure related to the impact of things like climate change or human-rights abuses.

We’re starting to really question the idea that legal compliance is enough. In the 2020s it’s a very different conversation about what companies should be doing to reduce their negative impact on society and the environment.

So to sum up, I’d say there are two ethics tracks: one is really about legal compliance (how to stop you breaking the law), the other is more about reputational risk (how to behave better in countries where there is less legal oversight). That’s why there is something called ethics and compliance on the one hand, and environmental, social and corporate governance (ESG) on the other.

How do these two tracks interact and intersect?

Well, they don’t really interact much. I started off working much more with ethics and compliance teams as I investigated corruption investigators (who, in the labor force, were paying bribes). I did due diligence on potential investments. All that was for 12 years. Then I moved to working in sustainability. It was like Alice Through the Looking-Glass. These are completely different worlds, ideas and concepts of what a good or bad business is. I found this amazing. I was fascinated by the disconnect between the two tracks. Compliance is about a defense from legal risk while sustainability is a sort of PR meant to help the company look like it’s doing the right thing to manage its reputation. Arguably neither track really thinks about ethics.

But now I believe we’re seeing these worlds converge a lot more. With Ethical Systems, we’ve just published a paper for the World Economic Forum about The Rise and Role of the Chief Integrity Officer, because we’re starting to see one leader take responsibility for both domains and companies are having to think about a more strategic approach to ethics.

Another good example is Spotify losing billions of dollars in valuation after Neil Young pulled his music off the platform because it was still running Joe Rogan’s controversial podcast. It’s not an ethics and compliance issue. It’s not even a sustainability issue in the way that we would think about it. But clearly it is an ethical issue that has huge financial implications. The kind of issues that companies need to manage today don’t necessarily fit into the kind of frameworks we’ve been using so far. They need to try and adapt in real time.

Reputation still seems to be the number-one concern. How do you prevent all these corporate actions from being about reputation alone? How do you make sure companies walk the talk?

A lot of people focus on reporting. There’s this idea that if the reporting gets better, things will improve. I’m not so sure. A lot of the time companies think about what they’re disclosing at the expense of actually doing something about the problem itself. As a company you do need ethical principles. The “business case” for doing the right thing (the idea that you make more money if you do it) isn’t always convincing. The reality is, you still need to make very difficult decisions about what you’re going to prioritize. And the market will sometimes punish you for doing what’s right. Just think about the Danone case: the CEO got removed for trying to do long-term, ambitious work on the environment because the shareholders were too impatient. Another way you can tell if a company really means it is what employees are saying about it. More employees speak up to hold companies accountable: “I know this company says it’s doing a lot on diversity or climate change, but it’s not really.” This is creating a more transparent environment.

As employees, consumers and investors, we all need to be a lot more critical and a lot more rigorous about how we evaluate businesses.

You said earlier that transparency is not enough. Is there magical thinking when it comes to transparency?

I don’t think transparency is bad, I just think it’s insufficient. You do hear this sort of discourse, that if we get the metrics better and if we push companies to disclose, then companies will be more accountable and they will have to change. But in reality, it doesn’t quite work that way. Since 2013, public companies in the US have had to disclose the gap between their CEO’s pay and the average employee’s pay, but since then that gap has only gotten much worse! We can question whether disclosure alone actually drives change.

Also numbers don’t mean anything out of context. Your carbon emissions or average wages depend on the industry and country in which you operate. Without the trajectory and the context, it’s very difficult to make sense of them. A lot of reporting agencies and companies ask for disclosure because it’s so much easier than trying to actually make sense of these things you pretend to be transparent about. Often you can get a higher ESG rating just because you have a disclosure policy. It rewards managing appearances at the expense of managing the actual issue. Also gathering these numbers in a big business is a ton of work. There are people in these companies who do nothing else all year long besides gathering these metrics.

There are two or three full-time jobs spent chasing data but these jobs could be about managing the actual issue!

Photo: Bess Adler for Welcome to the Jungle

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