Brics versus the west, management ethics defined and proving links with financial performance

Brics and ethical cultures

Charles Hampden-Turner and Fons Trompenaars’ landmark book on organisational culture – The Seven Cultures of Capitalism – is coming up for its 20th anniversary. How quickly the world changes. Two decades ago, all eyes were on the developed world. Now, it’s all about the Brics: Brazil, Russia, India and, of course, China. As western companies pile into these boom-bound nations, many have become ethically unstuck.

This intriguing paper asks why. It takes perceptions of ethical business culture in the US (read “Anglo-Saxon”, including the UK and corners of northern Europe), and asks how this compares with Bric nations.

Some of it is wonderfully idiosyncratic. Like the custom of jeitinho in Brazil, described as an “improvised, creative response” to bureaucracy (law-breaking, in others words?). Or Confucian notions of guanxi (reciprocal duty) and mianzi (face) in China. Some customs play closer to stereotype, such as Russian companies’ reliance on “people in influential positions” (known in Russian as blat) or India’s premium on “favours, friendship, and clanship” (known in English as corruption?).

What’s novel is the ethical differences that are identified between Bric countries. China is not India (despite the popular Chindia moniker), and India isn’t Brazil, and so forth. Foreign investors therefore require country-specific ethics strategies. A sensible, if less than simple, conclusion.

Ardichvili, A et al (Jan 2012), “Ethical Cultures in Large Business Organizations in Brazil, Russia, India, and China”, Journal of Business Ethics 105(4): 415-428.

Behavioural ethics

There are at least three ways to look at management ethics: what managers should do, what they are likely to do, and what they end up doing in reality. The first (known in the trade as a “normative” approach) is trumpeted by business ethicists. The last is favoured by sociologists and those of an “instrumental” persuasion. The middle option (lumped under the general rubric of “behavioural ethics”) is newest to the field and the centre of some lively academic debate.

This working paper eases readers into the subject with an in-depth discussion of definitions and historical background. Then it’s into the meat of the topic. Note: the focus is on individual, rather than company, ethics. That said, the subsequent discussions about intentional and unintentional dishonesty, ethical credentials, moral hypocrisy (which, experiments appear to prove, increases with age) will give corporate managers much to chew over.

From a practical perspective, the kernel of the paper comes in the third and final section, which asks: “How can behaviour ethics be used to improve ethical conduct?” The answer revolves around how we think. Most behaviours are the result of fast, effortless, intuitive decision-making; what might be called “trusting your gut”. Decisions with an ethical import, however, demand a thought pattern that’s more systematic, conscious and logical. Yet the frantic pace at which many of us live leads us to overly rely on the former mode, even when the latter is warranted.

Insights like this and others begin to explain the phenomenon of how seemingly good people do “bad” things. One key implication from behavioural ethics regards how ethics is taught. Lecturing managers on how they should perform may prove unproductive. More informative may be demonstrating how managers actually behave, and how they wish they’d behave.

Bazerman, M and Gino, F (Jan 2012), “Behavioral Ethics: Toward a Deeper Understanding of Moral Judgment and Dishonesty”, Working Paper 12-054, Harvard Business School.

The domini effect

For all the talk of the business case for corporate responsibility, empirical proof of its link to financial performance is less watertight than some care to admit. Not that the case isn’t strong. Margolis et al’s comprehensive meta-analysis of existing literature (Does it pay to be good? HSB working paper, 2007) identifies a generally positive verdict from the scholarship to date. This analysis of the intra-industry wealth impact of additions and deletions to the Domini Social 400 index edges us in a similar direction. If the business case stacks up, then inclusion in the benchmark US social responsibility index should result in a positive share price response. The evidence, as it’s presented, seems to bear that out.

What’s new is the role attributed to external monitoring agencies in all of this. Without meaningful data, investors are left with nothing to act on but hearsay and hunches. Information asymmetry is bad ground for good decision-making. Socially responsible investment outfits such as KLD (manager of the DS400 Index) can change that. Thus we see direct investor responses to new corporate responsibility data on traditionally “informationally opaque” industries (ie “firms that sell intangible products and/or carry intangible assets”, such as tourism and legal services).

Disinterested third party agencies play a vital job in informing the market as to the quality of firms’ corporate responsibility practices. That’s difficult for shareholders to discern. And it’s also tricky for rival firms to replicate. Two solid reasons for investors to respond favourably. Another inch forward for the elusive business case.

Ramchander, S et al, (March 2012), “The informational relevance of corporate social responsibility: evidence from DS400 index reconstitutions”, 33(3).

On campus

Jeffrey Hollender, co-founder of Seventh Generation, has been appointed distinguished Citi fellow on NYU Stern’s Citi leadership and ethics programme.

Boston College Centre for Corporate Citizenship is holding a three-day conference on communications for community involvement managers. The event runs 18-20 April  in Dallas, Texas. 



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