Professor Dirk Matten is a Professor at the Schulich School of Business, where he holds the Hewlett Packard Chair in Corporate Social Responsibility and is the Associate Dean of Research. He is also the founding director of Schulich’s Centre of Excellence in Responsible Business.
He will be joining us for the Gourlay Ethics in Business Week from 22–27 May 2022.
What are the greatest challenges stopping businesses from operating ethically?
I would identify two factors as the greatest challenges to ethical behaviour in business: the incentives set by an organisation, and the role models enacted by decision-makers.
The main reasons for considering these two have to do with the fact, that in most situations, the ethical behaviour of an individual is oriented toward the social consensus and general expectations of their peer group.
As for incentives, if the bonuses and the goals of managers just focus on the financial gains of the company, it is very likely that all other interests will be considered second order.
If ethical behaviour is a priority, companies will include those criteria in the performance evaluation of managers.
Thinking of role models, most notably leaders, but also, in general, the peer group, often represents a stereotype of a ‘good’ manager. Movies such as Wall Street or Margin Call give us good examples. In many businesses, the aspired role model is a brash, assertive, strength-projecting individual, not so much somebody who reflects, evaluates, and works at integrating concerns and scoping out constraints and boundaries.
What are the differences between operating legally and ethically?
In some ways, regulators set the tone for ethics in business. The laws and rules governing business define right and wrong and thus put down a clear ethical red line for managers when considering their options. However, strong regulation encourages managers to just comply with those rules, less so to consider the ethical implications of their behaviour.
Doing the ‘right thing’ in a regulated industry is often little more than avoiding fines or other sanctions. Regulation does not encourage individual reflection about right and wrong.
Good examples are companies from highly regulated countries, operating for example in developed countries where regulation is low or little enforced. Suddenly, doing the ‘right thing’ is at the discretion of a manager, rather than just a compliance issue.
No wonder then, that we witnessed a considerable amount of unethical behaviour occurring when Western companies moved into contexts of low regulation.
How do business ethics differ by industry and by region?
There are two key situations where legal and ethical issues may collide. The simple case is where the legal framework has not yet caught up with new ethical challenges.
If we look at the issue of privacy in the technology industries, or at challenges deriving from medical advances such as stem cell research or cloning – many applications of those innovations are perfectly legal but raise strong ethical concerns in many societies.
The law is slow to catch up, especially in pluralist democracies.
The more complex situation occurs when the ethical values of society evolve over time, yet the legal framework remains constant. The use of tobacco or recreational cannabis, same-sex marriage, or abortion are examples of ethical arenas where in many societies people think that the legal framework either allows unethical practices or restricts behaviour that is widely considered perfectly ethical.
Who is responsible for business ethics within an organisation?
There are indeed some regional differences in which ethical issues are perceived, prioritised and addressed. In North America and most so-called Anglo-Saxon countries, business ethics focuses on individual decision-making and focuses mostly on corruption and workplace misconduct.
In Europe, business ethics is seen as embedded in the regulations and institutions that govern economic processes.
In the Asian context, we see a strong concern for corporate governance and accountability, given that family and state ownership is still quite a dominant source of unethical behaviour of business.
Ethical challenges also differ substantially between industries. Generally, manufacturing businesses are predominantly concerned with health, safety and the environment. Service companies are challenged by fairness and equity of employee treatment. The financial sector is particularly challenged by accountability, transparency and compliance-related issues.
In general, businesses embedded in global supply chains face issues of corruption, labour conditions, and general human rights.
At the end of the day though, regardless of location or industry, every business has to make a continuous inventory of the ethical challenges it keeps facing in its specific local and sectoral context.
The boilerplate answer one frequently gets to this question is that, of course, every member of the organisation, from top to bottom, has the duty to behave in an ethical way. In practice though, especially considering the importance of incentives and role models, the primary responsibility for business ethics lies with the top leadership of an organisation.
It is at the top level of an organisation where incentives are set, where goals are formulated, and where authority can be used to either encourage or stifle ethical practices in business.
It is also at the top level, where role models and role expectations are exemplified in leaders’ conduct. Historically, almost all the scandals that have made headlines about unethical business practices were directly the result of the values and practices propagated by the leadership of those businesses.