by David Schmidt, chief ethicist for iDNA

What Is the Moral Responsibility of a Business Leader?

Sep 12, 20077 mins
IT Leadership

Business leaders cannot afford to overlook the ethical challenges posed by technological advances, as even a single misstep can be enough to undo a reputation.

There is no question that the current climate has prompted many more companies to tackle ethics issues. Many are making a set of moral values a part of their corporate cultures. And some forward-looking companies are providing ethics training to managers and workers.

While company-wide ethics awareness is a wonderful thing, the recent information about the online persona assumed by Whole Foods CEO John Mackey reminds us that the moral center of every company lies within its leaders. Those leaders are and should be held to higher standards of ethics and morality—because they are leaders. If, as in the case of Mackey, they are running companies designed around a social responsibility premise, the standards are, and should be, that much higher. The Mackey incident is more about the Achilles’ heel of a standard bearer than it is about illegality or immorality.

The Mackey Incident

Whole Foods Market Chairman and CEO Mackey spent years earning a positive reputation as a corporate leader not afraid to take a stand on ethics issues. Before other companies figured out that it pays to be environmentally friendly, Whole Foods led by setting standards for humane animal treatment. In 2006 Mackey took the bold step of reducing his own annual salary to one dollar, pledging money instead for an emergency fund for his staff. Not shy about expressing his views, Mackey challenged leading thinkers, like Nobel prizewinner Milton Friedman, on business ethics issues. Like many leaders, Mackey seemed to relish the public spotlight.

But on July 20, Mackey got more publicity than he bargained for. The Wall Street Journal reported that Mackey had long used the pseudonym “Rahodeb” to make postings in Yahoo Finance forums that flattered his own company and leveled criticisms against the competition. Serious financial and possibly legal repercussions continue to unfold from this incident, and the final consequences may not be known for some time. Amid the furor following this disclosure of Mackey’s secret online alias, it is vital that we not lose sight of the critical issues it raises about ethics and leadership in a rapidly evolving business world.

Implications for Leadership and Ethics

By now “business ethics” is an established part of doing business, not just in the United States, but also increasingly around the world. Jokes like “business ethics is an oxymoron” have long since worn thin, as society has come not merely to expect, but to demand, that business conduct itself according to basic rules of ethics and integrity. Business ethics, as an academic topic as well as a growing body of real-world practices, is not a new fad, but is something that has developed since publicized price-fixing and other corporate scandals in the late 1960s and 1970s. The most recent major business scandals, such as Enron, actually served to reinforce widespread perception that “business as usual” can no longer attend only to the financial bottom line.

The subject of leadership links closely to ethics, as it involves linking values to human behavior for the achievement of a mission and objectives. Business leaders have long recognized that they play a key role in promoting ethical conduct in their businesses.

  • They set the ethical tone that pervades the entire organization. Even the very best ethics and compliance programs can be negated by a leader who communicates cynicism or lack of support for ethical conduct.
  • They lead by example. Ethics is communicated through words, but words are compelling only when they are supported by action. The actions that matter most are those from the people at the top.
  • They motivate others. The focus on ethics after Sarbanes-Oxley increasingly tends to be on compliance, which is primarily concerned with preventing employees from engaging in misconduct. However, leadership is concerned not simply with avoiding harm, but also with promoting excellence. More than anyone else, the CEO has the ability to promote an ethic of aspiration, not just an ethic of compliance. Companies that are able to promote a positive link between ethics and excellence enjoy a competitive advantage as well as an enviable reputation.

Setting the right tone, leading by example, motivating others in a positive way: For some time, Mackey seemed to be meeting all three tests of ethical leadership. But his online fiasco can easily undermine his claim to ethical leadership. The current problem is unusual because it takes place in the novel forum of an online discussion board, where perhaps the norms for discourse are not exactly like those that guide face-to-face, conventional communication. The challenge is to evaluate Mackey’s online behavior in terms of the basic requirements of ethical leadership while also being attuned to new aspects of communication online.

Updating our Thinking for Today

In thinking about Mackey, we should keep in mind two key ideas: the distinction between “private/public” and “ethical character.”

The “private/public” distinction is central to understanding the ethical requirements of corporate leaders, but it is a distinction that may be evolving along with advances in digital technologies. All workers have both a private side (which they show at home) and a public side (which they show at work). In general, employees seek to preserve and protect their private lives from encroachment by the workplace. Nobody wants to return to the days of the “company town” where nearly all aspects of social life took place under the watchful eye of the boss. That said, it has always been understood that as one rises in the ranks of business, one’s personal identity is increasingly linked to one’s corporate role. An hourly worker may express an unpopular or controversial opinion in the local newspaper, while a senior executive will refrain because the senior executive is so closely linked in the public mind to his or her company.

Online discussion boards are unique, though, in the way they make one’s private side anonymous; the public side is all that’s visible. People will say and view things online that they would never do in more conventional social settings. In other venues, it seems that the private/public Mackey were one and the same: His personal values (such as promoting natural foods) aligned seamlessly with his public, corporate stance. But online, he used the anonymity of the Web to follow a different set of rules. These different rules landed him in controversy.

“Character” is a key idea in ethics that relates closely to this “private/public” distinction. Often ethics is thought of as decision making according to principles and rules. But it is also true that ethics is fundamentally a matter of character, which refers to the dispositions, qualities and habits of the person who makes the decision. An ethic of character says it matters first who we are as a person; decisions and actions will follow from our character.

Integrity refers to human character that is consistent, dependable and sound. One can’t act honorably in one setting and dishonorably in another, and claim to be a person of integrity. This fact explains the importance of reputation—the kind of person we are reputed to be should carry through various situations.

But what happens to character and reputation in online forums where one’s private side is anonymous? Mackey seems to have thought that different rules applied there, so that he could act differently online than he did in more conventional social situations. But the widespread negative reaction to his online conduct suggests that we are not ready to assign different rules of discourse to online forums.

Business will always need to pay attention to ethics and leadership. We’ve learned hard lessons over the years about how best to promote ethics through exemplary leadership. But these lessons are continually challenged by new developments, including technological advances that promote new kinds of communication online. Business leaders cannot afford to overlook these challenges, as even a single misstep can be enough to undo a reputation for ethical leadership.

David Schmidt is the chief ethicist for iDNA, a strategic communications and technology company that specializes in producing corporate meetings, ethics training, orientation modules and sales training. He is also the coauthor of Wake Up Calls: Classic Cases in Business Ethics, and an associate professor of business ethics at Fairfield University’s Charles F. Dolan School of Business.