Understanding Why Values Matter
Your company faces all sorts of options, alternatives, and decisions every day. There’s an old saying that perhaps you’ve heard: “If you don’t stand for anything, you’ll probably fall for everything.” If you take the time to define your company’s values, your principles and beliefs can guide your managers, employees, or just you (if you’re in business for yourself) as your company wades through complicated issues that sometimes don’t have easy answers. When the unexpected happens, you can react quickly, consistently, and decisively, based on a clear sense of what’s important. Even when your company is in smooth waters and sailing along just fine, a strong sense of value helps motivate you and your employees.
Facing tough choices
There is growing evidence that financial investors favor the good guys over the ethically challenged. Government regulators around the world are beginning to impose ESG (environmental, social, and governance) mandates on publicly traded firms in their jurisdiction, with appropriate penalties for violators of social norms. Investment funds, which constitute the majority of stock holding in public firms, are also jumping on the bandwagon and restricting purchases of shares in firms that cross the line. In short, doing good is increasingly a route to doing well financially.
Weighing utilitarianism and other philosophies
Unfortunately, the philosophers haven’t provided us with any surefire tool to resolve the dilemmas of profit versus purpose. Some approaches take a black-or-white line that right is right, wrong is wrong, and never the twain shall meet. Period. But the messy and complex world in which we live today renders this as much too simplistic, especially for a business firm that is trying to balance the competing demands of multiple stakeholders, each of whom might have starkly different objectives. There’s a lot of gray out there. Consider the case of child labor. It is clearly abhorrent and should be opposed by anyone who possesses an ounce of moral fiber. But suppose that your firm is sourcing some component from a supplier in a low-income nation where investigation shows underage children to be working. The families are poor; government resources are lacking; and given existing economic opportunities, everyone needs to pitch in for the family to have a roof over its head and sufficient food on the table — survival itself may be at risk. Do you terminate your supplier? Tough call.
Another approach advocated by philosophers, one that has found more favor with businesspeople, is the so-called “utilitarian” school. In this, the decision-maker has to define the costs and benefits associated with the options, weigh them appropriately, and then calculate an outcome. The alternative that delivers the highest return — benefits less costs — is the preferred choice. But for the example of outsourcing to a supplier in a low-income nation, the trade-offs are multiple and involve calculations that could be wildly off-base depending on who’s doing the judging. (For example, how important is it to keep costs down and the firm’s share price elevated by turning to offshore low-wage suppliers? Perhaps some shareholders are counting on stock returns for their well-deserved retirement.) Again, tough choice, squared.
Utilitarianism does have a certain attractiveness, no doubt: It quantifies the problem and allows for a seemingly rational outcome devoid of emotion and bias. And that’s good. But the question as you’ve no doubt guessed is how to weigh the choices. In the starkest cases, this necessitates a valuation of human life, or a calculation of long-term damages that are almost impossible to do with any sense of fairness or accuracy. The poster child example of the difficulties that arise in these instances can be seen in the notorious case of the Ford Pinto automobile.
Some years ago the Ford Motor Company introduced a small, compact automobile, the Pinto, in an effort to compete better with Asian imports that were flooding the United States. To meet pricing and fuel efficiency demands, company executives adopted a policy of “2000/2000” — that is, the car had to weigh less than 2,000 pounds and retail for no more than $2,000 (we did say this was an example from some time ago …). But after a series of accidents that resulted in not only serious injuries but also fatalities, it was determined that an engineering flaw — resulting from the mandate to keep cost and weight down — caused the fuel tank to rupture and explode even when hit from behind by a very slow-moving vehicle. Subsequent economic analysis yielded results showing the cost to recall and repair all the Pintos on the road would exceed Ford’s expected payout in death and injury benefits to those who were statistically likely to suffer or perish from such accidents. Given this cost-benefit analysis, the firm chose to do nothing. Of course, when this rationale was revealed in subsequent legal proceedings, the public outrage was such that Ford’s reputation was seriously damaged, and soon thereafter, Pinto sales dropped by more than half and never recovered. Did Ford’s decision-makers make the right call? The economic logic might have been impeccable, but the ethical basis for using such an approach — utilitarianism — was questionable. You be the judge.
Applying ethics and the law
Having a values statement also can keep you and your colleagues on the right side of the law. For decades now the United States, as well as numerous other nations, has legislated statutes regarding product and workplace safety, financial transparency, and environmental issues, to name just a few. In the more recent past, a number of new laws and regulations have been enacted to ensure fairness and equity toward women and minorities in the workplace. Failing to comply can cost you your job. No longer can top-level executives say they don’t really know what’s going on in the companies they run. Now they can be personally held responsible.