High integrity makes it possible for a high-performance business to achieve optimal growth and profitability. In fact, these businesses get far better results than the high-performance firms who operate with a moral deficit. Unfortunately for stakeholders, however, such businesses are rare. In Firms of Endearment, a recent global meta-study, just 73 listed and private firms of any scale made the cut. But those that do have outperformed the S&P500 by at least 1,000% over a 15- year period1. This is less surprising than it might seem when one looks outside the business context.
It is common for human communities to be based on a shared social purpose; on enduring moral values; and on good, simple rules. These are also communities which are large enough to be selfsustaining, but small enough that we can know and trust our neighbours and colleagues. The challenge for investors, boards and C-Suite leaders is to stop chanting the prevailing mantras of short-term profit maximisation and of bureaucratic, coercive controls. Instead, hard data suggests it’s time to understand and increase the long-term value that comes with the integrity of sustainable, prosperous communities.
It’s useful to start by defining the way boards make decisions to demonstrate the transformation that is required. The “Boston Box” is a useful visual to help us understand how the variables of performance and integrity can give us four basic outcomes:
When asking boards and executive teams which of the four alternative sets of values they would choose for their firm, they agree on “high performance, high integrity”. It’s not surprising, then, that when asked for the least desirable option, the same group would not want to lead a convicted criminal organisation – or a “low performing, low integrity” firm.
The debate becomes more nuanced when looking at the remaining two options, but in the end, most people would prefer to mitigate risk - to invest in “low performing, high integrity” firms, not “high performing, low integrity” firms. This is because we can train the skills necessary for high performance more easily than change the moral character of those with less integrity. And whilst many see performance and integrity as irreconcilable, the truth is more subtle. It speaks to the tension and trade-offs between short-term profits and long-term value creation.
In this last two annual letters2 to CEOs, Blackrock’s Larry Fink has argued strongly that firms that focus on environmental, social and governance (“ESG”) standards, a useful benchmark for integrity, are increasingly attractive for investors. According to the Forum for Sustainable Investment and the Global Sustainable Investment Alliance, $34tn or about 25% of global market value, is now invested in stocks that meet these ESG standards.
At the IOSCO London Conference in 2016, I challenged financial markets regulators and risk professionals to see the internal economies of regulated firms as nation states. My first question: if we had a choice, would we prefer to live in Norway or North Korea? Except perhaps for “the dear leader” and his cohort, the answer for almost all of us would of course be Norway.
Norway is consistently ranked in the Top 10 countries for its quality of life, its politics and its economy while North Korea is consistently ranked as one of the lowest. Norway is a high performing, high integrity nation, While North Korea is a low performing, low integrity. I then asked if the modern corporation was closer in its political design to the Norwegian or North Korean model? We don’t think about this much, but the answer is actually North Korea. So why is this political analysis so important? The answer is that both our performance and our integrity are diminished when we live or work in a totalitarian state, where fear becomes our primary emotional driver. Think of the average high-performing firm. In terms of quality of life, the vast majority of employees barely make the national living wage. Only senior executives receive consistent, generous and increasing benefits, not unlike a member of a “ruling elite”.
From a political perspective, very few firms are democratic. Most are totalitarian plutocracies, where power comes from wealth, and risk is (poorly) managed through fear-based compliance “regimes”. And in terms of economic performance, the vast majority of organisations produce less than 10% of the GDP of the best performing firms, very much like the North Korean Stalinist economy. This sort of analysis is not new. In 1937, the economist Ronald Coase wrote The Nature of the Firm” 3 in which he described the contradiction at the heart of corporate capitalism. Whilst business leaders believe in free-market liberalism between firms, within the firm they still rule as feudal monarchs. Not only does this lead to sub-optimal economic performance, it also leads to the daily litany of corporate violence, fraud and corruption. As an example of the first, diesel emissions are leading to thousands of premature deaths through respiratory disease.
For the second, the mis-selling of payment protection insurance has resulted in billions in fines and compensation. And accounting fraud has not only damaged audited corporations; it has seriously damaged the reputation of the audit profession.
The good news is that Homo Sapiens has already learned how to build high performing, high integrity communities. Anthropologists at Oxford University4 have recently published research that has found seven principles that have consistently defined morality across human societies both over time and around the world. These are:
Help your family
Be a loving parent, care for frail relatives and pass on property to the next generation
Help your group
Join group activities and events, adopt local customs, promote group harmony, unity and solidarity
Forgive people when they apologise, repay debts, fulfil contracts
Divide resources fairly
Divide rewards of collective activity fairly and be willing to negotiate, compromise and come to an agreement
Put yourself at risk to help others
Respect elders and leaders
Be respectful, loyal or obedient to those who lead
Respect other people and their property
Do not hurt others, or steal or damage others’ property
Most of us would agree with these tenets in our personal lives. However, do these moral principles also apply to our workplace communities? Do we truly care about our colleagues at work? Do we forgive those at work who make mistakes and apologise? Do senior executives only take their fair share of resources? What about respect for our workplace elders and leaders? Or do we simply fear them because our jobs and careers can be damaged or destroyed if we do not obey them? Which of these moral principles do you believe in? Do you experience these same principles at work? What would happen to our workplace communities if these seven moral principles became the norm for all?
Since 2002, it has been my experience that many leaders already know and practice these seven principles in their personal lives. What we all need to do is to practice these more and more in our professional lives. Research, best practice and my own experience suggest we need to do ALL of the following:
1. Get to know yourself, particularly your own character strengths and weaknesses; and the people and things that define your loves, fears and hopes. Then ask yourselves and debate with others these questions:
2. What’s my purpose in life? What’s the purpose of our organisation - and are these consistent?
3. What are the moral values we believe in that help us make important decisions when the rules don’t tell us what to do, or what not to do?
4. What are the good simple rules that keep us all safe?
5. How should we lead? How do we inspire and motivate each other and our teams? How do become more open, fair and democratic as workplace communities? How do we make better decisions together? Which stupid meetings and rules should we abandon?
6. How do we rebuild our organisation from the bottom-up, team by team and leader by leader?
7. How do we then re-purpose governance, risk and compliance?
8. How will we know we’re building and leading high performing, high integrity organisations?
9. What do we need to keep doing, do more of and begin doing to sustain high performance with high integrity?
There are a number of case studies of higher performing, higher integrity leaders, teams and organisations, which are getting there. We have already cited Firms of Endearment as an excellent point of reference. It describes the purpose, values, behaviours and economic performance of iconic brands such as Google, Honda, IKEA, Novo Nordisk, Southwest Airlines and Unilever. Primed to Perform5 is another case study that includes firms such as Apple, Starbucks, Toyota and Whole Foods. These organisations focus on motivating their organisations through the positives of “play, purpose and potential”, rather than the feudal sticks and carrots of “pressure, pay and prestige”
Just as none of us is perfect and there are no perfect families, there is no such thing as perfect societies or workplace organisations. Each of the brands we have just mentioned continue to confront ethical challenges. We can never be at our best, all the time, not least because honest mistakes are our greatest teachers. However we can choose not only the work we do, but who we work with and how we work together. Given the many environmental, social and political challenges we face as a species, I believe we have no option but to ask ourselves and each other, when we stop thinking and talking, what will we now do to build a higher performing, high integrity organisation?
About the author
Roger has helped thousands of leaders around the world to re-discover their purpose, their humanity and their integrity with significant improvement in sustainable profitability. Clients have included Barclays, BP, Citi, Clifford Chance, EY, HSBC, Nationwide, NHS Trusts, Openreach, PWC and RBS. He has also advised regulators, law enforcement and other government agencies. Roger is Professor in the Practice of Organisational Ethics at Cass Business School and is an educator in the faculties at Duke Corporate Education, Headspring Executive Development and Thinkers50.
He is the author of ethicability and co-designer of the MoralDNA® Profile with over 600,000 digital editions licensed to employer organisations
“Roger has helped me consider business decisions from a fresh perspective. His approach might be rooted in philosophy, but in reality, it is about pragmatic, profitable yet principled management of a business, for longterm success.”
Joe Garner, CEO, Nationwide Building Society