By Ángel Cabrera, Thunderbird President
Managers consumed with maximizing short-term profits—and with them, the value of their stock options—rather than creating real, sustainable value have destroyed billions of dollars in shareholder and taxpayer money. A culture of unrestrained greed lies at the root of the current economic meltdown that has seen banks collapse, markets tank and unemployment rates soar.
This global catastrophe demonstrates the enormous responsibility business leaders hold, not only in their companies, but in society at large. Managers are entrusted with incredible power to create or destroy value, and in so doing, affect the lives of thousands if not millions of people. This is a power that should not be taken lightly and, as with medical or legal professionals, requires professional standards and ethics that govern its use.
>> Read Ángel Cabrera’s global leadership blog
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>> Thunderbird Professor Greg Unruh, Ph.D., on managing corruption, not ethics
>> Video: Thunderbird President Ángel Cabrera on ethical leadership (2:36)
>> Video: Chase Card Services CEO Gordon Smith on leadership amid crisis (2:38)
>> Video: Marilyn Carlson Nelson on stewardship and sustainable prosperity (2:09)
As true professionals, corporate leaders ought to accept their responsibility to provide competitive returns to investors by creating real value for customers, opportunities for employees and suppliers, and by minimizing any harmful impact on the rest of society. It is business leaders who took this more responsible approach to wealth creation that are surviving the financial crisis, and those who continue to do so will come out on top.
This does not mean corporate leaders ought to disregard the need to make money for shareholders. On the contrary, professional managers understand that they must strive to compensate investors for the risks they assume, and that only by providing competitive returns to investors they will be able to secure future capital to fuel growth and seize new opportunities. But they also understand that the long-term viability of their business—and the returns to its shareholders—requires that they behave ethically and responsibly.
Thunderbird professors Mary Sully de Luque and Nathan Washburn have the research to back up this claim. Their recent study of decision making by approximately 600 CEOs and general managers in 15 countries revealed that leaders who put the greater good first actually deliver better results for investors than the more orthodox managers who focus solely on profit maximization.
The report concludes that executives should take a broader view. It behooves executives to emphasize values and vision that pertain to employees, customers, suppliers and the greater community — along with shareholders.
Executives at Tyco International figured this out in 2002, when the adoption of and adherence to ethical guidelines helped salvage the company following revelations of greed and corruption, according to Eric Pillmore, who helped engineer Tyco’s turnaround as the company’s senior vice president of corporate governance from 2002 to 2007. While Enron, WorldCom and other companies fell into bankruptcy following the 2002 accounting scandals that rocked Wall Street, Tyco acted quickly and rebuilt its corporate culture and reputation.
In a recent presentation at Thunderbird, Pillmore said large corporations embroiled in crisis — as well as healthy companies of any size that simply want to avoid crisis — could learn at least three lessons from Tyco. First, invest in mentoring and education. Second, create a web of accountability with a comprehensive system of checks and balances. And third, engage shareholders in the safeguarding against corruption.
For many years, businesses have either played a part in or turned a blind eye to corruption and greed in the pursuit of financial gain. Society has suffered as a result, and so have they. The current economic crisis serves as a wakeup call to us all, and especially to business leaders worldwide who hold in their hands the power to impact the lives of many.
Thunderbird President Ángel Cabrera, Ph.D., chaired a United Nations Global Compact taskforce that developed the “Principles for Responsible Management Education.” These principles serve to strengthen the role of business schools in promoting ethics and corporate citizenship. Through his leadership, Thunderbird became the first business school to incorporate a professional oath of honor for its graduates. This oath provides a set of core, universal principles of responsible management practice that is embedded in the school’s admissions process, curriculum and academic ceremonies.