Balancing Business Ethics and Shareholder Demands

Last month we blogged about the Persona Paradox. We argued the paradox causes some executives to behave differently whist at work vis-à-vis in their personal lives. One of the reasons driving this phenomenon lies in efforts to want to please shareholders. The quest to blindly deliver on ambitions, and sometimes unrealistic, shareholder demands can lead to many problems; ethical as well legal.

History gives us many examples of unethical conduct driven by greed, fame or short-term success. The scandal of Enron and Arthur Andersen, misconducts of Uber operations leading to the resignation of CEO Travis Kalanick and Equifax’s data breaches are just a few of those examples. Even Apple, our beloved company of all times, was accused of purposely slowing down older iPhones in a bid to force consumers to upgrade to newer versions. For those of you interested in the history of business scandals, this infographic gives a good overview of the world’s 10 worst accounting scandals dating back to 1998.

These corporate scandals have a big impact on the economy, the society and consumers. Some of these impacts are detrimental and irreversible, such as the suicides of ex-Enron executive J. Clifford Baxter. Others have long lasting effects such as baby food and formula discoveries, the Flint water crisis and wildlife suffering from oil spillage.

Executives will benefit in learning that maximizing shareholder value, under all circumstances, is the academic economy of the 1970s. Harvard Business Review published a great article titled “Defending a Good Company from Bad Investors”, May-June 2017 issue, by Joseph L. Bower and Lynn S. Paine. The article goes into explaining how shareholders are shielded by the doctrine of limited liability from legal responsibility of misconducts committed by company executives.

Luckily, and due to past scandals, ethical codes have been applied to various functions of the business to protect it from bad behavior. The Sarbanes-Oxley Act (SOX) governs accounting ethics, financial ethics prohibits insider trading; marketing, production and IT ethics govern copy right and intellectual property laws. But the simplest formula to avoid falling into such pitfalls in the first place is to ask five questions before undertaking a business action: -

1. Is it the truth?

2. Will it be fair to all those affected by the action?

3. Will it be beneficial to most, if not all, parties?

4. Will it build goodwill and better relationships?

5. Will you, as the executer, be proud if it was made public (if your family and friends knew)?

Questions above are solid ethical tests; the answers will serve well in determining whether or not to move forward with the business initiative.

It is important to note that mistakes happen, including big scandalous ones. But if executives own up to their personal conduct, learn from their mistakes and pivot, they can recover. It doesn’t have to be all gloom and doom.

If we want to be good leaders, we must recognize silver linings from bad situations and come out of such experiences enlightened.