Many companies have faced ethical dilemmas recently. What seemed like a small decision caused public conflicts that damaged the company, its reputation, its employees, and its consumers. What is surprising about these episodes is how unwilling companies are to define the principles and processes by which they make these decisions. Even more surprising is the realization that few companies have sustainable governance structures – for example, transparent values, rules and committees – to make these ethical decisions. My longtime friend Seth Berman recently spoke to my Master’s students about how companies find and follow their moral compass. This article describes the challenge and some of its solutions.
The internet has created businesses, industries and communities. This has fundamentally changed our culture. One of the less appreciated results is the very different relationship consumers now have with companies. What used to be an almost exclusively one-way relationship before the internet — brands advertised to consumers, but consumers rarely talked back to brands — has become more complex. Consumers now use social media to talk about and about companies, by promoting (intentionally or otherwise) brands that they see as part of their lifestyle in their tweets, posts, or stories and by criticizing and mobilizing against companies if they believe that companies are betraying that lifestyle. In fact, this ability to mobilize against perceived corporate misconduct is not limited to consumers – many companies find themselves held accountable by their employees for corporate actions or inaction. in a way that was unimaginable just a few years ago.
The disruption caused by the needs of consumers and companies’ employees is fueled by another cultural shift: the belief, especially among Millenials and Gen Zers, that corporations should stand for something more than their products or services. In other words, these new generations of consumers and employees believe that they expect their employers and their brands to do good in the world, or, at the very least, to refrain from doing bad. When companies fail to live up to these values, employees and consumers will use the ability to organize to voice their opposition and take their jobs or money elsewhere.
This forces companies to change their focus on the ethical implications of their businesses. For CEOs and boards, this new dynamic presents new challenges. What was once a simple question has become more complex: What does it mean for a company to act ethically? It used to have a clear meaning – compliance with laws, regulations and industry standards – but it meant something much broader than it does today. How does a company in a changing cultural context determine what constitutes ethical business conduct? How does a company communicate its decisions so that its employees and consumers appreciate that the company takes its ethical obligations seriously?
For example, should an e-commerce platform allow the exchange of White supremacist or Nazi paraphernalia? How about T-Shirts with the logo of the former name of Washington’s Football team? Should a platform for neighborhood conversations allow discussions about obtaining abortion pills in geographies where abortion is illegal? Should a social media company ban individuals from their platform if they promote violence or conspiracy theories? Who decides what constitutes advocating violence or what constitutes a conspiracy theory? Are the rules the same whether the person is a politician or a political actor? Should a clothing company refuse to use suppliers who employ child labor overseas or fail to pay a living wage? Should a cybersecurity company refuse to do business with a website that promotes Russian propaganda?
These questions are difficult to answer even hypothetically in a quiet conference room. They are even more difficult to respond to in an actual crisis. Consider an employee making a seemingly internal decision – such as when the corporate health care policy allows for out-of-state travel to seek medical care that is not available at the home location. of the company. This can easily lead to employees threatening to keep quiet a mass and may even lead to threats of a customer boycott, even though the issue initially appears to be an internal HR issue. As long as these protests continue, the leadership’s time is no longer devoted to strategy or operations; it is now overwhelmed by an ethical crisis it is poorly trained to navigate.
Enter Seth Berman and Noah Feldman who run Ethical Compass Advisors. The pair helps companies – from Big Tech to startups – to create new management structures and processes that consistently and sustainably embed business ethics in company decision-making. Noe brings his years of experience as a law professor and consultant drafting and interpreting constitutional laws and corporate governance structures. In fact, Noah conceived and helped create Facebook’s Oversight Board to help bring fair processes to the social media giant’s content moderation decisions. Seth brings years of experience advising corporations and boards on privacy and governance issues. They realize that many companies may want to act ethically, but don’t have the tools to identify and maintain these values. One of their inspirations is the US Constitution, which both defines values and empowers institutions to interpret and act on those values.
In working with clients, Noah and Seth start with an important insight: the first step for a company to behave ethically is to identify its core values and principles. Besides making a profit, what is the purpose of the company? What problems does it solve for its consumers and their communities? It may seem obvious, but many companies do not solve this task.
The second step is the process environment. How does the company take actions to uphold these values? What is the intellectual framework that a company relies on to determine whether, say, to refuse to do business with a person or entity? Who will judge it? What was the reason for the decision? Can the company clearly communicate its rationale to employees, customers, regulators and other stakeholders? The goal of this step is not consensus or approval, especially since that may be temporary. Rather, it is clarity of thought and transparency.
Finally, what sustainable structures can the company install to hold these values and make these decisions? For Facebook (now Meta), this means creating an independent Oversight Board, which reviews the company’s content moderation decisions, and is empowered to overturn them. The non-profit Board has its own endowment, and therefore does not need to rely on Meta’s income to survive. It elects its own members without interference from Meta leaders. This mirrors the creation of a separate judicial system in Article III of the US Constitution.
Few other companies want (or need) to adopt an all-encompassing solution like the Facebook/Meta Oversight Board. In another instance, Seth and Noah helped a tech start-up create a framework for an independent trust to hold the company’s voting stock. The purpose of the trust is to use its votes to ensure that the company balances the profit motive with its mission to ensure that its latest technology is used for good and not for evil.
Most of their clients do not go so far as to create external trusts, foundations or management boards. In some cases, they help companies adopt formal principles that outline how ethical decisions are made, thus allowing them to communicate their formal reasoning or create internal or external advisory committees. to review important ethical questions. Sometimes they help clients identify potential ethical challenges in advance – a kind of ethical audit – which can help prevent the kinds of public relations disasters that occur when a company made a mistake in a set of decisions that are considered immoral.
Business schools – including mine – teach courses devoted to ethical decision-making and include the topic in almost every course. What is lacking is consistency. Few schools teach how to create sustainable structures that publicly and clearly hold a company to its core values. The new era of ethical business, where employees and customers are raising expectations for rational, consistent, thoughtful decisions, requires this new way of thinking and acting.
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