A Time for Ethical Self-Assessment

Peter Drucker's literature on business scruples and the Ethics of Prudence is newly timely, and not just because of the holidays

This may be the season of giving, but it sure feels like everybody is suddenly on the take.

Siemens (SI), the German engineering giant, agreed this month to pay a record $1.6 billion to U.S. and European authorities to settle charges that it routinely used bribes and kickbacks to secure public works contracts across the globe. Prominent New York attorney Marc Dreier—called by one U.S. prosecutor a "Houdini of impersonation and false documents"—has been accused by the feds of defrauding hedge funds and other investors out of $380 million.

And then, of course, there's financier Bernard L. Madoff, who is said to have confessed to a Ponzi scheme of truly epic proportions: a swindle of $50 billion, an amount roughly equal to the GPD of Luxembourg.

All told, it begs the question that Peter Drucker first raised in a provocative 1981 essay in the journal The Public Interest and that later became the title of a chapter in his book The Ecological Vision : "Can there be "business ethics"?"

Drucker didn't pose this to suggest that business was inherently incapable of demonstrating ethical behavior. Nor was he positing that the workplace should somehow be exempt from moral concerns. Rather, his worry was that to speak of "business ethics" as a distinct concept was to twist it into something that "is not compatible with what ethics always was supposed to be."

What Drucker feared, specifically, was that executives could say they were meeting their social responsibilities as business leaders—protecting jobs and generating wealth—while engaging in practices that were plainly abhorrent. "Ethics for them," Drucker wrote, "is a cost-benefit calculation…and that means that the rulers are exempt from the demands of ethics, if only their behavior can be argued to confer benefits on other people."

It's hard to imagine that a Madoff or a Dreier would even attempt to get away with such tortured logic: an ends-justify-the-means attitude that Drucker labeled "casuistry." But we all know managers who've tried to rationalize an unscrupulous act by claiming that it served some greater good.

The Mirror Test

In his book Resisting Corporate Corruption , Stephen Arbogast notes that when Enron higher-ups sought an exemption from the company's ethics policy so that they could move forward with certain dubious financial dealings, the arrangement was made to "seem a sacrifice for the benefit of Enron." Reinhard Siekaczek, a former Siemens executive, told The New York Times (NYT) that the company's showering of foreign officials with bribes "was about keeping the business unit alive and not jeopardizing thousands of jobs overnight."

For Drucker, the best way for a business—indeed, for any organization—to create an ethical environment is for its people to partake in what he came to call in a 1999 article öthe mirror test." In his 1981 piece, Drucker had a fancier name for this idea: He termed it "The Ethics of Prudence." But either way, it boils down to the same thing: When you look in the mirror in the morning, what kind of person do you want to see?

The Ethics of Prudence, Drucker wrote, "does not spell out what "right" behavior is." It assumes, instead, "that what is wrong behavior is clear enough—and if there is any doubt, it is "questionable" and to be avoided." Drucker added that "by following prudence, everyone regardless of status becomes a leader" and remains so by "avoiding any act which would make one the kind of person one does not want to be, does not respect."

Drucker went on: "If you don't want to see a pimp when you look in the shaving mirror in the morning, don't hire call girls the night before to entertain congressmen, customers, or salesmen. On any other basis, hiring call girls may be condemned as vulgar and tasteless, and may be shunned as something fastidious people do not do. It may be frowned upon as uncouth. It may even be illegal. But only in prudence is it ethically relevant. This is what Kierkegaard, the sternest moralist of the 19th century, meant when he said that aesthetics is the true ethics."

Time to Reflect

Drucker cautioned that the Ethics of Prudence "can easily degenerate" into hollow appearances and "the hypocrisy of public relations." Yet despite this danger, Drucker believed that "the Ethics of Prudence is surely appropriate to a society of organizations" in which "an extraordinarily large number of people are in positions of high visibility, if only within one organization. They enjoy this visibility not, like the Christian Prince, by virtue of birth, nor by virtue of wealth—that is, not because they are personages. They are functionaries and important only through their responsibility to take right action. But this is exactly what the Ethics of Prudence is all about."

Now is the time of year when many of us find ourselves sitting in church or in synagogue, or, if we're not religious, simply taking stock of who we are and where we want to be as the calendar turns. But what's even more critical is that we continue this sort of honest self-assessment when we return to our jobs in early 2009.

"I have learned more theology as a practicing management consultant than when I taught religion," Drucker once said. This, he explained, is because "management always deals with the nature of Man and (as all of us with any practical experience have learned), with Good and Evil as well."

So take the mirror test now—and then keep taking it well after the Christmas ornaments have been packed away and the Hanukkah candles have burned down to the nub. In the meantime, happy holidays to all.

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