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Page 2 © DeVoe School of Business. All Rights Reserved Making Business Virtuous MAKING BUSINESS VIRTUOUS Jay Hein & Gary Wilkinson, Ph. D. 10/26/2015 Abstract This paper speaks to the growing disenchantment of capitalism and introduces virtuous business as the only antidote capable of restoring trust in the free market system. What is recognized is that now, more than ever, there is need for a clear distinction between values-neutral capitalism and virtuous business. Two case studies are exampled. The first showcases how The Andersons, Inc. maintains a culture of ethical decision making, even amidst growth through acquisitions. The second case covers Tyco, and how new leadership approached the rebuilding of company culture following massive fraud. Finally, the paper posits that the objective of becoming or remaining a virtuous business is the overarching goal for a business. It is always a work-in-progress, an aim never totally achieved; but, an organization that steadfastly strives to be virtuous gains the greatest opportunity for longevity and provides the greatest benefit to society. Page 3 © DeVoe School of Business. All Rights Reserved Making Business Virtuous Presented by: Page 4 © DeVoe School of Business. All Rights Reserved Making Business Virtuous Making Business Virtuous “There is no right way to do the wrong thing.” This was a core operating principle for Dayton Molendorp, whose decade as CEO of OneAmerica increased assets from $15 billion to more than $36 billion (Swiatek, 2014).Notably, much of that growth occurred during the 2007- 09 recession. Molendorp’s leadership suggests that old-fashioned values can translate into success in the new economy. And he is not alone. Former Pepsico chairman and Wake Forest School of Business Dean, Steve Reinemund, said in an interview with Seattle Pacific University’s (SPU) Center for Integrity in Business: ‘…the purpose of business is to provide goods and services for society in an ethical manner that provides a sense of well-being for employees, supports a livelihood for families, enhances the economy of communities, and provides a reasonable return for owners.’ (Erisman, n.d.). Reinemund notes that business education in America does not produce such leaders today (Erisman, n.d.). The modern push for more rigor in business education has fueled a transition from “soft skills,” such as leadership, to more technical skills-based curriculum. As described in this DeVoe white paper on business education, Indiana Wesleyan University (IWU) is delivering what Reinemund calls for—a return to a business schools’ emphasis on leadership (Erisman, n.d.). This paper will consider the growing disenchantment to capitalism and introduce virtuous business as the only antidote capable of restoring trust in the free market system. IWU’s conference on Adam Smith (London, October 2011) established the intellectual foundation for this section of the paper: the economic order described in Smith’s book, Wealth of Nations Page 5 © DeVoe School of Business. All Rights Reserved Making Business Virtuous (1776), only works when practicing the values described in his other book, The Theory of Moral Sentiments. Business was Birthed in Virtue It’s worth noting that the modern practice of business was indeed birthed in virtue. In his classic book, The Protestant Ethic and the Spirit of Capitalism, Max Weber (1921) writes that the rise of capitalism is attributable to faith-based ethics. As the Protestants taught individual responsibility, so the market benefitted from honest dealing and a network of trust that serves as glue for the free market. “Self-discipline, a sense of justice, honesty, fairness, chivalry, moderation, public spirit, respect for human dignity, firm ethical norms—all of these things which people must possess before they go to market and compete with each other. These are the indispensable supports which preserve both market and competition from degeneration. Family, church, genuine communities, and tradition are their sources” (Ropke, 1960, p. 125). Catholic philosopher, Michael Novak (1982), picked up the same themes in his book, The Spirit of Democratic Capitalism. Whereas, his book advances our understanding of virtuous business, his other writings have illuminated the virtues of business. Just as Adam Smith (1776) was the first to conceive of a world without poverty, thanks to the rise of wealth creation Novak (1982) contrasts the Asian and African experience over the past several decades as empirical evidence of capitalism’s blessings to the poor. As China and India adopted capitalist economic methods since the early 1980s, they have combined to raise more than a half billion out of poverty. Novak (as cited in Malloch, 2008) exclaims that “never before have so many people emerged out of hopeless lives in so short a time” (p. xx). Africa, on the other hand, remained mired in socialist economic schemes, or simply dictatorships, and its poor has swelled during the same time period. Consider this, in Page 6 © DeVoe School of Business. All Rights Reserved Making Business Virtuous 1970, 76% of the world’s poor lived in Asia and only 11% lived in Africa (World Bank, 2010). Today, 15% of the world’s poor lives in Asia and 66% lives in Africa (World Bank, 2010). Theodore Malloch (2008) has taken the baton from Smith (1759), Weber (1921), and Novak (1982). Malloch’s recent book, Spiritual Enterprise, builds on their work and takes on the paradoxical realities of capitalism’s role in improving society while society remains skeptical of it. This paradox reached its apex in the 1990s when capitalism’s triumph over communism seemed to settle the issue once and for all; yet, within a decade, there were widespread protests in such free market capitals as New York City and London over capitalist abuses that led to global recession. Virtuous Business Now, more than ever, there is need for a clear distinction between values-neutral capitalism and virtuous business. The former is susceptible to repeating the 2008 crisis and the latter is the means to macro benefits such as combatting global poverty, and micro benefits such as finding meaning and dignity in the workplace. Spiritual Enterprise makes two big claims in this direction. First, it uses rigorous market analysis to determine that virtuous leadership contributes to business success. Second, it makes the case that free enterprise capitalism is wholly consistent with spiritual depth and moral commitment. Both of these claims rest on the notion of virtue, which Malloch (2008) defines as “a habit of excellence,” and his book introduces the following virtues with over 60 real-life business case studies—each evidencing virtuous organizational practice resulting in personal and marketplace success: faith, hope, charity, courage, perseverance, discipline, compassion, humility, and others. Page 7 © DeVoe School of Business. All Rights Reserved Making Business Virtuous Malloch (2008) begins with a focus on the theological virtues of faith, hope, and love that form the basis of a spiritually attuned life. He then distinguishes between the “hard” virtues (e.g., courage, discipline) that gets things done, with the “soft” virtues (e.g., justice, compassion) that incorrectly get relegated to “stay-at-home” situations (Malloch), although they are vital to virtuous business. Other contemporary experts help us understand why firms should strive to be virtuous: today’s talent demands it. The Aspen Institute surveyed nearly 2,000 MBA students from 15 business schools to discover their attitudes about business and society (Trevina & Nelson, 2011). At the start of the 2008 financial crisis, nearly 80% of students claimed that a well-run company “….operates according to its values and a strong code of ethics” (Trevina & Nelson, 2011, p. 10). In contrast, less than 50% of the students claimed that well-run companies “…adhere to progressive environmental policies” (Trevina & Nelson, 2011, p. 10) and little more than half required “…competitive compensation” (p. 10). University of Chicago scholar, Amy Kass (2002) asserts that such impulses need to be instructed. She challenges business schools to teach virtues with such content as she gathered in her landmark book, The Perfect Gift. Christian education has a distinct contribution to such teaching given its orientation toward Christ-centered value over material value. Consider today’s debate over the workplace. Gallup CEO, Jim Clifton (2011), recently wrote a book called The Coming Jobs War. He cites Gallup’s research of the world’s 7 billion people attitudes toward work. Of the 5 billion aged 15 or older, 3 billion need a full-time job, but only 1.2 billion such jobs exist in today’s global marketplace (Clifton, 2011, p. 2). Clifton believes that this will lack of good, available jobs will threaten countries’ well-being and creating good jobs will be the top leadership challenge in the new century. In other words, tomorrow’s power Page 8 © DeVoe School of Business. All Rights Reserved Making Business Virtuous brokers will be job creators. Juxtaposed against this growing demand for good jobs is the danger of placing too much of one’s self-worth in our jobs. Work should be everything it was designed to be (glorifying God through the full use of our talents) while not allowing it to be what it was not designed to be (the source of our identity) as John Beckett (2006) has shared in Loving Monday: Succeeding in Business without Selling Your Soul. Tim Keller’s (2014) faith and work ministry leaders report that much of the workplace stress reported by congregants is fear of performance reviews. Redeemer’s marketplace teaching team addresses this inherent insecurity with Christ’s assurances of inherent worth (Keller, 2014). So what are the characteristics of a virtuous business? Companies that meet the increasing demands of global competition for market share with an ethical culture and human capital development focus will have a competitive edge in the new economy. Virtuous firms are characterized by having high integrity, a striving for excellence in their provision of products and services to consumers, in addition to excellence in business leadership and management practices, a culture of open communication, cooperation and collaboration, and a system of measurement and accountability throughout the organization. Leadership and Organizational Challenges to Become or Remain Virtuous In the previous sections, the characteristics of a virtuous corporation and the reasons why firms should strive to become or to remain a virtuous corporation have been discussed. This section will describe the leadership and organizational challenges in the process. It is not an elusive process, but it does require fortitude. To create a culture of ethical behavior requires an organization committed to ethical decision making, a system of training and mentoring to build “Tomorrow’s power brokers will be job creators.” ~ Jim Clifton (2011). Page 9 © DeVoe School of Business. All Rights Reserved Making Business Virtuous ethical character among the employees, and the necessary incentives and checks and balances to make it happen. Of course, no organizational structure ensures ethical decisions. But an organization with leaders—servant leaders—who set an example of ethical conduct, and a structure established to provide proper incentives for ethical decisions with appropriate checks and balances, training, and communication, are key components of a virtuous business. By example, Jesus taught the disciples about servant leadership by serving them (John 13:1-17). He role-modeled the desired attitude and behavior, and deeper still, he imparted wisdom. “The primary perspectives of the servant leader are twofold: When his people achieve their full potential so will his enterprise. When they have all bought-in to a common and shared purpose, a goal that transcends their own functional objectives and which is about serving God, they will work coherently, cohesively and collaboratively towards the achievement of that purpose, for themselves, for the enterprise and for God” (Waddell, 2014, p.10). This section will first describe some fundamental organizational requirements for promoting ethical decision making, and, secondly, discuss how individual decision makers must correctly frame business problems. Finally, the need for planning, open communication on ethical issues and necessary checks and balances within the organization will be addressed. The objective is to implement an organizational structure which fosters ethical decision making. It is an objective that is within the direct control of the firm’s leadership, and one that recognizes that the execution of ethical decision making by individuals within the organization can be influenced by the example of leadership, training and continuous reinforcement, and incentives which reward ethical behavior. Page 10 © DeVoe School of Business. All Rights Reserved Making Business Virtuous One of the troubling features of many corporations is that they have the goal of being an ethical corporation in their mission statements and a code of conduct to support it, but they never develop a corporate culture of ethical conduct. In a 2012, Wall Street Journal blog post titled “Survey Finds Unethical Business Practice on the