The Business Ethics Alliance was pleased to have Kathleen Day as the featured speaker for our 2021 Spring Executive Breakfast. Kathleen has over 30 years of experience as a journalist, specializing in the topics of business and federal legislation. She is currently a professor of finance at Johns Hopkins Carey Business School.
We spent the morning discussing the question: How does being a leader in business obligate you to be responsible?
Although Kathleen’s answer is simple, the question is not simplistic in nature. Your moral compass is important, but it is not what obligates you to be responsible. As Kathleen stated in her presentation, the primary thing that fuels this obligation is that society is watching, and it often pays a substantial price for unethical business practices.
Historically, businesses themselves are not the root cause of trouble or conflict. Rather, it is the people in business, especially leaders, that get into trouble. As we have discussed in previous events, an organization’s leader sets the tone for the culture and others’ behavior. However, everyone has an obligation to be responsible.
So, what is the bottom line of being a responsible business leader?
Kathleen stated that what it really boils down to is risk – primarily legal or reputational. There is risk every day in business, which is unavoidable. With this in mind, there is also a lot of risk business leaders can avoid.
Within the concept of risk, it is also important to understand conflicts of interest will inevitably arise. These also pose a legal and/or reputational risk. Conflicts of interest should be part of any organization’s code of ethics. The need to avoid them is explicitly discussed in businesses because they can easily hurt a company’s reputation or lead to legal breaches. However, some conflicts may be okay if they are disclosed properly and according to legal standards.
What does it mean to be a good leader?
Good leadership is about more than avoiding bad things. It also means doing good things. As a group, people often behave differently when they know other people are watching. While it is always important to act with integrity, it is even more vital to do the right thing when no one is watching.
Kathleen noted another important concept: bad behavior is expensive for somebody. People and businesses do not want an expense they do not need to have.
Under the right (or wrong) circumstances, anyone has the potential to exhibit bad behavior or to make unethical decisions. Kathleen asked us to consider the concept of IBGYBG – I’ll Be Gone, You’ll Be Gone.
Kathleen stated this phrase was the rallying cry for mortgage lenders who created the mortgage lending crisis, which led to the Great Recession between December of 2007 and June of 2009. Many executives and business leaders did not care about the long-term impact on their respective companies or society. They only cared about meeting their quarterly and annual numbers and receiving the financial gains that resulted from meeting those goals.
The above is a classic example of irresponsibility in business and why it is so important to learn from past mistakes and poor decisions. Some people justify irresponsibility or unethical actions by thinking, “This is the cost of doing business.” The reality is this “cost” can be avoidable if leaders commit to being responsible and ethical.