“The task of leadership is to point out the way, give orientation and ultimately convey something like meaning.”
Attorney Stephan Werhahn, Ph.D., M.Sc., Director of the German Institute of Supervisory Boards, works as an entrepreneur, investor and consultant and regularly publishes on values in business and European politics.
“An astonishing note in the FAZ of January 18th 2018 points that Larry Fink, the head of the American asset manager BlackRock ($6,288 billion in assets under management), wrote to the boards of international companies. He alerts that besides making the highest possible profit they should pay attention to but also to pay attention to other things – for example the responsibility of the of companies in society.
Society is demanding that companies, both public and private, serve a social purpose,” he wrote according to the New York Times. Fink added. “To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society.” Everyone should benefit: Shareholders, employees, customers and also the community in which a company operates. Otherwise, a company risks losing its “licence to work”, so Fink.
The header of the letter from the world’s largest single shareholder and investor to his CEOs are: a sense of purpose is necessary. Taking this to account it is essential for every CEO, board members or managing director, to address the issue of ethics and social responsibility in their created economy.
The crisis of orientation – triggered by the distortions of globalization, digitization and accelerated structural change- is understood as a crisis of ethics and values. By returning to values, these distortions should be eradicated. In the absence of support from civil society and politics, the economic elite understands that they have to take responsibility for themselves and help the society.
The economy is supposed to repair the crises with the help of values.
Orientation crisis as a crisis of values
In the last ten years, many crises have affected politics, the economy and kept the public on tenterhooks, such as
– the financial and banking crisis,
– debt crisis, euro crisis, Greek crisis, and most recently
– the refugee crisis, the brexit,
– the emergence of populist, nationalist parties with anti-European programs
– the tendency towards authoritarian political understanding and many more.
Crisis awareness has now reached broad sections of the population up to the science and politics. The main causes are developments of the last two to three decades in the global economy. Globalization and, more recently, the digitalization of the economy are identified as the drivers of these developments whose effects are now also reaching the ordinary citizen.
The central question is, how can the world, which has gone off the rails can fix this.
Accelerated structural change brings high adjustment requirements for businesses, employees and citizens.
Skepticism is particularly strong towards the economy. The persistent violations of the rules of the market economy are widespread.
Especially banks, the automotive industry and the data-based digital companies violate ethically through excessive management salaries.
There are no effective ethical categories here that could have a normative effect.
The ethical principles are therefore only given as a direction and are therefore formulated as values.
The framework of the SDGs
One possibility of value-based management is to orient oneself towards the United Nations’ Sustainable Development Goals (SDGs).
The United Nations are 17 SDGs: no poverty, no hunger, good health and well-being, quality education, gender equality, clean water and sanitation, affordable and clean energy, decent work and economic growth, industrial innovation and infrastructure, reduction of inequalities, sustainable cities and communities, responsible consumption and pollution, climate protection, life under water, life on land, justice for peace and strong institutions, partnerships for the goals.
These SDGs provide a global framework to map investment risks and opportunities across cultural, linguistic and political boundaries until 2030. It is the first time in history that a global community of more than 190 countries has agreed on goals and needs.
According to a study of the UNGSII SCR 500 report 1/2019, more than 85 percent of the largest listed global companies on different continents have highlighted sustainability issues in their most recent annual financial reports. And in doing so, they addressed one or more of the SDGs or their content. Mapping these strategic commitments in financial reports provides investors and customers a unique and additional layer to make better-informed purchasing decisions and investment allocations while achieving a “first-mover reward”.
Why is it useful to coordinate with the SDGs?
Companies with better ESG results have, on average, lower refinancing costs and higher product price margins. They also benefit from a low turnover of HR talent and loyal customers.
Asset managers who join SDGs are increasingly seen as better managers. Especially among a younger and well-educated generation of clients. The use of the SDG agenda to drive change in client and investment behavior can help the financial industry to become a catalyst for change and counterbalance its unethical image.
Value-based leadership is practically applied business ethics
Ethics and economics seem to be increasingly separated from each other. For example, through the economization of all living conditions. This development can only be recaptured by observing values in management.
The question arises whether the globalized and digitized market economy and capitalism undermines the fundamental values of the Christian-Western / Western culture of “the honorable merchant”? Could consideration of the values help this change? Should and can the economic elites take care of it?
According to economist Peter Drucker, the value-oriented management of the economy is a task for the entire society. The economic managers are the leading elite of the 21st century.
The economy and its elites must be open to this leadership role. Because they have the most and most important resources of the world society. And not politics or civil society.
Business ethics: Concept and approaches in science
For printers, it is therefore imperative that the business elites in order not to have their legitimacy withdrawn. Similar arguments are put forward by major financial and strategic investors as owners of large invested assets.
In the German-speaking area it came outside theology only into the eighties to an intensive examination of the fundamentals and topics of business ethics. Peter Ulrich, Karl Homann, Hermann Sauter and Peter Koslowski are, among others, the names that appear in this context repeatedly. A central characteristic of the discussion is a balance of economy and ethics.
Certain standards, such as human rights, are universal and unrestricted. These standards can stand in the way of the economic search for efficient solutions. This is the path leads to a practical business ethics, in which the ethical and economic objectives and rationality can be gently linked together.
On the one hand, legitimate purposes of economic activity can only be defined in ethical terms. On the other hand, an ethical perspective also must estimate the economic side effects. Business ethics deals with this relationship between morality and profit in business management. It deals with the question of how moral standards and ideals can be developed under the conditions of the modern economy. (Homann/Blome-Drees, 1992)
Function of values in management
Values are to provide orientation, comparable to a compass. They show the general direction in which the stakeholders seek to move. They provide the consistency of the numerous individual decisions, by consolidating them into a common approach. Values should thus motivate people to act in accordance with their values. The appreciation and emotional affirmation of values encourage the actors to achieve more and to evolve.
The more dynamic the world changes and developed, the more important self-expression and self-binding are becoming by values.
Taking action in concrete conditions
Taking action is always concrete. Taking action, making decisions and leadership always takes place under specific and empirical conditions. Taking action always represents a confrontation with the empirical world. General ethics and value-based leadership must face the “dilemma of all normative claims”, since they “have to deal with the world if they want to change it” (Möllers, 2015,270).
Enterprises need to point the way
So it seems that taking action is always a subject of two classes of influencing factors – the values and the conditions of realization. Therefore, the task of leadership consists in balancing these often conflicting factors in such a way that the company or organization continuously achieves positive results. These results should promote the happiness of all people and – therefore- ensure the sustainable survival on the market. Bids and prohibitions are made by standards. Values indicate the direction in which the company shall move in the long term.
It is therefore the responsibility of leadership to point the way, to provide orientation and ultimately to convey something like a sense of purpose.