Why ethics matters in executive leadership

thought leadership for executives

In today’s world, business ethics is important in any circumstances, but in market downturns or recessions it becomes an asset. Trust and reliability are key factors to build long lasting business partnerships.

The 2022 report by Transparency International, which ranks 180 countries in a corruption perceptions index, shows that countries are struggling to stop corruption. In other words, companies that deal with governments will find an increasingly difficult challenge in doing business as this trend permeates the private sector.

Behavior

To thrive in such an environment, everything starts with the business leader of a company, with the external as well as with the internal behavior. A strong ethical position does not always bring business, but overall, the effect is always positive.

I remember an experience of introducing myself to a secretary of health to talk about the supply of medical equipment. I made sure he knew that any kind of advantages would be offered solely to the government. As a result, I had no business done with that municipality during the tenure of that leadership.

Years later, that same secretary became the CEO of a leading hospital in the country. To make a long story short, we were able to break a forty-year predominance of a competitor and sell equipment to that hospital. Trust was the key issue.

Consistency

A leader’s behavior must be consistent in any circumstances. Within the top management, ethics issues should be discussed frequently, and be a part of the day-to-day concerns of doing business and reaching results.

Related:   Mistakes and key advice for first-time CEOs

This kind of top-down example will embody the culture of the company and the willingness for proper behavior will reach all employees. I have seen many companies with elaborated codes of ethics and sophisticated training tools, but in which everything was done as a simple task, rather than as a genuine learning, practical experience.

The high administration leads this culture and, doing so, builds an unquestionable moral leadership. At the same time, any inconsistency between words and behavior undermines the confidence in this leadership. A proper personal judgment for right decisions becomes a second nature, when facing doubtful situations in the code of ethics.

Culture

This culture will be expanded to customers’ relationships in all areas, and sometimes tough realities will be faced. Margins can get hit to keep a candid and honest decision. Unfortunately, this is an area in which, many times, options bend towards financial results instead of proper and ethical outcomes.

On another occasion, as I took over a position as the new CEO, I visited a customer that had serious complaints on the quality of some heavy equipment our company had sold them. At the meeting, on our side we had technical personnel with stacks of documentation to demonstrate all the corrective actions taken. On the customer’s side, stacks of folders with documentation to be sent to court to sue our company.

Related:   Bank of America CEO Brian Moynihan

Through this meeting, for the first time I really understood the whole situation, and concluded the customer was right.

After ponderous moments of heavy silence, I simply said: “OK, we will replace the equipment.” While my team absorbed the shock (and for their relief), the customer also took time to look around and say: “OK, this meeting is over.” 

On the way out, we were invited to a meeting being held at the same time, in an adjacent room, with suppliers to receive the specifications of a new equipment to be purchased. We had not been previously invited for that meeting.

Focus on results

My predecessor in that company acted within the same code of ethics that I had, and the decisions were driven by the strong focus on results, which can be a trap for a long-lasting relationship with customers.

Quality issues should not be fixed in courts. Lengthy discussions should not be allowed when the company delivers inadequate quality in any area of the chain, be it sales, manufacturing, planning, or services, you name it.

Many large corporations seem to have built walls between all the efforts made to grow, be competitive, increase share value and an ethical attitude and behavior in all areas. No wonder why we see worldwide reputations of large corporations, built in decades, fall as a house of cards in a matter of days.

Related:   Executive leadership and challenges in remote management

As I left the companies that I led, I kept strong ties of friendship with former customers. Ironically, these were not the ones with perfect business relationships or which had no complaints, but important customers that had serious quality issues, almost to the point of disruption. Transparency, acknowledgment of mistakes, and the joint effort to solve them built a relationship of trust, followed by a friendship that surpassed the boundaries of business.

Pace

The example of the leader sets the pace for the decisions in all other sensitive issues that require ethical behavior, such as business with government entities, purchasing and sales procedures, respect for anti-trust laws, full transparency in financial reports, and many other areas. This is how a strong reputation of a company is formed in the marketplace, and it is fully possible to achieve it without hurting profitability; the effect is usually the opposite.

We hear statements of expertise of top executives, be it in profitability recovery, manufacturing, marketing, finance, or leadership. We don’t hear leaders say “I´m good at ethics.” The reason for this is very simple; it is because this is not a message that someone says through words, but that must be conveyed through behavior to show this kind of “expertise.”

In the current world environment, the difficulty of doing business in government and in private sectors, having ethics as a personal brand builds an unbeatable reputation.