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How much does it cost to be ethical? What is the cost of corruption?



The opposite day, my 10 year-old son requested me how a lot it prices to be moral.  Not likely a shocking query for the son of an ethics professor, however one which has no straightforward reply. So, how can we measure the impression of doing the correct factor?

Contributing to the welfare of others and your individual is frankly, a priori, a broad query.  If I had been to reply my son’s query in a easy manner, I’d attempt to flip the query round and as a substitute ask, what occurs if I don’t do the correct factor? What’s the price of corruption?

Stop Corruption, by kmillard92.
Cease Corruption, by kmillard92.

On the one hand, anybody can communicate freely about variations in notion, and there are research in regards to the notion of corruption.  But once we attempt to apply statistics and actual numbers to this phenomenon, its very nature impedes us from accessing these numerical values; its obscurity and lack of transparency leaves no path to comply with, typically because of the varied and inventive means corruption has of additional selling different corrupt practices past the financial (presents, journeys, particular favors, and many others.).

So what prices does corruption incur?  The price of corruption is far more than monetary; it’s also social, political, environmental and human:

  • Monetary: Corruption has a direct impression on the wealth of countries, diverting funds to “non-public” functions, as a substitute of to the frequent good.  It additionally generates an underground economic system, dissuading overseas funding (in accordance with Transparency Worldwide, dropping one index level results in dropping the equal of 0.5% of GDP in overseas funding) and inspiring capital flight.
  • Social: It additionally corrodes belief, not solely in establishments, but additionally in individuals.  It generates frustration, apathy, discourages the entrepreneurial spirit, accentuates social inequities and promotes organized crime.
  • Political: Corruption is likely one of the biggest obstacles to democracy and the rule of legislation.
  • Environmental:  Unacceptable practices in developed international locations are additionally carried out in creating international locations, along with the overall pillaging of pure sources.
  • Human: It damages human nature and creates a rift between human beings and their final objective.

If we focus simply on the monetary value, within the Nineties Enterprise Week printed the outcomes of a College of California examine that exposed the precise value of corruption.  For instance, accepting a bribe or giving in to extortion to hurry up licensing procedures or to acquire a public contract led to a 3 to 10 % improve in charges.  In the long run, the products and companies topic to corruption had been 20 -100% dearer.

In 2003, the U.N. signed the primary worldwide anti-corruption treaty.  At the moment the Related Press gathered quotes that illustrated the extent and gravity of corruption in lots of international locations:

Corruption … has ruined our colleges and hospitals [..] It has destroyed our agriculture and industries. It has ‘eaten up’ our roads and jobs. … It has destroyed our society.”  Justice Minister, Kenya.

Anthony Value, The U.N.’s prime anti-crime official, made the next observations:

“Zaire and Nigeria, two of Africa’s hardest-hit states, have misplaced some $5 billion every in the previous couple of years to graft, most of it spirited out of these international locations.”

“In Pakistan, an estimated 30 % of the value of all public works initiatives goes to kickbacks and bribes.”

“In Bangladesh, corruption eats up a whopping 50 % of overseas funding.”

In 2004, Daniel Kaufmann, the World Financial institution Institute International Governance Director, revealed that all through the world multiple trillion U.S. {dollars} ($1,000,000,000,000) had been paid yearly in bribes, not together with misappropriation of public funds or embezzlement.  This determine estimates bribes paid each in wealthy international locations and creating international locations.

Did You Say "Bribe"?, by Chris Potter (
Did You Say “Bribe”?, by Chris Potter (

Kaufmann noticed that the whole financial sum of corrupt transactions was only one a part of the whole value of corruption, which in and of itself is a serious obstacle to the discount of poverty, inequality and toddler mortality in rising economies.  Different insights that got here out of this examine included how in the long term the nationwide incomes of nations that battle corruption and enhance the rule of legislation can improve as much as 4 occasions. On the identical time, the examine discovered that such efforts would result in a 75% lower in toddler mortality.

In 2009, Transparency Worldwide printed a report that discovered that corruption in Eire value the state three billion kilos.  In the meantime, in Italy the Court docket of Auditors confirmed that authorities corruption value 60 million euros per 12 months.  Within the U.Okay., the Nationwide Fraud Authority quantified fraud at 73 billion GBP in 2012.  On the European degree, in 2013 the E.U. estimates that corruption all through the 27 member states prices 120 billion euros per 12 months. In Spain, a current examine positioned the social value of corruption at 40 billion euros.

Whereas it’s troublesome to understand corruption’s monetary impression, these numbers do assist to make clear the gravity of the phenomenon.  Fascinated about the price of corruption in relative phrases can also be enlightening.  For instance, if we refer again to the determine cited by Kaufmann – $ 1 trillion USD – and we evaluate it with the $150 million USD in worldwide assist provided for catastrophe aid following the current storm within the Philippines, the pressing have to fight corruption is kind of evident.

Going again to my son’s query, and with out dropping sight of the bigger and better motives past the financial that justify working in direction of good, the figures cited earlier do certainly assist me to reply his query: Many good issues rely on our doing good.  By making brave and trustworthy selections, we are able to rework actuality and create not only a extra simply world, but additionally a happier one.

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General Management Standing its Ground




IESE Business SchoolOne of the most valuable legacies that the founders of IESE created is the institution’s general management focus, both for teaching and other business activities.  Long before, Chester Barnard, a prominent pioneer in the field of management who brought together executive experience and humanistic training, alluded to a similar focus, emphasizing that in the management process “the sensing of the organization as a whole and the total situation relevant to it,” is indispensable.

The general management perspective views an organization as a whole, integrating strategy , finance, operations, and marketing in addition to all the other functions of a company.  This approach requires stepping away from narrow perspectives centered solely upon one area – whether strategy, finance or marketing – and the factors characteristic to each.  The result is running the risk of overlooking the company as a whole.

Within this perspective, business ethics, as I discussed in Business Ethics in Action, views the general manager’s role as that of someone managing a community of people who provide products, create wealth and serve society, doing so fairly and justly.  Promoting human excellence and efficiency as an approach to organize, act and interact with others, business ethics, above all, guides senior management, encouraging it to always seek the common good in business and society through all of its actions.

This general management and business ethics perspective is not unique to IESE.  However, opposing tendencies have been prevalent in the international realm for some time, especially in business schools, particularly “Strategic Management courses displacing “General Management” courses.

General Dwight D. Eisenhower addresses American paratroopers prior to D-Day.

Inspired by military lingo, the notion of “strategy” was introduced into business schools more than 50 years ago.  Later it gelled into courses on “Strategic Management” and in the creation of the corresponding academic departments.  The argument that justified the resulting exclusion of “General Management” courses and departments (which had formerly incorporated strategy) was that strategic management was at the core of general management, or at least it was its main function.  In some business schools the process took place merely to mirror what some prestigious U.S. institutions had done.

Although there are diverse emphases and definitions, generally, strategic management refers to all of the aspects that affect the company, taking the competitive context in which the organization exists into consideration.  The approach attempts to adapt the business organization to its surroundings, seeking opportunities and confronting competitors and possible competitive threats.  Strategic management, then, tends to be the compass for all of senior management’s and the entire organization’s activityThis tendency places businesses at risk of reducing general management to one of its components, and in this way, substituting the whole with one of its parts.

The problem is that strategy is always a means; it is a strategy “to achieve” an ends, generally financial.  What is important is to be successful in attaining the particular objective that the strategy is targeting.  Often there is a tendency to step back from other business elements.  For example, there are strategy books that examine the strategy Madonna implemented to achieve success or how companies like Wal-Mart have succeeded.  For some strategic management professors, Sun Tzu’s The Art of War makes the top of the reading list, characterizing competitors as the enemies to defeat.  Others may not go to this extreme, yet they do see strategy as the essence to achieve financial gain wherever it may be.  Fortunately, there are still plenty of reasonable people – here at IESE amongst them – who know that strategy has a place within a larger context , and in practice, they maintain their general management bearings.

Does ethics have a place within strategic management?

With some good will, indeed, but as an add-on.  It can be included, ethically evaluating the ultimate purpose of the strategy or resolving ethical dilemmas that its implementation presents.  But it can also easily be omitted, perhaps leaving ethics to the business ethics course alone, saving the discussion about strategy from scrutiny.

Ricardo Currás (Dia) at IESE
Ricardo Currás (DIA)

Fortunately, today there are plenty of leaders who understand strategy’s role within a broader contextRicardo Currás, Executive Director of DIA, a Spanish company that began as a family-run shop and today is a multinational with 44,000 employees, is one of them.  In his November 15 visit to IESE he declared that he “didn’t believe in strategy” and that, “strategy is a word that has become a bit stale because it confines you to a straitjacket. Today you can’t predict the impact you will have on your company’s future. I do, however, believe in direction, in the path that may be the best to take. In addition to sketching strategic plans, we need to continually remind ourselves where we are and where we are going.”

Another great executive, Bill George, CEO of the successful high-tech medical company Medtronic based in Minnesota, defined his company as “a mission-driven company, a values-centered organization and an adaptable business strategy.”

This, I believe, should once again become the general management perspective.  Certainly we should not forget strategy.  Instead, we should emphasize a well thought-out mission centered on enduring values that can solidify over time .  Strategy should support this endeavor, not hold general management back.

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Machiavellian Management Ethics: 500 years of “The Prince”




What is more important for business success: behaving ethically or earning a good reputation?  What then is the role of ethics in the context of business management?

For quite some time “business is business” was en vogue.  Yet the financial crisis and other scandals led us to a situation where social responsibility, sustainability and good reputation are appealing and part of any successful business. But this new trend does not give by itself an answer to our question. The point —some will say— is what we understand by success. And the answer to that takes us back to Renaissance Italy.

Until the Italian cinquecento the common assumption in Christian Europe was that eternal salvation was way more important than earthly success (power, money, pleasure). So no one dared to give a clear answer in public to our question, although almost everybody knew the unpleasant truth.

Niccolò Machiavelli, Business Ethics IESE Blog
Niccolò Machiavelli

Niccoló Machiavelli, a Florentine diplomat, gave his own response in The Prince —a little treaty written five hundred years ago and published posthumously in 1532. Antony Jay translated it into contemporary business management language in his acclaimed book Management and Machiavelli (1967).

The Prince is popularly known as an apology of fraud and manipulation in political action. But we should read it carefully. Carl Schmitt, a well know follower of Machiavelli’s political realism, once wrote: “Machiavelli, had he been a Machiavellian, would sooner have written an edifying book rather than his ill-reputed Prince.”

For sure, Machiavelli always thought religion and morals were crucial for political life. But he broke with the moral teachings of Christian tradition, stating that leaders had to learn (unlearn) how to violate morals to obtain good political results. He thus cut the link between political prudence and ethics, considering politics the science of power. This was not a mere apology of immorality, but something needed for the greater or basic good of peaceful social life: “The ends justify the means.

Weber rationalized this moral approach as the politician’s “ethics of responsibility,” opposed to the saint’s “ethics of conviction.” This has some features in common with what English philosophy called utilitarianism (closely linked to economic logics); Americans later labeled as consequentialism (so many times invoked in security and defense issues); and Germans significantly call Erfolgsethik (ethics of success).

Leo Strauss, a remarkable and original interpreter of Machiavelli, wrote “Economism is Machiavellianism come to age.”  At the end of the day the paradigm of individuals as maximizers of utility is based on the self-interest centered man of Machiavelli .

Cover page of 1550 edition of Machiavelli's Il Principe
Cover page of 1550 edition of Machiavelli’s Il Principe

But Machiavelli was aware of the importance of moral reputation. He thought that a leader should be believed as morally trustworthy if he wanted to gain and preserve power. Moreover, he fought against corruption and in favor of civic virtue. But this ancient virtue was for him only the shell of Christian virtues: He viewed the strength of the lion and the astuteness of the fox as models to be followed.

So in fact an immoral business culture is not Machiavellian at all. The current lack of trust and widespread corruption is even less Machiavellian than we think . On the contrary, social responsibility, sustainability and reputation are a perfectly Machiavellian response to the crisis. This is actually Machiavellianism at its best: successful.

So The Prince is not to be read as a handbook for political maneuvering, or as a mere defense of arbitrariness. That approach would make us incapable of understanding the lasting and deep impact of Machiavellianism in contemporary politics, and by the way, in the practice of Business Management.

Summing up, there are three elements of Machiavellianism in our current ethical landscape:

  • The stress on reputation, with no real care for actual moral behaviour
  • The centrality of success as practical criterion, and the utility of strength and astuteness for achieving that goal.
  • The narrow materialistic approach to human action (economism).

What is more important for business success: behaving ethically or earning a good reputation? What then is the role of ethics in the context of business management?

Image courtesy of Nutdanai Apikhomboonwaroot /
Image courtesy of Nutdanai Apikhomboonwaroot /

Machiavelli was right in many senses. The mere appearance of virtue is enough for achieving certain goals by taking advantage of necessitá (opportunities) and weathering the unforeseeable random factors of Fortuna. Aquinas himself knew that, and warned against the moral danger of corrupted forms of prudence (fraud, astuteness, deceit, etc.) precisely because they were compatible with apparent success. And classical wisdom reminds us, “Caesar’s wife must be above suspicion,” since good reputation is a moral good and even a right of the person.

So the answer to our original question depends on our definition of success. In the first instance, ethics is about defining success.

Make no mistake: We still live within a Machiavellian framework . For many of us business success is the material, measurable, earthly outcome that requires certain management abilities and the adequate administration of social legitimacy. For that reason Business Ethics should focus on re-defining success , placing management and business activity in the broader context of individual, corporate and social life considered as a whole.

Otherwise we will be assuming the Machiavellian definition of success. And that will limit the role of Ethics to an extrinsic moralizing code that has nothing to do with practice.



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Why Good People Do Bad Things and What We Can Do About It




Crowd, by James Cridland
Crowd, by James Cridland

We can agree that people desire – in general – to act in an ethical manner and see themselves as ethical people. And there is general agreement also on values that matter to most people across different cultures: courage, justice, humanity, temperance, wisdom and transcendence.

That said, there are many situations in which good people act against their values

A good example of this is an experiment inspired by the biblical story of the Good Samaritan and conducted with seminary students as subjects (Darley, J.M., and Batson, C.D.: “From Jerusalem to Jericho: A study of Situational Dispositional Variables in Helping Behaviour”, JPSP, 1973, 27, 100-108).  The students were on their way to give a talk about the Good Samaritan and came across someone who had been mugged. The amount of “hurriedness” induced in the subjects had a major impact on their helping behaviour. Thus, overall, 40% of the seminary students offered some help to the victim. But, the percentage rose to 63% for those in low hurry and to a 45% for those in medium hurry. But it decreased to a 10% for those in high hurry.

What does this study tell us about ethical behaviour in today’s corporate world?

As individuals, we think that we always act in a rational way. But research demonstrates that this is not always so

The traditional view would say that when we face an ethical situation, we check our values, judge the situation in a rational way and, following our values, take action. But the Good Samaritan experiment demonstrates that on many occasions even people with the best standards may act different than expected. So on many occasions we may act against our values.

Why is this the case?  Over the last several years, we have witnessed how ethics has started leveraging other disciplines like psychology.  In their book Blind Spots (translated into Spanish as Puntos Ciegos), experts like Bazerman and Tenbrunsel have started to talk about what is called Behavioural Ethics, an approach that encompasses concepts like “ethical fading” – losing the ethical angle of a given problem – or being “ethically bounded,” i.e., having a limited ethical perception.

With the help of psychology and approaches such as those outlined in Blind Spots, what might be some of the situations in which good people find themselves acting unethically?

1. In some situations we may not perceive a question or a problem as having an ethical dimension. In our recent history we have seen how many employees of banks sold assets – preferred shares – to people. Did they all know the inherent risks of these assets? Or did they assume that as their superiors had approved the sale, everything was ok? Or were some of them that sold these for their families so focused on meeting their objectives that they neglected to consider anything else? Perhaps there are yet other reasons for these blind spots.

This case is very controversial and painful for many families, but the point is that maybe some people acted wrongly without really noticing.

2. We may act unconsciously, in an automated manner and based upon preconceptions or prejudices in other situations. Some experiments have demonstrated that we may act against our deepest beliefs. Mahzarin Banaji of Harvard University conducted an experiment in which black people demonstrated unconscious prejudices against people of their same race. In this experiment, both black and white people unconsciously related black to bad and white to good.



3. Emotions may “hijack” our brain. In situations full of stress, we may overcharge our brain and not pay attention to relevant things, instead focusing on narrow goals, but forgetting the how. In the case of the Good Samaritan, probably many of the students were so stressed that their attention narrowed to their immediate goal: giving their speech. But it also made them neglect things occurring around them that were very relevant to their true values



4. We tend to overvalue the short-term vs. long-term. When faced with dilemmas where short-term impact may seem more attractive than the long-term variety, we may be at risk and “forget” or let some ethical considerations “fade” or vanish. Before a situation occurs, if we have the chance to predict our behaviour, most people predict that they will behave correctly. And after the decision has been taken, we will think we acted ethically. But when the moment to decide comes, we may be affected by short-term issues – this year’s bonus – and by other factors: pressures, no time, etc.


So we may act against our values, yet think we have behaved correctly.



The good thing is that we can fight against many of the issues mentioned here and successfully overcome them.

As individuals there are some recipes we can put in place:

1. Increase our ethical awareness: Have we integrated the ethical dimension into our decision-making processes? Can we cope with ethical situations with a solid framework?

2. Self-knowledge and self-awareness: As Bill George ( George, B. and Sims, P. “True North”, Jossey Bass, 2007), former CEO of Medtronic and professor at Harvard Business School put it, we need to “peel back the onion” and get a better understanding of ourselves. What are our values and beliefs? What is our real purpose and what are our motivations, both intrinsic and extrinsic? What are our personal blind spots and weaknesses? What unchallenged beliefs may distort our thinking and how do we react in stressful situations? We need to understand the answers to these questions to be able to cope with ethical dilemmas.

3. Increase our levels of consciousness: As we have seen, many of the difficult situations we encounter may come from automated behaviours or from a lack of attention due to stress or other factors. Increasing our consciousness levels and managing stress will help us to face ethical situations in a better manner. Bill George also mentions some practices like mindfulness as a way to increase our levels of consciousness and self-awareness.



4. Gain perspective: We need to get a better view of situations and have the time, the inputs and the reflection space to perceive things in a better way, trying to always find the truth and avoiding mental – conscious or unconscious – justifications. Do we have all the information about our potential decisions? Can we get a better perspective by simply talking to a mentor or to other people in a free, non-judgemental way? Do we have time to decide? And can we find space to reflect?  The same things may look completely different if you are able to gain new insights.

5. Understanding the complexities of the corporate world:  Taking decisions in complex corporations may – as we all know – involve not only the self, but many other constituencies. We need to understand the context, the key people involved, what their main goals are, and be ready to be challenged or face loyalty dilemmas – if you act like you are not being loyal[CF3] . Time and preparation are key under these circumstances.

So, are we really free to decide?

Many would say then that, because in some occasions we may act unconsciously or with less ethical perspective, we may not be considered accountable for some behaviours.

This reasoning is misguided; we are free to act and therefore these potential problems should not be used as excuses for unethical behaviour.

What we must understand however is that we may face unexpected challenges and must be ready to rise above and meet these challenges well equipped, knowing what tools and techniques can help us act with our values as our guide.

The good thing about this mix of disciplines is that, on one hand we can now learn mechanisms that may be at play while facing ethical decisions. On the other hand, the interdisciplinary approach allows us to find more possible remedies to solve these issues.



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