Somewhere between Profitability and Productivity
“Hypocrisy may be the bow that vice pays to virtue, but it is a singularly unsuccessful leadership strategy” (Rhode, 2006, p. 39).
As Rhode (2006) points out, “Given the centrality of ethics to the practice of leadership, it is striking how little systematic research has focused on key questions” (Rhode, 2006, p. 3). This is perhaps the pinnacle of academic hypocrisy overlooking the emerging mountains of leadership theory.
“How,” then, “do leaders form, sustain, and transmit moral commitments? Peters and Waterman would suggest that “top companies make meaning, not just money” (Peters & Waterman, 2004, p. 279). In the valleys linking leadership theories, we find successful endeavors built on purposes that support the bottom-line.
Leaders that effectively balance profit and product understand the underlying importance of integrity. Profit cannot sustain without a product and products cannot survive without profitability. In the gap resides the leader’s integrity.
As Jeffery Schwartz (CEO of Timberland) said, "If we don't make money, no amount of virtue will do our firm any good. Wall Street will ignore us, and we will soon be out of business. We must have bottom-line performance for virtuousness in our firm to be taken seriously" (Schwatz, 2002). Unfortunately, in today’s economic climate, virtue is unlikely to capture attention without pragmatism (Cameron, Bright, & Caza, 2004). The effective balance of profit and product is key to the sustainability and transmittal of moral commitments. Daniel Arce (2011) suggests the best conditions for sustained organizational integrity are those where individuals driven by integrity replace those driven by opportunity. Corporations that incentivize compensation over integrity get what they subsidize – a robust bottom line at any cost. “Jensen (2007) discusses the case of an agent who realizes that the firm is currently overvalued but whose incentive pay will be adversely affected by market reactions if this fact becomes public” (Arce, 2011, p. 843).
When motivations of opportunity are incentivized over corporate integrity, gaming results destroying long-term value (Arce, 2011).
Profit and product are best balanced in environments where managers are intrinsically motivated with a bent toward a moral commitment. “Virtue begets virtue, and observing moral behavior by others promotes similar conduct” (Rhode, 2006, p. 18).
References
Arce, D. G. (2011). Putting agency and integrity to the test. Southern Economic Journal, 77 (4), 843-855.
Cameron, K., Bright, D., & Caza, A. (2004). Exploring the relationships between organizational virtuousness and performance. American Behavioral Scientist (47), 766-790.
Jensen, M. (2007). Putting integrity into finance theory and practice (PDF of Keynote slides). Working Paper No. 06-06, Harvard NOM.
Peters, T. J., & Waterman, R. H. (2004). In search of excellence: Lessons from America's best-run companies. New York, NY: HarperCollins.
Rhode, D. (2006). Introduction: Where is the leadership in moral leadership? In D. Rhode (Ed.), Moral leadership: The theory and practice of power, judgment, and policy. San Francisco, CA: Jossie-Bass.
Schwartz, J. (Performer). (2002, January 30). Dean's Lecture Series. University of Michigan Business School.