HBP# SR0018

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Three Ways

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Companies Are
Getting Ethics
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Wrong
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Is the explosion of standards and products around corporate

social responsibility making your company more — not less
— vulnerable to ethical missteps?
No

David Weitzner
Do

• by
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 MIT SLOAN MANAGEMENT REVIEW

Three Ways Companies Are

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Getting Ethics Wrong

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David Weitzner

Is the explosion of standards and products around corporate social

responsibility making your company more — not less — vulnerable to
ethical missteps?

yo have found that when it comes to ethics, simpler is better.

They meet the demands listed above by rejecting the notion
that ethics are necessarily complex. They refuse to abdicate
their ethical responsibilities; they craft value propositions
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that do not lean on social value initiatives to obscure or
distract from how the company creates fnancial value; and
they are transparent about how they do business with all
stakeholders.
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Don’t Outsource Ethics

Making business decisions that are both ethically and
strategically sound has always been incredibly tricky.
Leaders are called upon to act in a manner that is consistent
No
It isn’t surprising that today’s complex ethical demands have
spawned equally complex products and services from
companies such as Ethisphere and RobecoSAM, and major
consultancies like Deloitte. It is also easy to see why well-

with their personal values, builds solidarity and trust among
diverse stakeholders, enhances their company’s reputation,
and prevents scandals, while also being mindful of the
bottom line.
This leadership challenge is getting ever more complex.
Investors are measuring companies against environmental,
social, and corporate governance (ESG) indexes. Employees
Do
meaning leaders looking at the myriad variables behind
ESG, DEI, and CSP calculations would throw up their hands
and call in a consultant. But outsourced solutions to ethics
don’t build employee solidarity or earn customer goodwill.
Nor do they prevent scandals or help leaders sleep at night.
For example, Starbucks has been a longtime client of
Ethisphere, but this partnership has not protected the

are demanding extensive diversity, equity, and inclusion
(DEI) commitments. And customers want to buy brands
that are tied to strong corporate social performance (CSP).
As counterintuitive as it might seem in the burgeoning
ethical complexity of ESG, DEI, and CSP, a few companies
company from ethical scandals. In 2018, Starbucks outlets
nationwide were forced to shut down for a day of sensitivity
training — an event whose design was also outsourced —
after a store manager in Philadelphia called police to remove
two Black men who were waiting for a colleague to arrive
before placing their orders. Then, it seems that the sensitivity

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training Starbucks paid for had unexpected consequences:
A year later, a barista in Arizona asked a group of police
ofcers to leave the store after a customer complained of
not feeling safe. Scandals continue to this day; for instance,
the company’s claim of “ethically sourced” cocoa has been
undermined by evidence of child slave labor being used in
its supply chain.
Ethics need to be proprietary because they must be rooted in
the DNA of the company. Patagonia is an organization that
has led the way on ethics by building a unique and authentic
value proposition rooted in its history. The company makes
money selling durable, long-lasting clothing, which is
sourced and made through transparent, humane processes
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built on robust environmental and animal welfare principles.
Patagonia’s recent announcement of “making the Earth our
only shareholder” sets an impossibly high standard for most
companies to meet, but “classic” Patagonia was a perfectly
acceptable model of business ethics done right.
op
Outsourcing ethics is built on the belief that there exists a
consultancy that has, if not all, at least most of the answers
required to make corporate ethical pursuits easier. This just
isn’t the case. The experts don’t know much more about
ethics than the rest of us, and it is unlikely that they will be
able to foresee the source of the next corporate scandal in
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companies trying their best to do the right thing. Business
leaders need to encounter and wrestle with a diverse
plurality of moral vocabularies as they fgure out the right
ethical posture for their companies. This task is path
dependent, and nobody can do the work for you.
No
Skip the Checklists
Authentically ethical companies avoid cheap and easy ways
to score quick ESG, DEI, and CSP points using tools such
as ethics checklists and algorithms that calculate “objective”
rankings. Checklists offer a tempting alternative to
management teams that would prefer to avoid difcult
Do
ethical conversations.
Remember that before its historic collapse, Enron was
considered a paradigm of ethical business. In fact, the
strategy textbook I used at the time called out Enron’s
exhaustive code of conduct as a model for other companies
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MIT SLOAN MANAGEMENT REVIEW
to follow. But how was the company making money? Senior
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Enron executives couldn’t (or wouldn’t) explain it, and when
challenged, they were known to bully questioners into
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doubting their own intellectual capacity.
The third-party frameworks and metrics that have sprung
up around ESG, DEI, and CSP are reminiscent of Enron’s
code. Companies that focus too intently on them can get
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so caught up in the minutiae that they lose sight of the
big picture. Ethical companies craft and adhere to a clear,
concise, nontechnical, multifaceted value proposition that
instills ethics so deep into their DNA that doing the right
thing eventually becomes instinctual.
Look at Natura’s value proposition, as stated in its 2021
annual report: “To nurture beauty and relationships for a
better way of living and doing business. We will dare to
innovate to promote positive economic, social, and
environmental impact — and become the best beauty
company for the world.” This worldview has led Andrea
Álvares, Natura’s chief brand, innovation, international, and
sustainability ofcer, to counsel, “Be genuine. … This can’t
be about discourse or communication, gimmicks, or
campaigns. This has to be about the heart and soul of the
business. So if you can’t translate, if you’re not yet operating
at the level that you want, don’t talk about it.”
Optimally, ethical companies can explain how they make
money so clearly that their least sophisticated stakeholder
can understand it. A company is ethical so long as those it
engages in an economic exchange have full clarity on how
it makes money and are happy to offer their support. Both
the simplicity and the subjectivity built into this standard for
ethics are deliberate, even though it invites controversy.
Chick-fl-A may have the most famously polarizing value
proposition: “To glorify God by being a faithful steward of
all that is entrusted to us and to have a positive infuence
on all who come in contact with Chick-fl-A.” It has also
led to decisions that are in opposition to the values of some
people, myself among them. So while I wouldn’t do business
with the company, I would nonetheless argue that Chick-fl-
A is doing ethics right, in that it has articulated an authentic
moral stance and sticks to it. Remember, the goal of ethics
is not to be all things to all people but to be true to a set of
values.
Saragih,
PPM reserved.
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 MIT SLOAN MANAGEMENT REVIEW

consistently met them. These goals range from permanently

Forget the Bold Vision

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raising its starting minimum wage in 2020 to launching a
The third way companies are getting ethics wrong is by net-zero packaging waste initiative in 2022.

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proclaiming ambitious visions for enacting future social
Target is also making big ESG commitments with a 20-year
change without being transparent about what they are doing
implementation timeline, but these bets are tempered and
today. The move toward making ethics overly complex and
bolstered by incremental achievements today. The
adopting an outsourced ethical strategy, like Deloitte’s
aspirational message shared by Target’s CEO is grounded

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proprietary Social Impact Measurement Model (SIMM),
in the here and now: “In our daily work, we’re building
allows companies to hide from the truth. SIMM forecasts
connections with the people and the communities we serve.
the incremental impact of corporate investments on 75
Every good decision strengthens those bonds and helps
measures. It’s rooted in a “go big or go home” mindset that
create a brand we can be proud of every day.”
doesn’t best serve the development of a more ethical future.
Ethical companies don’t outsource their thinking, rely on
Uber, for example, made “creating greater equity” one of

yo
checklists, or make big promises for the future that aren’t
its priorities, stating that “increasing diversity, equity, and
backed up with action today. They explain how they make
inclusion is at the core of the company’s strategy.” But in
money in a clear manner that allows stakeholders to feel
July 2022, a major leak of internal documents revealed that
good about doing business with them. The path to ethics
the company had deliberately broken laws and expressed the
is really as simple as crafting and living by a clear value
view internally that violence against its drivers guarantees its
proposition, but in the age of algorithms and industries
success.
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selling DEI/CSP/ESG checklists, it is certainly not the path
In 2021, Pepsi’s CEO announced “a strategic, end-to-end of least resistance.
transformation of our business” that would “put
sustainability and human capital at the center of how we will
create growth and value.” It’s not clear how selling sugary About the Author
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drinks and salty, high-carb snacks serves a higher moral

purpose. If a company’s current value proposition is
problematic, it’s hard to take its promises seriously.
In fact, many younger people don’t buy into bold promises
for the future from companies that are profting off of bad
behavior today. Only 44% of millennials, the generational
No
David Weitzner (@weitznerdavid) is an assistant professor
of management at the School of Administrative Studies at
York University. He is the author of Connected Capitalism:
How Jewish Wisdom Can Transform Work (University of
Toronto Press, 2021) and the Managing With Meaning blog

cohort that will make up three-quarters of the workforce for Psychology Today.
by the end of the decade, believe that businesses make a
positive social impact, according to Deloitte’s 2022 Gen Z
and Millennial Survey. That’s a drop of 3 percentage points
from a year earlier.

Transparency regarding current sources of proftability is the

Do

most important piece of the ethics puzzle. It must come frst

— before the bold promises — if leaders and companies are
to avoid the taint of hypocrisy or insincerity.

Target has taken this lesson on board. Its leaders have

continuously set near-term and incremental goals aimed at
improving the company’s ethical posture, and it has

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Copyright is authorized for educator
© Massachusetts Institutereview use only by Eva
of Technology, Saragih,
2022. PPM reserved.
All rights Institute of Management
• Reprint until
#64235Aug 2024. Copying or posting is an infringement of copyright.
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Permissions@hbsp.harvard.edu or 617.783.7860
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No
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This document
Copyright is authorized for educator
© Massachusetts Institutereview use only by Eva
of Technology, Saragih,
2022. PPM reserved.
All rights Institute of Management
• Reprint until
#64235Aug 2024. Copying or posting is an infringement of copyright.
• sloanreview.mit.edu
Permissions@hbsp.harvard.edu or 617.783.7860