A Lecture by Prof. Leisinger at the University of Philosophy in Munich
Professor Leisinger, a distinguished academic and executive, delves into integrating ethical principles within corporate decision-making frameworks. He devises a model that incorporates responsibility-centric ethical considerations into practical management strategies suited for a globally interconnected landscape. In the Anthropocene era, marked by significant human impact on nature, Leisinger underscores the critical importance of responsibility. To sustain his thesis he brings up a study featured in the Harvard Business Review which reveals that 73% of respondents expect companies to prioritize the well-being of all stakeholders alongside profit generation.
This prompts an examination of who the stakeholders are and what strategies are most effective in engaging with them. Additionally, Leisinger explores what constitutes ethical behavior for a company in modern society, who can influence it, and who stands to gain from it.
The Three Dimensions of Corporate Social Responsibility
To define the scope of ethical action, Prof. Leisinger outlines three essential dimensions:
The Must-Dimension involves adhering to all legal and regulatory standards, as any breaches could jeopardize the company's survival.
The Should-Dimension broadens this framework by requiring companies to also fulfill societal expectations. While the Must-Dimension focuses on avoiding harm, the Should-Dimension aims to secure the company's legitimacy within society. Together, these dimensions constitute Good Management Practices.
The Can-Dimension aids in solving problems beyond direct business interests. This includes humanitarian initiatives or environmental investments that significantly exceed legal requirements. Taken as a whole, these efforts epitomize exemplary Corporate Social Responsibility.
The Ethical Beliefs of Leaders Are Decisive
According to this concept, the way decisions are implemented in a company largely hinges on the executives who hold responsibility within the organization. The ethical convictions, determination, and assertiveness of managers are pivotal in deciding whether a company just meets basic legal standards or also proactively pursues the interests of other stakeholders - both now and in the future.
Leisinger's ethical theory is based on the belief that people possess dignity, freedom, and responsibility and should conduct themselves accordingly, both personally and professionally. Consequently, the role of executives is key, as they impact both the company's economic success and its social influence within and beyond the organization.
Leaders Instead of Managers
What characteristics should individuals in these leadership positions possess, and how are they chosen and motivated to take on such significant responsibilities? Erich Fromm's profile for leaders appears fitting. These individuals should cultivate a mindset of empathy, assume responsibility for others' needs, demonstrate respect and honor towards others, and maintain a fair and realistic self-awareness. Leaders should - after thorough discussions with strategically important stakeholders - establish the values by which the company should measure its actions.
Various factors can coexist harmoniously, yet contradictions may arise in certain situations, leading to dilemmas that the company's leadership must address. A company operating within a market economy must uphold performance values such as competitiveness, efficiency, and the provision of useful products or services. Simultaneously, social and ethical values should not be compromised, including openness, teamwork, loyalty, respect, honesty, and transparency, which enhance cooperation and communication both internally and with external stakeholders. Leisinger highlights values like integrity, truthfulness, compassion, and reverence for life alongside economic performance indicators.
A Holistic and Integrative Business Ethics Approach
From a comprehensive viewpoint, the environmental impact of a company and its operations are equally significant as adopting a future-oriented economic strategy. Economic sustainability must align with ecological sustainability while also taking social conditions into account. Companies should be dedicated to principles like non-violence, respect for life, justice, solidarity, truthfulness, and tolerance.
By outlining these business ethics areas, it becomes clear that, ethics transcends personal conscience and is a societal and institutional phenomenon that influences the norms, values, and practices of both societies and organizations. His ethical framework is holistic and integrative, addressing the moral, legal, economic, social, and ecological aspects of human actions and decision-making.
Is There a Business Case for Ethical Behavior?
Leisinger acknowledges the challenge of balancing different values. As an experienced professional, he understands that economic considerations often prevail in decision-making. Although a compelling business case for ethical conduct is not strong, particularly in the short term, society's awareness of environmental sustainability and social issues has grown. The market is evolving as society recognizes the critical nature of these concerns for Earth's survival, pushing companies to prioritize ethics. Leisinger accepts that ethical behavior alone does not yield financial returns and stresses the need for a competitive overall strategy in both the market and society.
He recommends a practical, non-dogmatic ethical approach within the economic, ecological, and social arenas. To ensure that those willing to act ethically are not at a disadvantage, appropriate incentives should be provided. Companies can achieve this through internal policies and codes of conduct, with compliance rewarded in employee evaluations, bonuses, and promotions.
Finding the Right Strategy in Dealing with Stakeholders
A key element of Leisinger's responsibility-centered approach involves engaging with stakeholders. Companies should aim to initiate dialogue with strategically relevant stakeholders to find mutually accepted solutions both within the company and the broader social context. Emphasis should be placed on the quality and legitimacy of these interactions. The overarching objective for all parties is to build trust and acceptance, which can only be achieved by upholding traditional virtues such as fairness, mutual respect, and consideration in negotiations. As any manager who has led multinational companies and teams understands, establishing trust in these scenarios is challenging and it can be easily lost. Therefore, it is advisable to start with less controversial issues to build initial trust, thereby facilitating discussions on more complex topics later. The ultimate goal is to progressively converge on a common ground that exceed legal requirements, thereby fostering ecologically and socially sustainable business solutions.
Does Ethical Business Practice Require a Paradigm Shift?
From a broad vantage point, acting responsibly demands the willingness to offer socially beneficial services, even if they don't yield immediate economic returns. To embed this mindset within a free-market economy necessitates a significant paradigm shift, given that the interests of investors have historically taken precedence. Calculating profitability and efficiency should incorporate the costs borne by other stakeholders, including the environment. In this regard, there are already discussions and proposals underway, such as incorporating natural capital into these considerations. While the fundamental corporate principles of cost and performance accounting would remain, they would be broadened to encompass these additional costs.
However, not all stakeholder interests can be quantified and factored into a company's financial statements. It is still the responsibility of executives, or as Leisinger describes, the ideal leaders in the private sector, government, social domain and science, to address this challenge and guide their organizations in a manner that more effectively aligns with societal expectations.
Klaus Leisinger is a leading German economist and ethicist specializing in issues such as corporate responsibility, sustainable development, and global health. He is a former CEO of the Novartis Foundation and has significantly contributed to the discussion on ethical business practices through his work.
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