The Wheatley Institution

Lectures on Ethics and Leadership

Kim B. Clark
September 6, 2013

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Thank you, it is really an honor to be here. As Peter said, we worked together for a long time, I think really highly of him, so it was a double honor to be recognized in the university, and to have Peter want to do this. I am grateful for that honor.

I do have a few things I would like to say about responsible leadership, but I find that most of them have been said by the people before me. We have been really well fed, they have great ideas. I do have a couple of things that I would like to emphasize. The first one is that I think it is important for those of us who have any kind of responsibility to be a leader, and that includes pretty much everybody, because I believe in leadership with a small "L," that is, leadership that exists and is important in every single level of society, all the way down to individuals and families, but also in organizations, in project teams, in divisions, in any kind of group, all the way to CEO's and even people who lead large parts of societies.

In every position of leadership, leadership is always and everywhere a moral act, because every leader takes the lives of other people in her or his hands, and in various ways takes action that affects other people. It is either for their wellbeing to improve their lives and help them become more effective and better off, or it hurts them. So the first observation is that it is always a moral act. .

The second observation is that all of us, whether you're in a school or not, will teach other people about responsible leadership. So it doesn't matter what you do, all of you will teach responsible leadership whether you intend to or not. This is what we came to at HBS (Harvard Business School). We thought hard about, what we should do as an institution to develop leaders who go out and really make the world a better place. Not rhetorically, but actually make the world a better place. We had to come to grips with the issues that have been raised today. You can talk about it, but will it have any effect?We decided that whether you choose to or not, you will teach people about responsibility. If you choose not to do it with intent, you will do it inadvertently and haphazardly, and they will learn about responsibility from you, but it won't be a happy lesson. You will teach them you do not care about it, and it is not an important part of being a leader. They will take that and it will get into their hearts, because responsibility is always about the heart and the mind.

Now, we've talked about the heart today, and I'm a firm believer that people can change. Actually, if you think about it for a little while, you will realize that people change all the time. The issue is, in what direction will people change?  How will people change in their lives? Sue and I were talking about this the other night. We have several friends that we knew for long years. We watched them over time and many of them today are very different than they were when we knew them. They didn't change immediately after we knew them, they changed many years later. They became different. Now we talked about it because many of them have been very unhappy in their lives, precisely because they changed in ways that fostered unhappiness. They became selfish, they became more interested in material things to the detriment of their families, and they became more consumed by power than by doing the responsible thing. The evidence is clear: People change. The issue is how they change and in what direction. Schools have a significant influence on how people think about themselves, especially business schools, about their professional identity. Who are you? What do you stand for as a human being and as a leader?

So we chose at HBS to educate for responsibility. And it is not easy. It's kind of challenging. It is actually full of paradoxes. We heard some of them tonight when Charles was talking about Patagonia—an organization that wasn't even founded to maximize any kind of economic value and yet has created tremendous value. It is kind of a paradox. So how do you teach that? Well, one way you do it is you try to help the faculty understand something about these principles which, actually Kim talked about them, trying to teach the principles in fact this goes back to Clay's theory, the theory that goes back to what Kim talked about is not easy. I want you to picture in your mind the Harvard Business School faculty. I don't know what your image of Harvard Business School is, but your image probably understates the issue. Think of the Harvard Business School faculty, arrayed in a room, there are like two hundred and something of them. [It is] the most prestigious business school in the world, populated by faculty of great international renown. Ok, so I'm in there, I'm down in the bottom, and I'm talking to these people, all of whom got to where they are by single-minded pursuit of their own interests. Do you have the picture now? I told them about this  a paradox about responsibility. I said, "Alright, this is what I believe. If we together, work in such a way that we are willing to invest in each other, even if it causes us individually to sacrifice our own interests, we will end up creating an organization that is so powerful in its influence and in its culture that individually we will end up better off than if we selfishly pursue our own interests." It is a paradox. Because you have to believe that if Peter shows up in my office and I'm working on a paper and trying to write, and Peter appears in my office door, and wants to talk to me, I have to set that aside. I have to believe that by setting this aside and spending time with Peter rather than my own work, it will eventually create a culture that's very powerful, and I will be better off some day, only not this day. That is exactly what you do. I believed that very strongly at HBS and I believe that very strongly now. We saw it begin to happen.

One of the sweetest things that happened to me at my time at HBS was a letter I got; it was a letter from one of my colleagues who is an absolutely brilliant economist, internationally renowned. [This was] a brilliant person who grew up in a country different from either this one or the one we were in, where he saw people pursuing their own interests to the max and he saw the consequences of it and he learned that only the people who are ruthless and cynical survive. So when I started talking about investing in other people and we'll be better off, he just thought that was complete nonsense. It just kind of like, you've got to be kidding, I've got a Dean who is a complete neif. He doesn't understand the real world at all. I got this very sweet letter from him when I left. He wrote me this long letter and he said, "You know, when you first talked about this stuff, I thought, 'this is nonsense, this is crazy,' but as time went on," he said, "I decided that I would begin to experiment with it, so I began to behave the way you taught us. I have to tell you, I am a convert. I now believe what you believe because I've practiced it and I've watched the change it's made in my life."

So it's hard, but it is very powerful. Responsibility the way we're talking about here is very powerful, for exactly the reasons that Kim talked bout. Now I do have a couple of things I want to conclude with, because responsibility, while it's powerful, is not easy. It is not only about the heart, I mean, it is very much about the heart about what you stand for, about who you are, about your identity and your principles, but it is also about the mind because you cannot be a responsible leader if you're ineffective or if you don't know how to take action that's powerful and effective or you don't know how to marshal others and organize and motivate people so that they do the things that bring about responsibly. You think about what Charles talked about today and what it would take in a company to get a company actually do the things he talked about: Produce products that people like, appeal to a particular segment of the market, and build processes in an organization that effectively address those issues. What does it take get three hundred companies to sign up to play a game that is not in their interest? It is more than heart; it is skill, it is knowledge, it is expertize, it is the kinds of things we teach about. In fact, I think you can argue that the real power  is to get people who have responsible hearts and very powerful minds.

William James, I think, developed the concept which has been deeply engrained at HBS for a long time. He taught that what you want in leaders is someone who's tough-minded but not hard-hearted. So, you want responsible hearts and you want strong, powerful minds. And you can see it. There's another issue that I'd just like to share with you. I'm going to use Charles' example. If you look at what he described, you have a situation in which a company's actions, its private actions, have social consequences that are not incorporated into the markets that it serves. They don't show up in market prices. And therefore if they just behave in their private interest, they'll ignore all the consequences of their behavior, but Patagonia chose not to do that.  It chose to recognize where they have influence that extends beyond the boundaries of the firm, and then to attempt to try to address that consequence that they have socially in a way that makes the people affected better off. I think it's fair.

We see that all [of] the time. If you find firms that are trying to do this kind of stuff, that's what they're doing. I would like to suggest there is a way to take that logic one step further. It doesn't work all [of] the time, but there's enough evidence that it works some of the time, that it's worth making it part of a leader's  consideration set, if you will. What do leaders think about? It ought to be in there. I'll give you one example. A leader that I have a lot of respect for is a man named Paul O'Neil. He was the CEO of Alcoa, a big aluminum company. Very nasty business to make that metal, a lot of mining, a lot of smelting, a lot of metal working, it is very, very dangerous. When Paul O'Neil became CEO of Alcoa, Alcoa was kill[ing] its own people and injur[ing] them on a regular basis, but their safety and health record was superior to the industry they were in. So given that aluminum is dangerous, they were less dangerous than most aluminum guys. This had consequences beyond the boundaries of the firm. I mean, you think about that, you kill this worker, what does that do to his family or to the community? It's devastating. And you injure people. All the time they were injuring people. I don't want you to get the feeling that in every plant, every day somebody dies. It's not what they did, but  occasionally throughout the year, somebody would die at Alcoa. That was standard, accepted practice in the industry. Well, Paul came in and he said, I don't think that's right. The only standard that has any standing is zero. So we are going to seek to have zero fatalities and zero injuries—incredibly difficult to do.

The idea of taking a little further than Patagonia is taking it is to say, can we, by searching in this failure [of a] space, in which there is destruction of value outside the firm— can we find not only ways to ameliorate the situation, but can we find ways to increase value actually in both segments, for the firm and for society? What happened in the O'Neil case is they went after zero, and he was dogged, and he got a bunch of people convinced, he said, how can you accept anything other than zero? How can you [ask] a family [to] come work for us, and your probability of dying is only .04? Today, it is unacceptable. He taught that and taught it and taught it. What happened though, was as they pursued zero, they began to discover things about their processes, systems, information,, communication, and all sorts of things, and over time the safety record got lower and lower and lower. Fewer and fewer people died and  significantly fewer people were injured. Alcoa's processes got better because they began to discover things about their processes they didn't know.

Now someone could argue, someone trained like Peter in Economics, which is actually what I was trained in, was they should have already understood that anyway. These people who say that, [have]  never run a company. They never played that game, it is not that easy. In fact,  when you see failure in that way, you see destruction of value in society, it is a signal to the firm, here is a potential zone of opportunity for us to explore and see, [if]  we can find things that will add value in society and also add value in the firm. It is not going to happen all [of] the time, but it will be, I think, a powerful thing.

One last thought. This is about Peter's systems. There's a recent paper by Rebecca Henderson and one of her colleagues, his name is Karthik Ramanna, who argue that leaders who are embedded in the kind of economic system we're all embedded in, where you have private enterprise, where you have governments, and you have this kind of mixed system that we have, leaders in that world have a responsibility for the system. There are times when it is justified for private individuals to take action to preserve the integrity and therefore the legitimacy of the system. Even if it causes some short term cost to their companies. An example they use is accounting standards. If accounting standards are manipulated by the participants and the participants actually are involved in setting the standards, and because of their knowledge of the standards they can manipulate them to their advantage, that will eventually cause  the system to collapse because no one will have any faith in it. And therefore, what will happen is there will be regulation, and you know what happens when you have regulation, you get corruption, you get costs on the system, and eventually it just starts collapsing on itself. (By the way, I don't have time to explain this, but this is actually something that happened in Hitler's Germany. I'll leave that with you, you can reflect on it ok?)

I want to use an example that's not currently a huge problem,  but it is going to get a lot bigger. To do that I want to describe to you an episode that happened at a university, unnamed, not mine, not Peter's not Clayton's, not Kim's, and not Charles', ok? A student comes in to a teacher; the teacher has in front of her a paper that the student wrote. The paper is covered with blue highlights because the professor has run the paper through a software program that searches the internet for plagiarism. The paper is littered with whole paragraphs lifted from sources on the internet. The teacher shows the paper to the student and says, "What do you have to say?" and the student looks at her and says, "I know, I tried to get that blue ink out of the thing, I couldn't figure out how to do it, I know isn't that tough? Look, I don't know what to do." And she says, "No, you're missing the point. All this stuff is taken from other places, it's not your work." He looked at her with a blank stare and said, "So what? So what?" And she said, "Well, it's plagiarism," and he said, "So what? You give me an assignment, I give you a paper, what else do you want?" and the student was serious. The student is about 18 or 19 years old, turned in a paper basically lifted from the internet, and thought that was fine. The student had a moral code that basically said, "What's right for me, is right."

I want you to think about that for a minute. "What's right for me, so whatever makes my life better, according to me, is right, morally right." There's a whole generation of young people out there who have this code—a whole generation. The young people are flooded with information, their view is, "Well, you have requirements, but they're sort of your thing, and I have to meet them, but I'm going to meet them however is best for me. And all your rules, I don't really care about your rules, because they don't really apply to me. So that's how I'm going to be." Now you think about what that would be like if that moral code, that is in a lot of what I would call the rising generation in the world, you take that moral code and imagine that's the code that is in the population. That's the code that starts getting into the people who run organizations. I guarantee that if that happens, the economy that you saw recently in the 2007, 2008, 2009 period, will feel like a cakewalk compared to what will happen if that code takes over.  So that's my prediction.

Now, that means everybody, every leader, every person with any interest in a healthy, functioning, growing economy, I hope that's all of us, has a responsibility to counteract that moral code. In whatever way you can, whether you're a teacher, a leader, in a firm, in a home, wherever you are, in families, in organizations, wherever, you need to recognize when it pops up, and you need to teach. And it won't help you to start by teaching them about the Old Testament. You might get to the Old Testament at some point, but it is not the most effective way to start. You can start by helping them see that by having that point of view and that moral code, they are headed to sure personal disaster, because they are, because no one will trust them. No one will believe anything they say, including the people they want to believe them. Think about it. That code destroys human relationships, destroys organizations, destroys families, it's a sure recipe for disaster. It is very short sited and  you can start there by teaching them it is in their interest to learn to tell the truth, it is in their interest to care about what other people feel, it is in their interest to think about the consequences two or three steps down of their behavior. All of us have that responsibly. A good example of being a responsible leader is to teach the paradoxes so that people understand.


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