Virtue is the key to leadership

Like most people, I've been trying to comprehend the disaster still unfolding in the gulf of Mexico. The thought of 35,000-60,000 barrels of oil a day spewing unchecked into the ocean is an environmental nightmare. So much so that we have tended to overlook in recent weeks the deaths of eleven workers as a result of the original explosion. 

How could this have happened? And what do we learn from it? 

BP has a legacy of fatal incidents dating back the Texan oil refinery explosion in 2005, and the Alaska spill in 2006. A recurring theme of this blog is the consistent failure of highly capable and intelligent people to learn from mistakes. The decision by BP not to spend $US8-10m on drill-hole lining technologies, will be studied for years to come. BP followed the fashionable business-school agenda of outsourcing its operations and maintenance, and was left with its Chief Executive unable to answer even basic questions about how the business worked.

However, as we investigate and atomize the causes of this disaster, we run the risk of missing the real significance of the event in the bigger picture. It is also through reflecting on the coincidence of this event with others that we can understand its real meaning.

The coincidence I refer to is the aquital this week of Jeffrey Skilling, former CEO of the collapsed Enron. Skilling convinced and/coerced thousands of Enron employees to invest their 401k shares into company stock at a time when he knew it was about to blow out, and after he had withdrawn his own stock. His acquital means,  in the C-suite at least, lying, cheating and misleading people is not actually illegal. That is, his dishonesty was not proven to be an illegal act. 

I believe the real cause of the Gulf of Mexico tragedy reveals a much bigger hole in the ethical fabric of capitalism.

Rather than doing what is right, business do only what they have to to stay within the law.  Doing more than the law requires may even contradict the fiduciary responsibilities to maximize shareholder value. In the madness of quarter-by-quarter stock market capitalism, making prudent and sensible previsions for safety and risk management can be regarded as acting against the interests of shareholders, who may only own stock for a matter of hours.

Because breaking the law is (mostly) unethical, it does not follow logically that keeping within the law is necessarily ethical. 

Society itself is skewing the ethical framework of capitalism. Deregulation, outsourcing, and  the creation of merged corporations of bewildering complexity sounded like a good idea at the time. We too have all been guilty of losing sight of what is really important and right.

The real lesson of this tragedy is not, therefore in the realms of cognitive psychology. It is obvious that CEOs cannot understand the complexity they are taking on. From Lay to Fuld to Hayward, we are confronted with highly intelligent people overwhelmed by complexity. 

More and better psychological understanding might help, but won't solve the real problem.

The answer lies in Philosophy. This branch of learning has been all but forgotten in the rise of neuroscience and behavioral economics, yet holds vital and perennial lessons for mankind. We need to be constantly reminded that in every thing we do, we face ethical and moral choices. BP's failure is first and foremost not being aware and reflective of the ethical choices it is making. It simply grew too big and took on too much. By not being aware of its own limitations, it failed a basic ethical test - to represent what it can and cannot do, honestly.

The real lesson is that abiding by the law, and following the rules, does not mean that you are acting morally or ethically.  Your business can be at risk even if you are in the technically legal.

The implication is that leadership in business needs to rediscover the philosophy of doing what is right. Being courageous, honest and fair. Business in the last ten years, from Enron, to Lehman and to BP, shows a pattern of amorality that has brought great businesses to its knees.

The lessons therefore, are not about engineering, not about the law, nor even about psychology. The real lessons are the same ones Aristotle taught 2,500 years ago. We must go beyond the law and seek a good, virtuous life. For Aristotle is was all about character and in particular, the habits that flow from good character. Leaders must have good character themselves, but must strive to build good character in others. Above all, virtue comes from how we act, continuously. For Aristotle, achieving virtuous life, or eudaemonia, as he called it, is what its all about. By losing sight of this purpose, we have lost contact with our ability to make sound moral choices.

By reducing questions of business practices to engineering, the law or operational effectiveness, we have forgone access to fundamental human learning. As we develop the technologies to drill in deep water, or to trade in complex financial instruments, we have forgotten the philosophical knowledge, even the language,  that enable us to discern right from wrong.

We need leaders to rediscover virtue as the very basis of their leadership.

But how to put ethics into action. Can we really rationally decide if one course of action is more ethical than another? And, isn't everyone point of view equally of valid? 

Well, leaders can recognize and respect each persons ethical perspective, and at the same time seek the best possible ethical choice. These do not contradict each other. A useful model for leaders is the 6R model (The Code of Ethics and Practice for the Society of Coaching Psychology). Using the six hours as a basis for open, exploratory dialogue can increase the probability that good moral choices are made. The six Rs can be summarized as follows:

• Rights 
• Respect
• Recognition
• Relationship
• Representation
• Responsibility

For instance, workers have a right to life that cannot be compromised by a shareholders right to maximize their returns. People affected by decisions have a right to be included, even if they do not own shares. Public authorities for instance, should have been more involved in disaster planning.

By using the 6Rs leaders can improve their moral decision-making and at least be aware of where they are having to take ethical risk and make remedial provision for this, by improving safety processes, or taking insurance, etc.

Businesses do need to cut costs and take risks. Yet, the question leaders should be asking is not only "what do we have to do within the law" but what is the best ethical decision we can make. It is a matter of being able to properly account for the moral choices you make. This reflexive process is itself a virtuous action. 

Any decision-process is only as good as the character of the leader using it.