Silicon Valley is taking its lumps these days. From overt violations of personal privacy to the way women have been treated in the land of high tech, the big firms that dominate the valley are facing some rough days ahead.
For years, the mantra at Facebook was “Move Fast and Break Things.” It was plastered on posters at the company’s headquarters and was a feature of Facebook’s IPO. The ability of the Russians to leverage Facebook’s platform to help a candidate gain election to high office could be traced to that ethos, all too prevalent in Silicon Valley.
So the question becomes: Do ethical values and rules hinder the innovative spirit of the Valley to invent new and exciting things? Two of the world’s leading experts in corporate ethics, R. Edward Freeman and Bobby Parmar of the University of Virginia’s Darden School of Business, don’t think so.
‘RESPONSIBILITY & INNOVATION ARE NOT MUTUALLY EXCLUSIVE’
“We believe that you can have responsibility and innovation, that they’re not mutually exclusive,” says Parmar on a recent visit to San Francisco. “It’s not a trade-off. How a company operates can help make it both innovative and responsible. Many entrepreneurs think that to be successful you have to break the rules. And, I think there’s a grain of truth to that. We want to think creatively about new products and services, and we want to be careful about the rules that we do break. You want to break rules with a scalpel and not with a hammer.”
One example is how a company responds to initially ambiguous issues. “Many organizations make the mistake of either reacting weakly to weak signals or strongly to strong signals,” adds Parmar. “I want to imagine a world where some organizations that have been called out for being terrible environments for women could have paid attention to feedback. And if they would’ve looked at exit interviews and then reacted strongly to those signals, then you could’ve mitigated that problem before it blew up.”
Freeman, arguably the world’s foremost expert on corporate ethics, believes there is a new story of business in which doing the right thing goes hand in hand with making profits. “The old story of business goes like this: It’s about greedy little bastards trying to do each other in. The only thing that matters is money. The purpose of business is profits. Business ethics is an oxymoron. It’s only shareholders that count. And, people are really self-interested, one-dimensional, economic maximizers. But the purpose of business is something else. It’s about how you’re trying to make a difference in the world. It’s why anybody should care whether you make a difference. And it’s central to the new story about business. It’s at least as important as profits.”
Both Freeman and Parmar were in the Bay Area recently for a forum on the new story about business at The Battery in San Francisco. Poets&Quants sat down with the pair to discuss their perspective on the changing rules. An edited transcript of our conversation follows:
John A. Byrne: Why are the two of you in the Bay area and what’s your message to people in San Silicon Valley in the technology business today?
Bobby Parmar: Part of the reason we’re here is because we believe that you can have responsibility and innovation. They’re not mutually exclusive. It’s not a trade-off. How a company operates can help make it both innovative and responsible.
Byrne: And, I understand that the two of you believe the new story of business is about technology, innovation, and ethics.
Edward Freeman: And it’s about conversation, that we need to get our act together about purpose, about ethics and values, about what stakeholders are trying to serve, and about how we treat our people. And, for us, there’s no place more interesting to think about those things than the Bay area. Because, again, people think outrageously audacious thoughts here about what technology can do. So to me, that’s very exciting.
The old story about business goes like this: It’s about your greedy little bastards trying to do each other in. Only thing that matters is money. The purpose of business is profits. Business ethics is an oxymoron. It’s only shareholders that count. And, people are really self-interested, one-dimensional, economic maximizers. But the purpose of business is something else. It’s about how you’re trying to make a difference in the world. It’s why anybody should care whether you make a difference. And, it’s central to the new story of business. It’s at least as important as profits.
Businesses are successful because somebody created something that makes lives better for its customers. They engage the support of their suppliers. They have employees who believe in the purpose of what they’re trying to do, and it’s recognizing that. That’s always been the key to success, but we haven’t always been conscious of that.
We’ve often thought that it’s just the money or it’s just the technology. And, that’s what the new story is, is how you put these things together.
Byrne: As you know, there have been a number of examples of abusive work practices at some of the leading companies in the Bay Area in the last few years. Is it possible that successful entrepreneurs can’t play by the rules, that breaking the rules is essential to innovation?
Parmar: Many entrepreneurs think that to be successful you have to break the rules. And, I think there’s a grain of truth to that. We want to think creatively about new products and services, and we want to be careful about the rules that we do break. We want to break rules with a scalpel and not with a hammer.
Many organizations make the mistake of either reacting weakly to weak signals or strongly to strong signals. I want to imagine a world where organizations that have been called out for being terrible environments for women could have paid attention to feedback. If they would’ve looked at exit interviews and then reacted strongly to those signals, then you could’ve mitigated that problem before it blew up.
Byrne: Okay, so let’s talk about ethics from two different standpoints: from the position of being a leader of an organization and from being in the rank and file. What can or should these two very different people do to ensure that values and purpose are an important part of organizational life?
Parmar: First and foremost is realizing that ethical failures are not just failures of individual bad apples or bad actors. They are in part also systematic failures. And so, the responsibility of a leader is to help design and maintain a system that is resilient to those kinds of ethical failures.
R. Edward Freeman, Darden’s legendary expert on corporate ethics
Bobby Parmar (left) and Edward Freeman, leading experts in corporate ethics at UVA’s Darden School of Business
Byrne: Many leaders, when confronted with an ethical crisis, will blame it on the bad apple because they will never admit that it was an organization’s culture or processes that are responsible. If they did admit that, they have to assume they have responsibility for what went wrong.
Parmar: It is a tough pill to swallow. But, one thing that leaders can do a much better job of is anticipating the kinds of moral risks that their people will face. If we’re developing new software, how could the software be used? Can we identify the problems we want people to avoid just as much as the targets we want them to hit. Whether it’s 10% year over year, quarter over quarter growth, are we talking about the risks that we don’t want people to take? We don’t want them to cut corners. We don’t want them to burn trust with our customer. So, responsible companies do a good job of enumerating those issues, having clear plans about how they’ll avoid them, and then if they are faced with those issues, what will they do. They have contingency plans and strategies for mitigation.
Think about operating a nuclear power plant. Think about operating an aircraft carrier. Everywhere in the organization, there are values, whether it has to do with safety or reliability. And, the reason they show up everywhere is because it allows you to catch mistakes or deviations much more quickly and to bounce back when mistakes do occur.
Byrne: And then there are decisions that go into the making of a product that raise serious ethical issues. The two of you teach a fascinating case at Darden on driverless cars. And a central decision that an organization had to make involved who should be protected in the event of a fatal accident, the occupants of the car or the pedestrians. In a driverless car, the software has to decide.
Freeman: When you write the software code for what drives the car, you’re doing ethics.
Parmar: People are now questioning the role of technology to society in a way that they haven’t been before.
Developers are saying, “Look, the products and services that we’re developing have effects that we had not anticipated.” So, in order to prevent that, we need to think more carefully about how it is that we develop what it is that we develop and bake ethics into those processes so that there aren’t these unforeseen consequences that nobody likes.
Freeman: There’s nowhere to hide so that the effects of your action aren’t going to be known, amplified by social media, critiqued. You’re going to have what a colleague of mine calls roving gangs of stakeholders out after you the very next day.
Great companies create value for their stakeholders. They understand that customers, suppliers, employees, communities, and the people with the money have got to get going in the same direction. Think about the vocabularies we had to invent, the problems we had to overcome to get to an iPhone. What’s metal? How do you figure out glass? How do you figure out the magic physics on the inside of this thing? And, how do you cooperate together to make it happen? That’s what business is.
Byrne: How hopeful are the two of you that in fact what you’re teaching can become reality?
Parmar: At Darden, when we teach our MBA students, we want them to have a toolkit so that they can help build a better world but also be able to cope with the complexities of the actual world that they’re going to work in.
Freeman: In the businesses you are building, you can be the generation that makes business better. You can be the generation that builds a capitalism that’s worthy of our children. I’m incredibly optimistic, if we can come to see business as this system where we cooperate together to figure out ways to solve our problems. If we can think about it like that rather than a problem of scarcity and what we really are is a bunch of greedy little bastards out trying to do each other in. I’m optimistic.
Byrne: Well, thank you gentlemen. And, thanks for coming to the Bay area to talk about the new story of business.
DON’T MISS: OUR INTERVIEW WITH DARDEN DEAN SCOTT BEARDSLEY or P0ETS&QUANTS’ 2017 MBA PROFESSOR OF THE YEAR: GREG FAIRCHILD
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