Why Ethics Recommendations Are Making Things Worse

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    If I have seen one thing that we should all have a handle on but that is either poorly taught or avoided, it is ethics in business and politics. I’ve referred to this as the difference between right and right, or being able to tell the difference between something you have the right to do and something that is the right thing to do. Just because you have the power and authority to do something, that doesn’t mean it is ethical. You’d be surprised at the massive number of folks in politics and business who don’t get this distinction and think that because they have the right to do something, it is right to do it. Often, this causes them to do really stupid things.

    Some of the biggest problems and failures in business and politics resulted from mixing this up. IBM, in the 70s and particularly the 80s, a company that was designed to be a posterchild for the ethical treatment of customers, screwed this up. Microsoft in the 1990s screwed this up. Steve Jobs personally screwed this up and almost got fired a second time and sent to jail, which would have caused Apple to go bankrupt.

    More than one war in which the U.S. has been involved was caused or exacerbated due to ethical failures. And most political systems, including our own, are plagued with built-in ethical dilemmas that corrupt the system, seemingly by design, by creating a large donor quid pro quo arrangement.

    In current events, I’m fascinated by the requests that President-Elect Donald Trump divest his personal holdings, not only because what he plans to do won’t solve the problem, but because what he is being told to do by “ethical experts” won’t either.

    Let’s talk ethics this week. It could save your career and company at some point. Maybe it will also explain why the Trump presidency fails.

    The Difference Between Right and Right

    Two conversations stand out for me in my long career. One was with IBM VP Stu Jolley, whom I reported up through in software. The other was with Microsoft’s Jim Allchin when the company was facing fines from the EU in the early part of the last decade. The two conversations were about a decade apart.

    I’m not only an ex-internal auditor, I was also part of a handpicked, unique IBM team that was designed after the concept of a Tiger Team.  Every one of us had unique skills and was very senior. While we did do regular audits, we were also missioned to turn around troubled units. This gave us a rather broad view of how parts of a company worked together. This is a skill that turned out to not only be surprisingly unique but very useful to me over the years.

    I’d asked Jolley to chat about a practice we’d implemented that resulted in low-quality products, which we would subsequently charge customers to fix. I’d flagged this because customer satisfaction was falling like a rock and it seemed like we were drifting into something very close to extortion. Jolley explained that what we were selling was “like air” and the customers had no choice. I argued that that was short-sighted and would likely result in a massive and painful backlash. Eventually, it did. Jolley and many of his peers were pushed out of the company as a result.

    Regarding the Microsoft story: The EU had asked Microsoft to open up its APIs and Allchin was laughingly saying that Microsoft would do that, but would charge exorbitant rates for access. I asked if he thought the regulators were idiots, because they’d likely figure this out pretty fast and be even more upset with Microsoft than they already were, resulting in an even more massive backlash. Allchin, to his credit, rethought this approach, and today Microsoft is actually one of the leaders in interoperability, which has helped return it to a level of financial performance similar to what it enjoyed in its heyday. In the end, Microsoft did the right thing, and it turned out to be incredibly lucrative, showcasing that good ethics can be incredibly strategic.

    Trump’s Conflicts Are Unfixable

    One of the problems with CEOs is that they aggregate so much power that there is almost no way to fully eliminate conflicts of interest. Particularly, if they hold the Executive Chairman of the Board position, they effectively have control over everything that they touch, and some of those things, like expense reimbursement, perks and salary are in clear conflict. Steve Jobs nearly got fired from Apple a second time because he used his power to back-date his options, overriding his board. The only thing that saved him was that Apple was still in decline at the time and he didn’t make any money. Eventually, the SEC let everyone else off the hook for doing this as long as it was disclosed.

    Trump has a vastly bigger problem. He runs a multi-national company bearing his name. Passing control over to his kids not only doesn’t eliminate the conflict, it will likely result in a financial decline in the operation and he’ll be motivated to use his influence to save his company. Because the company and related properties bear his name, even if he sold the properties, he would be motivated to save them, as they would also likely drop in value. In fact, given how often firms get into trouble when a founder leaves, it might actually be better if Trump retained at least some oversight. Then, the firm’s decline would be less likely and thus he’d be less likely to act unethically to save it.

    This is where we screw up with ethics. We see it in politics all the time, with conflicts between donors and politicians. We focus on eliminating the appearance of unethical behavior, but not the behavior itself, which explains why we have so many ethics problems.

    Wrapping Up: Perceptions Are Reality

    I’m one of the leading proponents of the idea that perceptions are reality. But if we just focus on perceptions, in this case making it appear that there are no ethical problems, then we tend to do stupid things and assure the ethical mistakes that result. Having Trump keep his properties isn’t unethical; what would be is if he used the power of his office to help those properties. That would most likely occur if those properties got into trouble, which is far more likely without his oversight than it would be with it.

    If I can leave you with one idea this week, it is that you should never mix up what you have the right to do with doing the right thing. If you do, it will likely end badly for you and your firm. While the perception of an ethics problem is important, it is far more important to focus on behaving ethically.

    Something to think about over the weekend.

    Rob Enderle is President and Principal Analyst of the Enderle Group, a forward-looking emerging technology advisory firm.  With over 30 years’ experience in emerging technologies, he has provided regional and global companies with guidance in how to better target customer needs; create new business opportunities; anticipate technology changes; select vendors and products; and present their products in the best possible light. Rob covers the technology industry broadly. Before founding the Enderle Group, Rob was the Senior Research Fellow for Forrester Research and the Giga Information Group, and held senior positions at IBM and ROLM. Follow Rob on Twitter @enderle, on Facebook and on Google+

    Rob Enderle
    Rob Enderle
    As President and Principal Analyst of the Enderle Group, Rob provides regional and global companies with guidance in how to create credible dialogue with the market, target customer needs, create new business opportunities, anticipate technology changes, select vendors and products, and practice zero dollar marketing. For over 20 years Rob has worked for and with companies like Microsoft, HP, IBM, Dell, Toshiba, Gateway, Sony, USAA, Texas Instruments, AMD, Intel, Credit Suisse First Boston, ROLM, and Siemens.

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