Can virtuous leaders really compete?

For Australian business leaders one of the lessons of the financial crisis has been to focus their attention on the values that underpin both their business and their management style.

These values are key to longevity and business growth, and go some way to dampening the dangerous short-termism associated with making a quick buck.

We are starting to see that in a competitive business environment, virtuousness can pay. 

Business ‘leaders' display true leadership only when they display virtue, although the term ‘leadership' gets tossed around promiscuously. We hear it almost every time a politician, business magnate, or football manager demands results. 

The Collins English Dictionary defines a leader as 'a person who rules, guides, or inspires others'. But this simple definition falls short because it underplays the complex environments and social relations within which leadership happens.

Katz and Kahn, once well-known management writers, believed that leadership is about a person's position, their characteristics, and their behaviour. Yet leadership is more than this. Real leadership – great leadership – is about virtue. 

Virtues are the moral muscle that promotes stamina in the face of challenges. 

In the business world, virtuous leaders have the opportunity to build organisations that are not just profitable, but that also create social and human betterment.

Growing financial capital is easy compared to growing real social capital. And to grow social capital, a leader must have the qualities that inspire those being led. 

One upside to the economic destruction wrought by the global financial crisis is that it has once again become acceptable – even fashionable – for business leaders to examine not just their own power, but their own virtue. 

Just a few years ago, it seemed unthinkable that a chief executive would refuse a lucrative annual bonus. But that is exactly what Royal Bank of Scotland chief executive Stephen Hester did in June of this year. Hester knew that to live up to the title of ‘leader,' he had to show virtue, given the post-GFC context of an age of austerity.

In a globalised world, multinational corporations have power over a huge number of other organisations, and power over millions of people. Virtuous leaders can have incredible positive global impact. 

In an effort to articulate the virtues of leadership in global businesses, my co-authors and I have examined the codes of conduct of global corporations. While a published code is no guarantee of good behaviour, it does set the ethical standard by which an organisation judges it employees and its role in the world. The majority of companies we analysed proclaimed virtues of integrity and citizenship (as defined by engagement with communities and environmental responsibility). Standouts included Novartis, who along with excellence and citizenship, values prudence and wisdom in the form of good judgment and common sense. Professional services firms PriceWaterhouseCoopers and Ernst and Young cite courage and fairness as virtues, while Google holds up justice and kindness as important company virtues.

Corporate Social Responsibility conjures up an image of powerful executives buying public relations brownie points. Virtue, by contrast, is not a means to an end. It is an end in itself.

Chris Brady, Dean of London's BPP Business School, argues that both corporations and society need authentic leaders, "leaders who have a true sense of purpose and are true to their core values. Leaders… who recognise the importance of their service to society."

Sadly, our research has uncovered more examples of companies failing to uphold their proclaimed virtues than instances when they have successfully done so. A notable example is The Body Shop, which differentiated itself in the cosmetic market as an ethically-sound retailer of products free from animal testing. Yet in sharp contradiction, The Body Shop is now owned by L'Oreal, a company which did not commit to the same virtue of cruelty-free production as that which it took over.

Virtue is vital to leadership, yet it has been neglected for so long. There are several possible explanations. Western society – especially the business world – has become increasingly focused on competition and wealth accumulation. It has also become increasingly secular, with virtue being discarded as an old-fashioned and overly religious concept. Or perhaps globalisation and neoliberalism have destroyed the communitarian ethos upon which virtue rests.

There are some signs that this is beginning to change. Managers can be competent and competitive while doing things right, creating shared value by fostering a fruitful dialogue between economic and social progress.

Professor Stewart Clegg is executive director of the Centre for Management and Organisation Studies at UTS Business School, and co-author of The Virtues of Leadership.