Creating a Virtues-Based Business

Creating a Virtues-Based Business
by Edward W. Younkins

Virtue ethics can contribute importantly to a comprehensive theory of business and supply a context in which actions can be taken to attain the mission of a particular business. At the same time, the virtues can play a pivotal role in establishing a corporate culture (and related climate) that provide meaning and purpose for the company’s employees. Virtuous leaders, managers, and other employees can take actions that lead to, and create, a strong, focused business that is moral and financially successful.(1)

A company’s vision, mission, and purpose establish its identity. An effective, authentic, and credible top-level leader will communicate these clearly in an inspirational fashion to the firm’s human assets. His job is to create a vision and to inspire others to make that vision a reality. Such a leader realizes that a business vision plays an essential role in realizing a company’s prospects. He understands that a successful firm needs ethical leadership, an explicit set of core ethical virtues, and a sense of purpose.

At the top level of an organization, it takes effective communicators who are clear about what they champion and who establish the company on virtuous behavior. At the highest levels of a corporation it takes individuals of virtue to develop agreement and commitment about shared virtues and moral values. A culture (or climate) of virtue in a business begins with executives who exhibit virtuous leadership through their personal actions and interpersonal relationships. Employees are influenced by observing visible and legitimate role models who themselves act as virtuous agents. Not only should leaders openly discuss virtues and values, they should also live the virtues and values that they advocate.(2)

A firm’s climate and culture are inextricably interconnected and mutually reinforcing.(3) Its climate includes the company’s policies, practices, and procedures and the culture encompasses its deeply-held values and beliefs. A firm’s climate is the internal environment that is experienced by its members, that influences their behavior, and that can be used to infer the values of the company’s culture. What a company practices and rewards (i.e., its climate) implies what the company and its leaders value (i.e., its culture).

In order to promote a culture and climate of virtue, leaders need to communicate their ethical expectations. They need to convey a sense of identity to employees that will aid in guiding their decisions and that will elicit their loyalty. Loyalty produces partiality, interest, and personal identification with a firm. An appropriate tone needs to be set at the top with time devoted to discussing the importance of virtues and values. Time needs to be taken to express what the company finds to be meaningful, how the employees should be functioning, and how the firm wants to be regarded both internally and externally. The language of virtues, with its emphasis on telos and character, can become a source of action in the firm.(4)

It is also necessary to lead by example—words must be backed up by consistent virtuous actions. It is essential that executives, managers, and other employees perceive that the company’s most senior leaders live and support the virtues and values that they espouse. They would then be leading by authority that derives from their character. The virtues can guide those in authority positions to make ample use of their roles as exemplars, vision creators, stewards for owners, and motivation sources for others in the firm. Leaders of character who establish and base their company on virtues can make a tangible impact on the entire business which can become the type of firm to which individuals are attracted. A culture of virtue not only can attract loyal and moral employees, it can also influence relationships with customers, suppliers, and others. A company that values the virtues is a superb firm to work for, to deal with, or to be an owner of.

A culture of virtue creates a highly-valued work environment that serves as a foundation for long-term financial performance. Extraordinary effects can result from an emphasis on virtues. Virtues can engender a sense of authenticity and wisdom and can positively affect a firm’s activities and outcomes. Business activities and decisions can be approached in a manner that contributes toward accomplishing the company’s goals. Virtues serve as touchstones defining employees’ decisions and actions. There is a relationship between virtues, individual performance, and organizational performance.

Business is about the creation of value. A commercial firm exists in order to make money for the shareholders. Virtue ethics contributes to a culture (or climate) for business that fosters best practices, enhanced profits, and the well-being of employees. In order to create exceptional long-term economic rewards to shareholders, a firm needs to provide outstanding products and/or services to customers, and, to do that, the company needs to employ excellent workers. Living by Ayn Rand’s prescribed moral virtues can enable a business to meet the above requirements. Some of the objectives of such a company will be: to respect individual rights, to produce efficiently, to increase sales and customer loyalty, to maintain vendor loyalty, and to attract virtuous and loyal employees. Focusing on the long-term good of investors, customers, employees, and suppliers brings about excellence with respect to financial performance.

To succeed a firm needs to achieve meaningful and genuine alignment between their employees’ goals, values, and virtues with those advocated by the company itself. A company that is able to achieve such congruence will strengthen employees’ ethical behavior, personal effectiveness, and company loyalty, and will likely outperform other firms with respect to revenues generated, profits attained, company growth, stock prices, and so on. A firm needs to concentrate on developing the freedom, independence, and virtuousness of employees if it wants to succeed. Developing virtuous employees is a major concern in developing a thriving business enterprise.

A firm that has developed an explicit set of virtues and moral values will strive to attract and retain workers who adhere to those virtues and moral values. They can provide a filter, screen, or benchmark in employment evaluation decisions. They can also be acquired and/or strengthened through education, training, mentoring, observation of role models, and other experiences in the business. It is essential to devote ample time to locating and developing outstanding employees. It is especially important to pay attention to who is selected for, or promoted to, management positions. A good manager will hire excellent people, train them well, assign to them the appropriate level of authority and responsibility, expect high levels of achievement, and reward performance justly. Companies that develop a corporate culture of virtue will tend to attract quality applicants with a minimum investment in recruitment and hiring costs, reduce training costs, have lower turnover rates, experience better employee morale, build up employee loyalty, elicit greater employee effort, and earn higher profits.

To foster an internal strategic culture of virtue, a company needs to emphasize rational self-interest and to treat employees as traders. Each individual employee has the goal of self-actualization and there are links between that goal, the virtues, and the advancement of the firm’s goals. A virtuous work climate provides opportunities for employees to flourish in the world of work. There are linkages between employee flourishing and positive organizational outcomes. These connections provide plentiful opportunities for concurrent individual growth and firm productivity. A flourishing employee is one who is motivated, creative, and happy and who takes pride in his work. A virtuous employee possesses competencies and performs his job in a competent manner. Having such employees is conducive to the corporate goal of sustainable profit.

Virtue ethics is contextualized and linked directly to fulfilling the expectations of an assigned role or function. People’s positions and relationships within a business are defined through their various roles and related rules that assign (and restrict) functions and responsibilities. When acting as a manager or as a member of a board of directors a person is acting in a representative role or function for the stockholders. Managers in a particular context-specific role must keep in mind which decisions and actions will improve firm productivity and/or efficiency and pay off for the owners. Workers, who are not managers, are technically not representatives of the stockholders, but they do act for them because they are employed by the company (Ewin 1995, 833-42).

An organizational culture (or climate) based on sound virtues provides a solid foundation for rational moral judgments and actions by employees. An explicit set of core virtues can serve as a valuable resource for employees when they are resolving ethical dilemmas. Through ongoing promotion and reinforcement by leaders in a business, the virtues can be adopted by employees and become part of their routine behavior. A culture (or climate) of virtue can positively influence employees’ personal flourishing, attitudes toward their work, job satisfaction, and commitment (i.e., loyalty), to the business. Good leaders will understand that a virtues-based culture must be continually supported, developed, and renewed.

Kaptein (1998a, 1998b, 2008) has explained that an organization’s ethical context is presented by its ethical climate and ethical culture. He maintains that the climate constitutes ethical conduct and that the culture stimulates ethical conduct. As sources of normativity, managers need to communicate to all employees what is expected and acceptable and what is not. According to Kaptein, both consistent signals and reinforcement are needed with respect to the proper use of corporate assets and performance of one’s functional responsibilities. A company needs to have clear, concrete, and comprehensive expectations with respect to employee conduct. Because these expectations need to be feasible (or achievable), an employee requires sufficient time, budgets, resources, information, and authority to fulfill his responsibilities. In addition to creating the conditions which will enable employees to comply with normative expectations, employees need to be supported and encouraged to identify with organizational values. A company should also provide the freedom and opportunity for employees to raise, discuss, and debate ethical issues. The firm needs to make sure that the consequences of one’s actions are observable, visible, and transparent. Finally, there should be known and probable sanctions (i.e., rewards and punishments) for various ethical and unethical behaviors.

An organization’s culture and climate are comprised of numerous distinct and observable artifacts, forms, and behaviors. The culture and climate are, to a certain extent, influenced, created, managed, and maintained by the organization’s leaders. A number of managers at various levels can lead culture and climate initiatives and design strategies and infrastructure to shape and support the culture and climate. Those involved can and should include the CEO, senior executive team members, senior and mid-level functional executives, senior and mid-level human resources managers, among others.

Hall (2008) notes that everything that a manager does sends a message and that employees pay attention to what is measured, controlled, and rewarded over time. She explains that people’s exemplary actions need to be reinforced, rewarded, and recognized. An effective reward strategy for reinforcement might include recognition at an organizational event, informal praise by a manager, the offering of professional development opportunities, formal recognition by management, visibility with senior leaders, monetary rewards, appreciation at social events and celebrations, awards programs, newsletter recognition, and so on.

A business culture and climate built upon a virtues-based framework can provide a powerful theoretical and practical model for a corporation. To create such a culture and climate, it is essential to incorporate virtues and values into the firm’s language (i.e., its in-house terminology and slogans), symbols, traditions, meetings, ceremonies, rituals, myths, customs, legends, stories, recognized heroes, problem-solving methods, and so on. These can help align people with a common vision or purpose. They can provide direction and clarity, convey messages and resolve confusion, increase order and predictability, maintain solidarity, socialize employees and pass along traditions, supply role models, help employees find purpose and passion, recognize accomplishments, aid in recruiting and hiring the right people, and serve to guide and legitimize everyday decisions and actions.

BB&T Corporation is a great example of a company that that has successfully adopted an Objectivist virtues-based framework.(5) John Allison, an articulate advocate of Ayn Rand’s ideas, took BB&T, a local Winston-Salem, North Carolina bank, and built it into the tenth largest bank in the United States. Allison began his career at BB&T in 1971 and became CEO in 1989. During his tenure at the top, the bank went from having $4.7 Billion in assets to having $152 Billion in assets. Under Allison’s leadership, BB&T bought up 60 competitors and expanded into 11 states. The bank has grown into a multi-state financial services holding company and is considered to be a regional leader in banking. In order to create superior long-term economic rewards for its stockholders, BB&T has provided excellent service to its clients. In order to do that, it has attracted, hired, and maintained excellent employees. To accomplish all of the above, the bank has focused on creating a corporate culture based on values and virtues.

BB&T uses philosophical principles and values as guiding forces. Allison has established a corporate culture of virtue that emphasizes rational self-interest. He argues for self-interest, productivity, and sustainable profits, and explains that those who produce more will receive more. BB&T’s policy is to hire the best people, train them well, assign them to appropriate organizational roles, expect high levels of performance, evaluate them objectively, and recognize, compensate, and reward their efforts and achievements fairly. The bank’s compensation system is in alignment with its virtues and values. Its peer appraisal system focuses on, and provides, feedback about how each employee is performing in relation to BB&T’s core values. BB&T has created a culture (or climate) of virtue that brings about trust, loyalty, consistency, and predictable results.

A 30-page booklet (written by Allison) called The BB&T Philosophy clearly delineates the bank’s philosophy and values. The bank’s purpose is stated as follows: “ Our ultimate purpose is to create superior long-term economic rewards for our shareholders”(p.5). To accomplish this, the company spells out 10 primary values, many of which conform to what Ayn Rand has called virtues. These values include: reality (fact-based), reason (objectivity), independent thinking, productivity, honesty, integrity, justice (fairness), pride, self-esteem (motivation), and teamwork (mutual supportiveness). It is explained that these values are held consciously, that they are logically consistent, and that each employee must act consistently with all of them.

BB&T employees are expected to exhibit morality and mindfulness at all times. This begins with recruiting only the best candidates, especially at the management level, where applicants are screened for both values and abilities. Every employee is given a copy of The BB&T Philosophy and is expected to read it and to live it. Managers are also given a copy of Ayn Rand’s Atlas Shrugged to read. In addition, managers are regularly assigned and given books to read for their business and personal benefit. BB&T’s ongoing training and educational programs instill the notion of life-long learning and help to develop virtues-based and values-based employees. The bank is committed to developing and keeping productive, virtuous, and happy employees.

Parnell and Dent (2009, 587-96) describe how BB&T managers are taught to “focus more” and to “evade less”. Psychological assessment and development for BB&T’s high-level executives takes place through a 5-day structured course held by Farr Associates, a leadership development firm. This course encourages self-awareness and potentially reduces a person’s tendency to evade unpleasant realities in business situations. Through this course, a manager will gain the ability to evade less because he has been taught to understand the root causes of evasion. Managers are encouraged to think rationally and logically based on facts, to not let their emotions lead them to make bad decisions, and to pursue purposes that both achieve company goals and make themselves happy. After attendance at this program, the managers take part in a team-building process and attend a follow-up course on effective thinking.

The bank’s operating policies reflect its free-market philosophy and values well. In 2006, the Supreme Court ruled that it was legal for local governments to condemn private property and then transfer it to other private companies and/or citizens to use for commercial purposes. BB&T refused to make loans to firms who obtained property through this dubious use of eminent domain laws. BB&T also avoided subprime mortgages and refused to grant “negative amortization loans” in which borrowers make payments that do not even meet their interest obligations. In addition, the bank did not need nor want to accept Troubled Assets Relief Program (TARP) money but was forced to accept it by the federal government. BB&T paid back the money and interest in record time—it was forced to pay a price for money that it neither needed nor wanted. It is clear that the Objectivist virtues direct BB&T’s exemplary company policies.

Since 2005, the BB&T charitable foundation has found it to be in the company’s interest to fund 65 colleges and universities in establishing academic programs devoted to studying the moral and intellectual underpinnings of capitalism and free enterprise including Ayn Rand’s Objectivist ethics. The retired Allison has continued to work with schools participating in BB&T’s Moral Foundations of Capitalism program in his tireless efforts to promote the virtues of capitalism.(6)

Notes

(1) For a variety of perspectives on the role of virtue ethics in business, see Arjoon 2000; Boatwright 1995; Crockett 2005; Ewin 1995; Koehn 1995; and Whetstone 2001.

(2) Readers interested in studying in more depth and detail the roles of leaders in establishing a virtuous organization are encouraged to read Argandoña 2008; Ciulla 1999; Locke 2001; Minkes et al. 1999; Neubert et al. 2009; Perles 2002; Thomas et al. 2004; and Whetstone 2005.

(3) For more on organizational cultures and climates see Kotter and Heskett 1992; Schein 1992; and Victor and Cullen 1988.

(4) See Blackburn and McGhee 2004 and Whetstone 2003 for detailed discussions of the importance of the language of virtues.

(5) Another example of a virtues-based firm is Hutchinson Technology, a world leader in the production of precision hard-drive components. In 2002, CEO Wayne Fortun instituted a management training program based on Objectivist principles and virtues. The program, developed in conjunction with the Ayn Rand Institute (ARI), is based on the conviction that it is the culture of an organization which enables continuous improvement and innovation. More specifically, the firm’s CEO explains that it is the Objectivist philosophy, with its constituent virtues, that nurtures a reality-based, value-oriented culture which maintains personal and corporate integrity. The Objectivist principles and virtues are tied to the actions and practices of everyday operations at Hutchinson Technology.

(6) To date, Allison has delivered his inspiring talk on “Principled Leadership” to more than 100,000 individuals.

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