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 / Summer 2003 / Issue 31(originally published by Booz & Company)


Lynn Sharp Paine: The Thought Leader Interview

The Harvard Business School ethics scholar says values are defining a new standard of corporate performance.

Photograph by Matthew Septimus
Traditionally there have been two distinct views on the role of ethics and, more broadly, “social responsibility” in business. The first, articulated most famously by economist Milton Friedman in 1970 in the New York Times Magazine, is that corporate executives’ sole responsibility is to increase returns to shareholders. This view deems social responsibility to be a cost outside the scope of legitimate corporate concern. The second view is that “ethics pays” — that ethical behavior improves financial results, and that acting in a socially responsible manner toward your stakeholders will automatically enhance shareholder wealth.

Recently, a third view has emerged, that the relationship between ethics and economic advantage is not a constant but varies from situation to situation. Further, executives have both social and financial obligations to their stakeholders, and they must actively pursue strategies that respect both responsibilities.

Lynn Sharp Paine, the John G. McLean Professor at the Harvard Business School, is an articulate member of the third school. In her newest book, Value Shift: Why Companies Must Merge Social and Financial Imperatives to Achieve Superior Performance (McGraw-Hill, 2003), she brings a timely addition to the current debate on the role of ethics in corporate life, and takes the other two positions to task.

Whether ethical behavior costs or pays, it always counts, says Professor Paine. She makes a compelling case that modern corporations can no longer be regarded as amoral actors operating in an “ethics-free” zone. But she firmly argues that applying moral values to business is by no means a sure ticket to financial success. In a real world of globalizing industries, where markets and societies often fall far short of the ideal, profit and ethics frequently clash. Professor Paine’s corporate examples are drawn from many different countries, and she uses multiple cultural perspectives in addition to the dominant Western paradigm. Her book is cogently and meticulously annotated in support of the claim that corporations are increasingly being regarded as humanistic rather than purely economic entities.

With corporate governance in disarray and executive behavior under close scrutiny, Professor Paine — who holds a doctorate in moral philosophy from Oxford University and a law degree from Harvard, was a Luce Scholar at the National Cheng Chi University in Taiwan in the late 1970s, and served previously on the faculties at Georgetown University’s McDonough School of Business and the University of Virginia’s Darden Graduate School of Business — brings her support of the third school of business ethics to the fore at a moment when society’s attention to the moral responsibilities of corporations has intensified.

She goes to some lengths to emphasize, however, that ethics at its core is not a list of precepts; it is a point of view. Her “Manager’s Compass,” to guide executives to what she calls center-driven decision making, consists of four primary points — purpose, principles, people, and power. These are the acid tests to which every management action must be put: Does it serve a worthwhile purpose — is there clarity around ends and means? Is this action consistent with relevant principles — norms of conduct, best practices? Does it respect the legitimate claims of the people affected? Do we have the power — legitimate authority, resources, and competence — to take this action? Professor Paine addressed these and other questions with strategy+business in March at her office at the Harvard Business School.

S+B: How does your background in studying both law and philosophy shape your perspective on business ethics?

PAINE: When I first started teaching in a business school, one of my big “ahas” was to discover that ethics was considered so alien to mainstream academic thinking about business. I entered the field assuming that because business is a human activity, ethics would be a natural consideration. If you’re trying to create wealth and use resources efficiently, why wouldn’t you try to do it in a way that furthers the common good and improves your own life? For me, this was a given, although I quickly realized I was out of step with orthodox thinking.

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