Leaders Should Manage for Values

james hoopes

Everyone knows that leadership involves values. But many business leaders do not understand exactly how values relate to leadership. That’s not their fault. It’s the fault of today’s conventional wisdom of managing by values. The truth is that leaders should manage for values.

To manage for values is to treat values as ends in themselves. To manage by values is to treat values as means to an end, which increases the risk of corruption. If employees are told, for instance, that they should be honest because it pays, profit may trump probity when the two values conflict.

Managing by values is based on the idea – true as far as it goes – that we act according to our values. Therefore companies adopt values statements, corporate credos, and ethics codes. Companies use these values statements as tools to try to inspire employees to do the right thing

But a company’s idea of what it values can easily be wrong. Traditional religion and modern psychology agree that the human heart often deceives itself. How, then, can a company composed of many human beings know for certain what it values?

Enron was the worst recent example of self-deception as to values. The late Ken Lay, Enron’s CEO, often proclaimed that the company had superior values. He probably believed that he was helping to establish good values by stating them. Obviously he was wrong.

Leaders should manage for values by treating them as goals, not tools. Instead of pretending to know what the company values, leaders should state what they want the company to value. They should say to employees: “Here are our values goals. They represent the kind of company we want to be. Please act in a way that helps achieve that goal.”

Treating values as goals is consistent with the way character building really works. The great philosopher Aristotle said that virtue is a “habit” to be acquired through repeated action. According to Aristotle, we become just people “by doing just acts.”

Our personal experience confirms Aristotle’s wisdom in thinking of virtue as a “habit” developed through practice. For example, if we passed up an opportunity to cheat in school, we found it easier to do the right thing the next time the situation arose. And sadly, personal experience teaches that just saying we have good values does not mean we will always act right.

The danger of putting words before deeds is why companies should not issue lofty values statements. As Aristotle saw, our actions, not our words, establish our values. Therefore, companies should issue statements of “values goals” and manage for those values goals.

Some of today’s most successful companies already manage for values. Patagonia, the outdoor equipment and apparel company, is famous for combining profit, quality, and environmental values. Its founder, Yvon Chouinard, first made outdoor apparel for his personal use and then began selling it to finance his hiking and climbing expeditions. Because the company grew out of his outdoor values, he managed it from the beginning for those values.

By treating values as goals, not tools, Patagonia has reduced its risk of slipping into complacency. Chouinard has said that “Patagonia will never be completely socially responsible. It will never make a totally sustainable, nondamaging product. But it is committed to trying.” By working for that impossible goal, the company will likely take actions that further strengthen its environmental values.

As a contrary example, consider the oil company BP. The company says its “goal” is to “maximize long-term shareholder value.” Social and moral “values” such as “sustainability” are “the manner in which we seek to achieve” financial objectives. For BP, values are tools, not goals. BP manages by values, not for values.

BP has recently suffered a major oil spill, the shutdown of an improperly maintained pipeline, and other disasters. Recent media accounts suggest that BP actually values environmental corner cutting. The company’s wonderfully successful advertising claim that BP stands for “beyond petroleum” turned overnight into a joke. BP leaders’ personal commitment to the value of sustainability is no doubt genuine, but they could have profited from Aristotle’s lesson that the way to establish their company’s values is to focus on its deeds, not its words.

It is impossible to know whether BP’s values statement caused its problems. But it is possible to say for sure that BP’s values statement is of no ethical help to its employees. If values are only a “manner” or tool for achieving the “goal,” the implicit message is clear. Moral and social values such as sustainability are expendable when they clash with the goal of shareholder value.

By contrast, BP’s competitor Chevron lists sustainability as one of its goals along with investor satisfaction. It calls these goals a “Vision,” but they are still goals. Chevron also has a “Values” statement. But unlike BP’s values statement, Chevron’s does not implicitly subordinate values by calling them a “manner” or tool for achieving goals. Chevron treats values as goals in themselves.

And so far, Chevron seems to be building an admirable environmental record. The company has gotten a lot of good press not just as a result of its own PR efforts but from independent observers. A recent best seller by the noted geographer Jared Diamond – “Collapse: How Societies Choose to Fail or Succeed” – described Chevron’s Kutubu oil field in New Guinea as a model of environmental care and concern.

The reasons and motivations for Chevron’s admirable environmental record surely go beyond its value of sustainability and include also its values of profit and public relations. Still, Chevron differs from BP in that its vision and values statements are ethically useful to employees. The message is clear that employees are to work for the value of sustainability as a goal right alongside profit.

Other companies would be wise to follow suit and manage for values by emphasizing deeds, not words; action, not talk. Companies should get rid of their “Values Statements.” They should list their “Values Goals” and focus on action to achieve those goals.

Business ethics and business profits are similar in at least one way. We should never rest on past performance. Stating values as if they are a done deal is like saying that investors should be concerned only with last year’s earnings.

Whether we’re talking profits or ethics, the goal should be better results in the future. Leaders who manage for values will treat values as goals. By focusing on achieving values goals through action, leaders can communicate to employees – and remind themselves – that there are no moral holidays.

James Hoopes is the Murata Professor of Business Ethics, division of History and Society, Babson College. His book on George Bush as the first MBA president “Hail to the CEO” has just been published by Praeger. The book is an extended case analysis of the moral danger of managing by values instead of for them