CHAPTER 1 The Values Gap in Business There is a values gap in business, and most businesses underperform because they cannot bridge that gap. The gap is not straightforward, and it is not as simple as live your values and be authentic. First, all over the world there is a high degree of mistrust in business and its executives. Tell someone that you teach business ethics, and they have to manage not to laugh, or they say, "Oh, I didn''t know business had any" or "Must be a short course." Public trust in business is at a low point around the world; and while a new story of business is emerging, it is dangerous for business as an institution to occupy the moral low ground in society. Second, there can be a great deal of individual conflict around the idea of values. Values represent what is most important to us, and we often can be confused about these issues. In today''s interconnected world, we encounter many difficult values issues that we have never before confronted.

And sometimes we expect that values issues are simple and that if we just act on our values, our problems will be solved. Finally, individual businesses have problems with making their values come alive in the organization so that executives and employees can act consistently in accordance with those values. And while many businesses have values statements, often they do not translate into living documents. Sometimes the business values conflict with one another, and sometimes they conflict with individual values of employees. Often the world changes, and companies encounter new situations that require rethinking how their values are relevant. The result of these forces is a values gap for many businesses. Why Trust in Business Is at an All-Time Low Enron was known for its innovative spirit and its commitment to a set of values called RICE, which stood for respect, integrity, communication, and excellence. Enron won Fortune magazine''s America''s Most Innovative Company award for six consecutive years, from 1995 to 2000.

According to Fortune, "Famous for innovative thinking, Enron has led the charge for deregulation and consumer choice, and has created new businesses such as electricity trading, in which kilowatts are bought and sold like pork bellies."1 Yet even as Enron was reaping kudos on Fortune''s Most Innovative Company list, there were allegations of massive fraud. In the businesses where the company was supposedly innovative, the numbers were misleading. There were also accusations of Enron''s manipulating the electricity market in California. The board allowed the chief financial officer exceptions to the company''s ethics policy so that debt could be moved into off-the-books special-purpose vehicles. The chairman and the chief executive officer (CEO) were convicted of criminal wrongdoing. Enron''s accounting firm, Arthur Andersen, which shredded key documents, went out of business. Clearly, Enron had a values gap--and many have argued that Enron epitomizes what is wrong with business and capitalism.

Although Enron may be an outlier, there has been an unending cycle of business scandals, from the Teapot Dome scandal in the 1920s to the most recent financial sector meltdown. This cycle leads to a public perception of business as occupying the ethical low ground in society. Many people simply do not trust business as an institution that is able to better our lives. In fact, the surveys are pretty clear: public confidence in the institution of big business reached an all-time low in 2009, and in 2014 it remained at the bottom of the list, somewhere between organized labor and the US Congress.2 Think about recent history. Recall the headlines and news coverage of Enron, WorldCom, Parmalat, the United Nations Oil-for-Food Programme, Long-Term Capital Management, Bear Stearns, the tainted milk and meat scandals in China, the child labor of Nike, the Zimbabwe diamond scandal, and the raft of banks and former financial institutions that felt the pain of the global financial crisis. One conclusion that some draw from stories of companies such as these is that business is not a trustworthy institution. After every scandal, critics cry for more integrity in business.

After Enron both the New York Times and the Wall Street Journal urged President George W. Bush to support legislation to encourage auditors to be the primary guardians of business integrity to prevent fraud from occurring in the first place. These pundits have an underlying story about business that we call the "business sucks" story. They believe that business is an untrustworthy institution that drives the unrelenting pursuit of profits and self-interest and lacks any sense of values and ethics. They also believe that such greed and rapaciousness can be curbed only by greater forces such as government regulation. What this point of view misses is the thousands of businesses that have never been tainted by scandal. For every Enron there are at least 10,000 companies employing ordinary human beings who are trying to do the right thing, creating value for those people the company can affect. It also does not account for the tremendous progress that companies have made in the past 35 years or so, paying attention to the communities where they are located, their effects on the environment, and their overall societal responsibilities and obligations.

A second and opposing reaction to the business scandals in the headlines is that our view of business is distorted by the media''s penchant for sensationalism. After all, bad news sells. Some have reached this conclusion and suggested that we need to celebrate that business is devoid of emotion and rests on economic logic alone. They say that the emotional response of the media affects the average citizen but really has little effect on the real competitive world of business. This second conclusion is often hurled by those who want to agree that business is about the pursuit of profits but that if we have less intrusive roles than these other societal institutions, the search for profits will generate a better society. We call this underlying story the "business is great" story. Leave competitive markets alone, and everything will work out for the best over the long term. This conclusion tends to ignore the fact that while many companies are out there trying to do the right thing, there are others that have caused some real harm in the name of "this is business.

" Of course, there are some bad apples like in any institution, but much of the harm done by the global financial crisis was in the name of finding innovative ways to conduct business and manage financial tools. We are distrustful of both of these conclusions. Some businesses really do suck and some are great, but these politically motivated positions do not help us address what we believe is an even deeper problem that is much more difficult than a discussion of business scandals. Business in the Twenty-First Century Over the past 50 years, business has undergone significant shifts from its modern origin in the industrial age. Technology and globalization have radically changed the way we work. Many have argued that the physical routines that defined the industrial age are now irrelevant, at least in the West. Routine labor has been automated or contracted out to low-wage countries. There has been a well-documented shift from physical work to knowledge work, leaving many people behind.

Companies have less loyalty to their workforces, and employees reciprocate in the face of layoffs and outsourcing. Globalization entails that companies think about their strategies in a worldwide context, complicating the nice, rational bureaucracies that emerged to run stable, domestic, industrialized companies that could engage in planning for a fairly predictable future. Those days are history for most companies. The combination of incredible information technology and globalization has led to multiple disruptions in most companies. Often management responds by favoring the interests of one important stakeholder--the shareholders--over all others. Companies now live in the fishbowl of a 24/7 news cycle in which all of their actions are scrutinized. It''s small wonder that public trust in business and its executives is at an all-time low. Globalization also leads to exposure to many differing cultures that may interpret the same values in radically different ways; or they may be at very different stages of development, so issues long thought solved by the West become hot buttons in other parts of the world.

Most Western societies have enacted prohibitions around child labor, believing that children must focus on their education, growth, and development.3 Yet, as Nike and others have found, this view is not always shared around the world. Nike and its critics found plenty of evidence of child labor in the factories of its suppliers in Southeast Asia. And even though these were not Nike employees, the global news cycle ensured that Nike felt pressure to change the labor practices of its suppliers and its suppliers'' suppliers. Such cases are now commonplace, especially for businesses that have become iconic global brands. They are held accountable for everything that goes into the product, as well as the uses of the product and its disposal. The transformation of a global "value chain" into a global "responsibility chain" has occurred only within the past 25 years. Companies that try to manage this responsibility chain without a sense of what they stand for are headed for trouble.

Combine these effects of technology and globalization with the recent global financial crisis, and it''s no wonder that trust in business and executives is at an all-time low and tha.