What Should a Code Look Like?

In that spirit, we have written a code that might govern a formalized profession of management. The resolution of this code is inspired by the way doctors and lawyers, members of true professions, define their purpose. Doctors seek to further the health of their patients. In doing so, they not only honor the sanctity of each individual life; they also meet society’s need for healthy citizens. A society of unhealthy, infirm citizens would inevitably be a weak society. Similarly, lawyers seek to ensure that justice is done by their clients. In doing so, they not only honor the rights of each individual to due process under the law; they also meet society’s need to prevent lawlessness.

A Hippocratic Oath for Managers

As a manager I serve as society’s fiduciary for one of its most important institutions: enterprises that bring people and resources together to create valued products and services that no single individual could produce alone. My purpose is to serve the public’s interest by enhancing the value my enterprise creates for society. Sustainable value is created when the enterprise produces an economic, social, and environmental output that is measurably greater than the opportunity cost of all the inputs it consumes. In fulfilling my role:

I recognize that any enterprise is at the nexus of many different constituencies, whose interests can sometimes diverge. While balancing and reconciling these interests, I will seek a course that enhances the value my enterprise can create for society over the long term. This may not always mean growing or preserving the enterprise and may include such painful actions as its restructuring, discontinuation, or sale, if these actions preserve or increase value.

I pledge that considerations of personal benefit will never supersede the interests of the enterprise I am entrusted to manage. The pursuit of self-interest is the vital engine of a capitalist economy, but unbridled greed can be just as harmful. Therefore, I will guard against decisions and behavior that advance my own narrow ambitions but harm the enterprise I manage and the societies it serves.

I promise to understand and uphold, both in letter and in spirit, the laws and contracts governing my own conduct, that of my enterprise, and that of the societies in which it operates. My personal behavior will be an example of integrity, consistent with the values I publicly espouse. I will be equally vigilant in ensuring the integrity of others around me and bring to attention the actions of others that represent violations of this shared professional code.

I vow to represent my enterprise’s performance accurately and transparently to all relevant parties, ensuring that investors, consumers, and the public at large can make well-informed decisions. I will aim to help people understand how decisions that affect them are made, so that choices do not appear arbitrary or biased.

I will not permit considerations of race, gender, sexual orientation, religion, nationality, party politics, or social status to influence my choices. I will endeavor to protect the interests of those who may not have power, but whose well-being is contingent on my decisions.

I will manage my enterprise by diligently, mindfully, and conscientiously applying judgment based on the best knowledge available. I will consult colleagues and others who can help inform my judgment and will continually invest in staying abreast of the evolving knowledge in the field, always remaining open to innovation. I will do my utmost to develop myself and the next generation of managers so that the profession continues to grow and contribute to the well-being of society.

I recognize that my stature and privileges as a professional stem from the honor and trust that the profession as a whole enjoys, and I accept my responsibility for embodying, protecting, and developing the standards of the management profession, so as to enhance that respect and honor.

 

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What is the parallel for managers? Modern societies have a huge interest in creating organizations that enjoy the public trust and are able to mobilize resources to create economic value greater than the opportunity cost of the resources used. Managers, in our view, must be agents of society’s interest in this endeavor. We further contend that society grants to corporations the status of legal persons in order to hold them accountable for their conduct, as any individual citizen would be.

We hope our formulation will appeal to proponents of the shareholder perspective because it explicitly affirms the importance of ensuring that the enterprise creates value. Firms that destroy value hurt not only their shareholders but the broader social trust in firms’ ability to create value. Our code should also appeal to those who take a stakeholder perspective because it explicitly recognizes that to ensure ongoing legitimacy, an enterprise must meet the legitimate claims placed upon it. Moreover, our definition of value creation takes into account the opportunity cost of all the resources consumed by the firm, including public resources such as the natural environment. By turning managers into agents of society’s interest in thriving economic enterprises, we get out of the bind of viewing them as agents of one narrowly defined master (shareholders) or many masters (stakeholders). Indeed in most modern corporations, the interests of stakeholders are inextricably intertwined. Employees, for instance, are shareholders (through investment in their pension funds) as well as customers. Given these multiple interests, a simple maximization principle is hardly helpful, because it is not readily implementable. If a manager downsizes an organization believing that this will maximize the interests of the firm’s shareholders, the same action can easily hurt those shareholders who happen to be consumers or employees. It is thus best for managers to have a higher-order purpose—viewing society as their ultimate client and society’s interest in vibrant, sustainable, value-creating enterprises as their foremost objective.

The specifics of our proposed code for management should be less controversial than the basic resolution. It is hard to argue that managers should not embrace the spirit rather than the letter of the laws that govern their enterprises. As Warren Buffett reminded Salomon Brothers’ employees after he took over the troubled firm, there is plenty of money to be made by playing well within the lines. And the importance that managers should place on greater transparency and disclosure to all stakeholders was brought painfully home by the collapse of firms like Enron and WorldCom. As Supreme Court Justice Louis D. Brandeis put it: “Sunshine is the best disinfectant.” The economic value of that sunshine is evident in the higher cost of capital in economies that lack it.

Who would argue with our requirement that managers provide fair opportunity to all, free from bias, as a measure of their respect for the basic equality of all human beings? Freedom of opportunity is not only emblematic of a just society; it is also at the heart of an economically vibrant society. Managers must wield their power with humility and respect—ensuring that the interests of those who do not have power are protected and the voices of those who may not enjoy decision rights are heard.

Our code underlines society’s expectations that managers will bring their most informed judgment to bear on their decisions. Such informed judgment, which is essential to a professional ethic, can only be exercised by a discipline of lifelong learning and a willingness to listen to and learn from others. While we encourage managers to honor the lessons learned from those who came before them, we encourage them to be innovative, so that the process of creative destruction, which Schumpeter viewed as the vital force that sustains a dynamic capitalist society, continues.

Finally, our code reminds managers of their obligation to honor and further the reputation of the profession as a whole by their actions as managers as well as by their commitment to develop and enforce the code. Managers today are among the least trusted members of society. Regaining this trust for the profession of management must be regarded as an important responsibility for all individual managers.