The Balance of Idealism and Pragmatism
Leigh Hafrey is a Senior Lecturer in the behavior and policy sciences at the MIT Sloan School of Management. He works in professional ethics and communication with a focus on ethical leadership.
At the onset of the Second World War, Leigh Hafrey’s father left Latvia for the United States and, after undergraduate studies and service in the US military, began a career as a journalist. Hafrey’s mother arrived from France in the aftermath of the global confrontation. When all was said and done, at least 60 million people had died. There was the rise of Nazism, the Holocaust, and its accompanying horrors for the world to contend with; not to mention scientific advancements that culminated in the realization of an atomic bomb.
Hafrey recalls his parents holding a deep conviction that their adopted homeland had saved them and many of their friends from a terrible fate. His father eventually joined the US Foreign Service, where the couple served with what Hafrey refers to as “a great idealism.” Much of what he has written and teaches regarding the importance of culture and cultural exchange to build ethical standards has been translated from those family experiences.
The private sector owes it to itself and to society as a whole to deliver on a set of values that has been articulated across society.
Before finding his way into professional ethics and ethical leadership in business, Hafrey, like his father, pursued journalism, and was for several years an editor for the New York Times Book Review. He has since devoted his career to business ethics and has been a Senior Lecturer at the MIT Sloan School of Management since 1995. He has also taught at Harvard University and consults with business practitioners in the US and abroad, including as a moderator for the Aspen Institute’s Executive Seminar in Leadership, Values, and the Good Society and other programs. Hafrey has published widely and has two books to his name. In The Story of Success: Five Steps to Mastering Ethics in Business (2005), he examined how people use stories to articulate ethical norms. More recently, he explored business alternatives to a culture of war in today's America with War Stories: Fighting, Competing, Imagining, Leading (2016).
“The private sector owes it to itself and to society as a whole to deliver on a set of values that have been articulated across society,” says Hafrey. The current business landscape suggests that his stance on the business of business is not merely the idealistic interpretation of an academic removed from the goings-on of the world, though he admits it has taken some time for the business community to come around.
In 2020, McKinsey published “The Case for Stakeholder Capitalism,” arguing for businesses to embrace the expectations of consumers and society—serving customers, suppliers, workers, and communities, not just shareholders—if they want to achieve long-term success. Bearing on the same point, Hafrey mentions the notion of tri-sector leadership, which posits that the people who are doing the best work in the business arena have the tools to navigate across sectors. They are leaders who are at once idealistic and pragmatic, and by harnessing inclusivity, bridge the cultures among business, government, and non-governmental organizations. The idea made its way to the fore thanks in part to Nick Lovegrove and Matthew Thomas, who published an article in Harvard Business Review delineating the need for executives capable of navigating across sectors.
All of this contrasts with a widely accepted doctrine advanced by Milton Friedman, the Nobel Prize winner who was once described as perhaps the most notable economist of the 20th century. In a 1970 essay for The New York Times Magazine, Friedman argued that the only social responsibility of a business is to increase its profits. His work did much to advance the theory that shareholder interests should be given top priority relative to all other corporate stakeholders, otherwise known as shareholder primacy.
As noted by Andreas Nilsson and David T. Robinson in their 2017 paper, an assessment of recent business practices and standards reveals a world that has evolved in a manner antithetical to what Friedman proposed. Take, for example, the Business Roundtable’s 2019 Statement on the Purpose of a Corporation. Since 1997, the Roundtable’s collection of CEOs had clung to Friedman’s shareholder primacy principle. However, in their 2019 declaration they shrugged off years of entrenched thinking, pledging “…a fundamental commitment to all of our stakeholders.”
Though the efficacy of the statement in action has been called into question, Hafrey thinks it demonstrated a significant shift in the way that the business community thinks about itself and its role within society, summing up an awareness that business practices have changed, and that notions of what it means to run a business well have evolved to include working across sectors and embracing a multi-stakeholder approach.
In a similar vein, sustainability initiatives undertaken by the business community in response to climate change are concrete manifestations of a commitment to ethical behavior in business. “To the extent that we recognize our obligation to preserve the planet, and that we owe it to the global population to improve the circumstances under which they are currently laboring, that commitment to sustainability is an ethical commitment,” says Hafrey. But, as Hafrey notes, not everyone in the business community has awakened to the idea that we need to address climate change through business practices if we want a future in some version of harmony with our environment.
Asked to define business ethics, Hafrey suggests that first and foremost, we need to accept that business ethics—like ethics in general—deals with societal norms and standards. The laws that govern society, he says, are a subset of the ethical principles that underpin society, and if we accept that structure, business should abide by standards articulated in societies around the globe—standards that we share across our very diverse cultures.
Notions of what it means to run a business well have evolved to included working across sectors and embracing a multi-stakeholder approach.
As Hafrey points out in his article, “Who’s Calling the Shots on Data and AI,” it has been nearly three-quarters of a century since world leaders adopted the UN Universal Declaration of Human Rights. Over time, the business community has embraced its principles through initiatives like the UN Global Compact, the UN Principles for Responsible Investment, and the UN Guiding Principles on Business and Human Rights. Compacts, councils, and declarations, while important, are at best aspirational, but Hafrey doesn’t have a problem with that. “It is important to have those agreements and to publicize them and to recognize that they express in the best possible way, our aspirations. The practice has then to come from us individually or collectively in teams and organizations,” he says.
Reflecting on the imperative of cross-sector thinking and society as a whole, Hafrey believes the work being done at MIT helps achieve the necessary global outreach to articulate ethics in business. “MIT Industrial Liaison Program is a significant piece of this,” he says. “ILP is a bridge builder that enables academics and practitioners to engage and share experiences. We can learn a lot from talking to people in the field who convey their challenges in a felt way to academics. At its best, the symbiosis between academia and industry is real, and both sides benefit if it is carried out with vigor and integrity.”