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The Moral Advantage: How to Succeed in Business by Doing the Right Thing

The Moral Advantage: How to Succeed in Business by Doing the Right Thing

by William Damon

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Drawing on extensive interviews with men and women who have constructed extraordinary business careers while focusing on their loftiest purposes and deepest convictions, Damon (education, Stanford U.) describes a way of doing business that bypasses the conventional conflict between doing well and doing good. Moral behavior will not guarantee success, he warns, but it


Drawing on extensive interviews with men and women who have constructed extraordinary business careers while focusing on their loftiest purposes and deepest convictions, Damon (education, Stanford U.) describes a way of doing business that bypasses the conventional conflict between doing well and doing good. Moral behavior will not guarantee success, he warns, but it need not lead to inevitable failure. Annotation ©2004 Book News, Inc., Portland, OR

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The Moral Advantage

How to Succeed in Business by Doing the Right Thing

Berrett-Koehler Publishers, Inc.

Copyright © 2004 William Damon
All right reserved.

ISBN: 978-1-57675-206-7

Chapter One

Leading Lights

Lars Kolind, named Denmark's Man of the Year in 1996, is one of the world's most admired businessmen. When he was in charge of Oticon Corporation, a high-quality manufacturer of hearing aids and other technologies, he helped transform the company into a knowledge-based organization in which new ideas could be generated and tested without being blocked by the kind of bureaucratic hurdles that are common in large corporations. Within seven years after taking the company public, Kolind increased its market value by a factor of fifty. After leaving Oticon, he founded his own business discovery fund (PreVenture A/S), served on several boards of multinational corporations, and started The Copenhagen Centre, a government agency that fosters partnerships between the public and private sectors.

I reached Kolind by telephone in Copenhagen. Earlier that same week, I had noticed his picture on the cover of a prominent weekly Danish magazine. Kolind's celebrity status in Denmark is a result of the "spaghetti organization" concept that he defined and promoted as Oticon CEO and board member. (During our interview, he half-complained to me about being known as "the spaghetti man" throughout Denmark.) The so-called spaghetti structure reduces hierarchy, opens up multiple channels of simultaneous communication among workers, and exposes employees to some of the responsibilities that other workers deal with.

Developing and implementing the spaghetti organization was a creative act on the human resource level. But even before Kolind arrived at this managerial solution, he had improved his company's most important product, hearing aids, through another act of moral imagination. His sources of inspiration have much in common with those that the other business leaders in this book have drawn upon for their innovations.

When Kolind became the CEO of Oticon Corporation, after many years in operational roles such as production planning, logistics, operations research, and middle management, he took a fresh look at the company's chief line of products. Oticon long had a reputation for producing the most powerful and scientifically advanced hearing aids on the market. The company's high-quality hearing aids had been called nothing short of "wondrous" by experts on sound waves and the ear's auditory capacities. But Kolind was less interested in technical quality than in the client's needs. He told me that he was thinking along these lines at the time: "The ear itself is not our client; it is not our customer. Our client is the whole person. And our goal is to make our clients smile. That's what we want to do."

Kolind emphasized that from early in life his "values were all about respecting [people] for what they were," a perspective closely aligned with his moral beliefs. Kolind's passion outside the realm of work is scouting, which in Denmark, he says, is "pretty much associated with the church, and church is part of being a scout." The moral commitments that Kolind acquired while engaged in service to church and scouting shaped his moral imagination, which in turn gave Kolind the creative insights that he needed to reform both the products and the organizational structure of his company.

Kolind's love and respect for people "as they are" led him to question whether the powerful hearing aids that Oticon was selling best served the human needs of hearing-impaired people. "We actually went out for the first time and asked real people," he recalled. "Just ordinary questions of quality of life. What is it that disturbs your quality of life? What is it that you really want?" Kolind's intuitive insights into the real needs of the hearing impaired had given him a sense that they were not comfortable with even the best of Oticon's products, and these intuitions were confirmed: "No one ever asked for the world's most advanced hearing aid. People asked for quality of life."

Quality of life for the hearing impaired called for a device that could be worn with minimal attention, not one that gave maximum sound to the ear: it is the whole person that counts in the end, not some technical measure of auditory performance. Although the technical excellence of Oticon hearing aids remained essential, this standard was now accompanied by another priority, one that came directly from the consumers' own wishes: "They did not want maximum speech intelligibility in noise. They wanted a combination of good speech intelligibility, small instrument, and comfortable sound. Until then, the method had been to measure the sound that actually hits the tympanic membrane. And if that matches a theoretical curve, then the hearing aid is perfect. And if it does not, it's not perfect. I figured out that the only disadvantage of that method, which is quite scientifically wonderful, is that it works equally good whether the patient is dead or alive. And I said, 'I'm not sure that's the right criterion for quality. So now let's develop something that works on live persons.'"

Naturally Kolind's new approach met stiff resistance among some technicians, engineers, and board members at Oticon, but he persevered and won the argument in the end. The results for the company were nothing less than spectacular: Oticon's smaller, sleeker hearing aids with the more "comfortable" sound became the industry standard overnight. The Oticon hearing aids won overwhelming market share by combining the technical excellence that they were known for with a new consumer appeal. Kolind was on his way to becoming a legend in the European business community.

What sealed Kolind's renown was the "spaghetti" organization that he designed to transform employee relations at Oticon and other companies that he later directed. During his struggle to make Oticon more attuned to its customers' "whole-person" needs, Kolind realized that he needed to think about the structural reasons that his company was overlooking such crucial concerns, and why it was resistant to constructive feedback and change. "I realized that Oticon would have functioned not because of its structure but despite its structure," he said. "And we would have functioned better with no form of structure whatsoever, because there was a very, very efficient informal structure. And why not make that one the formal structure? So that was the spaghetti organization, basically—it was a structure in which there was lots of freedom."

Some of the features of the spaghetti organization were installed as a direct response to problems that Kolind had run into while fighting for his "revolutionary" (his word) hearing aid concept. For example, he introduced a management strategy of requiring employees to serve in multiple roles (engineers as marketers, accountants in customer service, and so on) as a way of sensitizing everyone in the company to the entire complexity of a client's needs. "I had a lot of conflict with everybody," he noted, "so I said, 'Let's turn more jobs into multi-jobs.' And [with] multi-jobs ... you have a portfolio of functions ... because we want you to understand the whole business and not only your aspect of the business."

Other features came from Kolind's knowledge of people. He tore down the company hierarchy to liberate the most talented people, allowing them to do their best work as well as inspire others. "I know we lose some coordination, we lose some focus by abandoning the hierarchy," he said. "But we will gain 50 percent, and all our most valuable people can now start to do something productive. And that was why I abandoned [a formal hierarchy] and substituted for it a very un-hierarchical structure ... where everybody had a mentor and they chose themselves who should be their mentor ... and these 'gurus' would have a right to command, but they would create an atmosphere around them, a professional atmosphere that should inspire everybody to do better from a professional point of view."

Giving people this kind of freedom requires some basic assumptions about human potential, a vision reflecting optimism and trust. In flattening and extending the company's organization, Kolind treated employees more like peers than underlings, spreading responsibilities throughout the company in unprecedented ways. This is not done lightly by any CEO. That Kolind was able to stick with his creative vision indicates how deep-seated his sense of trust was in fellow employees. It also indicates the extent to which his passion for Denmark's church-linked scouting movement influenced his thinking. The moral imagination that enabled Kolind to invent and implement his spaghetti model sprang directly from his faith in the scouting way of operating. "I, frankly speaking, got 90 percent of the inspiration [for the spaghetti organization] from scouting.... Scouting has been my whole life," he said. "And what struck me was that we could do anything with minimal resources or no resources fundamentally. Because we agreed on the fundamentals, and there were some very simple fundamental rules ... the Scout Law, the Scout Promise. So we had a common ground, and we were committed to get things done."

Kolind appropriated the scouting approach to the high reaches of corporation management because he was convinced that the fundamentals of human relations were the same: if people can be given freedom and trust, they will work to their fullest potential—provided, of course, that they are committed and talented people. Kolind carefully selected and retained such people and then built his organization in a free-flowing manner that unleashed their best work. His own moral commitments gave him the insight to do this and the temerity to see it through in the face of severe skepticism. "So, while many people within the company and outside the company said, 'This will never work,' I, frankly speaking, never doubted it would work. This doesn't mean I wasn't afraid we wouldn't fail from a commercial point of view, because we didn't have enough money or whatever it was. But it was fundamentally right. And you might say, 'Why was that?' I think it was like that because decisions of that sort, fundamental decisions, have been made more by the heart than by the brain."

When the heart and brain are in alignment, powerful forces are unleashed, forces of creativity, purpose, persistence in the face of skepticism, strong ethical commitments, compassion, and leadership. I will discuss these forces in detail throughout this book. One revered business leader who not only has exemplified these forces in his own career but also has written about some of them (in particular, leadership) is Max DePree, whom I interviewed at his lakeside home in northern Michigan.

In addition to being one of the most revered businesspeople of our time, Max DePree is a best-selling, insightful writer on moral leadership in business. Among his many other honors, DePree has been elected to Fortune magazine's Business Hall of Fame. In 1980 he became the chief executive officer of the Herman Miller office furniture company, and on his watch the company was ranked seventh out of the Fortune 500 in profitability (return to investors) and first in productivity (net income generated per employee). How did DePree squeeze so much productiveness out of his workforce? Not exactly through blood, sweat, and tears. Early in his tenure as the CEO, DePree convinced the company to introduce an employee stockownership plan, sharing a part of its capital wealth with its workers. At the time, this was a revolutionary notion and would not have been an easy sell in many corporate boardrooms. It took the business world some time to recognize that directly including all workers in a company's financial prospects can be an enlightened way of promoting company interests, with propitious effects on morale, loyalty, and ultimately (as in Herman Miller's case) productivity.

When I spoke with DePree about his career, he identified the stock-sharing plan that he created at Herman Miller as his proudest achievement. Of his four-decades-long career as a top executive, legendary CEO, and best-selling author, it was this early initiative during his chairmanship that DePree recalled as his finest hour:

Oh, one of the things that I'm most proud of is that almost everybody at Herman Miller is a stockholder. That's one thing that gives me real, real pleasure today. I ran into a guy at a drugstore a few months ago. I hadn't seen him in maybe ten years. He works in the factory at Herman Miller, and I said, "I'm glad to see you." He said, "I've been planning to give you a call." And I said, "Well fine, what about?" He said, "Can we talk here?" We were both waiting for a prescription to be filled, and I said, "Yeah, sure." He said, "I wanted to tell you, years ago when you started that program of stock ownership for all of us ... I thought, 'Oh that's another one of Max's "ideas."' We sat around the coffee table and we laughed about it." [The man] said, "I want you to know today, I'm really well-off and I'm going to have a retirement I never dreamed I could have, because you made me a stockholder." But you see, I never gave him anything; he earned it all. I mean, the stock they get, they can buy at a discount, but the quarterly profit-sharing is paid in stock, since we're a public company. So nobody gave him anything. He just got the opportunity to earn it.

DePree's modest perspective on his own contribution to his workers' well-being ("I never gave him anything; he earned it all") indicates the sense of humility that, perhaps paradoxically, characterizes many top business leaders. One of the essentials of good leadership is keeping perspective on the power that your position grants you. The best way to do this is to remember that the power is in the position, not in your own intrinsic superiority to others; and that it is a power meant to serve others, not to dominate them.

We shall return to this view later in the chapter, when I discuss the case of Robert Greenleaf, the founder of an enlightened model of business management called "servant leadership." DePree has long been a fan of Greenleaf's writings and the servant-leadership model. In DePree's own book Leadership Is an Art he urges readers to think about leadership as "stewardship as contrasted with ownership." He cites two sources of personal inspiration: the Gospel of Luke, where the leader is described as "one who serves," and Greenleaf's work Servant Leadership, commenting that Greenleaf "has written an excellent book about this idea." Greenleaf, in his own modest manner, always credited previous sources with the idea, even though it was his own writings that first introduced people in business to the servant-leader approach.

True to the ethic of humility, DePree acknowledges debts to his intellectual mentors for initiatives such as the employee stockownership plan. DePree sees such ideas as growing naturally out of his deep respect for all the company's employees, a view that embodies the servant-leader model. While this may be a moral imperative in biblical and other religious traditions, in DePree's hands the notion carried great practical value as well.

In this concept, the leader learns from subordinates just as they learn from him or her. Indeed, a company's prosperity depends on its staff's capacity to learn in both directions, from supervisor to subordinate and vice versa. When DePree reflects on this two-way process, his account is imbued with a double dose of humility: he attributes his realization that his subordinates often knew more than he did to a mentor, the industrial psychologist Carl Frost; and the realization itself centers on the benefits of a humble stance toward those who report to a leader. "I don't think I would have figured it out," he said, "You know, maybe Einstein figured out the theory of relativity by sitting on his duff and musing on it, but I think most of us learn by interaction. We teach each other a lot and if we're open to it, we really learn a lot. One of the crucial things in my management training was when Carl Frost ... told me when I was a young manager one time, 'When you have problems running a factory and you don't know what to do, you go out in the factory and you ask the people who are working in the factory.' He said, 'They always know what to do, but nobody ever asks them.' And I thought, well, the least I can do is try that, and it works!"


Excerpted from The Moral Advantage by WILLIAM DAMON Copyright © 2004 by William Damon. Excerpted by permission of Berrett-Koehler Publishers, Inc.. All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
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Meet the Author

William Damon is America's leading thinker on the moral development of children and adolescents. He is a professor at Brown University and Director of its Center for the Study of Human Development.

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