Chapter Thirty-Two
Good or Not Bad
Standards and Ethics in Managing Change

Kim S. Cameron

MANAGING CHANGE REQUIRES FIXED POINTS

The technology currently exists to put the equivalent of a full-size computer in a wristwatch, or to inject the equivalent of a laptop computer into the bloodstream. The newest computers are relying on etchings onto molecules instead of silicone wafers. The mapping of the human genome is probably the greatest source for change, for not only can a banana now be changed into an agent to inoculate people against malaria, but the potential to develop new human organs and to regulate physiological processes in ways previously unimagined promises to dramatically alter population life styles. Over 100 animals have been patented to date, and 4 million new patent applications related to bioengineering are filed each year (Enriquez, 2000). Almost no one dares predict the changes that will occur in the next 10 years. Moreover, not only is change ubiquitous and unpredictable, but almost everyone also assumes that its velocity will increase exponentially (Quinn, 2004; Weick & Sutcliffe, 2001).

Unfortunately, when everything is changing, change becomes impossible to manage. Without a stable, unchanging reference point, direction and progress are indeterminate. Airplane piloting offers an instructive metaphor. Without a stable, unchanging referent such as land or the horizon, it is impossible to steer a plane. Pilots with no visual or instrumentation contact with a fixed point are unable to navigate. Consider the last flight of John Kennedy, Jr., who began to fly up the New England coast at dusk. He lost sight of land and, when it grew dark, the horizon line as well. The result was disorientation, and he flew his plane into the ocean, likely without even knowing he was headed toward the water. He was unable to manage the continuously changing position of his airplane without a standard that remained unchanged.

The same disorientation afflicts individuals and organizations in situations where there are no unchanging referents. When nothing is stable—no clear fixed points or undisputed guiding principles exist—people are left with nothing by which to steer. It becomes impossible to tell up from down or progress from regress. When nothing is stable—that is, an absence of fixed points, dependable principles, or stable benchmarks—people tend to make up their own rules (Weick, 1993). They make sense of the ambiguity and chaos they experience by deciding for themselves what is real and what is appropriate—based on criteria such as personal past experience, immediate payoff, expediency, or personal reward (March, 1994).

In the ethical arena, it has become clear recently that in high-pressure, high-velocity environments, some individuals in the energy-trading, telecommunications, financial services, and accounting industries simply made up their own rules. They ended up cheating, lying, waffling, or claiming naiveté, not only because it was to their economic advantage, but also because they had created their own rationale for what was acceptable. They operated in rapidly evolving, complex, and high-pressure environments where rules and conditions changed constantly. Although their actions are now judged to be unethical and harmful to others, within the rationale they had created for themselves, those actions made perfect sense at the time (Mitchell, 2001).

As an example, Maurice (Hank) Greenberg, an icon in the insurance industry and CEO and chairman of America’s largest insurance company, American International Group, was forced to resign recently because he personally orchestrated a complex transaction that regulators now believe unfairly elevated the value of AIG’s stock. In a transaction with Warren Buffett’s General Reinsurance 5 years earlier, Greenberg indicated that he was merely trying to “shore-up AIG’s reserves,” but he operated in a way that was deceptive and crossed the ethical line. Unremitting and escalating demands for financial growth, changing financial practices, and fluid accounting principles created a condition where Greenberg felt justified in his complicated maneuvering (Valdmanis, 2005). He merely defined reality in a way that provided an advantage to AIG. Widely publicized examples from Enron, Freddy Mac, Tyco, Global Crossing, Texaco, Arthur Andersen, WorldCom, and other firms replicate this pattern. Leaders created rationales meant to create a legitimate advantage, even while violating ethical standards.

Such conditions illustrate why ethics, standards, rules, and social responsibility have become so important in governing organizational and managerial behavior. Ethical reforms have led to, among other things, the Sarbanes-Oxley legislation—widely considered to be an enormous cost and productivity drain on U.S. companies because of its requirements for documentation and oversight—and an emphasis on corporate social responsibility which has motivated organizations to address troublesome issues in the environment (e.g., pollution, poverty, health care, environmental sustainability); redress existing problems (e.g., cleaning up waterways); or work to prevent harm (e.g., filtering smokestacks). In other words, rules and standards meant to guide what is right and wrong, appropriate and inappropriate, legal and illegal have escalated in the interest of identifying fixed points. Consequently, they are receiving more and more attention in the curricula of schools of business.

ETHICS AS AN INSUFFICIENT FIXED POINT

The problem is standards that avoid harm are not the same as standards that lead to doing good. For example, Bradley, Brief, and Smith-Crowe (2005) differentiated between organizations that are “good” versus those that are “not bad.” To date, the dominant (although not exclusive) emphasis in the ethics literature has been on avoiding harm, fulfilling contracts, and obeying the law (Handelsman, Knapp, & Gottlieb, 2002; Paine, 2003). That is, in practice, ethics are understood and implemented as duties (Rawls, 1971). They are usually specifications designed to avoid injury or prevent damage (Orlikowski, 2000). Ghoshal (2005: 77) went so far as to argue that the dominant management theories are based on harm-avoiding assumptions at best and an amoral ideology at worst. Current management ideology, he argued, “is essentially grounded in a set of pessimistic assumptions about both individuals and institutions—a ‘gloomy vision’ (Hirschman, 1970) that views the primary purpose of social theory as one of solving the ‘negative problem’ of restricting the social costs arising from human imperfections.” In other words, ethical regulations (and even management theory) are accused of focusing, by and large, on the duties and obligations of individuals and organizations to avoid harm.

Unfortunately, rules and standards that initially appear to guide ethical obligations and socially responsible action may actually lead to the reverse. For example, unions often “work to rule”—doing only what is specified in contracts and rules—as a substitute for going on strike. This pattern of behavior quickly destroys normal organizational functioning. Similarly, following the letter of the law in accounting practices, environmental pollution standards, or performance appraisal systems often leads to the opposite of the intended outcome—in particular, recalcitrance, rigidity, resistance, and rebellion (Cameron, 1998). Moreover, specifying ways to prevent injurious outcomes is subject to change as conditions change—as in the cases of rules governing civil rights, death, marriage, and financial reporting. Hence, ethics may not serve as an adequate fixed point and may not always identify universalistic standards. Rules meant to specify duty to avoid harm may be inadequate standards because they change and do not always lead to desirable outcomes (Caza, Barker, & Cameron, 2004).

Put more succinctly, avoiding the bad is not the same as pursuing the good, and a central argument here is that ethical standards must be supplemented with another standard referred to as a virtuousness standard. The value of distinguishing these two conditions is apparent if we consider a continuum in which three points are identified—a condition of negative deviance on the left, a normal or expected condition in the center, and a positively deviant or highly desirable condition on the right. This continuum illustrates the difference between ethics—traditionally defined as an absence of harm—and virtuousness—the perpetuation of goodness (see Cameron, 2003).

To understand the continuum, think first of the human body. The large majority of medical research, and almost all of a physician’s time, is spent on the gap between the left point on the continuum (illness) and the middle point (health), which represents an absence of illness or injury. Relatively little scientific attention is given to the gap between physiological health (middle point) and vitality or wellness (right-hand point). Mayne (1999), for example, found that studies of the relationship between negative phenomena and health outnumbered studies of the relation between positive phenomena and health by 11 to 1. More than 90% of National Institutes of Health–funded research focuses on how to close the gap between a state of illness and a state where illness is absent.

The same is true of psychology. Seligman (2002) reported that more than 99% of published psychological research in the last 50 years has focused on the gap between the left and middle points on the continuum—overcoming depression, anxiety, stress, or emotional difficulties. Relatively little attention has been paid to the gap between a condition of psychological or emotional health and a state of vitality, flourishing, or “flow” (Csikszentmihalyi, 1990). Most of what is known about human physiology and psychology, in other words, relates to avoiding or overcoming illness and harm—similar to the emphasis in the ethics literature. Unethical behavior produces harm, violates principles, and does damage. Ethical behavior usually refers to an absence of harm—behaving consistently, being trustworthy, not damaging others, addressing or redressing societal problems, fulfilling one’s duty (Ghoshal, 2005; Caza, Barker, & Cameron, 2004). However, the right side of the continuum refers to conditions that extend beyond the avoidance of harm or the maintenance of the current system. Terms such as honor, goodness, benevolence, and ennoblement describe a condition of virtuousness.

VIRTUOUSNESS AS A SUPPLEMENTAL FIXED POINT

Virtuousness in this sense is what individuals aspire to be when they are at their very best. The word is derived from the Greek arete, which means excellence. It refers to that which represents the highest of the human condition. States of virtuousness represent conditions of flourishing and vitality (Lipman-Blumen, & Leavitt, 1999), meaningful purpose (Becker, 1992), ennoblement (Eisenberg, 1990), personal flourishing (Weiner, 1993), and that which leads to health, happiness, transcendent meaning, and resilience in suffering (Myers, 2000; Ryff & Singer, 1998). It is the basis of “moral muscle,” willpower, and stamina in the face of challenge (Baumeister & Exline, 1999; Emmons, 1999; Seligman, 1999).

Unfortunately, the concept of virtuousness is often relegated to theology, philosophy, or mere naiveté. Fineman (2006) argued, for example, that virtuousness is culturally restrictive and narrowminded. Its relevance in the world of work or in the management curriculum is often viewed with skepticism or distain. A 17-year analysis of the language appearing in the Wall Street Journal, for example, revealed increasing usage of competitive and aggressive language in reference to business (e.g., compete, battle, defeat) but almost no linkage between business and terms such as virtue, compassion, and integrity (Margolis & Walsh, 2003). Moreover, practicing managers frequently reflect the attitude that virtuous concepts are irrelevant in the high-velocity, resource constrained, and turbulent battleground of business. “Virtuousness may be fine as a discussion topic at a late night coffee bar, but it’s too soft and syrupy to be taken seriously in my world of competitive positioning, customer demands, and shareholder performance pressure” (personal communication from a corporate CEO). One result is almost total negligence of such topics in the business school classroom.

On the other hand—and this is the crucial point—virtuousness can, and should, serve as a fixed point to guide individual and organizational behavior in times of ambiguity, turbulence, and high-velocity change. This is because virtuousness represents what people aspire to be at their best, and those aspirations are universal and unchanging in essentially all societies, cultures, and religions (see Peterson & Seligman, 2004; Kidder, 1994). Contrary to Fineman’s (2006) claims, virtuousness is not culturally constricted and applicable only to North America. It represents Aristotle’s “goods of first intent,” which have long been claimed to be characteristics of the best of the human condition. Without virtuousness as a supplement to ethics, in other words, no unchanging fixed point exists with which to manage change. Moreover, when virtuousness is demonstrated, positive individual and organizational outcomes accrue.

One part of the research agenda emerging in the field of positive organizational scholarship is an investigation of the role of virtuousness in individual and organizational performance. An irony associated with virtuousness is that, by definition, virtuousness is inherently desirable. No payback or reward is required for virtuousness to be universally treasured. On the other hand, without a business case being made for virtuousness—i.e., evidence of its relevance to organizational performance—it is usually ignored as a standard to guide individual or organizational action.

Hence, a series of studies were conducted in which virtuousness was assessed in various kinds of organizations. In one, Cameron, Bright, and Caza (2004) examined recently downsized organizations in a variety of industries, all of which were facing environments characterized by high degrees of change. The research assessed members’ ratings of numerous organizationally facilitated virtues such as compassion, integrity, forgiveness, trust, and optimism (concepts included on lists of universally valued virtues, e.g., Peterson & Seligman, 2004). Empirical results revealed that virtuous organizations significantly outperformed less virtuous organizations on a series of outcome measures, including profitability, productivity, innovation, quality, customer retention, and employee loyalty. In another study of the U.S. airline industry after the tragedy of September 11th, the airline companies demonstrating virtuousness universally outperformed other airlines—that is, they lost less money, their stock price recovered faster and to a greater extent, and passenger miles remained higher (Gittell, Cameron, & Lim, 2006). Studies of health care, military, and governmental organizations show that organizations facing financial exigency and layoffs encountered fewer of the problems associated with downsizing and performed better than organizations in parallel situations that did not demonstrate the same virtuous orientation (Cameron, 1998; Cameron, Kim, & Whetten, 1987; Cameron & Lavine, 2006). In other words, in conditions of high-velocity, turbulent, and complex environments, virtuous firms made more money than less virtuous firms. Virtuous firms recovered from downsizing and retained customers and employees to a greater extent than nonvirtuous firms. And virtuous firms were more creative and innovative than nonvirtuous firms (Cameron, 2003).

The implication of these research findings highlights the importance of a virtuous fixed point in addition to an ethical fixed point in managing change. That is, in order to cope effectively and perform successfully in turbulent conditions, individuals and organizations must certainly avoid doing harm—that is, they must adhere to ethical rules—but they must also act virtuously—that is, they must foster virtuousness and the best of the human condition. Virtuousness is associated with positive outcomes, not just the absence of negative outcomes. Virtuousness produces positive energy in systems, enables growth and vitality in people, builds social capital, and enhances the probability of extraordinary performance (see Cameron, Dutton, & Quinn, 2003). Virtuousness pays dividends. Doing good helps organizations to do well (Cameron, Bright, & Caza, 2004). In conditions of turbulent change, virtuousness serves as an essential fixed point—a benchmark for making sense of ambiguity—as well as a source of resilience, protecting the system against harm.

Virtuousness has this kind of impact because of two core attributes. It produces an amplifying effect, and it produces a buffering effect. The amplifying effect refers to the self-perpetuating nature of virtuousness. Specifically, virtuousness is contagious. People are inherently attracted to virtuous acts, so that when they observe them, they are inspired by them (Sandage & Hill, 2001). They are elevated by virtuousness, so it tends to be reproduced (Fredrickson, 2003). In organizations, this amplifying effect spreads and expands and, eventually, becomes part of the structure and culture of the firm (Cameron & Caza, 2002). At the individual level, when people work in a virtuous environment, they tend to be more physically and mentally healthy (Ryff & Singer, 1998; Weiner, 1993). Virtuous individuals tend to make better decisions (Staw & Barsade, 1993) and to be more creative (George, 1998). At the interpersonal level, virtuousness is associated with affiliative feelings (Haidt, 2000), fosters high-quality connections (Dutton, 2003), and leads to the formation of social capital (Bolino, Turnley, & Bloodgood, 2002). At the organizational level, it produces positive emotionality, meaningfulness, and mutual reinforcement in the organization (Dutton & Heaphy, 2003; Gittell, 2003; Fredrickson, 2001; Cohen & Prusak, 2001). The amplifying nature of virtuousness, in other words, causes it to replicate itself and to improve organizational performance over time.

The buffering effect of virtuousness refers to its capacity to protect individuals and organizations against dysfunction, harm, or illness at both the individual and organizational levels of analysis. Seligman and Csikszentmihalyi (2000) reported that virtues such as courage, optimism, faith, integrity, forgiveness, and compassion all have been found to protect against psychological distress, addiction, and dysfunctional behavior. Learned optimism, for example, prevents depression and anxiety in children and adults, roughly halving their incidence (Seligman, 1991). Similarly, virtuousness buffers individuals from the negative consequences of personal trauma (Seligman, Schulman, DeRubeis, & Hollon, 1999), and the cardiovascular, emotional, and intellectual systems in individuals recover significantly more rapidly and completely when they experience virtuous behaviors (Fredrickson, Mancuso, Branigan, & Tugade, 2000). Individuals who experience virtuousness suffer less psychological distress and engage in fewer destructive behaviors in response to adverse events (Seligman & Csikszentmihalyi, 2000).

At the organizational level, virtuousness also serves a buffering function by contributing to the speed and effectiveness of recovery from setbacks (Dutton, Frost, Worline, Lilius, & Kanov, 2002; Wildavsky, 1991). Downsizing, for example, is an organizational change that almost universally produces undesirable organizational outcomes and ambiguous conditions (Cameron, 1994). Its presence produces at least 12 recurring problem behaviors that lead to poor performance (Cameron, 1998). Virtuousness buffers the organization from such effects by protecting feelings of solidarity (Masten, Hubbard, Gest, Tellegen, Garmezy, & Ramirez, 1999), preserving social capital, enhancing collective efficacy, and clarifying purposefulness and vision (Sutcliffe & Vogus, 2003; Masten et al., 1999; Weick, Sutcliffe, & Obstfeld, 1999). Virtuousness also enhances relational coordination (Gittell, 2001, 2002) and helps create resilience that allows the organization to recover quickly (Gittell, Cameron, & Lim, 2006).

Recent research in positive organizational scholarship has begun to highlight the role played by virtuousness in enhancing and enabling spectacular performance in organizations. In an environment characterized above all by escalating turbulence and high-velocity change, a hallmark of high-performing systems is not only the demonstration of ethical behavior—the absence of harm—but also the demonstration of virtuousness—producing and enabling goodness. Ethics and virtues can both serve as essential fixed points in a sea of chaotic change and uncertainty. Because ethical standards may be unstable, however, they must be supplemented by virtuous standards—universal aspirations that focus on the best of the human condition. Whereas ethics receives by far the most attention in management classes, textbooks, scholarly literature, and managerial practice (Ghoshal, 2005), more focus on virtuousness in organizational dynamics is needed to enable self-reinforcing positive outcomes. The topic of virtuousness in the management classroom is a needed addition to the management curriculum.

Kim S. Cameron is professor of management and organizations in the Ross School of Business and professor of higher education in the School of Education at the University of Michigan. He has published multiple books on organizations and is currently studying the effects of positive practices and virtuousness on organizational performance.

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