Stepping down from his role as Skoll Board member after 18 years of service, doesn’t mean Kirk Hanson will be less busy. His new book with co-author Marc Epstein, ROTTEN: Why Corporate Misconduct Continues and What To Do About It, draws on his decades of work and thinking in business ethics, and he’s already begun his next project: a series of three—possibly four—books on ethical dilemmas. Prof David Grayson, chair of the Institute of Business Ethics, called Rotten “a must-read for anyone interested in building more ethical and therefore more resilient and sustainable businesses.”
Kirk sat down with us to reflect on his long tenure on the Skoll board, his years teaching business ethics at Stanford and Santa Clara University, and his thoughts on corporate corruption and how to better ensure polices of good governance going forward.
Zach Slobig: You taught business ethics classes to students at Stanford and Santa Clara university for close to 40 years. Is there a single corporate scandal that exemplifies for students a sort of “rotten” origin story?
Kirk Hanson: A generation of MBA students and executives at American business schools have been introduced to a series of classic cases: toxic waste at Love Canal, the Johnson & Johnson case, which was an individual who poisoned some Tylenol, and the question was, how does the company respond?
The major one that occurred after the book was published was the Goldman Sachs scandal around 1MDB, the Malaysian sovereign fund that Goldman Sachs officials looted to the tune of about $4 billion.
Zach: In Rotten you use this concept of bad apple, bad barrel, bad orchard to frame aspects of corporate misconduct. How is that useful when it comes to understanding the causes of bad conduct?
Kirk: One of the reasons our efforts to control corporate misconduct have not been as effective is that we haven’t really looked at the causes. We spend quite a bit of time in the book examining the causes, and we divided that into the “bad apple, bad barrel, and bad orchard” categories.
So, the bad apple is a management problem of how you deal with individuals who are either ethically weak or simply immoral. The bad culture is the classic concern for corporate culture and how corporate cultures can incentivize good or bad behavior. We wanted to document exactly how the bad barrel influences individuals to behave improperly.
The chief executive of Wells Fargo, who appeared before a Senate committee began his opening statement by saying, “We feel embarrassed that we hired 5,300 bad apples.” The senator who was chairing the hearing said, “You’ve got to be kidding.”
Zach: Do the roots of capitalism as a system encourage bad conduct? What do you say to folks who argue that capitalism is fundamentally a bad orchard?
Kirk: There are people who do believe that capitalism is completely unethical. We use the category bad orchard, meaning that it’s difficult to be ethical when you are operating in an environment that is essentially corrupt. There are some people who would conclude that all capitalism is that way.
It’s our experience that there are both good businesspeople and bad businesspeople, good companies and bad companies, and that it is possible to lead a life of virtue in a business context, but not without being tested.
Zach: There’s obvious value in shaming the bad actors and calling them to account. What about the value of elevating the good actors? How that can be better done?
Kirk: One of the reasons I was asked to be on the Skoll board 18 years ago was that I’d headed a national program to identify exemplary behavior in business. It was called the Business Enterprise Trust. It was just an extraordinary group of people who felt that if the best way to change corporate behavior was to identify pinnacles of virtue and to give them awards. I was the founding president of that organization, and we created a whole process and produced a series of awards. We ran it for eight years, gave five awards a year and those are great stories.
Zach: How robust is ethics instruction in business schools overall and how have you seen that change over those 41 years?
One approach to teaching business ethics, naive perhaps at first, was we’re going to make people who aren’t ethical, ethical by these courses. That doesn’t occur. What you can do is use the course to create a signaling vehicle. We are creating if you like, the good barrel, the good culture in the business school, which legitimizes taking social and ethical issues seriously.
Zach: Take me back to the early days of joining the Skoll board. What’s that story?
Kirk: I had met Jeff Skoll when he was a student at Stanford Business School though he didn’t take my class, and Sally Osberg, who was the first CEO of the Skoll Foundation was a very close friend of mine. She and Jeff invited me to participate in a year-long process of designing the strategy for this new foundation, which I did. And at the end of that year Jeff said, “Well, why don’t you join the board?” And so, I did and served for 18 years.
Zach: 18 years is a long time. What are some of the highlights from those years?
I think what the Skoll Foundation has represented is a commitment to understand social innovators. We called them social entrepreneurs at first, and we now have broadened that term to social innovators. As these people have aged in their organizations and their movement has come of age, we’ve learned more about how you scale at certain levels, how you partner with the government, and how you handle succession. And so, you’ve got to be able to create transitions and find someone who can lead those organizations, those movements as effectively as the original entrepreneur.
Therefore, we needed to broaden from social entrepreneurs—individuals who launched efforts— to invest in social innovators, those who continued very strong and effective organizations, who could bring together all of the resources and the individuals to effect really large-scale change.
Zach: What has kept you optimistic over this past year?
Kirk: This has been a tough year and there are times in which I think all of us were down about the prospects for moving forward. But I was buoyed continually by the optimism and the can-do attitude of all who we work with in the Skoll Foundation. The staff, the board, the individuals that we have funded in the past and this year, particularly by Jeff Skoll who basically said, “If not now, when? If I’m going to make substantial investments in social change and in social innovation, this is the year.”
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