Loyalty circles form a hierarchy that defines how you should behave toward different people, whom to prioritize, and whom to place further back. The importance of these circles is often underestimated, which leads to serious mistakes. At the center of the loyalty circle stands the individual themselves. In your private life, loyalty circles expand outward from you to your spouse, family, siblings, close friends, colleagues, neighbors, and so on, each layer carrying a different level of priority. Sometimes we encounter situations where we do not know to which circle we should be loyal, and we make mistakes.
For example, imagine you are in a group of friends and hear unfair criticism about a very close friend. You are upset and confused but do not defend them. Later, when you meet that close friend, you decide not to mention it so as not to “betray” the group and to avoid being seen as someone who gossips. You stay silent. In such a case, true loyalty should be toward your close friend, and you should tell them the truth. Imagine the reverse: you are unfairly criticized somewhere, your close friend remains silent, tells you nothing, and you learn about it later from someone else.
Another example: you have an argument with your spouse and complain about them to their close friend. That friend then reveals very heavy, previously unknown things about your spouse. Later you reconcile with your spouse and decide to hide what you heard because the friend trusted you and made you promise to keep it secret. In reality, your spouse is in your closest circle and their friend is at least two circles away from you. You should, at the earliest opportunity, tell your spouse what was said. If the friend suffers consequences, that is not your responsibility. Your duty is to remain loyal to your spouse, not to someone in a more distant circle.
The same logic applies in business. There are loyalty layers there as well, and the first circle is, in principle, the company or the business entity itself. Ideally, a professional manager’s loyalty should be to the company, not the owner. The company is a distinct entity with obligations to employees, customers, distributors, the state, advisors, and, if publicly listed, shareholders. In practice, however, these lines blur. Sometimes owners deliberately load the company with debt, avoid taxes or social security payments, leave unpaid obligations in the market, bankrupt the company, and establish a new one. In such cases, if you stay, your loyalty effectively shifts to the owner, assuming your ethics still allow you to work there.
In other cases, a board chair who holds 51 percent of the shares may behave as if they own 100 percent, ignoring the rights of minority shareholders, taking personal benefits, and exposing the company to unnecessary risks. In these situations, professional ethics suggest loyalty to the company itself, which may ultimately mean leaving.
In principle, a manager’s primary loyalty should be to the company. But because owners often see themselves as one and the same as the company, when company interest conflicts with personal interest, they may accuse the manager of disloyalty: “Is this not my company? If I sink it, what is it to you?” Thus, you must decide whether the first circle in your loyalty chain is the company or the owner.
A possible sequence of loyalty layers could be as follows: first the company, then the state (tax, social security), then minority shareholders, then customers and distributors, then employees, then key strategic suppliers, and finally other suppliers. One may debate the order, but once you define it for yourself, you must not break it.
When there is a conflict between two circles, you should protect the higher circle. If paying salaries means you cannot pay social security, you pay social security first and delay salaries. If the owner needs to withdraw money and this will delay salaries, you pay the owner and delay salaries. If salaries are due at the same time as a key supplier’s invoice, you pay salaries first and delay the supplier. Once this chain is broken, you no longer know whom to trust, and others will not know if they can trust you.
In international and institutionalized companies, the firm is seen as a legal person separate from its owners, not only legally but also in practice. The firm has responsibilities, obligations, contracts, distribution agreements, brand licenses, insurance policies. Suppliers have invested in stock, logistics providers have rented warehouses and hired staff, employees have taken out loans to buy homes and cars. A company is a world in itself. The system should not allow that world to collapse due to the arbitrary decisions of one or a few individuals, yet in reality this sometimes occurs.
After the collapse of Arthur Andersen, various laws were passed in the United States to limit the authority of partners and to strengthen governance structures, such as the Sarbanes-Oxley Act, and frameworks for corporate compliance, corporate governance, and codes of conduct. After Swissair’s collapse, similar regulations were introduced in Europe.
For example, Schindler, an elevator company founded in 1869, is publicly listed. The controlling shares are held by Alfred Schindler, a third-generation owner and CEO. His powers are limited. His salary is determined by an independent committee, operational decisions are taken by the board, and three separate committees oversee these decisions.
That article comes from the experiments we have conducted over the years.
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