Taking The High Road

Training
Liz Simpson
01/01/2002

Imagine you're the CEO or a power company that was founded on a strong commitment to social and environmental responsibility. You've just been told that workers at one of your plants have falsified emissions reports because they feared losing their jobs if they failed to meet pollution-reduction goals. Would you bring this wrongdoing to the attention of the authorities--risking a large fine and potential public outcry--or consider it an unfortunate error of judgment that you'll deal with privately?

Or let's say you've been sworn to secrecy by a regional VP about the impending closure of your branch, at which time everyone but yourself will lose their jobs. One of your most loyal employees tells you of his intent to buy a home that he can just about afford. Do you break your word to your boss or let this employee make a potentially disastrous investment?

These are not hypothetical game-show questions but real-life dilemmas that involve tough choices. Most of us know it's wrong to engage in bribery; falsification of expense accounts or deceptive advertising. The challenge of ethical problems such as the above is that they generally involve conflicts between two important values--requiring a decision to be made for honesty versus loyalty, financial security or integrity; and responsibility to self versus the community. How, then, is anyone able to "do the right thing" in business? And why should we bother anyway?

Business ethics was once a concept considered an oxymoron on par with "military intelligence" or "common sense." Today, however, that's less typical. The 2000 National Business Ethics Survey found that more companies have formal ethics programs and are putting less pressure on employees to compromise ethical standards than was reported in the 1994 survey. The 2000 NBE study, produced by the Ethics Resource Center in Washington D.C., also reported a 22 percent increase in the amount of for-profit organizations that provide ethics training although this was most common in larger companies.

So what is ethical business? Frank J. Navran, ERC's principal consultant & director of training, defines it as: "Standards of conduct that are measured against core values or principles such as honesty, integrity and justice." Howard Gardner, Mihaly Csikzentmihalyi and William Damon, co-authors of Good Work: When Excellence and Ethics Meet (Basic Books, 2001), suggest a more personal test: When you look at yourself in the mirror are you proud of yourself or embarrassed?

As we move further into the world of business-to-business collaboration and the sharing of intellectual capital, the issues of ethical behavior and values alignment become even more important because people need to feel they can trust their business associates.

And this "trust" element definitely has an impact on the bottom line, says Alistair G. Robertson, head of Accenture's leadership practice in Boston. "Union negotiators want to work with CEOs who say what they mean and mean what they say. Plus, individual performance and motivation are affected when there's too much of a gap between the way senior management conducts itself and an employee's personal principles."

Having a reputation for ethical conduct also is a key attractor in recruiting and retaining excellent performers. As John Seeley Brown, head of Xerox PARC, once said: "When it comes to attracting, keeping and making teams out of talented people, money alone won't do it. Talented people want to be part of something they can believe in, something that confers meaning on their work and their lives."

This is certainly true at Xilinx, a Silicon Valley semi-conductor company, where Peg Wynn, vice president of HR, says, "It's the intangible, values-based stuff that attracts top talent to the company--not just the opportunity to get involved with the latest, cool technology." Wynn reports they've maintained a 7.8 percent staff turnover rate--low for the high-tech industry--for several years.

"While we don't have a formal ethics policy, I'm convinced that our core values of customer focus, respect, excellence, accountability, teamwork, integrity, open communications and enjoying work, create the conditions under which we conduct business in a fair and responsible way," Wynn says.

For companies like Accenture and Xilinx, acting ethically is second nature. After all, consider the public relations fallout after tobacco giant Philip Morris' controversial 2001\ report callously highlighted the cost-savings of smokers' premature deaths to the Czech Republic. Or the billion-dollar lawsuits that were slapped on Daimler-Chrysler in 2000 after Chairman Juergen Schrempp admitted duping Chrysler executives (and hence shareholders) into thinking the takeover was a "merger of equals."

Contrast such actions with those of successful companies that have chosen higher ground. Johnson & Johnson successfully pulled off a crisis management coup when it removed more than $100 million worth of Tylenol bottles off shelves after a poison scare in the early 1980s, thereby upholding the company's credo to put customer safety before profits. That example is still considered a textbook case today.

And in the late 1960s, Ruder Finn, the world's second largest privately owned public relations agency, dropped its client, the Greek National Tourist Office, after a coup had established a military dictatorship in the country. The new regime saw it as Ruder Finn's responsibility to ensure The New York Times wrote only positive things about what was happening in Greece and thought that buying enough advertising space would make that happen.

While no one suggests that such decisions are easy to make, "doing the right thing" becomes much more obvious when a company knows and stands by what it considers important. It's no coincidence that companies like Johnson & Johnson and Ruder Finn have existed for 115 and 53 years respectively, not just because they implemented voluntary ethics policies for their organizations, but because they continually connect company values with demonstrated and rewarded behaviors.

Employees' perceptions of fairness or consistent fair play affect the extent to which they willingly cooperate with the goals of organizational ethics programs and report ethical problems to management, according to a recent study of four large corporations published in Business Ethics Quarterly.

"There can be problems if the ethics program is not integrated into a broader ethical culture of the organization and if employees do not perceive fair treatment in general," explains Linda Trevino, co-author of the study and a professor at Pennsylvania State University. "Employees can be very cynical about these programs if they're perceived to be window dressing only or are put in place to cover management's behind in the event of a legal problem."

If employees see the organization as a highly unfair place to work, they're not likely to take ethics pronouncements, codes, training and reporting systems too seriously. Additionally, organizations that are committed to correcting internal problems in a fair and respectful way are less likely to find their dirty laundry being aired publicly by whistle-blowers, says Trevino.

Upholding Principles

According to the ERC, effective ethics and compliance programs should be structured, not generic, and devised in ways consistent with the stated priorities of the organization.

Ruder Finn established an ethics committee early on in its history because the founders maintain that public relations professionals have a special obligation to believe in what they are doing. David Finn, co-founder and CEO, chairs every ethics committee meeting to demonstrate how seriously he takes this issue. In part, these meetings perform the function of a training program in that all members of staff are invited to participate in an open forum, during which actual ethical problems are freely discussed and an outside adviser provides objectivity.

"Employees have to trust that if they go to a line manager to discuss a delicate situation or seek advice, they can do so without fear of repercussions," says Finn. "One of the principles we have is that if the firm decides to handle an account or move it forward in a way that an individual has problems with, he or she can disassociate from that project without any jeopardy."

At Xilinx, Wynn reinforces the companies ethical values by having line managers evaluate the extent to which an employee's behavior is consistent with the corporate culture when they're conducting performance reviews. A "pay for performance" company, Xilinx rewards its people not just on the basis of their technical performance, but how much they live by Xilinx values.

Trevino, however, is concerned that some HR professionals play too small a role in their companies' ethics management efforts, resulting in a lack of integration with other important organizational activities such as the design of performance appraisal systems, management training and disciplinary processes. Ethics programs, she maintains, tend to be led by someone from the general counsel's office, as most were created in response to the 1991 Federal Sentencing Guidelines for Organizations. These guidelines hold companies responsible for wrongful acts undertaken by employees acting in an official capacity, even if neither knows nor approves of them. Unfortunately, today's employees--whose work is largely unsupervised and less precisely defined than in the past--have more opportunities to engage in actions that can potentially undermine an organization's goals and good name. Corporate defendants can minimize their liability, however, if they can prove to the courts that the wrongdoer was given ethics training.

Still others believe that HR should not be the only function responsible for fostering ethical behavior within an organization. "The more enlightened ethics programs are becoming very decentralized, acknowledging the fact that every business decision has an ethical component," explains David Gebler, founder and president of Working Values Group, Boston, which offers business ethics training to clients including American Express, Coors Brewing Co., and Deutsche Bank.

The most effective ethics officers encourage all parts of the organization to play a role in this issue, and hence work closely with HR, the organizational development group and corporate communications, says Gebler. "If you want to change behavior, you have to tell people why this is important for the company, how it links to its reputation and then give them the tools to take an active part in this process," he explains. "Ethics training only works when employees see codes of conduct as being operational tools, as opposed to another book from corporate office to put on the shelf."

Though not expecting ordinary humans to suddenly turn saintly, ethically focused companies mitigate potential breaches by providing confidential ethics help lines, implementing regular and mandatory training at all organizational levels, and ensuring on-going reinforcement through senior management's words and deeds. Today's complex and constantly changing world of work will always present situations in which companies risk moral meltdown. Indeed, if they don't already have high-level champions with strong ethical principles, many companies implement ethics policies only after a high-profile crisis.

This school of hard-knocks taught Coca-Cola a lesson after an incident in Belgium in 1999. When the company eventually responded to the news that more than 100 people had fallen ill after drinking tainted Coke, they put out what many commentators felt was a pompous advertisement defending the quality of its products. Eventually, sales rebounded but not until the company admitted culpability, publicly apologizing and promising to work hard to earn back consumers' trust.

For companies with less goodwill capital to begin with, shutting the stable door after the horse has bolted is an increasingly risky strategy in a global marketplace where reputations are hard won--yet so easily lost.

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Penn State's Smeal College of Business offers highly ranked undergraduate, MBA, executive MBA, Ph.D., and executive education opportunities to more than 5,500 students at all levels. Featuring academic departments of accounting, finance, marketing, insurance and real estate, management, and supply chain and information systems, the college is also home to major research centers such as the Center for Supply Chain Research, the Institute for the Study of Business Markets, the eBusiness Research Center, the Farrell Center for Corporate Innovation and Entrepreneurship, the Center for Global Business Studies, and the Center for the Management of Technological and Organizational Change.

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