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Read one of these past issues for Insightful tips:
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Business Ethics - How to Avoid Disastrous Consequences
by Dave Brookmire
November 2002
Tough economic times brings on increased pressures for employees to cut corners, "push the envelope" to generate sales and profits, accept contracts from customers below the company's standards, etc. Leaders or senior management, should set the standards and guidelines for employees when faced with such ethical dilemmas. These dilemmas are in the "grey" areas of behavior and usually have many courses of actions. Without the appropriate elements in place, you have a greater risk of employees making decisions or behaving in ways that are inconsistent with your company's business ethics. Plus, such behavior can snowball into a host of significant problems with other employees, customers, and stakeholders at large. Simply put, ethics involves learning what is right or wrong, and then doing the right thing.
Many companies strive to establish and communicate their values by developing and issuing a Code of Ethics. These come in two forms: Principle-based statements that define fundamental values and contain general language about company responsibilities, quality of products, treatment of employees, etc. Policy-based statements generally outline procedures to be used in specific ethical situations (e.g., marketing practices, conflicts of interests, political gifts, equal opportunities, etc.). But ethical behavior goes beyond a written code. There are many other aspects required to ensure that employees adhere to the company's values and policies and make the right choices when faced with ethical dilemmas.
What are the ingredients that ethical companies create to be sure that business ethics are part of the everyday lives for of their employees? Ensuring the following elements are in place help your employees do the "right" things when faced with ethical dilemmas and avoid the painful aftermath of making wrong decisions. Read these elements and check all those that are effectively in place in your company today:
- Effective selection processes. Why not start with your selection processes to be sure you have some effective screening, evaluation tools and training tools to prevent a person with the propensity to pick the "wrong" responses from joining your company? Careful screening, interviewing, evaluation and background verifications help avoid very damaging behaviors for your company. Building company values into your selection system helps select employees that will promote your culture. Case in point: Last month Veritas Software announced the resignation of Kenneth Lonchar, EVP and CFO. The reason was that he misstated his educational credentials, including claiming he received an MBA from Stanford University. Ken was also CFO Magazine's 2001 CFO of the Year. A routine degree verification check built into the selection process may have prevented this from happening. This cost for a vendor to make this standard check is $15 , but it could save you tens of thousands or more in bad PR.
- Create your company's Code of Ethics. Your company should have the values that help shape a culture of strong business ethics well communicated to employees, customers and other stakeholders. Many companies create their values as a means to inform and inspire all employees and help to differentiate them from other companies. For example, Southern Company has created a set of values that include the following key tenets: Customers are first; Demonstration of ethical behaviors in everything people do; Teamwork; Superior performance; Shareholder value; Citizenship and leadership; and ensuring a great place to work. Recently, the SEC proposed minimum content for required Code of Ethics covering the CFO and CEO, as rules under the Sarbanes-Oxley act. These are designed to deter wrongdoing and promote among other things, honest and ethical conduct.
- Leadership by example. The biggest single variable in successful, ethical companies is the role played by top managers. Leaders set the tone for the company's ethics through their own actions. The CEO and top leaders need to be openly and strongly committed to ethical conduct. Promoting and renewing the ethical values of the company is crucial and this can be accomplished, in part, by communicating this commitment in speeches, directives, company publications, employee meetings and personal actions. The company "grapevine" is quick to disseminate a situation where a top leader chose the expedient way to act over an ethical one.
- Provide training. Management and employees will benefit from training on handling ethical dilemmas. J & J's handling of the Tylenol crisis in the 80s was inspired not so much by their values embodied in, "The Credo," but by "challenge sessions" the company regularly conducted to help employees clarify how they would commit to the credo and discuss responses for handling ethical situations. Lockheed Martin has created web--based training for all employees globally to help them understand, interpret and act responsibly with regard to their ethical principals and values.
- Culture. A successful values-based program will increase awareness of ethical issues, and with this success, you will be faced with more situations that have to be dealt with. Establishing a culture that encourages the reporting of these situations and appropriately addressing employees' unethical behaviors will help you to be sure that you have the channels to deal with these issues. In essence, you are helping people recognize and address their mistakes and supporting them as they continue to operate ethically. How can cultures become toxic? Enron provides yet another valuable lesson. The Enron code of ethics was a 65 page handbook issued to employees by Ken Lay. However, what leadership created was a culture that encouraged employees to "push the envelope," rewarded those that who produced profits, to the point that units routinely engaged in aggressive accounting and financial manipulation, designed to conceal operating losses. The culture lavished rewards on those that who played the game while persecuting those who raised objections.
- Establish ethical structures. Larger global companies have established structural elements to be sure that ethics and values are adhered to. Some have created an Ethics Officer and Office. Some have established ethics committees to ensure that the ethics program is embraced, implemented, trained and administered. Another role created is an ombudsperson who is responsible for development of policies and procedures to institutionalize moral values in the company. The point is that a designated person should be named and visible for employees to confidentially report ethical issues for resolution by the company, not outside authorities.
All companies are comprised of individuals and people are not perfect. By adhering to the elements above you can increase your chances of avoiding the "long fall" resulting from ethical mistakes. With tough business conditions, we encourage you to reemphasize your values and code of ethics with your constituents to be sure you are creating the right leadership and culture.
Dave Brookmire, President
Corporate Performance Strategies, Inc.
3340 Trails End Road
Roswell, GA 30075
Phone: 770-587-2265
dbrookmire@cpstrat.com
www.cpstrat.com
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