March/April 2002

Do the Right Thing

Most executives want to run ethical companies. They want to treat employees well, be environmentally responsible, offer quality products, and make a positive impact within the community. Similarly, most employees want to do the right thing. They want to treat colleagues and customers with respect and be able to hold their heads up high at the end of the day. So if most people want to be ethical, why are we having such a problem with ethics lately?

The problem stems from the corporate structure, according to Lawrence E. Mitchell, professor at George Washington University. “The trouble is many companies are structured so that nobody has complete information, nobody makes complete decisions, and nobody has clear responsibility,” writes Mitchell. “This kind of structure lets managers hide within it and breeds an atmosphere of irresponsibility” and can lead people to do the wrong thing unintentionally.

Of course, Enron does not fall into that category. Top executives apparently knew exactly what they were up to. The good news is that the Enron collapse is forcing organizations to reexamine their own codes of ethics. And sustaining an ethical organization is actually easier than you might think, says Mitchell. The keys are accountability, honesty, and information transparency, he writes. In this issue of Duck Tales™, we’ll examine those issues. With so many Americans voicing dissatisfaction with the social behavior of corporations, now is the time to take a close look at the situation.

Time for a Trust Offensive?
Trust is a critical foundation of American business, but that foundation appears to be crumbling, according to a recent Golin/Harris Trust survey. Sixty-nine percent of Americans surveyed said that “recent economic events have created a crisis of confidence and trust in the way we do business in America,” and consequently, they’re “going to hold business to a higher standard in their behavior and communications.” Richard Jernstedt, CEO of Golin/Harris International, said that when that many consumers express such skepticism, “American business has a serious problem that goes beyond the ‘Enron factor.’”

The director of marketing at Golin/Harris advises U.S. businesses to mount a trust offensive. “We see some very clear and compelling opportunities and strategies for businesses to build and strengthen trust in their brands,” she says. For example, when asked what companies can do to re-earn trust, respondents answered: be open and honest in business practices (94 percent); communicate more clearly and straightforwardly (93 percent); provide the best value for products and services (88 percent); provide outstanding products and services, regardless of price (72 percent); understand and address my needs better (65 percent); demonstrate industry leadership (65 percent); and change the way companies communicate financial activities (61 percent).

As for CEOs, respondents said they can earn trust by: assuming personal responsibility and accountability (65 percent); visibly showing concern for customers (60 percent); sticking to a code of business ethics no matter what (58 percent); and communicating openly and frequently with stakeholders (56 percent).


A Culture of Trust
Perhaps now more than ever, leaders must take a long, hard look at their organizations, including themselves, management, and the culture of trust in general. Does the business promise exponential growth, and make pie-in-the-sky promises before it’s even tested some markets? Or does the organization promise only what it can deliver, speak plainly to its customers and employees, and skip the advertising hype and rhetoric? While the former type of company tries to force trust into existence, the latter knows that trust must be earned over time and cannot be mandated. Here are a few principles organizations can embrace to promote trust and foster loyalty:

It’s not all about Wall Street. Business leaders often bend to Wall Street’s expectations— namely, rapid and predictable growth. Meeting this increasingly unattainable goal means many businesses neglect key issues and try to manage expectations, rather than results.

Put away your crystal ball. So many companies continue to predict ambitious growth targets. Promoting false hopes quickly destroys employee and consumer morale.

Be upfront. Skip the euphemisms that have everyone wondering what’s going on. Speak frankly and honestly about business challenges, problems, and failures. Use Warren Buffett as a standard. In his 1999 letter to shareholders, Buffett admitted to “the worst absolute performance of my tenure…. My grade for 1999 most assuredly is a D.”

Reward only those who deliver results. Enron actually based the pay of some of its executives on their own estimates of the worth of contracts they negotiated. Annual bonus plans can foster dishonesty and short-term thinking. Reward only real performance.

An Ethical Checklist
A code of ethics, a code of conduct, policies, procedures, and seminars on ethics are all important to ensuring your company is doing all it can to be an ethical, upright organization. Consultants Doug Wallace and Jon Pekel of the Twin-Cities-based Fulcrum Group have come up with an additional tool—the following ethical checklist. To gauge how you’re handling a specific ethical dilemma, answer each question with a number between 1 and 5, with 1 being “not at all” and 5 being “absolutely yes.”

(1) Have I obtained as much information as possible to make an informed decision and action plan for this situation?

(2) Have I involved all who have a right to have input and/or be involved in making this decision and action plan?

(3) Have I anticipated and attempted to accommodate any who are significantly affected by this decision and action plan?

(4) If I were assigned to take the place of any one of the stakeholders in this situation, would I perceive this decision and action plan to be essentially fair?

(5) Do this decision and action plan uphold my values that are relevant to this situation?

(6) Would I want this decision and action plan to become a universal law applicable to all similar situations, and even to myself?

(7) Would I feel at ease if the details of this decision and action plan were disclosed for all to know?

(8) Total your score to see how confident you can be that you have done a good job of analyzing the situation. 7-14, not very confident; 15-21, somewhat confident; 22-28, quite confident; 29-35, just ducky!

Myths About Business Ethics
Business ethics involves prioritizing values at work and making sure actions correspond to those values. But many myths persist about business ethics, threatening to undermine their very credibility. Whether the myths arise from general confusion or oversimplification is unimportant. The fact is, if you hear a colleague voicing one of the following myths, consider it a red flag—it means your organization needs to do more to discuss and promote ethics:

Our employees are already ethical so we don’t need to spend time focusing on business ethics. When discussing business ethics, many employees immediately speak about the Golden Rule and being honest and fair. But when presented with a complex ethical dilemma, they realize there is a gray area that is not easily defined and which requires additional skills and reasoning to come to an ethical decision.

Business ethics is best left to philosophers and academics. Business ethics should not be reserved for discussion only in ivory towers; it has practical, daily applications that require direct involvement from leaders, managers, and employees at every level.

Business ethics involves the “good” guys warning the “bad” guys. The truth is that good people can make bad choices, especially when they are confused or stressed. Managing ethics means that everyone must work together—through confusion, stress, and ruffled feathers—to resolve ethical dilemmas.

Business ethics is the latest corporate trend. Many believe that business ethics transpired recently, but Cicero wrote about business ethics some 2,000 years ago, proving that this is a universal problem that requires ongoing attention.

Do Good and Do Well
Ethics in business has been much discussed and debated, but is it really so separate from the common-sense ethics most of us try to practice in our everyday lives? Noted executive and poet James Autry has observed that “…there are no business ethics, only people ethics, because business does not exist in some abstract way but is revealed and enacted through people and only through people.” There are, however, special challenges for behaving ethically in business.

The way Autry sees it, our jobs offer valuable opportunities to practice ethics because they constantly require us to make connections with others. One big challenge is to manage both to do good (benefit others) and to do well (benefit the business). This can be tricky, because we tend to think that one can only be managed at the expense of the other. The all-too-common belief is that actions toward the common good cannot possibly prove profitable; conversely, actions geared toward profit are rarely thought to be beneficial in other ways. Yet it is quite possible—and perhaps quite necessary, if people and businesses are to prosper—to do good and do well.

Offering honesty, respect, and trust to others is a basic but important example of managing both. It is quite simply the right thing to do, but it also has positive and far-reaching implications for business. It creates a cooperative environment where people can thrive. And when people thrive at work, their performance and attitude soar to great heights.

Case Studies in Ethics
Some organizations have taken truly dramatic steps to uphold their ethics. And while their inspirational choices may have set back earnings, they rebounded quickly, and ultimately earned greater respect and loyalty from employees, consumers, and stakeholders.

In 1910, the Diamond Match Company obtained a patent for the first nonpoisonous match. Matches had been made with white phosphorous, which caused necrosis, a dreaded disease that usually proved fatal to match plant workers. Diamond Match chemists were able to replace the toxic white phosphorous with chlorate of potash, making the first safe match. So important was this development that President Taft urged the company to surrender its patent rights. Despite the enormous money-making potential, Diamond did surrender the patent, and even went so far as to send its employees to other match making factories to teach them how to make nonpoisonous matches. “They surrendered that patent for the good of the whole and said, ‘We are going to find another way to compete in the marketplace.’ And they did,” says Marianne Jennings, professor of legal and ethical studies at Arizona State. Today, Diamond Brand Inc. manufactures matches, along with plastic cutlery, straws, toothpicks, and more.

A contemporary business that puts its ethics ahead of Wall Street is Starbucks, the Seattle-based coffee chain. Starbucks had been under pressure to stop paying 75 percent of the cost of part-time workers’ health care benefits. Had it discontinued paying for the benefits, Starbucks felt its identity would have been lost. As for Enron, says Jennings, its collapse actually will be a good thing in the long run. Jennings predicts the company’s downfall will spur other organizations to be more sensitive to questions of ethics and return them to that “good old-fashioned down-to-earth business model.”