VideoThree years ago, when CFO magazine surveyed 500 chief executive officers about what they thought was most important in a chief financial officer, 84 percent of them ranked personal integrity just behind financial expertise. Evidently, CEOs were hungry to hand over the financial reins to a few honest men and women.
The media and Washington have spun the recent high-profile financial misdeeds of a handful of large corporations as an indictment of the ethical behavior of all Corporate America. Part of the fix, if you believe the country's top policymakers, is...a call for more ethics in business. But isn't that what CEOs said they were looking for all along?
The trouble with demanding ethical behavior is that unless those doing the demanding heed their own words, the call rings hollow. In fact, it's likely to do more damage than good if you're going to proclaim such behavior but practice otherwise.
In its 2000 Organizational Integrity Survey, KPMG found that the ethical behavior of top executives affects employees' perception of their companies. Overall, 69 percent of the 2,390 employees of the companies surveyed believed that their current customers would recommend their company to others. But when employees believed management would uphold the company's stated ethical standards, that number shot up to 80 percent. It fell to 40 percent among employees who believed that management would not adhere to written standards.
When it came to recruiting word-of-mouth, the differences were staggering. Overall, 66 percent of employees would recommend their company to prospective employees. Among those who believed management would walk the ethical line it talked, the number of recommenders jumped to 81 percent. But among those who believed their boss's behavior clashed with stated policies, the number was just 21 percent.
The Business of Ethics
During the 1990s, the ethics business boomed, and not simply because companies were hoping for a little good PR. In 1991, new federal sentencing guidelines stipulated that when a corporation was accused of violating federal laws, its management's efforts to prevent misconduct would be taken into account in assessing culpability. Minimizing fines and jail time also provided a huge incentive to create ethics policies.
Companies fell into line. Consultants were brought in, manuals were drawn up, and few companies would be caught dead without a well-crafted code of ethics or values statement. RICE — respect, integrity, communications, and excellence — became the most common acronym for values statements. To read one company's statement after another, you might think the same person wrote every code.
The catch is, in order to work, these values statements must reflect the reality within a company. A few years ago, Jim Collins, the co-author of Built to Last and Good to Great, two management bestsellers that found adherence to core values to be the sign of great, enduring companies, said: "I'm not a big fan of the 'right statement' model of the world. I'm more a fan of the 'get clear, skip the statement' part."
Greed Is Not Good
Getting clear is not all that easy. Although the word "ethics" gets tossed around freely, those doing the tossing often aren't entirely clear what they mean by it.
Basically, ethical standards are built on a set of morals that define good and bad behavior. Almost everyone can agree that some actions — murder, for instance — are wrong. Others behaviors — bluffing during negotiations, explicitly disclosing during a job interview how excruciating a debilitating disease will be — are open to debate. But generally speaking, behaving ethically means avoiding lying, cheating, and stealing, as well as cruelty, deception, and subterfuge.
It's not enough to fall back on "if everyone is doing it, it's OK." And just because an action is legal does not automatically make it ethical. What makes ethical decision-making difficult is that it requires thinking through the impact of a decision on all the constituencies affected, regardless of whether the law permits it and despite the negative or positive personal consequences.
In business, unethical behavior is most often inspired by greed cloaked in the mantle of "increasing value for shareholders." At Sunbeam Corp., a massive layoff enabled the executives to capitalize on a short-term uptick in stock price while depleting the company of long-term value and disrupting thousands of lives. Clearly, that was ethically wrong.
During the recent boom, things got murkier. Companies laid off thousands in the wake of mergers, but with unemployment so low, most quickly found other jobs. The "New Economy thinking," which deeply influenced the cultural standards in the business community, placed high value on achieving goals rapidly. Deals were negotiated over a weekend, employees hopped from one job to another, executives looked to cash out as quickly as possible. Consultants, academics, analysts, and journalists espoused reckless behavior and short-term thinking in the belief that the good times would continue to roll.
In the end, many dot-com business plans were revealed as foolhardy. Demand for telecom services turned out not to be infinite. Many mergers and acquisitions turned out not to have added value, but instead enriched insiders disproportionately. Whether or not most executives were knowingly enriching themselves at the expense of the long-term health of their companies, many employees shared the short-term mindset.
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