Practical Advice for Managers: Multiple Ethical Selves

So what should managers do? First, it’s important to evaluate the organizational environment. As a lower- or middle-level manager, you can do little to influence that environment. If senior executives are creating a cutthroat, Darwinian culture where only bottom-line results count, it’s probably time to look elsewhere for a job. It is then up to you to contribute to the larger organizational culture by creating a work environment that supports ethical conduct and integrity for the people you manage. Integrity is defined as ‘‘that quality or state of being complete, whole, or undivided.’’ Individuals of strong character and high integrity are thought to be consistent and ethical across contexts. So the ultimate goal is to bring these multiple ethical selves together—to support

the idea that an individual can be consistent—and make the individual as ethical at the office as he or she is at home. Managers should pursue that goal with the practical understanding that many people find it quite possible to divide themselves into multiple ethical selves and to behave differently in different life contexts.

Begin by analyzing yourself. Is your office self consistent with your personal ethical self? If not, what will be required to bring the two together? Again, you’re an important role model for your subordinates. If you’re clearly a ‘‘whole’’ person of integrity, they’re more likely to aspire to ‘‘wholeness’’ themselves.

Next, think about those who report to you. Make no assumptions about ethics at work based on a person’s background, religious affiliation, family life, or good deeds in the community. Instead, find out what norms and expectations guide their work selves, and make sure that these influences support ethical behavior. You can learn a great deal simply by keeping your eyes and ears wide open. Of course, the best way to find out how your people think about these issues is to ask them, either in person or in survey form. You may be surprised what they’ll tell you. And you’re sending an important symbolic message about what concerns you just by asking. Do employees feel, as many surveys have suggested, that they must compromise their personal ethics to get ahead in your organization? If so, what do they think can be done about it?

Find out what influences their thoughts and behavior in ethical dilemma situations. Find out what inhibits them from being the best they can be, from doing the right thing. You can base your questions on real or hypothetical situations. Most supervisors have never bothered to ask such questions. Is it any wonder then that most subordinates end up believing that their managers don’t really care about ethics? Once you’ve had this type of discussion, it’s essential for you to follow up in ways that support ethical conduct. A number of practical ideas for how to do that follow.

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MANAGING FOR ETHICAL CONDUCT

We talked about how most employees look outside them for guidance about how to behave. We have also discussed ethical culture and how organizations, especially large ones, manage ethics and legal compliance. Within this broad organizational context, managers oversee employee behavior every day, and they can have enormous influence on employee behavior. Therefore managers need simple and practical tools for managing the ethical conduct of their direct reports in the context of the broader organizational culture. This chapter introduces some basic management concepts that provide a foundation for understanding how to manage in a way that increases the probability that employees will behave ethically. These principles can be applied at the department level or at the level of the entire organization. Consistent with the focus of the book, each section concludes with practical implications for managers. Underlying our recommendations to managers are three key assumptions:

1. Managers want to be ethical.

2. Managers want their subordinates to be ethical.

3. Based on their experience, managers will have insight into the unique ethical requirements of the job.

Practical Advice for Managers: Ethical Behavior

What are the practical implications for managers? First, think of ethics in concrete behavioral terms. Specifically, what kind of behavior are you looking for in your subordinates, and how can you create a departmental work context that will support that behavior? Specifying concrete expectations for ethical behavior means going beyond abstract statements, such as ‘‘integrity is important here’’ to more concrete statements, such as ‘‘I expect sales representatives to be absolutely honest with our customers about such things as the characteristics of our products and our ability to deliver by a certain date.’’ Providing a reason for these expectations is also important. ‘‘We’re interested in building long-term relationships with our customers. We want them to think of us as their most trusted supplier.’’ Finally, it’s the manager’s responsibility to create a work environment that supports ethical behavior and discourages unethical behavior just as much as it’s the manager’s responsibility to manage for productivity or quality. Don’t just set ethical behavior goals. Follow up to make sure that they’re achievable and that they’re being met, and model ethical conduct yourself. Your people will pay more attention to what you do than to what you say. Take advantage of opportunities to demonstrate the ethical conduct you expect.

The Dennis Levine Example

Now for an example of someone lower in the organizational hierarchy. Dennis Levine’s personal account of his insider trading activities, which resulted in his arrest and imprisonment in the 1980s, also suggests multiple ethical selves. He described himself as a good son, husband, and father, and a man who had been encouraged by his parents to ‘‘play straight.’’ ‘‘I come from a strong, old-fashioned family . . . [my father] taught me to work hard, believe in myself, and persevere . . . as a kid I always worked.’’9 Levine’s wife, Laurie, had no idea that he had been secretly and illegally trading in stocks for years. In fact, the family lived in a cramped one bedroom apartment for nearly three years after their son was born despite Levine’s huge insider trading profits. That someone is ‘‘from a good family’’ or is ‘‘a family man or woman’’ is no guarantee of ethical behavior in the office. At the office, the manager is dealing with the ‘‘office self,’’ who may be very different from the ‘family self’’ or the ‘‘religious self.’

Levine was a good son, husband, and father. But he separated his family self from his insider trading self. Why was his insider trading self allowed to exist? We can only speculate that this office self fit into an environment where peers were crossing the ethical line and not getting caught. Most important, his continuing huge profits led Levine into a downward spiral of unethical behavior that he found difficult to stop despite his recognition that it was illegal.

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NEWSLETTERS AND MAGAZINES

These materials can be print based or web based. They may include the mission statement, stories about corporate ‘‘heroes’’— employees who illustrate the corporate values—and features that describe ethical dilemmas and include comments from employees and managers about how they would deal with the problems. Some companies regularly publish lists of the types of ethical or legal violations they have addressed and how they addressed them. For example, the communication may say that, in the last six months, the company dealt with a particular number of reports of Internet pornography, bribery, time reporting, travel charge reporting, lying to customers, or abusive supervision. They may say how many of these resulted in a variety of actions ranging from warnings to terminations. Such communication helps keep the ethical culture alive and lets employees know that the company means what it says about the importance of ethics. These kinds of regular communications can also be targeted to specific groups of employees with specific needs.

BOOKLETS These materials can vary given employees’ need for information in particular areas of the business. The brief brochures can also be easily updated or added to, thus making the program adaptable to the dynamic business environment.

Mission or Values Statements

In recent years, many corporations have developed mission or values statements. A mission statement, values statement, or credo is a succinct description of ‘‘how we do business’’—the corporate principles and values that guide how business is to be conducted in an organization. A mission statement is a short description of the organization’s reason for existence—a sort of ‘‘here’s what we do.’’ Values statements are the next step in the process of explaining an organization to the world—‘‘and here’s how we do it’’—a codification of essential corporate behavior. It’s a sort of ‘‘Ten Commandments’’ for an organization. If it’s to be effective, it should be short, memorable, and in plain language so that everyone can be clear about its message. It’s also essential that the organization’s own employees have input because a mission statement and values statement must accurately reflect the organizational culture. Something scribed by outsiders just won’t ring true and is likely to end up as the subject of a Dilbert cartoon. But statements that develop out of the firm’s true values and history can be mainstays of the corporate culture. Merck posts its values statement prominently on its website

Policy—the ‘‘rules of the organization’’—is critical to any company, and most organizations create a policy manual or an intranet site to house all relevant company rules. Generally, policy manuals and websites describe not only laws and regulations pertaining to the company and its industry but also all company policy, including human resources policy. Although it’s critical for a corporation to define its policies and communicate them—it’s a stipulation of the U.S. Sentencing Guidelines—most employees don’t read every page of a manual or website. Employees consider policy manuals and websites to be for reference purposes only. As a result, employees consult policy manuals in the same way they use a dictionary—periodically and on a need-to-know basis. Many managers never consult a policy manual, however—it’s much easier to ask someone than to look up the rules in a voluminous book or website—and, depending on whom they ask, they may or may not get the right answer. The very nature of policy—it’s usually voluminous and written in legalese— makes it a poor way to communicate important rules. Also, since all policy is detailed, all policy may be viewed as having the same importance. Obviously, some policies are much more important than others and should receive special emphasis. When you’re designing policy communication, first analyze the audience. Who needs to know all the policy? Does some corporate policy apply only to certain employees? What do employees really need to know, and what’s nice for them to know? Here are some guidelines to follow.

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ETHICS TRAINING PROGRAMS

Values statements, policy manuals, and conduct codes aren’t enough. Organizations that are serious about ethics distribute these materials widely and then provide training in their meaning and application. Effective training programs are ongoing efforts to teach everyone from new recruits to high-level managers. We discussed whether ethics can be taught; we hope that by now, you’re quite convinced that it can. Ethics in organizations is about awareness of ethical issues and knowledge of appropriate conduct and these ideas can and must be taught to employees at all levels.

Training should be designed to suit the group of individuals being trained. A new employee needs different training than a manager who has been with the firm for 10 years. An assembly-line worker might require only an hour of training, with regular refresher sessions, whereas a manager might require several days of training that address a variety of issues. Furthermore, training needs to be based on program goals. Is the training supposed to increase awareness of ethical issues, convey knowledge of laws and policies, change attitudes or behaviors? Finally, ethics training need not— and probably should not—be solely the province of the ethics office. Ethics training should be incorporated into leadership development and other programs so that it becomes integrated more fully into the culture of the organization.

TRAINING NEW RECRUITS Many firms provide ethics training through new employee orientation. For example, to set the stage properly, every new Lockheed Martin employee gets a briefing on ethical and legal issues as part of the first day on the job. This training is complemented throughout each year of employment, with the intent of setting the stage properly from the first day.

TOP MANAGEMENT INVOLVEMENT IN TRAINING When organizations conduct ethics training for the first time, many of them begin the training at the top of the organization. Cascading is a term frequently used to describe ethics initiatives that begin at the top of the organization and work their way down, level by level. This technique is often used because of the importance of leadership to the credibility of ethics training. Each leader trains his or her direct reports, modeling the expected training behavior and the necessary commitment to integrity.

LOCAL MANAGEMENT INVOLVEMENT IN TRAINING Many organizations recommend having local management conduct the ethics training, using common everyday ethical dilemmas as the basis for discussion. Training sessions are thought to be more useful and effective if they address real ethical issues that people face every day in their own work setting. Examples of calls that have come in to the ethics office can be used as the basis for training. Employees make ethical decisions every day. Anybody who reports the time that they work—or decides how to divide their time across different government contracts, or decides whether they are going to engage in some kind of an outside business activity that might be in conflict with their job, or has to decide what to tell a customer about a delayed order—is making an ethical decision. Common everyday issues in training gives employees a feeling of comfort that the issue they’ve faced has been a problem for others and that they’re not some screwball who is worrying about something that doesn’t matter.

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Multiple Communication Channels for Formal Ethics Communication

The company’s ethics message can and should be communicated in a variety of ways. The most obvious ethics communication channels include a mission or values statement, a code of conduct, policy statements, a formal process for reporting concerns or observed misconduct, and communications from leaders. In addition to these channels, the ethics message needs to be reinforced in all formal communication materials, including recruiting and orientation materials, newsletters, magazines, annual reports, and websites. The following are some types of communication materials that can be used to send an ethics message.

The company’s website is an important source of information about the company and its values and policies. Many companies are hesitant to include ethics information on their external website and instead use their firm’s intranet to convey the information. But stakeholders such as investors, potential employees, customers, and suppliers are likely to use the company’s website to gather information about the company. So, if ethics is important to these relationships, it should be included on the external site. For example, Lockheed Martin provides a large amount of information about ethics on its external website  its ethical principles, code of conduct, annual ethics awareness training, information about compliance training, information about how the ethics process works, and information for suppliers and other business partners who are asked to be guided by high ethical standards and to respect the restrictions the firm places on its employees with regard to such issues as giving and receiving gifts. The code, ‘‘Setting the Standard,’’ is translated into 21 languages. United Technologies also provides information about ethics on its website, including the code and other brochures in portable document format The information is also available in multiple languages.

RECRUITING BROCHURES These can include the mission or values statement, a discussion of corporate values, and a description of how people in the organization succeed and fail. Ethical conduct can be highlighted. Many organizations also have a website for those interested in finding out about careers within the firm and applying for jobs.

CAMPUS RECRUITING At Lockheed Martin the ethics office participates with university relations for on-campus recruiting. Ethics officers travel to college and university campuses across the country to assist in recruiting and to speak about the Lockheed Martin ethics program. In addition, ethics blogs are posted twice a month on the ‘‘LMCampus ConX’’ social networking site to raise awareness about corporate ethics so that students can better understand the importance of business ethics and be better prepared to enter the workforce.

ORIENTATION MEETINGS AND MATERIALS Orientation materials can include the mission or values statement, descriptions of common ethical dilemmas and advice for handling them, explanations of resources to help employees make ethical decisions, and instructions on how to raise an ethical issue or report an ethical concern. Organizations should pay particular attention to how their orientation meetings communicate values and expectations. New employees are eager to learn about their new employer, and orientations are a wonderful venue for communicating what an organization stands for and what it expects of employees. How not to introduce values and ethics during an orientation might best be illustrated by the manufacturing company’s general counsel we heard about who, when asked to address new hires on the company’s ethics and compliance program, simply read the code of conduct aloud to a group of new employees. 

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WHAT KINDS OF ETHICAL DILEMMAS ARE EMPLOYEES LIKELY TO ENCOUNTER?

In addition to common ethical dilemmas faced by employees everywhere, organizations

need to identify the kinds of issues and dilemmas that might be unique to their particular industry. For example, a chemical company needs to pay special attention to environmental and safety dilemmas. A financial firm should pay extremely close attention

to fiduciary, confidentiality, and conflict-of-interest issues. A manufacturing company may have to look at the ethical issues involved in worker safety, product quality, product liability, and labor relations. Along with identifying issues specific to their industry, companies need to examine the various jobs within their organization to uncover what specific professional dilemmas their communication program will have to address. For example, an internal auditor faces one set of dilemmas, whereas a manufacturing supervisor faces an entirely different set. Once these dilemmas are identified, an organization can develop a program that’s useful for employees—one that shows them how to deal with their own most common dilemmas.

WHAT DON’T EMPLOYEES KNOW Is the company hiring numerous midcareer hires who may come from other industries with different standards of conduct? Does the company regularly hire large numbers of recent college or business school graduates who may have little knowledge of business standards, much less specific corporate policy or industry standards? The communication program needs to target the specific needs of these different groups.

HOW ARE POLICIES CURRENTLY COMMUNICATED?   How is policy communicated now? Does the policy manual weigh in at 40 pounds, or is it online and easy to search? When a manager has a policy question, what does he or she do—look it up in the manual, ask human resources, ask a colleague, search online resources, or guess? Is corporate policy ever discussed in orientation or training programs? No one is ever going to memorize a policy manual. Therefore, an ethics communication program needs to take a ‘‘snapshot’’ of key policies and concentrate on communicating them. Organizations also need to send a clear message that employees need to know when to ask questions and that the organization encourages employees to inquire. Companies generally do a very good job of telling new hires how to succeed; what they usually don’t do nearly as well is telling new hires how they’re going to fail or get fired or worse. It’s vital for new employees to understand their employer’s standards. What does the company expect from them?

WHAT COMMUNICATION CHANNELS EXIST? How do employees receive messages from management? How does management receive messages from employees? Is ‘‘management by walking around’’ a common practice, or is senior management isolated from most employees? Is there a suggestion program? If so, do suggestions get responses? Are employees generally comfortable approaching their managers with problems, concerns, and questions? Is there a grievance process or a whistleblowing procedure? Do most employees know where to go for help if their managers are unavailable or if their manager is part of the problem? Are human resources, legal, and audit professionals accessible to most employees? Analyzing the answers to these questions will give an organization a good idea of where effective communication channels exist, where they don’t, and where to build new ones.

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The Corporate Ethics Committee

In some organizations, ethics is managed by a corporate committee staffed by seniorlevel managers from a variety of functional areas. This committee is set up to provide ethical oversight and policy guidance for CEO and management decisions. It also represents an affirmation that top management really cares about ethics.

At Lockheed Martin, the Ethics and Business Conduct Steering Committee meets once every quarter and has done so since 1995. The committee provides the organization with strategic direction and oversight on matters of ethics and business conduct. Each business area and business unit has also established a steering committee to oversee its ethics and business conduct operations. Members of the corporate committee include the general counsel executives of large operating entities, and vice presidents from functional areas such as human resources, finance, audit, and communications. The two-way communication between the ethics office and these senior executives is essential. It gives the ethics office information about what concerns senior-level management, and it gives the firm’s leadership information about the types of issues that are coming into the ethics office from employees. The group’s role is viewed as strategic. The steering committees at all levels of the corporation review the ethics awareness training and business conduct compliance training programs, metrics on investigations and requests for guidance, trends, employee survey results, and matters referred by the business areas and business units.er individuals, takes responsibility for managing ethics.

The first thing to do when designing a communication program is to analyze the needs of your audience. Consider what employees already know, what they need to know, what biases and abilities they have, what the desired and required behaviors look like, when they should be asking questions, and where they can go to report their concerns and to ask for help.

When designing ethics communication for a typical employee population, organizations need to consider three kinds of people.

Be careful to note that these aren’t just soldiers who follow orders, right or wrong. They know that good soldiers are expected to question an order they believe to be illegal or morally wrong, and they would do so. Loose Cannons In Group II are the ‘‘loose cannons’’—these people may have good ethical compasses, but they don’t know their corporation’s policies. They may not even be familiar with general ethical standards in business. Loose cannons may be inexperienced; or they may have transferred from, unrelated industry with another very different norms; or they may never have read a policy manual. Whatever the reason, loose cannons may be well meaning, but they’re naive. Without guidance, loose cannons may not even consider ethics in the business environment.

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ETHICS OFFICER BACKGROUND

The job of ethics officer has been called ‘‘the newest profession in American business.’ Individuals holding this position come from many backgrounds. With insiders, the job is often assigned to someone in a staff function. According to past ethics officer surveys, law was the most common background. That is true of most of our interviewees as well. Interestingly, some people believe that lawyers shouldn’t be considered for the job, because corporate lawyers are hired to defend the corporation and can’t objectively handle an ethical issue that calls the corporation’s own behavior into question. But the ethics officers we interviewed agreed that the most important thing is earning other employees’ respect as being fair, trustworthy, credible, and discreet. The ethics program coordinator at USAA, Earnie Broughton, has training in industrial/organizational psychology and experience as a human resources generalist and line executive. Such a background is less common among ethics officers. But it’s useful in an organization that is committed to making ethics management the responsibility of everyone from the CEO down. In fact, as a statement of commitment and accountability that any ethics officer would welcome, USAA’s CEO identifies himself as the chief ethics officer. Broughton’s office oversees the code and conflict of interest policy, ethics training, communication, and support. But at USAA, every executive, manager, and supervisor is assigned responsibility for ethics within his or her own area. Broughton works closely with the ‘‘Ethics Council,’’ a group of senior executives who meet regularly to talk about the ethics program and provide company-wide guidance on ethics issues.

Ethics offices can be centralized, decentralized, or some combination of both. The decision to centralize or decentralize may depend on the overall structure of the firm. For example, if the firm’s other staff functions are highly decentralized, it may be difficult to centralize the ethics function. The structuring decision may also depend on whether different business units have very different ethics management needs. For example, if one division of a firm deals in government contracts and others do not, that division may need a different approach that emphasizes compliance with government contracting regulations. So local ethics offices might better meet the needs of different units that are in different businesses. However, decentralized ethics offices can be difficult to manage effectively because they must communicate with each other constantly to ensure consistency and commitment to the organization’s key values.

Even where different units have different requirements, it’s usually helpful to have

a central office that coordinates ethics and compliance activities and ensures management

support for those activities. Most large organizations, such as the ones we talked with, have a headquarters ethics office that functions as the central point of communications for ethics and compliance activities. For example, the corporate ethics office at Lockheed Martin has a staff of approximately nine people, led by Alice Eldridge, the vice president of ethics and business conduct. In addition, each of the four large business areas and corporate enterprise operations has a full-time ethics director who has responsibility for overseeing ethics and business conduct in his or her business areas. These ethics directors, following a matrix reporting structure, report to Eldridge as well as to an executive vice president for their business area. Eldridge reports directly to the chairman and chief executive officer. In addition, Eldridge reports  to the Ethics and Corporate Responsibilities Committee of the corporation’s board of directors at certain intervals during the year.

Ethics officers seem to agree that, whatever other reporting relationships exist, the ethics officer should have a direct reporting relationship to the CEO. They were particularly concerned about the ethics function being ‘‘stuck’’ under law, human resources, audit, or finance, where it would be just another part of the ‘‘silo mentality’’ that still exists in many organizations. Ethics would then be perceived as audit’s job or HR’s job rather than as part of the total culture. The person who leads the ethics office is in a much better position to ‘‘press the envelope’’ if he or she reports directly to the CEO. In fact, as with USAA, the best situation is likely when the CEO thinks those letters stand for the ‘‘chief ethics officer’’ as well as chief executive officer. In that situation the CEO, with assistance from other individuals, takes responsibility for managing ethics.

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INSIDERS VERSUS OUTSIDERS

An ethics or compliance officer may be an insider or someone brought in from the outside. We talked to past and present ethics officers who represent both categories. It can sometimes be more difficult for an outsider to achieve credibility in the ethics or compliance role. But someone brought in from outside the company has the advantage of being able to evaluate the situation with a fresh eye. If change is needed, that person may be better able to guide the organization through the change process. Most of those we interviewed believe that, if available, a respected and trusted insider who knows the company’s culture and people is usually the best choice. Results of a 1995 survey support the insider preference.10 Eighty-two percent of the firms responding to the question hired their ethics officer from inside the firm. The very best situation may be when the ethics officer is also a part of the senior management team or being groomed for an executive position.

At Lockheed Martin, ethics is taken so seriously that an assignment managing an ethics office is part of the grooming process for executive positions that high potential employees receive. Lockheed has a vice president of ethics for the entire corporation and five ethics directors—one for each of Lockheed’s five huge business units. These positions report to the senior business and ethics executives in the business units and are rotational. High-potential executives are recruited into these jobs as a development experience; they serve for two to three years and then go back to the businesses. Other high-potential employees replace them as ethics directors, and the process continues. This is a novel approach to enhancing an ethics program and grooming executives, and it should go a long way toward truly integrating ethics and integrity into how the business is run. Lockheed will soon have a full cadre of executive- level employees who have served the company as ethics officers. One employee involved in this process is Srinivas Dixit, who currently is the director of ethics and business conduct for Lockheed Martin Electronic Systems in Bethesda, Maryland. Dixit holds an undergraduate degree in engineering and an MBA, and he was working in business operations in Lockheed’s finance area when he was tapped for the ethics director job in late 2008. Now he is managing investigations, overseeing ethics and compliance training, tracking metrics through surveys and other studies, and looking for trends in this area. He is also talking to leaders, working with them to integrate ethics and compliance into the business by creating a ‘‘culture of trust’’ throughout the organization. What has Dixit learned in his new job? ‘‘I’ve learned how seriously Lockheed integrates ethics into the business. Ethics is fundamental to who we are and what we do. Integrity is at the beginning, middle, and end of every message our senior leaders send. This job has shown me how seriously we take ethics—how much we respect people, and how much time and care we take in reaching decisions.’’

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The Corporate Ethics Office

Some organizations delegate ethics management responsibilities widely, finding that a strong statement of values and a strong ethical culture can keep the ethics management effort together. This approach may be particularly effective in smaller firms. However, most large firms find that ethics initiatives need to be coordinated from a single office to ensure that all of the program’s pieces fit together and that all of the U.S. Sentencing Guideline requirements are being met. The corporate ethics office concept can be traced to 1985 and General Dynamics, then the second-largest U.S. defense contractor. The secretary of the Navy, out of concern about the appropriateness of certain indirect expenses that had been billed to the government, directed General Dynamics to establish and enforce a rigorous code of ethics for all employees that included sanctions for violators. The company turned to a nonprofit consulting firm in Washington, D.C., the Ethics Resource Center, for help in developing the code. As part of this process, an ethics office was also set up and an ethics officer was hired. In 1986, General Dynamics joined with other defense industry companies in the Defense Industry Initiative to ‘‘embrace and promote ethical business conduct.’’ The companies shared best practices, and these best practices provided much of the foundation for the U.S. Sentencing Commission requirements.

The 1991 U.S. Federal Sentencing Guidelines gave impetus to the move toward establishing formal ethics programs in firms outside the defense industry. The guidelines also called for the assignment of specific high-level individuals with responsibility to oversee legal compliance standards. This requirement led to the development of a brand new role—that of the corporate ethics officer.

Until the mid-1980s, the title ‘‘ethics and compliance officer’’ didn’t exist in American business. Today, with a growing number of ethics and compliance practitioners worldwide, these high-level executives have their own professional organization, the Ethics and Compliance Officer Association  The association’s stated mission is ‘‘to promote ethical business practices, serving as a forum for the exchange of information and strategies.’’ The organization began in 1991 when over 40 ethics and compliance officers met at the Center for Business Ethics at Bentley University in Waltham, Massachusetts. The organization was officially launched later that year and began holding annual meetings in 1993. As of 2009, the ECOA has more than 1,300 members representing more than half of Fortune 100 companies, nonprofits, municipalities, and international members from over 30 countries. The organization holds regular conferences, workshops, and web casts and provides a variety of classroom and distance learning opportunities for ethics and compliance officers and their staff. Many firms designate their legal counsel as the ethics officer. Others create a title such as vice president or director of ethics, compliance, or business practices, director of internal audit, ethics program coordinator, or just plain ethics officer. Most firms locate the ethics officer at the corporate level, and these high-level executives generally report to a senior executive, the CEO, the board of directors, the audit committee of the board, or some combination. These individuals are expected to provide leadership and strategies for ensuring that the firm’s standards of business conduct are communicated and upheld throughout the organization. At the time this book went to press in early 2010, the U.S. Sentencing Commission had just proposed the idea that the compliance officer should report directly to the board of directors. 

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Whatever your organizational level

Whatever your organizational level, you should find the information in this chapter helpful. If you’re at a high organization level, it should give you ideas about how to manage ethics and legal compliance in your firm. If you’re at a lower or middle management level, it should help you understand your own organization’s approach to ethics management and how it compares to what other organizations are currently doing. If you’re a student, it will help you think about what to look for during the job search.

In preparing this chapter, we spoke with executives from six companies in a variety of industries: Lockheed Martin Corporation  United Technologies Merck & Co., Inc.   Staples  and USAA  We are grateful to these executives for their time and contributions to this book. These companies range in size and ownership from USAA, an insurance and financial services company with 22,000 employees at four U.S. locations and two overseas offices, to United Technologies, which has over 200,000 employees  and a presence in more than 180 countries. Staples has more than 91,000 associates in 27 countries. Merck has 106,000 employees in 140 countries. Adelphia had 14,000 employees across the United States when its assets were purchased in 2005 by Comcast and Time Warner. Lockheed Martin has 140,000 employees and operates in 600 locations across all 50 U.S. states and internationally in 75 nations and territories. Think about the challenge of managing ethics and legal compliance in these firms, many with employees at locations around the globe. All of the companies are engaged in a variety of efforts, but their approaches differ somewhat due to differences in industries and organizational cultures. For example, some industries  are more highly regulated than others. So compliance with

laws and regulations is an important goal, and it must be managed. For many of these companies, ethics and legal compliance are closely tied to maintenance of the firm’s reputation and brand value. In such an environment, integrity becomes a key driver of corporate action.

Making Ethics Comprehensive and Holistic

The U.S. Sentencing Guidelines very clearly aim to encourage organizations to create ethics programs that drive integrity and ethical behavior in their business operations. As the guidelines have become more refined and sophisticated over time, responsible organizations have found numerous ways of making ethics and values central to how they do business. As we read in the last chapter, values like ethics and integrity become part of an organization’s culture by aligning various elements throughout the organization. Integrating any corporate value into the organizational culture starts with strong executive commitment. Once executives are clearly behind the effort, then the effort must be communicated to every employee and compliance must be measured and rewarded for the value to become part of the culture.

At Staples, the office supply giant, executives tried to capture the sentiment underpinning their ethics program by calling it ‘‘Staples Soul.’’ The Staples Soul program

brings together a number of ethics and social responsibility efforts under one umbrella, including the company’s concern for ethics, the environment, its community activities, and diversity. The Staples Soul symbol is appropriately a paper clip bent into the shape of a heart. According to company documents, ‘‘Staples Soul reflects our commitment to corporate responsibility. It’s what moves us to embrace diversity, sustain the environment, give back to our communities, and practice sound ethics. Linking all of these values with our global business strategy and operations contributes to our financial success and helps us become a great employer, corporate citizen and neighbor.’’

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Assumptions about People

Mainstream economics rests on the assumption that human beings are driven by self-interest and opportunism and are likely to shirk responsibility. Acceptance of this assumption logically leads to change efforts focused almost exclusively on behavioral control.

We believe, however, that human beings are essentially good and open to growth and change. Most employees prefer being associated with a fair organization that supports ethical behavior and disciplines unethical behavior. Given this type of environment, most individuals can be expected to choose ethical behavior. Individuals who engage in unethical behavior should not simply be labeled ‘‘bad’’ people. They are often responding to external pressures or behaving according to organizationally sanctioned definitions of what’s appropriate. Although unethical behaviors must be disciplined, the organization should also treat unethical behavior as a signal to investigate itself and the cultural context in which the behavior occurred. Through culture, the organization can change definitions of what is appropriate and inappropriate and can relieve pressures to behave unethically.

Ethical Culture Change Intervention

Once the audit is complete, the data should be discussed with employees, who can then be enlisted in developing a culture change intervention plan. The plan will be guided by the diagnosis and the cultural, multisystem framework shown earlier in Figure 5.1. Complementary changes in both the formal and informal organizational systems should be a part of any recommended change effort.

Though difficult, changing formal systems is a more straightforward process than changing informal systems. Gaps and problems identified in the diagnosis can be addressed in a number of ways. Structure can be altered to encourage individuals to take responsibility for their behavior and to discourage unquestioning deference to authority. Codes of ethics can be designed participative, distributed, and enforced. Performance management systems can be designed with an emphasis on what people do as well as on how they do it. Reporting misconduct can be encouraged by providing formal communication channels and confidentiality.106 Orientation programs can be designed to incorporate the organization’s values, and training programs can be set up to prepare individuals to handle the ethical dilemmas they are most likely to face in their work. Integrity can be emphasized in selection and promotion decisions. Decision-making processes can incorporate attention to ethical issues by devoting time at meetings and space in reports.

It’s more difficult to change the informal systems, particularly those that have been found to maintain unethical behavior in the organization. However, these changes must be undertaken if the total change effort is to be effective. These changes require attention to the ‘‘art’’ rather than the science of management and are consistent with ideas about the importance of ‘‘symbolic management.’’ With symbolic management, organizational leaders and managers are encouraged to create rituals, symbols, and stories that will influence those they manage.

The organization may have to be ‘‘remythologized’’ by reviving myths and stories of its founding and resurrecting related tales that can guide organizational behavior in the desired direction.108 For example, Alexander Graham Bell’s comment, ‘‘Come here, Watson, I need your help,’’ set up Bell’s concept of service that was so important to AT&T’s success for many years. However, myths must also be frequently evaluated for their continuing usefulness. New ones may have to be found or developed to fit the organization’s current needs and goals. Remythologizing should be done carefully and infrequently. Employees generally know what’s ‘‘really going on’’ in the organization. If the revived myth doesn’t fit with organizational reality, it will only increase their cynicism. Also, myths can’t be changed frequently. Their strength and value in the culture come from their stability across time.

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Audit of the Ethical Culture

The only way to determine if the culture is aligned to support ethical behavior is to conduct regular, comprehensive audits of all relevant cultural systems, both formal and informal. If the ethical culture audit determines that aspects of the current culture are not aligned to support ethical behavior, and the goal is to produce consistent ethical conduct, then the culture must change.

Any attempt to develop or change organizational ethics can benefit from an organizational change approach that includes a system-wide, long-term view. In addition, the approach should be based on the assumption that human beings are essentially good and capable of development and change.

The cultural approach relies on the idea that to be successful, any attempt to develop or change the organization’s ethics must take the entire cultural system into account. The change effort must target multiple formal and informal organizational subsystems. All of these subsystems must work together to create clear, consistent messages about what is and is not appropriate behavior in the organization. If subsystems conflict, confusion and mixed messages will result. Thus, the entire range of formal and informal subsystems must be analyzed and targeted for development and change.

This complex, multisystem approach to managing organizational ethics argues against any short-term, quick-fix solutions that target only one system. The idea that an organization could solve its ethics problem simply by establishing a code of ethics or by hiring a consultant to deliver a one-hour ethics training program becomes ludicrous when the complexity of the ethics culture is understood. The management of ethical conduct must be complex because it is influenced by multiple systems, each of them complex in itself. Thus the complexity of the solution must match the complexity of the problem. A solution that isn’t sufficiently complex will miss important information, make incomplete diagnoses, and produce overly simple and shortsighted solutions. The organization that creates a code of ethics in response to external pressure and files it away without making changes in other systems such as the reward system and decision-making processes is more likely making a negative statement about organizational ethics rather than a positive one. The informal message is that management is hypocritical and that the code of ethics serves no useful purpose beyond creating a facade. The same can be said of lofty values statements. For example, many of these statements talk about valuing diversity. But what happens when people look around the organization and see few minority managers? Executives need to understand that when they put a values statement in writing, employees expect a commitment to follow through. The bottom line about systems thinking is understanding that if an organization decides to get into the ‘‘ethics business’’ with a values statement, code, or training program, employees expect follow-through in other parts of the organization. A failure to follow through will be interpreted as hypocrisy.

The development of organizational culture takes place over a number of years; effective culture change may take even longer, as much as 6 to 15 years. It requires alterations in both formal and informal organizational systems that take time to implement and take hold. Resistances must be overcome. New rules and values must be reinforced via training programs, rites and rituals, and reward systems. Although not all organizational change efforts take this long, deep interventions in the organizational culture should be considered long-term projects.

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How an Ethical Culture Can Become an Unethical Culture

The story of Arthur Andersen, the now defunct auditing company, provides a sad example. It demonstrates how a solidly ethical culture can be transformed into an unethical culture and lead to the demise of an 88-year-old firm.

Founder Arthur Andersen created the company when he was in his twenties. As chief executive, the messages he conveyed about ethical conduct were strong, consistent, and clear. Andersen’s mantra, ‘‘Think straight—talk straight,’’ guided employee behavior in an organization where ‘‘integrity mattered more than fees.’’ Stories about the founder’s ethics quickly became part of the firm’s mythology and lore. For example, at the age of 28, Andersen confronted a railway executive who insisted that the accounting firm approve his company’s books. Andersen said, ‘‘There’s not enough money in the city of Chicago to induce me to change that report.’’ Andersen lost the railway company’s business, but when that company later went bankrupt, Arthur Andersen became known as an organization people could trust to be honest and to stand up for what was right. In the 1930s, Arthur Andersen emphasized accountants’ special responsibility to the public. The founder died in 1974; but he was followed by leaders with similar beliefs, and the strong ethical culture continued for decades. The management style Andersen initiated was a centralized, top-down approach that produced employees who were systematically trained in the ‘‘Andersen Way.’’ Customers around the world knew they could expect quality work and integrity from Andersen employees, who were all carefully socialized to speak the same language and to share ‘‘Android’’ values. Through the 1980s, people were proud to say they worked for Arthur Andersen, which would provide a good career within a respected company. In the mid-1990s, Arthur Andersen still provided formal ethical standards and ethics training. In 1995 it even established a consulting group, led by Barbara Toffler, to help other businesses manage their ethics. But Toffler quickly became concerned about the ethics of her own employer, which she chronicled in her book Final Accounting: Ambition, Greed, and the Fall of Arthur Andersen. Toffler attributes much of the change from ethical culture to unethical culture to the fact that the firm’s profits increasingly came from management consulting rather than auditing. Auditing and consulting are very different undertakings, and the cultural standards that worked so well in auditing were inconsistent with the needs of the consulting business. Under the new business realities, rather than standing for principles of honesty and integrity, consultants were encouraged to keep clients happy and to concentrate on getting return business because only revenues mattered. They were even expected to pad prices or create work to increase profits.

Even the training that had always been so important to Andersen’s culture wasn’t immune from change. Traditionally, new employees had been required to attend a three-day enculturation session, but now new consultants were told not to forgo lucrative client

work to attend the training. So Toffler and lots of other consultants never got the

cultural training. By the time Toffler arrived at Andersen, no one referred to the ethical standards, although they still existed in a big maroon binder. Toffler says, ‘‘When I brought up the subject of internal ethics, I was looked at as if I had teleported in from another world.’’ So Andersen still had ethics policies, and they still talked about ethics in formal documents, but the business had changed dramatically and the approach to ethics management had not kept pace.

Andersen was convicted of obstruction of justice for shredding documents associated with its role as Enron’s auditing firm and quickly went out of business. The Supreme Court reversed the decision in 2005, ruling that the jury had not been advised that conviction in a white-collar crime case requires evidence of criminal intent. However, the Supreme Court reversal did not clear Andersen of wrongdoing. In fact, prosecutors provided evidence of criminal intent. In the end, even if someone had wanted to, there was no firm left to resurrect.

Was Andersen’s transformation from ethical culture to unethical culture a conscious process? Did anyone ever say, ‘‘Now we’re going to create an unethical culture at Arthur Andersen’’? We doubt that. But leaders’ lack of attention to the ethical culture as the organization was undergoing a significant business transformation practically guaranteed that the messages sent by the informal culture would begin to contradict those sent by the formal culture and lead to a culture that was seriously out of alignment as well as one that increasingly sent messages suggesting only the bottom line mattered.

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Rituals of an ethical culture.

They tell people symbolically what the organization wants them to do and how it expects them to do it. Rituals are a way of affirming and communicating culture in a very tangible way. Organizations have meetings, parties, banquets, barbecues, and awards ceremonies that all convey messages about what’s valued in the organization, Years ago, General Motors of Canada introduced a new vision and values by asking each manufacturing unit to create a small float representing one of the key values. These floats were part of a parade that kicked off a full day of culture-building ritual surrounding the theme ‘‘Customers for Life’’ and the motto ‘‘I Am GM.’’ During the day, the CEO unveiled a large painting of the group vision and told a story about the company’s future. To reinforce the ‘‘I Am GM’’ motto, employees were asked to see themselves as being responsible, at any moment, for the company, its products, and services. The day ended with the ‘‘GM Acceleration Song’’ performed by the 100-person Up With People singing and dancing group. The song had been revised to incorporate the new values created by the leadership team.

Some companies have annual family picnics and ‘‘bring your child to work days’’ that encourage employees to value time with their families. Some have on-site child care so that having lunch with your preschool child in the company cafeteria becomes a valued daily ritual and symbol of the extent to which the organization values family. Others have awards ceremonies that convey the values of the organization, including awards for exemplary ethical conduct   It’s important to ask what values are celebrated at these rituals and ceremonies because they can easily support unethical behavior, such as making the numbers no matter how. For example, sales meetings occur in most organizations. So is success with integrity being touted and celebrated at these meetings, or are only those who make their numbers celebrated at these events? Look for whether the rituals are consistent with the company’s stated values, formal rules, and reward systems to help determine whether the culture is in alignment.

DEVELOPING AND CHANGING THE ETHICAL CULTURE

We can conclude from this cultural analysis that ethics at work is greatly influenced by the organization’s ethical culture. Both formal and informal systems and processes channel and reinforce certain kinds of behavior. Each of the systems on its own can support either ethical or unethical conduct. In addition, these multiple systems can work together or at cross purposes, thus leading to an organization that is aligned to support ethical  conduct or one that is misaligned and creating mixed messages. Imagine an organization with an ethics code that forbids employees from accepting gifts of any kind, but a senior executive is known to have accepted box seats at the ball game from a client. This ‘‘we say one thing, but do another’’ approach leads to widespread cynicism. The code loses all credibility as workers pay more attention to what’s done than to what’s said. On the other hand, when the organization disciplines that executive, this action visibly reinforces the code and supports the firm’s ethical stance with all workers.

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