DOW CORNING: AN ETHICAL CULTURE OUT OF ALIGNMENT?

Developing a strongly aligned ethical culture is easier said than done. Managers need to be careful because an organization may easily be lulled into thinking that its ethical house is soundly constructed, only to find that the roof has been leaking and it’s about to cave in. This may be what happened to Dow Corning.

Dow Corning had been recognized as a corporate ethics pioneer. It was among the first, in 1976, to establish an elaborate formal ethics program and structure. Then Chairman John S. Ludington set up a Business Conduct Committee comprised of six company executives each of whom devoted up to six weeks a year to the committee’s work and reported directly to the board of directors. Two of these members were given responsibility for auditing every business operation every three years. In addition, three-hour reviews were held with up to 35 employees who were encouraged to raise ethical issues. The results of these audits were reported to the Audit and Social Responsibility Committee of the board of directors. John Swanson, manager of corporate internal and management communication at the time, headed this effort and was quoted as saying that the audit approach ‘‘makes it virtually impossible for employees to consciously make an unethical decision.’’

This apparently impressive formal program failed to help the organization avoid its problem with breast-implant safety, however, despite documented warnings from a company engineer in 1976 that suggested that the implants could rupture and cause medical problems. It isn’t entirely clear why this well-intentioned ethics program failed. It’s likely that, although it was designed to cultivate an overall environment of ethical conduct, aspects of the ethical culture were out of alignment—sending employees different messages. ‘‘Layering in a bureaucracy is no substitute for a true corporate culture. Workers have a genius for discovering the real reason for a system and learn quickly how to satisfy its minimum requirements.’’ The system relied on managers to identify the key ethical issues covered by the auditors. Were these managers likely to alert the auditors to their most serious ethical problems? What would the consequences be? The system also relied on periodic planned audits. Did commitment to ethics peak during the planned audit sessions, only to disappear into the woodwork after the auditors left? We don’t know, but a comprehensive multisystem audit of the ethical culture might have provided the answer.

Leaders should be interested in creating a strongly aligned ethical culture because American employees strongly prefer working for such an organization. A 2006 study found that 82 percent of Americans would actually prefer to be paid less but work for an ethical company than be paid more but work for an unethical company. Importantly, more than a third of people say that they’ve left a job because they disagreed with the company’s ethical standards. So having a strong ethical culture is an important way to retain the best employees.

Another reason leaders need to create and maintain a strongly aligned ethical culture is that the U.S. Sentencing Commission revised its guidelines for sentencing organizational defendants in 2004 see www.ussc.gov for more   evaluated the effect of the original 1991 guidelines, it noted that many organizations seemed to be engaging in a kind of ‘‘check-off approach’’ to the guidelines. In responding to guideline requirements to qualify for reduced sentencing and fines, these organizations would establish formal ethics and/or legal compliance programs, including ethics offices, codes of conduct, training programs, and reporting systems. But the commission learned that many of these formal programs were perceived to be only ‘‘window dressing’’ by employees because they were inconsistent with the employees’ day-to-day organizational experiences. The commission subsequently revised its guidelines to call for developing and maintaining a strong ethical culture. As a result, many companies are now assessing their cultures to determine how they’re doing in relation to ethics so if they do get into legal trouble, they can demonstrate that they have been making sincere efforts to guide their employees toward ethical conduct.