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Ethics Spot the Red Flags in Your Organization

June 1, 1997
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All your compliance programs are in place, the sexual-harassment policy is posted, and you're pretty sure every department understands its legal and financial responsibilities. But the stories in the daily newspaper about companies that have fallen into ethical dilemmas remind you that bad things do happen, even to good companies. Sears, Texaco, Avis and CNA Life Insurance have dominated the headlines with allegations of illegal collection practices, race discrimination and sexual harassment. Such examples make you wonder about the ethical health of your own company.

We suggest there's one more bit of analysis that's necessary. Close the door, hold your calls, clear your head and think hard about where you, your training programs and your organization fall in the realm of ethical behavior. How prepared are you and your colleagues to deal with an ethical crisis? A business without ethics is a business at-risk. Legal compliance is the lowest common denominator. The one element that prevents major mishaps is producing results continuously in an ethical manner.

To visualize the structure of an ethical environment, imagine a pyramid divided into four parts:

  1. Base: Ethical Awareness
  2. Middle: Ethical Reasoning
  3. Top: Ethical Action
  4. Peak: Ethical Leadership

The broad, base level is Ethical Awareness.
HR professionals should ask themselves questions such as: Do employees recognize ethical problems when they occur? Some employees concentrate on their duties so intently that they miss an obvious ethical situation when it happens. People need to be wearing their ethical glasses to see moral dilemmas in their midst.

In hindsight, of course, a lack of ethics is recognizable. But the slide on the slippery slope to immorality is often well-hidden. Recall the days when Honda Accords were the hottest cars in the land. Customers were lining up to buy them at more than full price and dealers were scrambling to find inventory. Yet, by all accounts, the salaries Torrance, California-based Honda paid its zone managers were mediocre, and the company went as far as taking away their company cars as a penny-pinching exercise.

Is it any wonder that seven of 10 regional managers and 12 Honda sales executives were convicted in a kickback scheme for pocketing $15 million in cash and valuables given by grateful dealers? As one Honda senior exec said on his way to jail, "My sense of right and wrong went right out the window the first year of my career as an automobile dealer." With that lack of moral vision, he probably still doesn't understand what he did wrong. It was just the way business was done.

One way to test employees' awareness is to plan a discussion about a hypothetical situation and pose the question, "Is there an ethical issue here?" If the discussion includes responses like, "What's the problem? We don't get hurt," "The important thing is delivering results," and "Everyone does it," these are red flags indicating the company might need a course in "Ethics Awareness 101."

The next level of the ethics pyramid is Ethical Reasoning.
When employees recognize an ethical problem, will they be equipped to think through it? Part of the process of building an ethical infrastructure is to provide everyone with the proper tools: a common language and method of sorting through the courses of action open to them when an ethical problem occurs.

Every individual on the corporate ladder has a shared responsibility to be a moral leader.

Dow Corning certainly had the right programs in place when its silicone breast-implant controversy surfaced, including an ethics committee and a long-standing code of values. But arguably, those inside the Midland, Michigan-based company who might have suggested alternative courses of action throughout the lengthy litigation and public relations nightmare were drowned out by the voices of the company's lawyers, who saw the crisis as a legal, not an ethical, matter. As long as the issue was framed as defending a product that the company executives believed wasn't harmful, other decisions were precluded. A brainstorming exercise in ethical reasoning might have produced ideas that ultimately would have helped Dow Corning avoid more than 400,000 claims of injury and inevitable bankruptcy.

The third level is perhaps the most difficult: Ethical Action.
The ability to recognize and understand an ethical problem is essential, but unless managers provide the mechanism for solving the problem, the company is still in a fix. This is a management problem that's solved by creating the structures and approach to allow employees to convert decisions into reality.

If employees feel the corporate culture doesn't encourage full disclosure or allow individuals to freely debate and resolve ethically sensitive issues, all attempts at integrating ethics into the organization will be viewed as the sham it probably is. Here are some red flags that signal a company's ethical action level is deficient:

  • Are high-potential employees leaving the company?
  • Are exit interviews notable for their lack of information or candor?
  • To what degree do employees at all levels feel they have a stake in owning the company?
  • With what degree of respect do company executives consider ideas that pose ethical issues and resolutions when implementing those ideas will result in a loss of revenue?

When Vienna, Virginia-based America Online launched its new surf-all-you-want pricing plan and then to its surprise discovered that its eight million customers clogged the system, the company certainly hit a crisis. Some dismissed it as a technology issue, which could be solved given time and resources. Others saw it as a business-strategy issue; AOL didn't think through the obvious ramifications of its single-price plan. Lawyers saw the crisis as an opportunity to sue; AOL didn't deliver what it had promised. Marketing gurus saw the disaster as a comedy, watching AOL continue to pitch for new customers even as its existing ones rang up busy signals.

It would be interesting to know if anyone inside Chairman Steve Case's inner circle framed the issue for what it really was: an ethical question. AOL developed a huge following based on a good product, ease of service and trust. Millions ran their businesses and communicated to their customers through their AOL addresses. Millions more invested in AOL stock. Case lured more customers in the door with free software. Then in less time than it takes to surf the Net, AOL's commitment to customers crashed, betraying their trust.

Case and AOL didn't exactly rush to provide refunds, postpone the pricing plan or solve the service issues until pushed. To outsiders, it appears that AOL's interests were paramount and that its customers—stuck with their AOL addresses and accustomed to its Internet access—could wait.

The peak of the ethics pyramid is Ethical Leadership.
The individual or organization reaching this top level is a moral compass for others' actions. In the best companies, every individual on the corporate ladder—from the mailroom clerk to the CEO—has a shared responsibility to be a moral leader. HR can recognize ethical leadership in an individual if he or she's among the people who come to mind when a tough question arises and co-workers ask, "What would you do?" Ethical leadership isn't reserved only for those at the top, rather it's a quality held by individuals and organizations with the moral courage and diligence to talk and walk ethical values. This is what is meant by having individual and institutional integrity.

At its recent board of directors meeting, Michigan Physicians Mutual Liability Company located in East Lansing, Michigan pushed the envelope of ethical leadership by devoting precious board time to a free-wheeling discussion of what it means to act as an ethical director. The directors tackled ethical issues confronting boards today in the presence of company executives and invited guests. Board members weren't shy about proclaiming their commitment to ethics at all levels, examining their own practices and thought processes, and disagreeing among themselves. It was a stunning example of ethical leadership at the very level where the ethical buck stops: the board of directors.

Hundreds of companies have developed and put into practice ethics programs which exemplify the ethics pyramid. We invite you to join in this movement. Start by developing a foundation of ethical awareness and work your way up to the top, cultivating ethical leaders throughout your workforce. Strengthen the ethical environment of your organization.

Workforce, June 1997, Vol. 76, No. 6, pp. 135-136.

Recent Articles by Dawn-Marie Driscoll and Dr. W. Michael Hoffman

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