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The Ethical Company

November 30, 2000
Related Topics: Ethics, Featured Article
Six months ago, it would have been difficult to find more than a handful ofAmericans who could tell you the brand name of the tires mounted on the familycar. Today, it would be equally difficult to find an American who couldn’t.Especially if that name happened to be Firestone.

    The lawyers, politicians, and federal regulators have yet to fix blame forthe Ford/Firestone tire debacle, but whoever ultimately bears theresponsibility, one thing is painfully clear: the once proud Firestone name hasbeen forever tarnished in the minds of American consumers. The company has takena public relations hit from which it may never recover.

    Compare this to the situation that Johnson & Johnson faced in 1982, whencyanide-laced Tylenol capsules were determined to be the cause of several deathsin the Chicago area.

Although the standard procedure in cases like this was torecall only the bottles in the contaminated lot, and although the source of thecontamination had yet to be determined, Johnson & Johnson vice chairmanDavid Collins decided to recall the entire product line. It was, he thought,simply the right thing to do.

    Johnson & Johnson ultimately was absolved of any blame. The company’sreputation was preserved.

    And to this day, Collins’s response is cited as the textbook example of howdecisive action, grounded in sound ethical values, can avert a crisis, and evenbolster a company’s reputation over the long run.

    In the wake of the Ford/Firestone tire recall, a lot of managers arebeginning to wonder what they would do if faced with a crisis of similarproportions. And according to Tracy Carter Dougherty, director of ethics,communications, and training for the Lockheed Martin Corporation, it’s a goodthing they are.

"If the CEO doesn't seem to care, it's all just a sham."

    It’s bound to happen, she says. All it takes is one person using badjudgment, not even maliciously, but just using bad judgment. When you’redealing with as many different products and services and people as companies dotoday, it’s just a matter of time until something happens.

    When it happened to Johnson & Johnson, the company was, in a sense,prepared. David Collins looked to the company’s famous Credo, a shortstatement of values written by company founder Robert Wood Johnson in 1943. Asimple one-page document, the Credo begins, We believe our first responsibilityis to the doctors, nurses, and patients, to mothers and fathers, and all otherswho use our products and services, and continues, We are responsible to thecommunities in which we live and work and to the world community as well.

    The Credo says nothing specific about corporate policy in a case of producttampering, but it sets up a framework in which the responsible course of actionbecame obvious to Collins.

    Such guides to ethical behavior are now common in American business. TheRaytheon Company has an Ethics Quick Test that asks employees to consider thefollowing questions when faced with ethical dilemmas:

  • Is the action legal?
  • Is it right?
  • Who will be affected?
  • Does it fit Raytheon’s values?
  • How will I feel afterwards?
  • How would it look in the newspaper?
  • Will it reflect poorly on the company?

    Texas Instruments (TI) has a similar test that covers much of the same groundbut ultimately exhorts the employee: If you know it’s wrong, don’t do it!

    Although TI’s ethics handbook dates back to 1961, widespread interest insetting company values down on paper and creating offices to administer them canbe traced in large part to the rash of defense industry scandals that surfacedin the mid-1980s. At the time, the emphasis was on compliance with governmentrules and regulations. This has evolved in recent years to a more fundamentalinterest in core values and ethical behavior. When TI sold its defense business,for example, it simply changed the emphasis of its ethics program.

    We felt that when we sold the defense business, the types of things that wewere concerned about changed, says TI ethics director Jack Swindle. We were moreinterested in establishing a values-based program with the rationale that youcan’t ever write down all the rules. Eventually you get so many rules thatthey’re almost meaningless. We start now by telling people what the values ofour company are and we work from that.

    Texas Instruments and Raytheon both back up their ethics codes with formaltraining programs and official channels through which employees can posequestions and voice their concerns.

    At Texas Instruments, the ethics course -- Decision Making at the New TI --is voluntary. Swindle notes, however, that it is one of the company’s mostpopular courses, and he believes that eventually, most of TI’s employees willpass through it. The course generally brings together groups of 25 coworkers,and shows them ways in which the company’s values and principles can be usedas the basis for making day-to-day decisions.

    For Raytheon’s employees, the training is mandatory, an annual one-hourevent that uses case studies to sensitize employees to problems they may face inthe workplace. Like TI, Raytheon involves coworkers in these sessions, which aregenerally conducted in groups of 30 or so and use a variety of instructionaltools, including videos, board games, and discussions facilitated by theemployees’ managers.

    Open lines of communication are an essential ingredient of any successfulethics program, and both of these companies make it easy for their employees toask questions and report on observed violations of ethical standards. TI has ananonymous e-mail system, a post office box, and a direct telephone line toSwindle’s office.

Raytheon has a toll-free ethics line and full-time ethicsofficers in all of its major business units. Employees can also communicate withthe company’s office of business ethics and compliance through letters ande-mail.

Employees who feel that their companies conduct business with honesty and integrity show markedly higher levels of commitment.

    Is this all it takes to create an ethical business culture? No, says LindaKlebe Treviño, chair of the department ofmanagement and organization at Pennsylvania State University. You can have theseethics offices and officers and training programs and reporting systems, but ifthe CEO doesn’t seem to care, it’s all just a sham.

    Hence, it is not surprising to find that the companies that really do careabout ethics make a point of including senior management in all of their ethicsand compliance programs. Patricia Ellis, vice president, office of businessethics and compliance at Raytheon notes that ethics training is a requirementfor everyone employed at Raytheon and no one is excluded, not even the CEO. DanBurnham says we will have annual ethics training. His leadership team knowsthat, and they take the training themselves, Ellis says.

    But the management team’s involvement can’t stop at one hour of ethicstraining a year. If managers don’t walk the walk, as it were, employees willsimply assume that all of the high-minded words are little more than windowdressing, or something perhaps even worse.

    If employees perceive that these programs come from a CYA orientation, thatthey are in place simply to protect management, just in case they get caughtdoing something wrong, then the employees become very cynical, and that has allkinds of negative consequences, says Treviño.

    It is easy to write a credo and ask employees to take it to heart. But aneffective ethics program, one that includes training, confidential lines ofcommunication, and ethics officers who are truly empowered to investigate andresolve issues that are brought to their attention by employees, can consume asubstantial amount of company resources. As noted, Raytheon employs a full-timeethics officer in each of its major business units. And Ellis has 10 peopleworking directly under her, including five full-time investigators, a directorof ethics program development, and two people who are responsible for takingcalls on the company’s ethics hotline.

    Calculating the ROI on an investment of this nature may well be impossible,but Bruce N. Pfau, national practice leader for organization measurements atWatson Wyatt Worldwide, believes it is indeed money well spent. Employees whofeel that their companies conduct business with honesty and integrity showmarkedly higher levels of commitment -- 68 percent -- than those who rate theircompanies low on these values. The latter came in at a 12 percent commitmentlevel, according to Watson Wyatt’s surveys. High levels of employee commitmentare crucial to success in today’s economy.

Pfau effectively demonstrates thisrelationship by noting that companies whose employees rated them high on thehonesty and integrity scale had a total return to shareholders of 101 percentaveraged over three years. Companies rated low on the honesty and integrityscale averaged only 69 percent.

    This is really a key driver of employee commitment, says Pfau. If a companyturns an obvious blind eye to an ethics problem, most employees are not going tobe loyal for long.

    Ethics and integrity do matter. And if the Ford/Firestone incident has taughtus anything, it’s that this is one lesson that business can ill afford toforget.

Image © Marc Tyler Nobleman

Workforce, December 2000, Volume 79, Number 12, pp.74-77 SubscribeNow!

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