Building ethical corporate cultures, parts I and II

Building ethical corporate cultures – Part 1 (July 30, 2007)

Benito L. Teehankee

Sonia is a medical representative in a pharmaceutical company. She works hard to communicate information on her company’s drug offerings to several doctors in her area of responsibility. Some doctors expect more than scientific literature on prescription drugs, however. During one visit, a doctor mentions her daughter’s birthday and how nice it would be if she could have a chocolate cake. From experience, Sonia knows that she would make the doctor very happy if she would go and buy the cake herself. This doctor sits in the purchasing committee of the hospital, and Sonia is sorely tempted. She wonders what her manager would expect her to do. Her manager just recently reminded her about the upcoming top management review on sales for her territory.

John is a human resource officer in a retail company. The company is expanding, and as part of the efficiency drive of the new controlling shareholders, he has been tasked to, as much as possible, use agency hires for work previously done by regular rank-and-file. His investigation showed that the agency which he is asked to source from does not give sufficient training and job security to its employees. This bothers him a great deal because the agency, which happens to be run by a relative of one major shareholder, is quite profitable. Is this fair to employees? Will this send the right message to the regulars about the company’s commitment to its workers and motivate them to support the expansion?

Company managers and employees face ethical dilemmas like the above everyday. It’s often a struggle between achieving financial targets and giving due respect for the rights of various company stakeholders. It’s also often a clash between the wishes of the top management versus the concerns of those lower down the organization. Not surprisingly, many decisions that managers make under this environment do not always make ethical sense, even if they are legally tenable or economically expedient. This makes the company vulnerable to criticism, employee demoralization and even, eventually, legal action or financial losses.

Top management needs to minimize the risk that unethical decisions bring to the company. Ethical crises, commonly called scandals, are like fires that managers have to constantly put out; they drain company resources and spirit in the process. In this sense, proactive ethical management is like fire-proofing intended to protect the company from too many ethical “fires.”

But how does management build an ethical corporate culture? Is it as simple as creating a code of ethics and rolling it out into the organization? A well-crafted code would be helpful but unfortunately not sufficient. Enron had a thick code of ethics that the board ignored when conflicts of interest arose. The financial debacle that followed is now part of business history.

Ethics professor Alasdair MacIntyre of the University of Notre Dame explains that no code of ethics can work without a culture of ethics. And a culture of ethics is what top management needs to establish within the company. Only when such a culture exists can all managers and employees of the company learn to consistently behave in the best long-term interest of the company and its stakeholders.

Social scientists have learned that corporate cultures take many years to change. Top management, as architect and builder of a culture of ethics, must be committed to give the time needed for the task. But more than this, top management must implement purposeful actions throughout the organization. These include communicating ethical direction, providing consistent role modeling and giving supportive attention to how everyone aligns to the company’s ethical vision.

Building ethical corporate cultures – Part 2 (August 06, 2007)

Benito L. Teehankee

Managing For Society column, The Manila Times

In last week’s column, I introduced the crucial role of top management in building a culture of ethics in a company. In particular, management needs to focus on communicating ethical direction, providing consistent role modeling and giving supportive attention to how everyone aligns to the company’s ethical vision. This three-pronged approach, done consistently and in a mutually supportive way, is very potent in making ethics part of a company’s cultural DNA.

Communicating ethical direction well is a direct application of internal social marketing. Management is “selling” to company employees the importance and the behavior of doing the right thing. To be effective in building ethical culture, all company communications must be internally consistent. The President’s message for new employee orientations should match his message in the annual report. These, in turn, must be supported by the company posters on the company’s core values and by the pronouncements of other senior managers in important meetings.

During its founding years in the 40s, Sony co-founder Masaru Ibuka, long before the company had any positive cash flows, laid down the a key management guideline for the company which was to “eliminate any unfair profit-seeking, persistently emphasize substantial and essential work, and not merely pursue growth.“ This was likely supported by various communications by management within the company because, to this day, Sony is among the most highly regarded Japanese companies and one would be hard put to recall any scandal that involving the electronic and media giant.

Culture is not formed by words alone, however. Management must role model the commitment to ethics in their day-to-day behavior. They must “walk the talk”. In the case of Enron, its thick Code of Ethics was unfortunately not matched by the behavior of some of its own senior executives. During last year’s Enron hearings, former CFO Andrew Fastow made a dramatic admission: “I was greedy, yes. When you misrepresent the nature of your company, when you artificially inflate earnings, when you improperly hide losses, when you do things like that to cause your stock price to go up, that is stealing.” Not admitted by Fastow but mentioned by some insider accounts, it was considered alright within certain sectors of Enron to be greedy, to lie and to steal. If the accounts are to be believed, it was the company’s culture. As far as inculcating the value of ethics among employees is concerned, the impact of management-by-example cannot be overemphasized.

To truly cement ethics into the culture, management must follow-through on its ethical pronouncements and example with attention and support. Attention can be paid through how managers ask questions during meetings, for example. When sales numbers are being trumpeted during a sales conference, top management may do well to ask sales managers the question: “How are we making sure that these sales are being achieved with honesty, fairness and integrity?” Failing to pay attention to the process of achieving results while praising the results can easily lead employees to believe that the company believes in “making the numbers, no matter what”.

Management must also recognize and back up those who toe the ethical line. During a visit at the UCPB headquarters, I noticed a mini company newsletter posted within the elevator. Displayed for all to see was the face and name of a junior bank employee who had the courage to enforce the requirements for a sensitive account even at the risk of upsetting a potential major client. The accompanying article made it clear that this was the behavior expected by the bank and that the said employee was demonstrating the bank’s commitment to ethics.

Building a culture of ethics is not easy and neither is it quick. But management can make progress by being conscious, deliberate and systematic about its role in making ethics a company way of life. By communicating, role modelling and giving supportive attention, managers can truly create a business institution that will stand the test of time.