Corporate Eye

Effective Corporate Ethics — More Than A Code Part 1

Crises in the global economic and financial landscape reached seemingly epic proportions. Once again there is a focus on ethics–

Failed Leadership Caused the Financial Crisis

We need to do more than fix the crisis; we need to fix the mindset that got us into it. …They should be authentic leaders, focused on serving their clients and all the institution’s constituents, rather than charismatic leaders seeking money, fame, and power for themselves.

Bill George, professor of management practice at Harvard Business School, US News November 19, 2008

Despite lessons learned during the Enron era, government regulations, and companies’ codes of ethics,  surveys indicate problems with ethics.

  • The Edelman Trust Barometer indicated that trust in business fell below those of the Enron era
  • Surveys by Integrity Interactive Corporation and Alt­man Weil, and CFO Europe Research Services (free registration required) both showed that most companies do not go much beyond issuing codes of ethics
  • Compliance Week’s 2009 Global Integrity Survey indicated “…Accord­ing to the findings, 43.3 percent of respondents don’t measure the integrity performance of management at all. Of those companies that do, 29.9 percent grade their management through an employee review process, followed by 26.8 percent that tie compensation to integrity. Only 11.5 percent of respondents said they grade integrity performance through internal benchmarking.”

…there is a gap between the existence of explicit ethical values and principles, often expressed in the form of a code, and the attitudes and behaviour of the organization…two basic reasons appear to be at the heart of the problem: ineffective ethics programmes and deficiencies in corporate culture…corporate ethical values requires well-designed ethics policies, sustained ethical leadership and incorporation of ethics in organisational processes and strategy as part of an ethical culture at all levels of the organisation.

Corporate codes of ethics:necessary but not sufficient
Simon Webley and AndreaWernern Business Ethics: A European Review Volume 17 Number 4 October 2008

Perhaps the key reason is that most companies don’t realize that ethics must start with “the tone at the top”. Board and C-Suite members must be visible in promoting ethical behavior and putting in place an ethics program that promotes an ethics culture. This takes considerable effort and time since it must be embedded in the existing corporate culture. Perhaps this deters most companies.

Here is an example from the Bell System (old AT&T) before the 1984 divestiture. The Long Lines unit had a culture that promoted employee safety. Some elements included–

  • Every employee had to attend a monthly safety presentation on a variety of topics
  • Employees received desk drop materials
  • Safety posters were displayed in public areas
  • If there was an accident, a report had to be completed and sent to head of the department within 24 hours
  • There was an annual event for employees and their families
  • Even at the annual off-site middle to upper management conference, there was a safety presentation before the agenda started.

This is the type of effort that is needed to ensure that all employees know that they must be ethical in all matters.

There are some current companies that do understand that ethics must be promoted every day. These companies will be profiled in future posts.

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Ed Konczal has an MBA from New York University's Stern School of Business (with distinction). He has spent the last 10 years as an executive consultant focusing on human resources, leadership, market research, and business planning. Ed has over 10 years of top-level experience from AT&T in the areas of new ventures and business planning. He is co-author of the book "Simple Stories for Leadership Insight," published by University Press of America.