Creating an Ethical Culture

BY CATHLEEN SULLIVAN

The New York Stock Exchange, NASDAQ, and the US Congress each recently passed sweeping reforms designed to restore public confidence and trust in public corporations. The regulations increase the independence of corporate boards of directors, bring new oversight to accounting procedures, and allow shareholders more participation in corporate governance. But the real goal of the new regulations—restoring consumer confidence—will take more than compliance.

The new regulations clearly delineate expectations and standards that reflect a high moral standard of corporate behavior. Companies on the New York Stock Exchange must now adopt a code of conduct—and make that code available to the public. Under intense scrutiny, the issue of ethics and morality may well be discussed in companies where this subject was previously, just a formality, or never mentioned at all.

But adopting a code of conduct isn’t enough. To restore public trust, corporations must be visibly compliant, showing investors that they are serious about doing the right thing.

The Role of Corporate Executives

Visibility begins with corporate executives. You are in a unique position to demonstrate leadership on ethical issues, showing investors and your own employees that ethics and values are inherent in your business. To create a culture of ethics, talk openly about ethics and values. Demonstrate your own values through every decision you make. Ensure that employees know that they can ask for clarification of policies or report possible wrongdoing without fear of retaliation. Through your example, managers and employees will be better able to recognize ethical issues and understand your company's serious commitment to ethical choices.

We advocate three steps toward making your commitment to ethics more visible:

1. Communicate Core Values. No matter how specific the rules and policies in a code of conduct, there will be situations where no specific rule applies. Values–deeply held beliefs that guide our thinking—can be broadly applied in any situation. The first step in creating a culture of ethics is to communicate your core values.

Three of the most universal values to embrace and apply are:

• Integrity: being totally honest in everything we do or say.
• Accountability: taking personal responsibility for our actions.
• Trust: the foundation of positive relationships within and outside the company.

Even if your company has other specific values related to your history or industry, keep these three values in the forefront of your corporate culture. Never let your people forget that being true to these values is more important than any other business initiative.

• What feels wrong about this situation? This is the first step in clarifying the underlying issue.
• Is this situation against company policy or the law? If so, the issue can be quickly resolved, since no good decision will ever violate these.
• How will our stakeholders be affected? This question helps to evaluate how your actions will affect others, including investors, employees, business partners and the public.
• How will I be affected? As an executive, your actions may impact many others in addition to yourself, but this question helps to evaluate the personal impact of your decision.

As a leader, you can use this model effectively in two ways. First, applying it to the issue at hand helps to clarify the issues and helps make a faster, better decision. Second, it can serve as a foundation for explaining difficult decisions to your peers and subordinates. They need to see that you have considered the underlying ethical issues—such as integrity and reputation—not just the business drivers of profit or ROI.

Johnson & Johnson became a textbook case of the effectiveness of this public decision making with its handling of the Tylenol scare in the 1980s. The company took responsibility for the issue and immediately recalled the drug. By putting public health ahead of its own proof of innocence, the company preserved and ultimately enhanced its reputation.

3. Adopt Ethical Managerial Practices. This approach to ethical decisions must be adopted and applied all the way down the chain of command. Every manager should model the decision-making process outlined above. Every manager should be familiar with policies and your company code of conduct, in order to apply them evenly and consistently across the board.

4.Make Ethics a Corporate-Wide Initiative. Good managers listen to employees. They know there is no substitute for a grass-roots connection to ideas and issues. Be sure managers at all levels truly have an open door and encourage employees to use it. In order to build confidence in employees and to quell cynicism, your company must have a process for employees and others enabling them to raise concerns to management, human resources, the ethics officer or an employee hot line. The procedure for reporting problems should make it clear that reports can be made without fear of reprisal, and a zero-tolerance rule must be applied to retaliation against whistle blowers.

If problems are reported, they must be properly investigated and tracked, according to prescribed procedures. If the investigation shows that rules have been broken, there must be consequences. There can be no exceptions, no second chances or special circumstances.

You Are the Model

Good leadership is more than stirring speeches or inspirational statements printed at the front of your company’s code of conduct. Your employees may listen to what you say but they will remember what you do.

Ethical attitudes can’t be glued onto the fabric of your organization—they have to be woven in. Your example and leadership will help to permeate your corporate culture with good ethical values.

Cathleen Sullivan is president and ethics coach for RedHawk, a Red Bank, New Jersey-based firm helping companies implement ethics programs.