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Business ethics

by Katherine Dunn

How can a company avoid an Enron-style collapse?

There is one obvious answer: companies need ethical business leaders. According to John Joseph at the Wharton Center for Leadership and Change, top managers must not only preach the company's code of ethics to staff but also be dependably scrupulous, above board, and honest in their own business dealings.

Spencer Stuart comment

Spencer Stuart consultants agree, saying that a company's ethics should always flow top down. "Leaders are not only responsible for strategy and bottom line financial performance but for setting the moral principles, standards, and mores for the company," says Stamford, Connecticut-based consultant James M. Citrin. "Leadership is all about setting the bar and holding people accountable."

Ethical Leadership: it's everybody's business and it starts at the top

By John Joseph, Wharton Center for Leadership and Change

No one yet knows what really happened inside Enron, America’s seventh largest company. Or what role chairman Kenneth Lay, chief executive Jeffrey Skilling, or Andersen partner David Duncan actually played in its demise. Did they ignore the probability of adverse consequences of their actions? Focus solely on short-term success? Hope the public wouldn’t find out?

The problems at the vortex of the Enron meltdown, highlight the need for leaders who are – as company executive and observer Chester Barnard suggested over sixty years ago – both moral people and moral leaders. They must be leaders who act consistently themselves, and encourage ethical dialogue and consensus among employees.

Alan Richter, President of QED Consulting and an ethics trainer, notes that “leaders clearly set the ethical tone for the organization.” By way of example, when Salomon chief executive John Gutfreund failed to censure renegade bond trader Paul Mozer after he improperly bid on U.S. Treasury bonds in 1991, the CEO may have indirectly suggested to other employees that it was acceptable to skirt the law as long as you were not caught.

In order to develop a climate in which ethical conduct is fostered, executives should be aware of the forces than can undermine the right climate such as unrelenting performance demands and misaligned compensation systems. Top management must then infuse the organization with ethical principles to guide the actions of employees in the face of these conflicting pressures. Employees draw their cues from perceptions of their firm’s culture, and if “they see their company behaving like Enron,” says Richter, “they are more likely themselves to act in an unethical manner.”

Many companies now train all employees using case studies featuring ethical dilemmas common to their industries. Some firms have an ethics officer responsible for overseeing the company’s code of ethics and adherence to it. For such steps to work, however, companies must be clear about the underlying value system and code of conduct. “If employees don’t know what the organization stands for,” observes Richter, “it is sure to result in confusion and paralysis.”

Johnson & Johnson’s corporate credo – overseen by top management but mastered by all – steered the company successfully through its Tylenol crisis in 1982 and continues to serve as a compass by which the organization guides itself today. The J&J recovery – in contrast to Enron’s demise – is a reminder that ethics is everyone’s responsibility and that it starts at the top.

Spencer Stuart comment

James Citrin says, "People look to their leaders for signals as to what is appropriate and acceptable behavior in an organization and actions speak louder than words. In fact, economists call this phenomenon, 'revealed preferences,' when people’s actions are more important than words."

How can you position yourself as an ethical leader?

"The best business leaders not only set the ethical tone for their organizations with their clear words in support of the highest conduct and standards, but more importantly, lead by example," says Citrin. "It is about having complete consistency in everything you do as a person - no dissonance between words and behaviors - and consistency between your own behaviors and those of the organization."

"In the current environment, the best companies and business leaders have again committed themselves to looking at ways to support the right behaviors. Mission statements are being revisited and new standards discussed. But keep in mind that the current environment is also one of the most competitive in business so companies don’t have a lot of extra time to sit around and talk."

In light of recent corporate scandals, employers may look more closely at a potential employee's past ethical conduct.

What, specifically, are employers looking for in a hire that they may not have looked for before?

"There is the basic rule of never misrepresenting yourself on your resume. You’d be surprised how many people do this," says Citrin. "And, if you have an issue as an individual, do not try to hide it. Find the most appropriate time to share it and do so in the most positive way possible, setting the context within which the action or decision was made, why you made it, why in retrospect it was wrong and what you learned from the experience. People in general are very forgiving with this type of approach. But in the current environment, they are unforgiving about being surprised or hoodwinked."



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