Facing tough choices

There is growing evidence that financial investors favor the good guys over the ethically challenged. Government regulators around the world are beginning to impose ESG (environmental, social, and governance) mandates on publicly traded firms in their jurisdiction, with appropriate penalties for violators of social norms. Investment funds, which constitute the majority of stock holding in public firms, are also jumping on the bandwagon and restricting purchases of shares in firms that cross the line. In short, doing good is increasingly a route to doing well financially.

Having no fundamental guidelines to follow — or, worse yet, being told “don’t rock the boat” and play it safe — means that businesspeople are forced to choose the easy path paved by profit opportunity. But the easiest path isn’t always the best. When profits are the only guide, you may find it easier to cut corners or even bend the law — and that has spelled serious legal trouble for many companies in recent years, bringing some very high flyers crashing down.

Weighing utilitarianism and other philosophies

Unfortunately, the philosophers haven’t provided us with any surefire tool to resolve the dilemmas of profit versus purpose. Some approaches take a black-or-white line that right is right, wrong is wrong, and never the twain shall meet. Period. But the messy and complex world in which we live today renders this as much too simplistic, especially for a business firm that is trying to balance the competing demands of multiple stakeholders, each of whom might have starkly different objectives. There’s a lot of gray out there. Consider the case of child labor. It is clearly abhorrent and should be opposed by anyone who possesses an ounce of moral fiber. But suppose that your firm is sourcing some component from a supplier in a low-income nation where investigation shows underage children to be working. The families are poor; government resources are lacking; and given existing economic opportunities, everyone needs to pitch in for the family to have a roof over its head and sufficient food on the table — survival itself may be at risk. Do you terminate your supplier? Tough call.

Another approach advocated by philosophers, one that has found more favor with businesspeople, is the so-called “utilitarian” school. In this, the decision-maker has to define the costs and benefits associated with the options, weigh them appropriately, and then calculate an outcome. The alternative that delivers the highest return — benefits less costs — is the preferred choice. But for the example of outsourcing to a supplier in a low-income nation, the trade-offs are multiple and involve calculations that could be wildly off-base depending on who’s doing the judging. (For example, how important is it to keep costs down and the firm’s share price elevated by turning to offshore low-wage suppliers? Perhaps some shareholders are counting on stock returns for their well-deserved retirement.) Again, tough choice, squared.

Utilitarianism does have a certain attractiveness, no doubt: It quantifies the problem and allows for a seemingly rational outcome devoid of emotion and bias. And that’s good. But the question as you’ve no doubt guessed is how to weigh the choices. In the starkest cases, this necessitates a valuation of human life, or a calculation of long-term damages that are almost impossible to do with any sense of fairness or accuracy. The poster child example of the difficulties that arise in these instances can be seen in the notorious case of the Ford Pinto automobile.

Some years ago the Ford Motor Company introduced a small, compact automobile, the Pinto, in an effort to compete better with Asian imports that were flooding the United States. To meet pricing and fuel efficiency demands, company executives adopted a policy of “2000/2000” — that is, the car had to weigh less than 2,000 pounds and retail for no more than $2,000 (we did say this was an example from some time ago …). But after a series of accidents that resulted in not only serious injuries but also fatalities, it was determined that an engineering flaw — resulting from the mandate to keep cost and weight down — caused the fuel tank to rupture and explode even when hit from behind by a very slow-moving vehicle. Subsequent economic analysis yielded results showing the cost to recall and repair all the Pintos on the road would exceed Ford’s expected payout in death and injury benefits to those who were statistically likely to suffer or perish from such accidents. Given this cost-benefit analysis, the firm chose to do nothing. Of course, when this rationale was revealed in subsequent legal proceedings, the public outrage was such that Ford’s reputation was seriously damaged, and soon thereafter, Pinto sales dropped by more than half and never recovered. Did Ford’s decision-makers make the right call? The economic logic might have been impeccable, but the ethical basis for using such an approach — utilitarianism — was questionable. You be the judge.

But when you put all the ethics puzzle pieces together, there is at least one positive that should stand out: It’s better to acknowledge the moral issues involved and at least try to muddle through them, rather than sweeping them under the rug and adopting a business-as-usual posture. Ignorance is not always bliss. Both you and your organization will be better off for making the effort to sort through the data and find your bearings — as reflected in a statement of values.

Applying ethics and the law

A values statement is a set of core beliefs and principles that guides the activities and operations of your company, no matter what its size. To make the statement mean anything, the people at the top of your company must constantly exemplify your stated values, and your company’s incentive and reward systems should direct all employees to act in ways that support your company’s values.

Having a values statement also can keep you and your colleagues on the right side of the law. For decades now the United States, as well as numerous other nations, has legislated statutes regarding product and workplace safety, financial transparency, and environmental issues, to name just a few. In the more recent past, a number of new laws and regulations have been enacted to ensure fairness and equity toward women and minorities in the workplace. Failing to comply can cost you your job. No longer can top-level executives say they don’t really know what’s going on in the companies they run. Now they can be personally held responsible.

Well, you ask, if there are so many laws and ordinances out there to channel the right behavior by the business firm, then what’s the big deal about a values statement? Fair question, as even a cursory review of the legal environment surrounding business would reveal the “grayness” and terminological haze of so many of these statutes. All too often, it seems, our laws are written to allow clever lawyers the wiggle room to slide the perps out of harm’s way (perhaps Shakespeare was right on this issue …). Given this reality, the truly ethical firm shouldn’t seek exoneration under the cover of law, but rather should institutionalize best-practice behavior through its observed actions, especially those taken by the folks at the top of the organizational pyramid. Trust us, lower-down employees will see right through any attempts to sidestep responsibility, and the news will race through their social media accounts faster than answers in a Jeopardy! episode.

Getting caught lost and unprepared, if not naked and afraid

You probably remember some headline-grabbing stories of companies suddenly faced with crisis. Companies that have come under fire in recent times include the following (and we don’t mean to purposely shame these ones, as the list could be lengthened almost exponentially):

• Volkswagen and diesel engine emissions: The German-based automaker was caught altering emission-control devices to reduce pollution on millions of its diesel-powered products so they would “defeat” legally required standards and increase power and MPG fuel consumption — all the while touting its green credentials and deep respect for the environment. Top executives ultimately were terminated, and billions in fines were imposed.
• Target Roofing & Sheet Metal and COVID-19 relief funds: It’s not just the big dogs who do this stuff, though they do get the most media attention. The owner of this small business in Fort Myers, Florida, was charged with fraudulently diverting $2 million in government funds intended to provide relief for his company’s employees hurt by the COVID-19 pandemic and buying himself a flashy new $700,000 40-foot boat, among other purchases.

The Hall of Shame Fame list could include episodes involving companies of every size in all industries in all countries, from day-care centers to giant investment firms. Faced with unexpected events, unprepared companies often react as though they’re in total disarray, the classic deer caught in the headlights. When a company lacks stated values that everybody subscribes to, the interpretation of important issues is left up to anyone and everyone. The company is likely to find itself speaking with many voices and going in several directions, resulting in confused employees, unhappy customers, an angry public, disappointed investors, and sharp-eyed law enforcement officials.

As you begin to think about your own business values, remember the following:

• A values statement is a summary of the beliefs and principles that guide your company’s activities.
• Clearly stated values can help your company react quickly and decisively when the unexpected strikes.
• Everybody in your company must understand and embrace your company values.

Understanding the value of having values

A clear values statement can be most important when the unexpected happens.

Here are two current examples of firms, one who saw the light and reaped the rewards by focusing on issues beyond short-term bottom-line numbers … and one that was apparently blinded by the light:

• San Francisco-based Salesforce.com, founded in 1999, is the global leader in the customer relationship management (CRM) software industry. Under the guidance of its founder Marc Benioff, in 2000 the firm established a model for philanthropy it called “1-1-1.” This stands for the company’s giving of 1 percent of its products, 1 percent of its equity, and 1 percent of its employees’ time annually to communities and nonprofit organizations far and wide. Given the size of Salesforce, this has been significant (the firm has more than 65,000 employees and a market capitalization of more than $250 billion — 2021 figures). Its staff has donated more than five million hours of volunteer work, and nearly half a billion dollars in grants have gone to more than 40,000 organizational beneficiaries. The www.greatplacetowork.com site shows that more than 90 percent of the firm’s employees rate it highly, compared to a national average of 59 percent. Given the competition for talent in this industry, this is a significant competitive advantage for Salesforce and its leadership team.

• Equifax is one of the world’s largest credit reporting agencies, with more than 10,000 employees and more than $3 billion in annual revenue. Chances are your credit worthiness was scored and reported on by the firm when you last applied for a credit card, a mortgage, or some other form of financial debt. But in September 2017, it had a problem: Equifax reported that nearly 143 million Americans had their personal data exposed in a massive cybersecurity hack by some unknown miscreants. A month later, it announced the number of compromised accounts was even larger. And then the following March, it increased that number yet again — data that included names, Social Security numbers, birth dates, addresses, even driver’s license identifiers. The firm’s CEO said, “Equifax will not be defined by this incident, but rather by how we respond.” Shortly thereafter, the firm had to acknowledge it had known about the breach months prior to its initial public reporting, and several of its executives had sold shares in the firm during the interval.

  Trying to repair the damage, Equifax offered no-fee credit monitoring — but only if victims waived their right to sue and submitted a complicated form. Under pressure from outraged customers, it also offered a free credit freeze — but valid for only one month. Soon thereafter its CEO of 12 years, claiming he was “deeply sorry,” was terminated along with other top officials responsible for security measures. Obviously no clear disaster recovery plan was in place, and the top C-suite folks in charge seemed befuddled if not outrightly negligent in their collective responsibilities. In April 2018, the firm’s chief transformation officer declared, “We should have been quicker, more frequent and more transparent in our customer communications immediately following the incident… . We are committed to being as proactive as possible in the way that we communicate and rebuild trust.” Duh. The management of this fiasco was not good, not even close. In fact, it was abysmal. This proves the case that when disaster strikes, firms typically are judged not on the root cause of the problem itself, but on how they respond. Value-driven planning counts.

Firms like Salesforce.com work so well because each employee takes seriously the concept of responsibility beyond the bottom line. With the active encouragement and involvement of top management, from the chairperson on down, its values and commitments are invoked, praised, and communicated throughout the company. Old-timers and new hires alike are reminded of the importance of the message. Salesforce.com remains at the top of its industry — an indication of why the company is so well regarded by so many people.

Putting together your values statement

Drawing up a list of beliefs and principles is one thing; putting those beliefs to the test is another. Tough choices are bound to come along, and they force you to examine your beliefs closely. If you run a one-person company, you already know something about what you stand for. In a bigger company, certain beliefs and values are inherent in the ways the company does business. The best way to get to the heart of your company’s beliefs and principles is to imagine how you’d respond to tough dilemmas.

Your company’s values statement represents more than a quick to-do list. The description of your values reaches beyond quarterly goals or even yearly targets. Your values should guide you through tough decisions as you build a sustainable business that lasts and grows over years and decades.

Maybe your company has some sort of values credo already in place but tucked away into a file that hasn’t been accessed in ages. If so, at least you’re a step ahead of the game. (You lose points, however, if you have to glance at a dusty bronzed plaque on the office wall to remember it — even more if you don’t remember where the plaque hangs.)

You may not have the luxury of spending weeks or months developing a values statement, so we show you a quick way to create one that sets your company on the right track. If your company is small, you can follow the steps yourself or with one or two of your colleagues — no need for long meetings and careful review. If you’re part of a larger company, however, you may have to wade through a bit more debate to get a consensus.

You can’t and shouldn’t create a values statement too quickly, but you can quickly begin a process to help capture and articulate the values intrinsic in the behaviors of leadership and employees of your business. Follow these steps to start creating a values statement:

1. Gather your company’s chief decision-makers to talk about the general company values that should (and do) guide employee behavior.

   Come prepared with an agenda and your own observations and take careful notes. Use good meeting management protocols to ensure all voices are heard and hierarchical or seniority battles don’t arise (for example, ensure the meeting facilitator never dismisses a suggestion out of hand no matter whom it’s from). One useful trick is to bring in a relatively new employee and ask that person the single most important thing that attracted them to the firm.

2. Prepare a first-draft list of all the values discussed in the meeting and circulate copies for review.
3. Schedule one or two follow-up meetings with senior managers to clarify and confirm a final set of values.
4. Create a values statement that captures the agreed-upon values clearly and concisely, and get it approved by the board or other such advisory body if that’s necessary.

5. Meet with managers at all levels to make sure that they understand the importance of, and the reasoning behind, the company values statement.

   Another useful exercise is to select one value from the statement and start off your next management meeting with some discussion around it; solicit examples, positive and negative, about its deployment, and try to come up with some suggestions for better communicating the value if it appears there’s a problem. Rotate the value under discussion at the next meeting until all have been covered.

6. See that every employee gets a copy of the statement.

   If you’re in business for yourself, place a hard copy of the values statement near your workspace or at your home office if that’s what you use. Don’t let it gather dust. For a bigger company, print the values statement on wallet-size cards and don’t forget to include it in the annual report. Post it on the company website and make sure it reaches all the stakeholders.

Following through with your values

A values statement can sometimes turn out to be a bit too simplistic, with words that sound good on paper but that are difficult to put to practical use. Worse, some firms simply outsource the creation exercise to an external wordsmith and then smugly declare they are woke. We recently came across a research report by Booz Allen Hamilton, a large consulting firm, and the Aspen Institute that found that a majority of the vision statements they examined used five similar terms: Integrity, Teamwork, Authenticity, Sense of fun, Customer orientation. They urged that these be expunged from any such statement, as they smacked of simple follow-the-leader regimentation rather than any sincere effort to unearth and institutionalize the firm’s real values.

To make your values statement really useful, you need to take the next step and link your values to basic, sensible rules that employees at all levels in your company can follow. You may want to create an anonymous “online hotline” where employees can express to senior management their own ideas about values and about how your company is fulfilling its stated values, without fear of retribution. You may even get some unanticipated great new insights this way.

When the time comes to conduct those annual employee performance reviews (you know, the ones that everyone loves to hate), use them as an opportunity to promote your company’s values. Bring out a copy of the values statement and ask each employee how well their individual activities reflect the company’s values. At the same time, ask yourself whether the incentives and reward systems in your company work toward supporting those values. In fact, if you’re really an evangelist, you will tie a portion of that person’s compensation to some metric that measures compliance with firm values. Bet that gets attention fast.