WHAT IS LEGAL VERSUS WHAT IS RIGHT

Values not only create competitive advantages when it comes to developing the workforce or customer relationships but also can guard against damage. Consider the CEO lament: “I always thought that if what we were doing was legal, everything would be okay. As long as we adhered to the letter of the law, I never thought there would be a problem.” There wouldn't be a problem if the line between legal and illegal were a solid black, immovable boundary. The truth is that the boundary between legal and illegal is a fuzzy gray, ill-defined line—and it moves. When organizations allow their actions to hug the line, there is a great danger that one of these days, they'll find themselves on the wrong side, even if their practices didn't change. What used to be legal became questionable, and then was determined to be illegal.

When this happens, most companies try to get back on the right side of the line as quickly as possible before anyone (especially the regulators) finds out about it. But once you're on the wrong side, it's very hard to cross back because often the line may have moved substantially. Then, in spite of all the good intentions to be compliant with the letter of the law, a company ends up violating it.

Rather than focusing solely on what's legal, a company would be far better off to consider what's right. In other words, it may be legal to set up off-balance-sheet accounting with offshore shell companies to hold certain assets and liabilities, but is that the right thing for the company to be doing? As I explain to people, if you wouldn't tell your mother, then it's not something you feel pretty good about—so it probably isn't the right thing to do. Just because there is a tax loophole doesn't mean you should jump at the chance to take advantage of it. One of these days that loophole will disappear, and if you're not watching closely, you'll end up with a big problem on your hands that wipes out whatever advantage you may have reaped in the short term.

In the aftermath of corporate scandals—from the Enron fraud to the allegations of greed and manipulation during the more recent financial meltdown—ethics have gained the spotlight, and deservedly so. Rather than overly intellectualize, keep things simple. Ethics should always come down to doing the right thing. Having a strong code of ethics is critical.

Every person in the organization needs to know the code of ethics—what is acceptable and what is not. Creating a culture based on values and ethics starts at the top. Leaders need to communicate and demonstrate through their words and actions what drives them. In that way, their subordinates will have the assurance that no matter what the situation, the organization will remain committed to doing the right thing.

Some companies talk a good game and have plaques on the wall stating their mission and values, but their day-to-day actions tell a different story. No wonder people in the organization become cynical and discouraged. How can they trust anything “those guys” say, when what actually happens has nothing to do with the professed values? Take, for example, someone I'll call Bill, a composite character based on a few people I've seen in action over the years: a hard-driving, high-flying performer who thinks the rules don't apply to him. Bill not only meets all the performance goals but surpasses them by a wide margin. He's so good at what he does and generates so much revenue for the company that he assumes he's untouchable. All the corporate values and codes of ethics in the world simply don't apply to him.

When companies choose to make an exception for Bill, while still preaching their values and ethics, team members feel as if their intelligence is being insulted. They know that these corporate platitudes have nothing to do with the way things really work, because “Bill stories” have taken on legendary proportions. There are no secrets in an organization. When Bill ignores the rules, everyone knows.

No matter how good a performer he is, Bill is a liability. Not only does his rule-breaking potentially set the company up for a risk (for example, bad behavior can lead to a harassment charge), but he is single-handedly undermining the values of the entire organization. The longer the company turns a blind eye to what he's doing, the more damage he causes. Putting someone like Bill on notice probably won't change his behavior. Most likely he will leave or have to be terminated.

When the company puts teeth in its value statement and its code of ethics, people will respond. They will know that these aren't just words; there are expectations involved, and those expectations carry consequences. Actions across the organization must be consistent with the values. Otherwise, the words aren't worth the paper they're printed on.