16. Cultivate Organizational Ethics; Demand and Reward Ethical Behavior
In the first rule, “Understand Why Employees Come and Why They Stay,” I wrote about the reasons people work. One key reason is that they want to make their “contribution to the world” at a place that is worthy of that effort and deserving of the fruits of the result. Well, one of the pillars of being a “worthy” company is to have integrity, and to possess integrity a company must behave and operate ethically. Indeed, the ethical ways of behaving and doing business must begin with the values of the company and extend through all its policies, practices, and people.
If you want engaged employees, really engaged employees who are aligned with your organizational goals, you can’t run your organization on the “wink” basis. You can’t allow an account manager to pad expense reports, only to have those expenses approved by a “winking” manager and a permissive accounting clerk. You can’t have a rule for per diem travel expenses yet tolerate a regional sales director who breaks those rules, as he winks to a trainee that he’ll “pick up” the dinner and drinks bill, so that the newbie can pocket a few bucks. And you can’t have a policy where the travel coordinator cannot accept any gift worth more than $10 or any lunch of a greater value than $25, while the director of purchasing is on a two-day vendor “outing” at Pebble Beach. If a mailroom clerk is disciplined for taking a few packing boxes home to help his daughter move into her new apartment, why is it that a vice president’s business trip that includes a one-day rest stop in Las Vegas is ignored. The senior leadership can’t wink their way through a meeting, a meal, or a trip to a fancy bar, knowing that they are violating the organization’s rules on entertainment allowances. In short, the “game” of ethics and integrity must be played on a level field, or the game gets out of control for a company.
Organizations lose on two planes when questionable business ethics and uneven enforcement of ethics standards are in play. First, when the word gets out that bending the rules is the way of things, rules get bent. Then the boundaries of what is acceptable (what can be gotten away with) are tested. Then the new “ethics” are communicated through unofficial channels, and then there are two sets of standardized ethics—how we say we behave, and how we behave.
Second, when employees see small and somewhat “harmless” violations being actively prosecuted and disciplined, while larger violations are ignored, they take stock and see the tight enforcement is for the little guy with the less-influential job. They also see that the view on ethics is different for the powerful and influential “corner office” types, with summer homes and country clubs memberships (company subsidized) and stock portfolios. Respect for, and trust in, the leadership, the company, and what it stands for quickly wanes. And a new ethic is planted: “Take care of myself; get all I can; and watch my back.” A cynical, selfish, and vigilant employee cannot be engaged. She is far too busy.
What are the consequences if behavior isn’t ethical? You don’t just start down a slippery slope, you tumble down the slope and crash in a heap at the bottom. The bond of trust between the organization and the employee precipitously falls apart, and it affects your competitive edge.
Do you want an example that you might be able to relate to? Ever cheat on your taxes? Even a little? A teeny itzy bit? If you have ever done that, I’ll bet you feel a sense of permission to act that way, because you know other people are doing it. No one wants to be played the fool. So, if you know others might be taking some additional allowances on their itemized 1040s, why shouldn’t you? When you do this, you are, in a sense, “winking” to everyone who is filing on April 15. You know that you are part of a larger club of winkers. Oddly, it may seem that no one is really cheating, if everyone is taking the extra allowances, right?
Well, what if you knew there was 100 percent compliance on tax filings by every U.S. citizen? And what if all corporations paid a fair tax, as judged by wide consensus? I bet few people would take an extra allowance or two on their tax forms, no matter what the level of enforcement and auditing. Moreover, I bet that most of the extra allowances taken on itemized tax forms don’t really amount to that much on the bottom line. Without gross errors in reporting, it’s hard to “move the needle” when trying to reduce your tax bill. In fact, I suspect that people allow themselves this behavior (which I bet is uncharacteristic within the overall scale of their individual lives) because they don’t feel everyone else is being honest. So, ironically, cheating becomes a way to make things seem fair.
That same interpersonal dynamic is no different in an office setting. If people see unethical behavior—an exaggerated expense report, a fudged time card, a shopping bag full of pilfered office supplies—all done with a wink, many employees take this as permission to do the same. Oh, you say, it’s only a roll of tape, a box of pens, and a few dollars either way. But that type of behavior has a tendency to snowball in ways that not only compromise the organization’s reputation among customers and vendors, but it “blackens the soul” of the organization in the view of the employees. Employees invariably think less of a company that tolerates this kind of behavior. They might even think less of the organization if it is bumbling along unaware of (and thereby unconcerned about) such workplace behavior. But what’s most damaging about this scenario is that there is a short distance between small-scale unethical behavior and large-scale violations. Would you really expect an organization that is blind to an expense report violation to clamp down on the violation of an antifraternization policy? Or minor misappropriation of funds? Or “patty cake” relationships with a vendor? Or worse, the unethical treatment of a customer via price fixing or gouging? If this kind of behavior goes unchecked in an organizational culture of disregard for ethics, it should come as no surprise to you that a highly confidential “top 100” customer profile list finds its way outside the approved distribution, or the business strategy for a new product introduction lands in the inbox of a competitor, or there is flagrant disregard of a nondisclosure agreement (NDA), putting you in legal jeopardy.
Beyond the competitive disadvantage presented by this kind of behavior, far worse deeper damage can be done to your organization at the cultural level, at the visceral level, with ethical lapses of any magnitude: Jaded employees aren’t proud to go to work for you nor are they proud to tell others about their workplace. This means that potential employees, potential customers, and potential vendors don’t hear good things about your organization, if they hear anything at all. A vortex is created in which the organization’s brand races to the bottom, losing talented employees, and becomes unable to hire talented replacements, retain customers, and maintain valuable and fruitful vendor and contractor relationships. After all, it’s only human nature not to speak with pride about shameful behavior, and unethical behavior is shameful behavior. It’s only human nature to whisper to someone at a barbeque or a church gathering that such-and-such company has been known to play fast and loose with facts, figures, and behavior.
What’s worse, when an organization spins downward due to unethical behavior, it’s an enormous challenge to recover. By historical analogy, look at the culture of bribery that rules some third-world countries. Once an official at any station or of any status within the official hierarchy is seen taking a bribe, and that act goes unpunished, then others in the system feel as though it is perfectly okay to accept bribes. They feel like fools if they don’t. Whether the unethical behavior originates at the top or the bottom of the official hierarchy, it pervades the entire hierarchy with great speed. Just so you can see how hard it is to root out, I want you to name just one country where the bribery problem has been defeated after it has entrenched itself. Can you name one? I can’t.
In fact, organizations the world over are staffed by people who share a global commonality: human nature. And a permissive culture of unethical behavior—whether exhibited by someone taking home a cartridge of ink toner or accepting a multimillion dollar bribe to open a port to oil exports—yields the same damaging result.
With the negative effects of an unethical culture abundantly clear, note that ethical behavior can have an equally dramatic positive effect on an organization. In fact, organizations that stand up, take an ethical stand, and practice what they preach allow the employees to take that message into the public sphere, to church, to school, to their social relationships. They become ambassadors who carry a message of pride and honor into a wider community that invariably includes potential new hires, contractors, vendors, and new customers. Imagine your own response to a story your neighbor or golf buddy might relate about a company that summarily fired a senior executive for submitting a false expense report. Or of the wealthy CEO who adheres to the same per-diem travel and entertainment allowance as the front line manager. It sets a tone, and that tone rings as clear as a church bell among the ranks. In that sense, ethical behavior can build esprit de corps to great heights. Indeed, even with all this high-flung talk about how organizations should behave, it ultimately comes down to a truism that you probably heard before you got to kindergarten: What’s good for the goose is good for the gander. Oh, and one other thing: There is no honor among thieves.
Let’s take this up another level. There are two types of ethics: internal and external. Internal ethics apply to such matters as respect to one another, fair treatment in workplace dealings, limited political behavior, limited agendas that aren’t in service of the company’s goals, and zero-tolerance for cheating. External ethics apply to such matters as treating customers, clients, and vendors fairly; paying people on time; creating a level playing field for everyone who is doing business with you; and creating win-win scenarios for your customers and vendors.
A few years ago, Minitab, a company discussed earlier in this book, changed its pricing structure to include a single fee for companies that would purchase and install large numbers of Minitab’s products for multiyear periods. These “enterprise” licenses were offered at discounts that reflected the confidence the buyers showed in Minitab and its products and were also a reflection of the solid relationships between vendor and customer.
As this purchasing option was being rolled up, the sales force informed the management team of the fact that a substantial group of loyal customers had expanded their use of the company’s software to a point that, although they were operating under old and still binding contractual agreements, any renewal would make them eligible for the newly instituted discounts. What did Minitab do? They immediately contacted those customers and advised them of a reduction in license fees—with a rollback to the date of the commencement of the discounted pricing. Now, that is ethical Customer Relationship Management!
With that in mind, let’s look further at the implications of ethical behavior on cost avoidance and workplace culture. An ethical workplace is a great tool for recruiting prospective employees—as I pointed out earlier—and it is also a great tool for the acculturation of new employees. If a front line manager is relating the travel policy or work-from-home policies to a new recruit, and the manager relates honestly that a very high percentage of people who work for the organization adhere to these rules, I confidently predict that the new recruit will 1) find the ethical compliance of the other employees admirable, 2) recognize that the company is practicing what it preaches, 3) relate this story to others outside the company, and 4) let this ethical culture inform his actions in other areas of corporate practice. That spirit alone can lead to a dramatic competitive advantage, because engaged employees of an ethical organization draw other ethical employees, and that workforce draws customers and prospects who want to work with an organization whose ethics are uncompromised.
Let me take another approach to this topic, because I suspect that one or two readers are saying, “Come on, no company is that pure. When people cut corners now and then, exaggerate an expense, or take some extra time off without the boss’s knowledge, that’s just the way of the world. After all, everyone does it!”
But is it? Is it the way of the world?
A great deal of this book has been focused on getting organizations to be run as meritocracies (where people advance on the basis of their contribution and its value), and not as systems where people or ideas are promoted for reasons other than their inherent value. So, let me ask you, if it’s the “way of the world” to cheat now and then, why has competiveness, excellence, profitability, and overall company value consistently risen over time as ethical practices have been codified and modeled by like-minded companies? Each year, as the list of the most-corrupt countries is published, why are the countries at the bottom of the barrel invariably the ones rated as the worse places to do business, the least fruitful places to start businesses, and the most poverty-stricken? It’s because the merit of an idea does not advance its cause. But isn’t it only a matter of degrees between a corrupt nation and an organization corrupted (however incrementally) by unethical behavior? Look at the top companies in the world, the most-admired companies in the world, and I assure you that you see a direct correlation between their ethical behavior and their success. What’s more, you see the behavior modeled from the top, by the leadership, without exception.
If you want a recent example, look no further than the banking crisis of 2008. Companies that had strict ethical lending practices, such as Goldman Sachs and JP Morgan Chase, emerged with far less damage to their overall company value than the companies that greedily played fast and loose with the rules, where employees winked at each other when they should have spoken up and taken corrective action. Before the banking crisis, take a look at Enron, whose unethical, predatory practices and serial deceptions drained billions of dollars of value from a company that was at one time on top of the world.
If organizations do the right thing, behave the right way, play fair, are not cannibals, and are not predatory, they are actually moving contrary to the historical “might makes right” tradition. Though “might makes right” may work in the short term, or as long as you have “the might,” eventually the merit of good ideas wins out and “right makes might” becomes the prevailing catchphrase. In today’s lightning-fast global economy, where there is increased transparency, and data is freely transferred in universal digital languages, the “cycle time” to expose a bully or to expose unethical behavior and corruption is much faster, and the unethical company reaps the consequences far sooner than they would have in 1940 or 1840 or 1740.
That said, employee engagement at the highest level needs to be based on ethical behavior, yet most companies don’t seem to find it all that interesting to have the high ethical standing as a compelling strategy for their operations. A recent Ethics Research Center newsletter circulated the results of a 2008 survey that polled human resources executives. The survey found that 23 percent of those surveyed said that their organization had a comprehensive ethical compliance program in place. A full 7 percent of those surveyed said that their organization doesn’t pay any attention to ethics. If those numbers are right, a full 77 percent (more than three-quarters of all companies!) have no policies or ethics programs. The same survey found that fewer than half the people surveyed said that ethical conduct is part of a managers’ or executives’ performance appraisal. And 57 percent said that ethics plays no part in the front line employee’s performance reviews.
If this is the situation, then organizations don’t put much value on ethics, or they don’t behave ethically. Can these companies really expect to gain a competitive advantage with aligned employees? The de facto message being communicated to these employees is that unethical behavior and activity is tolerated at their place of work, or at least not actively regulated. So, what can you expect employees to say to that—that they are proud to work there? Do you expect that they speak highly of the company in all their social and professional interactions? Or course not! Instead they say, “Why should I value ethical principles if no one else is acting in accordance with those principles, and especially when the company won’t even say what they are!?”
To retain good people who are ethical, you have to behave ethically. And the way to attract ethical people is by having a “brand,” a reputation as an employer for ethical behavior. For obvious reasons, that behavior doesn’t just spontaneously appear in company policy, even though I believe that the capacity for ethical behavior is inherent in us all. So, the ethical policies and rules need to be written down someplace public and communicated in a regular, disciplined, and standardized manner. Then those policies should be supported across the board, and a method should be created to allow employees to report violations without fear of retaliation, from inside or out. You can’t have a policy to encourage whistle blowing and then allow the whistle blower to be ostracized and iced out. Indeed, that is the kind of person who should be publicly rewarded, in much the same way you should reward stellar examples of ongoing compliance with your ethics policy.
Next, new employees should undergo an orientation and socialization process to introduce them to the ethical policies. Moreover, there should be an FAQ resource for “gray areas” where a new or legacy employee might wonder what the best course is to take on certain matters. That FAQ can be online, or it can be a person who is designated to answer such questions.
To underscore all these actions, ethical behavior must be part of a rewards and punishment system, as I have alluded throughout this rule. A standard should be set and communicated, and all employees, without exception, should be measured with the same yardstick against that standard. You can’t fire the mail clerk for a violation that is tolerated by someone more powerful. Behavior like that would rightly be perceived as hypocritical, and you would immediately lose faith and face with the employees. Indeed, people’s intolerance for hypocrisy is, I think, as universal and pervasive as people’s inherent capacity for ethical behavior, if they see that they are not being played the fool and that ethical behavior is appropriately rewarded and unethical behavior accordingly punished.
What I have suggested in this rule is consistent with the other practices recommended in other places in the book. Policies must be established with good reason and the best intentions. The policies must be transparent and applicable to all. The policies must be communicated consistently and publicly. Violations of policies must be recognized and appropriately dealt with, no matter how powerful the violator nor how powerless the victim. With transparency, communication, consistency, and enforcement, you win not only the respect and participation of your employees, but you win the respect and participation of your customers, vendors, contractors, and extended communities. You also win a remarkable level of competitive advantage, and that competitive advantage is not just a “sugar high” that you achieved with an underhanded deal, but an enduring advantage gained through deliberate actions that can be modeled and replicated at any scale.
Let me close with an exemplary story about how ethical behavior and great leadership can contribute to making a great company. KeySpan Energy is a company formed by the merger of Brooklyn Union Gas and Long Island Lighting Company (a.k.a. LILCO). It’s a big operation, with a great deal riding on its daily performance, and there isn’t any room for inappropriate behavior. A while ago, the CEO there, a fellow by the name of Robert Catell, told a story at a New York gathering of “thought leaders” about a unique practice he put into place some years before. He asked his managers to regularly inform him of employees who were doing great work. Then he made it a point to call these employees privately, one by one, to personally thank them for their efforts and to let them know how essential their work was for the company’s overall success. One woman he called was an office administrator, and she was flabbergasted to get a call from the chief executive officer. Not fully aware of the degree to which she was surprised and impressed by the call, Catell carried on with his genuine praise of her work. He ended the call without thinking much more of it.
A few years later, it was this very woman who exposed a senior executive for malfeasance. After all was said and done, the executive was disciplined and fired. But Catell was curious as to why this woman, of all people, had come forth. So he called her again. He asked her why a woman like herself, without much stature or status in the company, would come forth. After all, to speak candidly, she was a small fish is a very large pond. Yet she did the right thing, without fear of being ostracized or even dismissed for speaking truth to power. She told Catell that she remembered when he had called that first time; she said that she found it remarkable that a CEO would care so much about the people within the company that he would call an individual employee to thank her for her work and her contribution. She told him that she just knew that a company and a CEO who cared enough to thank her personally (years ago!) would never let any unfairness befall her for doing the right thing now. And you know what? She was right.
As Yvette Rauff, who is second in command at Minitab, tells her employees, “In any situation, if you can see the line that crosses over from ethical to questionable behavior, you are already too close!”
Compliance is what you do when someone else is keeping score; ethics is displayed when you are the scorekeeper.