We need a Nobel Prize in business, awarded to organizations that demonstrate how business effectiveness (meaning survival, market share, profits, and stock value) results directly from ethical behavior. A society that is not built on ethics -- on fairness, freedom, and mature hearts and minds -- cannot survive for long.            --Peter Koestenbaum, 2002

Last year in the U.S. alone 257 public companies with $258 billion in assets declared bankruptcy. This was a huge increase over the previous year’s record of 176 companies with $95 billion. This year will certainly be worse in terms of big companies going bust. Big Fortune 500 companies aren’t expected to collapse.

Taking a look at what went wrong and why these companies failed reveals moral and ethical shortcomings. There are other obvious factors that contribute to a company’s demise. A bad economy, financial risks that don’t pay off, accounting manipulations that seemed smart at the time, loss of competitive advantage, (breakdowns in execution, growing too fast) and rapidly changing market preferences are undeniably strong negative factors. But to truly understand, one must look deeper, into the very hearts and souls of the leaders who guide corporate responsibility. One must look at the moral and ethical stance of an organization and the role of leadership in creating a culture of values.

September 11th was a tragedy that brought harsh consequences for many businesses. One can blame terrorism. But the recent rash of bankruptcies is more frightening in that we brought this on ourselves. True, one can point fingers at the CEO’s in charge. There is no doubt there some were in a position to know when to jump ship before the rest of us.

But how do large organizations get to that point overnight? What creates the organizational culture that allows a house of cards to be built in the first place? (What drives good leaders to make unethical choices?) Where are the ethically responsible leaders? To assume that all of the leaders in Enron were evil, greedy and selfish is too simplistic. There is more to the story, and we must understand how such ethical violations and consequent collapses occur.

How can it happen?

In 1986 the space shuttle Challenger exploded causing the death of seven astronauts. A subsequent investigation of the culture at NASA revealed important lessons. There was not one single error that occurred, and neither did the managers intentionally commit wrongdoing. Yet it could have been prevented. The errors were years in the making. NASA engineers noticed damage to crucial O-rings yet they repeatedly convinced themselves the damage was acceptable. One analyst described it as "an incremental descent into poor judgment." (What prevents us from seeing that which is in front of our eyes?)

The culture at NASA was extremely success-oriented. They had hired the best of the best, and had highly complex and sophisticated performance goals. The pressure to succeed gradually mounted until minor violations of standards became the standard. Nothing looked wrong until it was all over.

The culture at Enron was very similar. They hired the brightest from graduate schools. Success was rewarded and non-performers shunned (what's wrong with that?) . The emphasis was on the numbers and immediate success rather than on long term values. There was a gradual descent into poor judgment, denial, (failure to challenge the system) , greed, deceit, ego, wishful thinking, poor communications and lax oversight. But it was apparent only in retrospect. No one noticed at the time as everyone was immersed in the culture.

The question to ask is not how did this happen at Enron, but how is it happening in one’s own organization right now? (What are the standards? How and to what degree are they communicated and reinforced?) Where are corporate standards being violated? As a leader, in what ways is one contributing to a loosening of ethical and moral values? What does one need to do to improve organizational integrity?

Ethical and professional dilemmas are not new. In the past people relied more on religious doctrine to guide standards, however, evil carried out in the name of religion has shaken confidence in religious traditions. These are difficult times in terms of people’s ability to know what is the right thing to do and still remain successful in their professions.

Is business ethics an oxymoron?

We seem to accept that modern businesses have morality and ethics different from societal traditions. Robert Jackall (1997) suggests that the modern bureaucracy has created a "society within a society" in which there is a set of ethical standards that may not be consistent with those of the larger society. This might help explain how certain corporate leaders could do what they did and still look themselves in the mirror. Our current capitalistic society goes along with these special societies, as long as they are successful. Enron was touted as one of the most innovative organizations five years in a row by Fortune magazine. Only when there is a collapse is there a cry of "foul." (What constitutes success? Examples of success stories??)

In America, the Protestant work ethic at one time formed the basis of good business relationships. A person’s word was his bond and business could be counted on with a handshake. Personal integrity and reputation mattered. But in business, there is also a "dog eat dog" mentality. To the victor goes the spoils. Somehow, when it comes to business, there is such an emphasis on success, that morals and ethics take a back seat. (The desire to make it "big" and do it quickly becomes hypnotic. Ref Jim Collins work "Good To Great" - the sustainably successful companies take a long time and a lot of hard work to create. They are not overnight successes and they always focused on understanding and meeting customer needs. When done successfully, that delivered stakeholder return.)

The larger an organization, the more complex the strategy and operations, the easier it becomes to stretch standards and change the numbers to reflect what is desired, rather than what is. Meeting the numbers seems more desirable than sticking to reality. Besides, one might reason that "reality" or "truth" is really just a question of which version, which perspective.

Here’s the way one cynical executive put it: "Let’s be honest. We lie and our colleagues lie to us. That’s how human beings operate. People prefer to tell each other what they want to hear…I don’t need perfect people, I need successful people who can think for themselves and get the job done. If they need to tell a little white lie, I can live with that."

Facing ethical dilemmas: living in the gray

In business, more than anywhere else, we are faced with moral and ethical decisions daily. Not only are we faced with questions between right and wrong, but between right and right. According to Joseph Badaracco, "We have all experienced situations in which our professional responsibilities unexpectedly come into conflict with our deepest values…we are caught in a conflict between right and right. And no matter which option we choose, we feel like we’ve come up short."

A slogan on an ethics poster for Boeing states the heavy truth: "Between right and wrong is a troublesome gray area."

Research on moral standards and business ethics is sparse. Weber in 1998 found that 85.9 percent of managers claim that they draw their moral standards at work from the expectations perceived in the work environment. Trevino (1990) adds that organizational norms that are embodied by the corporation’s culture are strong determinants of individual thought and behavior in the workplace. Gillespie (1997) notes that corporate culture is recognized as a key contextual influence in establishing and maintaining norms.

The morality and ethics of the modern workplace are a product of the (minds of the) leaders of the organization (, the policies they establish and the behavior they model) . There seems to be an increasing sense of distrust of leaders’ motives as they are seen to serve the owners and themselves, rather than the employees, the community, the environment, or even the customers! They are seen as not telling the truth, and doing whatever it takes to increase shareholder value.

Such erosion of trust may be pandemic. One bad apple spoils the barrel. What happened at Enron and WorldCom colors all employees’ views of how leaders operate. When the corporate culture is undermined by distrust, the original excitement and enthusiasm about a job and commitment to an employer turns to cynicism, alienation and disengagement. When this happens, work suffers. Such an organizational culture negatively impacts employees’ motivation and performance.

Leaders have a responsibility for creating trust and cultivating cultural values

Leaders are the most important and powerful influence on the culture of an organization and are responsible for creating credibility and trust. It is obvious that employees contribute more when they are working for something they believe in. Kouze and Posner (1987) put it well:

There is more to work than is commonly assumed. There is rich opportunity here for leaders to appeal to more than just the material rewards. Great leaders, like great companies and countries, create meaning, not just money.

The aim is to operate organizations in such a way that they achieve stated goals and do so in a manner that is consistent with the higher values of the organizational community. When employees have no clear picture of the moral or ethical stance of the organization, they tend to operate at the lowest perceived level.

Creating and promoting institutional integrity becomes one of the most important functions of leadership. Moral and ethical stances need be consistently reiterated and clarified. One of the most pervasive issues in the American workplace today is the justice of corporations paying millions in bonuses to executives and haggling over pennies with salaried and hourly employees. Until this issue is addressed and adjustments made, leaders will have a hard time rebuilding trust and credibility in organizational cultures.

Everyday leaders create symbolic messages to employees about the organization’s values of justice, fairness, and equity. Unless leaders (need to) pay (more) attention to the ways in which morals and ethics are expressed (and modeled with), then employees will think that such things are not important. Employees express themselves in absenteeism and in wasting supplies and productive time. (Employees, over time, replicate the behavior and ethics of their leaders. Like it or not, leaders are teachers - the question is, what are they teaching?)

An analysis of the relationship between ethical behavior and effective leadership reveals that it is a matter of choosing both the ends and the means. A business enterprise must be profitable in order to survive. Service organizations must satisfy consumers’ expectations. Government must meet the needs of its citizens. The ends are the very reason for existence of the enterprise.

At the same time, the means by which they achieve those ends are increasingly important. Placing value on short term gains at the detriment of long term results ends in disaster. The demise of a company is a tragedy because it affects the lives of families. Families depend on the responsible decisions of business leaders. At the core of all business decisions are moral and ethical principles. Failure to (clearly state and) support and withhold high standards has consequences.

President Bush is right when he says that the health of the American economy depends on "ethical standards…upheld by responsible business leaders," and that "ultimately the ethics of American business depends on the conscience of American business leaders." But it is much more than an American problem. The health and the economy of the globe depend on the ethical standards of our leaders.

There is no doubt that these are turbulent times. There are powerful economic, political, social and cultural forces at play in our lives today that may lead us to feel powerless to oppose them. It may seem easier to just go along rather than to speak out. Each person must weigh alternatives and make choices in light of personal values and goals, but also with consideration to organizational and professional success. Decisions have to be made that are optimal and that we can live with in the long run.

One can expect to see ethical training workshops being implemented with more frequency in corporations. As leaders wake up to needed reforms, there will be an increased emphasis on the need for training and coaching on ethical and moral values. There will be an increased emphasis for ethical responsibility in leaders if organizations are to thrive.

Never doubt that a small group of committed people can change the world; indeed, it is the only thing that ever has.     --Margaret Mead

How to solve an ethical dilemma

Peter Drucker (2001) refers to the Hipprocratic oath of 2500 years ago when he writes about business ethics. A professional can promise he or she will "not knowingly do harm." He states that it is not an easy rule to live up to, but that "its very modesty and self-constraint make it the right rule for the ethics that managers need, the ethics of responsibility."

Given that ethical and moral dilemmas present themselves on a daily basis, what do the experts say are the steps for solving an ethical dilemma? Life and business are rarely simple, and between right and wrong there is a lot of gray area. How does one make an ethical decision?

There are two major approaches that philosophers use in handling ethical dilemmas. One is to focus on the practical consequences of what we do, and the other focuses on the actions themselves and weighs the rightness of the action alone. The first school of thought argues that if there is no harm, there is no foul. The second claims that some actions are simply wrong in and of themselves.

Here is a three step process for solving an ethical problem:

1. Step One: Analyze the consequences
   Who will be helped by what you do?
   Who will be harmed?
   What kind of benefits and harms are we talking about? (Some are more valuable or more harmful than others: good health, someone’s trust and a clean environment are very valuable benefits, more so than a faster remote control device.)
   How does all of this look over the long run as well as the short run?
   
   
2. Step Two: Analyze the actions.
   Consider all of the options from a different perspective, without thinking about the consequences.
   How do the actions measure up against moral principles like honest, fairness, equality, respecting the dignity of others, people’s rights?
   (Consider the common good)
   Do any of the actions "cross the line?"
   If there’s a conflict between principles or between the rights of different people involved, is there a way to see one principle as more important than the others?
   Which option offers actions that are least problematic?
   
   
3. Step Three: Make a decision
   Take both parts of your analysis into account and make a decision. This strategy at least gives you some basic steps you can follow.

Source: www.ethicsandbusiness.org/strategy.htm
The Center for Business and Ethics at Loyola Marymount University

© David Lassiter 2004