Building and Sustaining an Ethical Culture · •Sanlu •Morgan Stanley •Putnam •Qwest...

Copyright © 2003 by the Center for Ethical

Business Cultures®. 1

Copyright © 2011 by the Center for Ethical Business Cultures®

1

Copyright © 2011 by the Center for Ethical Business Cultures®Celebrating over 30 years of business commitment to ethical cultures.

Building and Sustaining an Ethical Culture

Ron JamesRon JamesPresident and CEOPresident and CEO

Center for Ethical Business CulturesCenter for Ethical Business Cultures

September 14 2011September 14 2011




About the Center for Ethical Business Cultures

Mission

To assist business leaders in creating

ethical and profitable business cultures at

the enterprise, community and global levels

Background

�33 year old nonprofit organization

�Began partnering in 1988 with University of St. Thomas

�Member of the Advisory Group to the US Sentencing Commission

�Advises Boards and Executive Leaders on “Tone at the Top”

�Building a Bridge Between Thought and Practice Leadership


Why is it Important?

Organizations that build an ethical culture:

�Do it because it’s the right thing to do

�Outperform organizations that don’t

�Reduce their exposure to ethical lapses

that cause breakdowns




Goals for the DayGoals for the Day

�� To develop an understanding of individual and To develop an understanding of individual and

organizational ethics and values in the workplace.organizational ethics and values in the workplace.

�� To focus on the leader’s role in achieving To focus on the leader’s role in achieving

performance goals within the highest standards performance goals within the highest standards

of integrity and ethical behavior.of integrity and ethical behavior.

�� To explore the importance of aligning systems in the organization To explore the importance of aligning systems in the organization

to drive the desired behavioral expectations.to drive the desired behavioral expectations.

Copyright © 2011 by the Center for Ethical Business Cultures®66

Organizing the Organizing the DayDay

�� Examining Examining Ethical Approaches Ethical Approaches

�� “Happy “Happy Hills”Hills”

�� Linking Personal & Organizational EthicsLinking Personal & Organizational Ethics

�� The Parable of the The Parable of the SadhuSadhu

�� Scanning the EnvironmentScanning the Environment

�� When Values CollideWhen Values Collide

�� The Letter of the Law CaseThe Letter of the Law Case

�� Building and Sustaining Ethical CulturesBuilding and Sustaining Ethical Cultures




Examining Ethical Approaches


Keep OutExtremely DangerousHigh Voltage!!!

As the new mayor of Happy Hills, would

you direct that this sign be:

�Taken down or altered?or…

�Not taken down?




Ethical Approaches

� Consequences

�What will be the effects of the proposed

action on any stakeholders?

� Absolute Principles

�Will the proposed action be in alignment

with universal ethical principles?

� Synthesis

�Both stakeholder consequences and

absolute principles must be considered.


Ethical Approaches

� Beyond the Absolute Principles and Consequential

approaches:

� Duties – Obligations to a community of common

interests, i.e. fiduciary responsibility

�Rights – Fair distribution of opportunities and wealth or

basic freedoms and liberties

� Interests – (Consequential - Utilitarian) Harms and

benefits to the interest of parties affected

�Virtue – (Absolute Principles - Kantian) A positive trait

of character including prudence, impartiality, courage,

justice, and belief/trust




Linking Personal & Organizational EthicsThe Parable of the The Parable of the SadhuSadhu


PresentingPresentingAs McCoy, would you have carried the sadhu to safety?

or…

Left him to his own resources?

The Parable of the Sadhu




“Teleopathy”

� The unbalanced pursuit of purpose in either individuals or organizations.

� This mindset is a key stimulus to which ethics is a practical response.

� The principal symptoms of teleopathy are fixation, rationalization, and detachment.


Teleopathy

� Fixation on tangible goals or purposes without moderation

� A tendency to rationalize or even deny responsibilities and realities that might impede the

accomplishment of those goals or purposes

� A general separation of the ethics of business goals

from the ethics of everyday life leads to emotional

detachment from the full human implication of pursuing those goals.




Antidotes to Teleopathy

� Fixation to perspective…understanding that the goals we set for ourselves are part of a larger mission

� Rationalization to frankness …practice, practice, practice telling the truth when exaggeration or denial appear attractive

� Detachment to engagement… learning to keep the “head” (what we have to do) and the “heart” (how we do it and who is affected) in healthy communication


Scanning the Environment




Who Do You TRUST?

How much do you TRUST each institution to do what is right? (2008 - 2011)

Percent

America’s

US/Canada/Brazil

Europe

France/Germany/

Russia

Asia

China/Japan/

India

Business 2008 58/49/61 30/35/42 54/61/74

Business 2009 36/45/67 30/34/52 62/63/71

Business 2010 54/na/62 36/40/42 62/57/67

Business 2011 46/na/81 48/52/41 61/53/70

Govt. 2008 39/39/22 35/27/38 79/45/49

Govt. 2009 30/51/51 34/36/48 72/45/42

Govt. 2010 46/na/39 43/43/38 74/42/43

Govt. 2011 40/na/85 49/33/39 88/51/44

Source: 2011 Annual Edelman Trust Barometer


Confidence in LeadersConfidence in Leaders

0

10

20

30

40

50

60

70

80

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

Source: Harris Poll March 9, 2010




Ethical Breakdowns in the News

1919

•Purdue Pharma

•Bristol Myers-Squibb

•Google & Yahoo (China)

•Toyota Safety Recalls

•Financial Services Sector

Meltdown

•Royal Dutch Shell

•BP Amoco Oil Spill

•Denny Hecker

•Tom Petters

•Bernie Madoff

•Societe Generale

•PetroChina

•AGA Medical Co.

•Ahold

•Bear Stearns

•Sanlu

•Purdue Pharma

•Bristol Myers-Squibb

•Google & Yahoo (China)

•Toyota Safety Recalls

•Financial Services Sector

Meltdown

•Royal Dutch Shell

•BP Amoco Oil Spill

•Denny Hecker

•Tom Petters

•Bernie Madoff

•Societe Generale

•PetroChina

•AGA Medical Co.

•Ahold

•Bear Stearns

•Sanlu

•Morgan Stanley

•Putnam

•Qwest

•UnitedHealth Group

•BUCA

•Siemens

•Hewlett Packard

•Parmalat

•Cendant

•Computer Associates

•KPMG

•Hyundai Motor

•Boeing

•American Red Cross

•Johnson & Johnson

•Morgan Stanley

•Putnam

•Qwest

•UnitedHealth Group

•BUCA

•Siemens

•Hewlett Packard

•Parmalat

•Cendant

•Computer Associates

•KPMG

•Hyundai Motor

•Boeing

•American Red Cross

•Johnson & Johnson

•Worldcom

•Enron

•Tyco

•HealthSouth

•Global Crossing

•Arthur Anderson

•Adelphia

•Worldcom

•Enron

•Tyco

•HealthSouth

•Global Crossing

•Arthur Anderson

•Adelphia


How Do You Measure-Up?

Rating the honesty and ethical standards

of people and professions (very high/high):�Nurses 81%

�Medical Doctors 66%

�Policeman 57%

�Clergy 53%

�Bankers 23%

�Lawyers 17%

�Business Executives 15%

�State Officeholders 12%

�Congressman 9%

�Car Salesmen 7%Source: Gallup Poll. December 2010. Honesty and Ethics




Financial

Performance

Behavioral

Performance

Two Languages of BusinessTwo Languages of Business


Misconduct at WorkMisconduct at Work

0%

10%

20%

30%

40%

50%

60%

2000

55%

46%

52%

56%

49%

2003 2005 2007 2009Source: Ethics Resource Center's 2009 National Business Ethics Survey




Reporting MisconductReporting Misconduct

0%

10%

20%

30%

40%

50%

60%

70%

2000 2003 2005 2007 2009

56%

64%

53%

58%

63%

Source: Ethics Resource Center's 2009 National Business Ethics Survey


The Cost of Ethical BreakdownsThe Cost of Ethical Breakdowns

27% of fraud cases were corruption

46% of cases detected by tips

Typical fraud timeframe (from the time it began

to the time it was discovered): two years

2006: U.S. organizations lose 5% of annual revenues

(estimated value ~ US$652 billion)

2008: U.S. organizations lose 7% of annual revenues

(estimated value ~ US$994 billion)

2010: typical organization loses 5% of annual revenues

(estimated value ~ $2.9 trillion worldwide)

Source: ACFE 2010 Report to the Nation on Occupational Fraud & Abuse




2525

Cheating Among MBA StudentsCheating Among MBA Students

�� 56%56% of MBA candidates surveyed of MBA candidates surveyed

admitted they had cheated at least onceadmitted they had cheated at least once

��“culture of greed within MBA schools”“culture of greed within MBA schools”

��“get it done at all costs”“get it done at all costs”

��“shifting priorities from meeting customers’ needs to “shifting priorities from meeting customers’ needs to

protecting shareholders profits”protecting shareholders profits”

�� Over 16 years, on every study of cheating, Over 16 years, on every study of cheating,

except one, business students led the wayexcept one, business students led the waySource: McCabe, Butterfield & Trevino, September 2006


26262626

Driving Ethical Culture:Driving Ethical Culture:The Legislative/Regulatory ResponseThe Legislative/Regulatory Response

��SarbanesSarbanes--Oxley Act of 2002Oxley Act of 2002

��Public Company Listing Exchanges Public Company Listing Exchanges

��United States Sentencing CommissionUnited States Sentencing Commission

��DoddDodd--Frank Act of 2010Frank Act of 2010

��SEC Rule Making (2011SEC Rule Making (2011--2012)2012)




A Collective View:A Collective View:The Legislative/Regulatory ResponseThe Legislative/Regulatory Response

�� Setting the Setting the

“Tone at the Top”“Tone at the Top”

��Ethical CultureEthical Culture

��Codes of ConductCodes of Conduct

��Conflicts of InterestConflicts of Interest

��Disclosure/ Disclosure/

TransparencyTransparency

��Whistleblower RewardsWhistleblower Rewards

��Board IndependenceBoard Independence

�� AuditAudit

�� CompensationCompensation

�� NominatingNominating--GovernanceGovernance

��Consultant IndependenceConsultant Independence

�� Audit and TaxAudit and Tax

�� CompensationCompensation

�� Shareholder AccessShareholder Access

�� Executive CompensationExecutive Compensation


Legislative/Regulatory ThemeLegislative/Regulatory Theme

“…requirement that an organization shall “…requirement that an organization shall --

promote an organizational culture that promote an organizational culture that

encourages ethical conduct and a encourages ethical conduct and a

commitment to compliance commitment to compliance

with the law.”with the law.”

But you can’t legislate integrity!But you can’t legislate integrity!




When Values CollideLetter of the Law CaseLetter of the Law Case

Adapted by Jon Adapted by Jon PekelPekel From A True Story Fictionalized by Doug WallaceFrom A True Story Fictionalized by Doug Wallace


3030

�� Who are the stakeholders?Who are the stakeholders?

�� What are the conflicts? What are the conflicts?

�� What are the key issues?What are the key issues?

�� What are the choices?What are the choices?

�� What’s the decision process?What’s the decision process?

Key QuestionsKey Questions




3131

What’s the Decision Process?What’s the Decision Process?

Testing the decisionTesting the decision::�� Is it legal?Is it legal?��Does it fit the organization’s values and comply with Does it fit the organization’s values and comply with it’s conduct standards?it’s conduct standards?

��Does it create harm or benefit (to a few or to many)Does it create harm or benefit (to a few or to many)��What does my ethical compass say?What does my ethical compass say?��Am I comfortable discussing my decision in the Am I comfortable discussing my decision in the public eye?public eye?

Creating an ethical advantageCreating an ethical advantage::��Have I identified and considered the interests of the Have I identified and considered the interests of the affected stakeholders?affected stakeholders?

��Have I modeled behavior that I would want Have I modeled behavior that I would want replicated?replicated?

��Am I appropriately using the organizational systems Am I appropriately using the organizational systems to reinforce the desired behavior?to reinforce the desired behavior?


Building & Sustaining Ethical Cultures




What is an Ethical Culture?What is an Ethical Culture?

�� Based on IntegrityBased on Integrity

�� Discerns and chooses right versus wrongDiscerns and chooses right versus wrong

��Laws and RegulationsLaws and Regulations

�� Societal StandardsSocietal Standards

�� Reaches for the higher standard in the gray Reaches for the higher standard in the gray

areas when all options seem rightareas when all options seem right


Source: Based on Chapter 2 “Mindsets & Culture” in Conscience

and Corporate Culture Copyright © Kenneth E. Goodpaster

Self

Interest

Law

Based

Market

Based

Evolving EnlightenmentEvolving Enlightenment

ValuesValuesDrivenDriven

LeadershipLeadershipEffectivenessEffectiveness

BalancingBalancingStakeholderStakeholderInterestsInterests

AssessmentAssessment

Process Process IntegrityIntegrity

LongLong--term term PerspectivePerspective

Corporate

Conscience

Ethical

Culture

Ethical MindsetsEthical MindsetsCharacteristics in Building & Characteristics in Building & Sustaining an Ethical CultureSustaining an Ethical Culture




� Mission � Purpose

� Vision � Image of the future

� Values � Principles that guide behavior

� Ethics & Compliance Codes � Legal and regulatory compliance and beyond

Laying the FoundationValues Values


Shaping Organizational Culture

Values�The shared norms and beliefs of the organization

that define acceptable behavior

�Inspirational and directional in nature

�Gives individuals a context to reflect on how their

personal values align

Ethics and Compliance Codes of Conduct�The standards of behavior established to insure

compliance with the law, regulations, and rules

�Prescriptive in nature with specific well defined

expectations of behavior

Values Values




Federal Sentencing Guidelines

�Established by the United States Sentencing

Commission (USSC) in 1991 with focus on

compliance

� Imposes fines, sentencing to probation, orders

of restitution and public notices of conviction

�Offers incentives for organizations to “do the

right thing”

�Updated to emphasize ethical conduct in 2004


The Seven Minimum Steps

4. Provide communication and training

5. Utilize monitoring, auditing, and reporting

6. Consistently enforce through discipline

7. Take appropriate corrective action

1. Establish standards and procedures

2. Make high-level individuals

responsible

3. Exercise due care in delegating

authority




Oversight & ManagementRoles and Responsibilities

Separate attention now given to the roles and

responsibilities of three types of organizational

officials:

�Members of the governing authority (i.e., Board)

�Executives comprising an organization’s

managerial leadership (i.e., “high-level

personnel”)

�One or more specific individual(s) having day-

to-day operational responsibility for an

organization’s compliance and ethics program


� Data Illustration:

The behavior of the people I work with is The behavior of the people I work with is consistent with my company’s mission, consistent with my company’s mission, vision and values.vision and values.

ExecutiveExecutive ManagerManager FrontlineFrontline

75%75% 63%63% 57%57%

The 1st ElementLaying the Foundation

Source: Gantz Wiley Research WorkTrends 2008




� Leadership is the key ethical culture factor

� Leaders must set the tone by “talking the

talk” and “walking the talk”

� Top management is generally perceived to

exert more pressure on “getting the results”

and not on “how the results are achieved”

� This translates into get the results “at all

costs.” “The ends will justify the means!”

LeadershipLeadership

EffectivenessEffectiveness

Modeling Ethical Behavior is Crucial



My senior management supports and My senior management supports and practices high standards of ethical practices high standards of ethical conduct.conduct.


78%78% 73%73% 68%68%

The 2nd ElementEffective Leadership






Where I work, ethical issues and concerns Where I work, ethical issues and concerns can be discussed without negative can be discussed without negative consequences.consequences.


77%77% 72%72% 62%62%

The 2nd ElementEffective Leadership



4444

Stakeholder ReciprocityStakeholder Reciprocity

CommunityCommunity

InvestorsInvestors

GovernmentGovernment--

RegulatoryRegulatory SuppliersSuppliers

Your

Organization

CompetitorsCompetitors

EmployeesEmployeesGuestsGuests

EnvironmentEnvironment

BalancingBalancing

StakeholderStakeholder

InterestsInterests





My company strives to serve the interests My company strives to serve the interests of multiple stakeholders not just the of multiple stakeholders not just the shareholders (financial performance).shareholders (financial performance).


77%77% 72%72% 65%65%

The 3rd ElementBalancing Stakeholder Interests



46464646

MarketingMarketing

PurchasingPurchasingFinanceFinance

Human Human

ResourcesResourcesSalesSales

ProductionProduction

CommunicationCommunicationRecognitionRecognition

IncentivesIncentivesHiringHiring

AdvancementAdvancement EvaluationEvaluation

ProcessProcess

IntegrityIntegrity

With Organizational ProcessesWith Organizational ProcessesAligning Core Business FunctionsAligning Core Business Functions





Where I work, people do not “get ahead” Where I work, people do not “get ahead” unless their behavior clearly demonstrates unless their behavior clearly demonstrates my company’s values.my company’s values.


67%67% 57%57% 50%50%

The 4th ElementProcess Integrity



Impact of Ethics U.S. Employees

93

16

92

14

92

15

83

14

92

8

90

10

0

10

20

30

40

50

60

70

80

90

100

Strong Ethical Culture Weak Ethical Culture

Pride Overallsatisfaction

RetentionAdvocacy

Source: Kenexa WorkTrends™ 2008

Note: values represent percent favorable

Reputation improvement

Performance improvement




� Linking & Aligning Mission, Vision, Values

and Ethics & Compliance

� Leadership

� Education & Training:� Governing Authority

� Senior Management

� Mid Level Managers

� Front Line Employees

� Connecting systems & incentives to values

� Surveying for feedback

Building the Ethical Culture


Questions?




For Information on CEBCFor Information on CEBC

�� Phone the Center:Phone the Center: 651651--962962--41204120

�� Fax the Center:Fax the Center: 651651--962962--40424042

�� Email the Center:Email the Center: [email protected]@cebcglobal.org

�� Visit the Web:Visit the Web: www.cebcglobal.orgwww.cebcglobal.org

�� Write the Center:Write the Center: 1000 LaSalle Avenue, TMH 3311000 LaSalle Avenue, TMH 331

Minneapolis MN 55403Minneapolis MN 55403--2005 2005

USA USA

52

®®

Building and Sustaining an Ethical Culture · •Sanlu •Morgan Stanley •Putnam •Qwest...

Documents

Transcript of Building and Sustaining an Ethical Culture · •Sanlu •Morgan Stanley •Putnam •Qwest...