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Strong Ethics Make Good Business Sense
By Chris Banescu - February 25, 2003

The notion that ethical conduct makes good "business sense" has generally been accepted by many business leaders. No one will disagree with the statement "honesty is the best policy." However, that general concept runs into trouble when managers try to apply it to a business environment where their individual value systems may not necessarily be respected, acknowledged, or emulated by others in the organization.

Ethical decision-making within an organization can be a complex issue. Individuals do not normally adopt one set of principles to guide them in their personal lives and then use another to provide guidance in making business decisions, but it does happen. The ability of each individual employee to influence the ethical environment inside his or her company can also be swayed by the amount of political power that employee wields. When large numbers of employees have differing moral values from those who provide input into management and other business decisions is a another factor that often comes into play.

Ethics' role inside an organization has enjoyed a newly elevated place in business thinking over the last few years. Due to the serious ethical lapses seen recently in companies like Enron, WorldCom, Global Crossing, Andersen Consulting, Homestore.com, AOL, and many others, ethics has once again taken center stage in the business world. Interestingly enough, Laura Nash summarized the current ethical environment quite eloquently: "Managers have seen the high costs that corporate scandals have exacted: heavy fines, disruption of the normal routine, low employee morale, increased turnover, difficulty in recruiting, internal fraud, and loss of public confidence in the reputation of the firm" (Nash, 1999, p. 2).

What is quite amazing is that Ms. Nash wrote these comments back in the early 1990s. Her assessment could not have been more insightful and timeless! Very little seems to have changed over the last decade.

Recent surveys show that a substantial majority of Americans is unhappy with the social behavior of corporations and the misdeeds of too many corporate executives. Continued layoffs, reduced benefits, increased hours worked, plunging credibility of management, and questionable human resources practices continue to plague many organizations. Despite recent improvements in the overall business ethics climate and tightened regulations at both the state and federal level, some problems still persist.

Many business executives want to run ethical companies. They believe the culture of their organizations is what they have decided it should be and say it is. Based on the leadership guidelines provided by senior management, many organizations have established policies and processes that define and reinforce a certain set of ethical standards. They also train their managers and employees to understand these policies and, in theory at least, follow them in their day-to-day activities. You can often see these value propositions posted all over the company, in boardrooms, on hallways, and in conference rooms: "quality is job one," "fly the friendly skies," "we treat our employees like family," or "our customers are our most valuable asset."

However, as a practical matter, the pervasive culture within a company is actually defined by the conduct of its managers, officers, and executives. Employees pay much closer attention to what executives actually do than what they say. They tend to emulate the behavior of their bosses, especially the successful ones. Employees are rewarded, recognized, and promoted by these executives and many will tend to do what it takes to achieve that success and climb the corporate ladder.

A paycheck is a very powerful motivator and will sway the employee to avoid any conflicts and actions that may endanger it, regardless of how important the company considers ethics. The promise of advancement, pay raises, or just a regular paycheck can be strong and alluring motivating factors. I'm afraid many times people compromise their ethics once pressure is placed on them. When bills must be paid every month, even the most ethical among us must think really hard about how serious we're going to take a stand for justice and truth; and how far we are willing to bend to avoid loosing our jobs. That's why I hold management and senior management primarily responsible for the ethical mistakes and disasters in their organizations. They set the tone and create the culture that exists in companies.

Unless ethical behavior is integral to management conduct and strategies, it will fall by the wayside and will not become a part of the day-to-day activities of the business. No matter how widely touted and frequently ethical policies are repeated, they will not have a lasting impact unless management follows those policies and rewards employees who uphold them.

Management must "walk the talk," in order for ethical behaviors to be effectively modeled and then emulated by employees. However, some individual employees are driven by their own set of principles and values. Many strive to maintain those personal ethical standards despite the negative reinforcement they encounter inside an organization. However, when an individual's mental well-being and job survival are at stake, the employee understandably may not have the ability and courage to stand up and either act ethically ("do the right thing"), draw attention to the problems he or she encounters inside that organization, or blow the whistle on management if the seriousness of the situation warrants it.

A truly dangerous aspect of unethical behavior and its consequences is expressed by Laura Nash, "History and developmental psychology have indicated that members of almost any group, though individually well intended, can sink to immoral depths they would never test as individuals." In the quest for profitability and success, groups of employees will easily overlook ethical principles and focus solely on short-term benefits or job security. That is why it is so important to make ethical practices inherent in the organizational culture and thereby reinforce ethical behaviors.

Personal ethics has to play a role in business ethical decision making. In today's ethically focused business environment, managers need to allow individuals to stand behind their ethical principles without endangering their positions.

Managers have a responsibility to not only be above reproach, but to also insure that they are perceived by their employees as also being above reproach. Otherwise, despite conducting himself or herself in an ethical, just, and responsible manner, the manager becomes an unwitting contributor to the "look-the-other-way" climate, which may encourage others to engage in ethical abuses. This perception issue raises the responsibility of managers to a much higher level than the front-line employees and further explains why companies must reward these managers with incentives to encourage them to stay vigilant and sharp when it comes to ethical business standards.

Nash describes four essential character traits that leaders of organizations need to exhibit:

  • Ability to recognize and articulate the ethics of a problem
  • The personal courage not to rationalize away bad ethics
  • An innate respect for others
  • Personal worth from ethical behavior (Nash, 1999)

    These qualities are by no means exclusive, but they create a benchmark from which to start. Solid values hold up over time and will help build a company that will be well suited to deal with most ethical issues and remain profitable for the long term.

    Managers must encourage employees to act on principle and use positive and negative reinforcements to support those values. Employees must see that a manager is willing to encourage and support ethical behavior even when it may increase costs and negatively affect short-term profitability. They need to see that others who choose to act ethically and responsibly are recognized and promoted for doing the right thing.

    Furthermore, employees must also see that those individuals who behaved unethically are held accountable, reprimanded, and under certain circumstances even terminated for inappropriate conduct. As Laura Nash emphasized, "without explicit signals from the top, the other employees and managers are likely to ride a roller coaster of morality, high when it is to their advantage, low or passive when financial or career penalties threaten." The ethical tone is set from the top of the organization down and must apply equally to everyone in the company without exception.

    Ultimately doing the right thing consistently pays off by having a stable workforce, happy employees, satisfied customers, and long-term profitability.