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    Published: April 27, 2009

    Column
    By Patricia J. Harned, Ph.D., President, ERC

    Do the Right Thing When Times are Tough

    Among the many tales of ethical lapses at Enron, one of the more poignant and painful episodes involved an employee meeting that happened just before the company fell to pieces in late 2001.

    A worker asked Ken Lay, then president of Enron, about rumors of the company’s failing health. The employee wanted to know whether his job and stock holdings were safe. In his charming, fatherly way, Lay assured the man that his position was secure and that an investment in Enron was a shrewd way to plan for the future. Lay even encouraged employees to sell the rest of their portfolios and put it all in Enron. Lay himself, of course, was quietly selling his shares, cashing out before the iceberg hit.

    I thought about this sad vignette recently. Not because I believe that most senior leaders would do something so unscrupulous. It’s because I’ve been thinking about that poor employee—and his colleagues—who trusted corporate leadership and got badly burned as a result. I’ve been wondering about how some leaders seem to think only of themselves when the ship is going down.

    And lots of ships are going down these days. The demise of Enron was largely the result of internal poisons, but today even some of the most tried-and-true—and ethical—companies are bending under the weight of tough economic times. Many respected and ethical leaders are feeling the strain. That has caused me to reflect on how senior leaders can do the right thing during these tough economic times. And how ethics and compliance officers can help them navigate the waters.

    Don’t be an ostrich or a dreamer. Part of what makes an executive a leader is his or her vision. Leaders see beyond the here and now and have an uncanny gift for imagining what could be. But leaders also need to be able—and willing—to see how drastically things could go wrong. They must be responsible and courageous enough to prepare for trouble ahead. Then they have to take an inventory of who might be hurt if things go south.

    That means taking a hard look, accepting hard truths, and always remembering that every number on every balance sheet is intimately tied to actual people who need roofs over their heads and food on their tables. Those people deserve thoughtful, respectful treatment, and companies need to deliver that treatment or risk unethical behavior in their employees.

    Bluffing is not a winning strategy. Difficult economic circumstance forces companies to make important strategic decisions. Employees know this. The worst mistake you can make is to pretend that nothing is wrong, and that nothing ever could be at your company. You don’t want to frighten your employees or send them into a state of panic, but it’s essential that internal communication also be given significant time and attention.

    If your organization is struggling, the financial health of each of your employees is at risk as well. They have a right to hear from top management so they can start saving. You can (and probably should) spare them the gruesome details but they deserve to be told the parts of the story that may put them (and their families) at risk.

    Many leaders don’t share the hard truths with employees because they fear that valued workers will abandon the company for greener pastures. That is a legitimate fear and departures may well happen, but I truly believe employees are less likely to abandon ship if their employer has demonstrated that he or she has considered them and their needs. Loyalty breeds loyalty. It is human nature to repay consideration, respect, and responsibility in kind; encourage such virtues in the workforce, and it will remind them of why they like working with and for you.

    Take your share of suffering, and be seen doing so. Sacrifices are necessary in lean times. That certainly entails cutting your bonus rather than laying people off, but those steps are only part of what an ethical leader should be doing. Explore the little ways you can be more frugal—and where more frugality doesn’t make sense, explain that.

    Take the policy of flying coach class as an example. Doing so when possible makes good sense, but there may be times when flying coach isn’t a good idea. It’s reasonable for a senior executive to fly business class if flying coach means arriving exhausted and unready for an important meeting. Still, you have to ensure that employees understand why you do what you are doing. Otherwise, they’re likely to focus on flying in a plush seat with free drinks on the same day you cut back the overtime hours they need to survive. Through no ill intention of your own, you’ve just set a poor tone from the top.

    When layoffs become a necessity, help employees to finish well. Despite all the warnings and cost-cutting initiatives, sometimes layoffs become a necessity. What now? First, communicate what is happening and when it’s happening, then reiterate why it’s happening. Second, make sure that everyone understands that people are being let go because of finances, not performance. Let them finish with their dignity intact. And most importantly…

    Send them out into the world with provisions. When you are determining what cuts to make, factor in severance pay for those being laid off. Give them as much of a parachute as you can. Give supervisors the time to write letters of recommendation, and encourage them to do so. Encourage managers to develop lists of other potential employers. And before you issue the first pink slip, have the appropriate people in your organization gather information on continuation of benefits and how to file for unemployment. Make the transition to unemployment as easy, painless, and dignified as possible, and the prospects for future employment as positive as you can.

    Don’t forget the needs of those who remain. Although layoffs are hardest on those let go, they have a profound effect on even those employees who are retained. I know someone who works for a construction management firm that used to have 6,000 employees. Today there are only 5,000. Consider the workload, the stress, the uncertainty, and even the guilt those 5,000 experience. When planning for and weathering layoffs, make the needs of retained employees part of your plan. Communicate clearly the whats, wheres and whys of the workforce reduction, and the strategy for dealing with the transition and resulting shifts in responsibilities.

    Let your values be your guide. It’s easy to forget your core values when there are so many pressing issues and competing priorities. But this is exactly when you need them most. They are your organization’s common language of right and wrong. They are your ideal. Let your core values be your touchstone.

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