The Bottom Line is Integrity

2002
Stuart Gilman

You can't legislate ethics. The requirement of CEO financial certification that goes into effect this week, while necessary, certainly isn't sufficient. It may in the short run deter some less scrupulous individuals from corruption. But it would be naive to believe that in the long run, unethical individuals will not find a way around these new rules. What will make a difference will be the ethical character of corporate leadership, not a forest of new laws and regulations.

The vast majority of today's corporate leaders exhibit strong ethical characteristics. When CEOs certify their numbers, in essence they are certifying the integrity of their organizations. The trouble with integrity, though, is that it often seems abstract. Like art, we know it when we see it. But we are not sure how to turn the abstraction into concrete reality.

Can an ethical CEO have a direct effect on a company's integrity?

Absolutely.

Since the Defense Department scandals of the early 1980s, we have seen CEOs like Norm Augustine of Lockheed Martin do just that. Best practices have been developed and refined. Extensive research, especially that which bridges the gap between academics and the business world, have brought new insights, shown us what works, what doesn't and why. In fact, there are steps you can take to be sure that what you are signing is not just wishful thinking, but is under girded by the validity and the integrity of the organization.

You can build your house on the sand, or build it on the rock. You need to have a system for ensuring the integrity of your organization. At a minimum you must address the following:

• Strong ethical leadership

Actions speak louder than words, but silence is also deafening. Because of the importance of creating a robust ethics infrastructure, ethics cannot be delegated. CEOs cannot be passive when it comes to ethics. The emphasis and priority given to financial goals in corporate communications gives the impression that the numbers are all that matter. If you want those numbers to be legitimate, if you want employees to know that ethics matter, you must tell them, repeat it, and tell them again.

Being a good person is not enough. Research has shown that you cannot assume that employees will see your good works and emulate them. Ethical leaders demonstrate the importance of values in both word and deed. All CEOs make difficult decisions every day, and most agonize over those with ethical implications. Ethical leaders discuss the values, as well as the numbers, behind those decisions.

• Effective ethics management

Eighty percent of organizations in America have some type of a formal ethics program. Unfortunately, the recent trend is to marginalize ethics, cut resources and demote the position of ethics officer. To ensure the integrity of the company, CEOs should follow the lead of American Express, empowering their ethics officer to report to the audit committee of the board.

• Dynamic ethics codes

Effective codes are living, breathing guidelines, implemented with clear, useful policies and procedures. They become the cornerstone of the ethics program - they are not in and of themselves an ethics program - and they should never be waived. If such codes are simply written and posted on a wall, or stuck in a drawer they create more skepticism and cynicism among employees than if they had never been written at all.

Communications and training on the code of ethics, values, policies and procedures are fundamental to ensuring the integrity of the corporation. While employees love to cynically joke about ethics training, 89 percent of corporate employees who receive ethics training find it useful "frequently or occasionally." Perhaps more than ever, as responsibility is decentralized, employees are under increasing pressures and find themselves moving from one company to another more frequently, communications and training around ethics are paramount.

• Rewarding ethical behavior

Bad people do bad things. Good people do bad things when they are motivated to do so. The current scandals have shown that people are motivated by the obvious: the promise of rewards and the fear sanctions. While there has been much talk of penalties, it is not enough to punish people for doing bad things. If we want our employees and agents to be ethical we must make ethical behavior rewarding. Effective CEOs recognize integrity on the part of individuals and groups - and require their managers to do the same.

It is also important to be aware of what types of pressures are on employees. Many employees and companies thrive in a fast-paced, competitive environment, but without strong reinforcements pressure to perform can easily be interpreted as pressure to lie, cheat and steal.

We have all recently received a crash course in unethical corporations. Their leaders build multi-million dollar mansions in homestead states so even if bankrupted they can preserve a sizeable portion of their wealth. They willingly urge corporate boards to put aside their codes of conduct so they can profit from off-the-books deals. They collude with their expert advisors to take advantage of every loophole and lapse in the law and regulation when it serves their personal needs - barely heeding the letter of such laws and regulations, while turning a blind eye to their spirit. They callously ignore the effects of their decisions on the lives of the innocent: be they employees, suppliers or shareholders content to serve themselves.

Ethical business practices used to be linked to the corporation's long-term best interests, contrasted against devious practices that often brought short-term gain. Ironically, in the current environment, ethics is now about the short term. The current market will not be fooled. Recommitting an organization to ethics cannot simply be a PR campaign. An active commitment to ethical behavior - from the top down - will be the best safeguard against corruption - and ultimately the only thing that will fully restore investor confidence.

Dr. Stuart C. Gilman is President of the Ethics Resource Center, a Washington DC nonprofit that advises business on corporate ethics.