Building Ethical Cultures From the Inside OutThere is a lot of
attention being paid in the “post Enron” world to fortifying corporate
compliance and beefing up managerial, board and external oversight. As most
parents know, laying a solid foundation of values and providing support for
good decision-making provides better and longer-term assurance that youth
will “do the right thing” – especially when no one is watching – than
approaches based on many specific rules, rewards and punishments. The same
is true with organizations. Especially in complex, rapidly changing and
decentralized environments, we need an approach that builds in motivation
for “doing the right thing” and that reduces reliance on specific
instructions and extrinsic consequences. I call this approach “building
ethical cultures from the inside out.”
In our time together we
will talk about:
-
Why and how ethical
cultures create value
-
What constitutes ethical
cultures, and how we can we sustain them
-
What leadership’s role
is building and sustaining ethical cultures
-
How we can assess
ethical cultures
All we have to do these days is pick up a paper, flip on the news or
cruise the internet, and we are bombarded with news of corporate misdeeds,
lawsuits upon lawsuits, failed investments and more evidence that despite
corporate creeds and lots of lip service to ethics, all is not well in that
respect with today’s markets. In case any of us has been living in a cave,
though, or perhaps just trying to take care of what is on our own plate,
let’s review the “business case” for paying attention to ethics and
integrity. (Although I think it is interesting that most everyone who is
writing or talking about business ethics these days feels compelled to
convince people that “doing the right thing pays,” vs. merit that has in its
own right.)
First then, it makes sense to pay attention to ethics and integrity
because it is expensive not to. We may not even reach the final figure on
the hundreds of millions (probably billions) of dollars that the Enron
fiasco will cost. Add that to the hundreds of millions paid out by firms
annually for ethical lapses and pretty soon we’re talking about some serious
change – good for lawyers perhaps, but that’s about all. And that’s not
counting the toll, hard to dollarize, on peoples’ lives, the trust fabric in
our economy, or any unaccounted for impact on the environment or elsewhere
in the world.
Second, I think most of us prefer to do business with ethical companies
that demonstrate integrity. Walker Information confirmed this in a 1999
national survey, when they found that ethics and integrity of business
practices was the second identified reason, behind only service, that three
quarters of the surveyed population provided for boycotting a product or
service.
My guess is that we would all also prefer to work for organizations and
leaders that demonstrate integrity. In fact also in 1999, Walker
Information learned that fifty per-cent of employees who considered their
employer highly ethical were also truly loyal. Only nine per-cent of
employees who said that their employer was not highly ethical described
themselves as truly loyal. In the National Business Ethics Survey
conducted by the Ethics Resource Center, they found that nine out of ten
employees expected employers to do what is right and not just what is
financially profitable. Even since the job market has tightened up some, I
don’t think we have to dig too deep to get a sense of the value that has in
terms of attracting and retaining talent. So third, paying attention to
ethics and integrity gives us a competitive advantage recruiting and
retaining employees, especially probably the kind of employees that will
help us sustain ethical cultures.
For more evidence of the contribution that ethics and integrity make to
the “bottom line,” consider the research cited in John Kotter’s and James
Haskitt’s 1992 Corporate Culture and Performance. They found that
over an eleven year period companies which actively attend to the needs of
all constituencies or stakeholders (employees, suppliers, the community,
investors, etc.:)
-
Experienced four times the revenue growth than those which don’t.
- Improved
net income by 756% vs. 1%
- Grew
their work force by 282% vs. 36%
- Increased
their stock price by 901% vs. 74%.
So most of us are probably convinced that ethics and integrity pays.
(But we would probably do it anyway since it’s the right thing to do,
right?!) But how do ethical cultures – beyond rules, compliance and
oversight – pay? First of all, an ethical culture provides a strong
foundation, core or center. I am a sailor, and I like to think of an
organization’s culture as the keel of a sailboat, which incidentally is
about 60% of a sailboat’s total weight. There can be lots of activity and
sail trimming above deck, but the keel is always there, cutting a steady
course through the waves. The physics and weight of a keel, by the way, are
what prevent a sailboat from “turtling,” and assures that it rights itself
no matter how serious the storm or how many mistakes are made topside (as
long as there are no holes in the hull.)
As long as I am making nautical analogies, a wise person once said that
rather than taking people in to the woods to cut timber, then teaching them
how to build a boat and supervising the construction, we are better off to
teach them a love for the sea. An ethical culture grounds (or “keels”) an
organization so that people have that “love for the sea” and act from a
strong sense of values. Ethical core values become the “DNA,” if you will,
of the organization. Culture can be such a strong influence (for better or
worse, by the way,) that it can function to countermand whatever else is
going on. As some of us in the consulting world put it, “Culture will eat
strategy every time.” Jim Mitchell, Executive Fellow of the Center for
Ethical Business Cultures, cites research by Jay Forrester, MIT professor
emeritus:
“According to MIT professor emeritus Jay Forrester, 90% of a firm’s
effectiveness is attributable to top management’s leadership behaviors,
the influence structure of the company, how goals are created, and how
past traditions of the organization determine its decision-making and its
future. In other words, over 90% of a firm’s effectiveness is
attributable to its culture.
Well, what is “culture,” and what is an “ethical culture?” While culture
is deep, broad and powerful, it is not always visible or conscious. It
consists of values (the real values, not necessarily the stated ones that
some organizations hang on their wall or laminate) and assumptions. Edgar
Schein, also of MIT’s Sloan School of Management, tells us that these basic
assumptions (for example: “The market’s ‘invisible hand’ will assure the
best overall outcomes”) compose the core of culture. Symbols (like physical
structure and décor,) signs (for example lavishness of holiday parties or
the look and feel of an annual report) and the kind of stories people tell
are “artifacts” that provide clues about basic assumptions and core values.
Culture is the medium through which people learn “the way we do things
around here,” including what gets rewarded, dominant characteristics and
behaviors. Culture becomes the “glue” that holds people together around a
common mission.
By definition, Edgar Schein says that to be a “group” or organization one
must have a culture. So every organization has one. The question is “What
kind of culture will it be?” Here is inTEgro’s definition of an “ethical
culture,” or “culture of integrity:”
An ethical culture, or culture of integrity, is
a propensity to “do the right thing” – reinforced and perpetuated by core
ideology, leadership, organizational “levers” or processes, and practices.
It is a powerful force that maximizes the chances of an organization
and its members acting in a socially responsible manner – balancing the
interests of all stakeholders – in the face of change, uncertainty and
external pressure.
A culture’s “building blocks” include:
- The organization’s purpose
- Its core values (real, not espoused)
- What gets attention and measured
- Who is hired or fired
- What gets recognized or rewarded
- The stories that get told and retold, “rituals” and other
“artifacts.” (Think archaeology.)
- What we could see people doing every day – especially leaders’
decisions and practices.
To what degree a culture is ethical or demonstrates integrity is driven
by the form these take.
I changed the mission, or direction of my consulting practice a few years
ago to focus on what I call organizational or leadership integrity, to
include ethics, but which I define broadly as “helping leaders and
organizations fulfill their promise.” As I reflected on my nearly twenty
years of experience, surveyed the literature and conducted research, I
crafted a working model, or framework, for
organizational and leader integrity. The main dimensions are Identity,
Authenticity, Alignment and Accountability. Let me outline these
dimensions in the form of questions that I hope will help you assess the
integrity of your culture:
Identity
- Have you clearly articulated a “meaningful mission” – beyond your
financial purpose?
- Have you clearly articulated core values so that everyone knows what
they really mean?
- Have you defined your relationship and responsibility to multiple
stakeholders?
- Have you clarified your and your profession’s or industry group’s
ethical principles, policies and decision-making / practice guidelines?
Authenticity
- How complete and accurate are your disclosures?
- Are your financial reports true representations of your organization’s
status and value?
- Do you ever not tell the truth to investors, employees, suppliers,
customers or stakeholders?
- Is your environment safe for “truth-telling?”
- Do people in your organization question assumptions or question
practices they do not believe are right?
- Are diverse opinions and challenges welcomed?
Alignment
- Does your organization “walk its talk?” Does reality (practices)
square with espoused purpose and values?
- Do leaders “walk the talk?” Do they model the organization’s core
values and “doing the right thing?”
- Are organizational systems / “levers” aligned? Do they send
consistent messages and reinforce stated ethical intentions?
- Hiring, firing and performance management
- What gets tracked and measured
- Internal and external communication
- Recognition and rewards
- Are you balancing and aligned with the needs of your multiple
stakeholders?
Accountability
- Are you measuring what matters? Do you have balanced measures that go
beyond financial performance? Do measures reflect adherence to core
values and ethical intentions?
- Do you “keep your promises” – to customers, employees, suppliers,
creditors and other stakeholders?
- How would you and others rate your stewardship?
- Of natural resources
- Of people resources
- As a community and global citizen?
InTEgro has developed an Ethical Culture
Survey, a variation of its standard Organizational Integrity
Survey, to help organizations get a more systematic reading on the
ethical character of their cultures and what may need attention.
Someone asked me this question in one of my presentations recently: “Do
you think that ethics and integrity is driven by the top leadership of an
organization or from below?” My answer was “yes,” and that more accurately
it is driven by the culture – a combination of leaders’ and everyone else’s
behavior over time – kind of a “virtuous circle” (or not.) Clearly, though,
a leader’s values, vision and behavior play a crucial role. What is the
leader’s role building and sustaining an ethical culture?
First we need to know who we are as a leader – how do we define our own
purpose (mine is “to be a catalyst for integrity,”) and what are our core
values? Then we need to be that – to “walk our talk” as Warren
Bennis puts it. As Spinoza put it many years earlier: “To be what we
are, and to become what we are capable of becoming, is the only end in
life.”
Leaders are the primary “keepers of the culture.” Part of how they do
that is managing by values – constantly reinforcing the organization’s core
ideology so the organization can be what it professes to be. The book
Ethics Matters by Dawn-Marie Driscoll and W. Michael Hoffman makes a
strong case for managing and leading by values vs. emphasizing compliance.
Again, leading by values helps people internalize “ethical decision rules”
and know what to do – and why, vs. what not to do.
One of a leader’s primary tasks is to groom future leaders. If we are
serious about sustaining ethical cultures we need to grow and promote
leaders who also embody core ethical values and will be tomorrow’s ethical
“culture keepers.”
Leaders need to model telling the truth (different than not lying) and
cultivate environments that encourage “truth-telling.” I was amazed by Jeff
Skilling’s and Ken Lay’s professed ignorance of Enron’s corporate
misbehavior. I suspect it was either because it was too “inconvenient” to
listen to the “truth tellers,” or because of conscious or unconscious
practices and “cultural cues” that discouraged it.
Last but not least on my list of leadership’s role building and
sustaining ethical cultures is what Jim Collins (Built to Last) calls
“preserving the core while stimulating progress.” I suppose that is why
this is so hard, but I would argue that is what really distinguishes
“ethical leaders” from the “also rans.” I would also argue, and this may
open a can of worms for future conversation, that the ability to stimulate
progress to meet the market’s incredible demands while preserving
core ethical values is what really merits the fantastic compensation that
CEOs can command these days.
|