In the End . . .

What has struck me the most as I look over the content of business ethics is how businesses go about rationalizing ethical misconduct. There seems to be four distinct rationalizations used by businesses. They are as follows:

• A belief that the activity is within reasonable ethical and legal limits – that is, that it is not really illegal or immoral. The notion that anything that isn’t specifically labeled as wrong must be okay is an open invitation for the ethically challenged employer and employee – especially if there are explicit rewards for such creativity within those newly expanded ethical limits.

• A belief that the activity is in the individual’s or company’s best interests – that the individual would somehow be expected to undertake the activity. In a highly competitive environment, working on short-term targets, it can be easy to find justification for any act as being in the company’s best interests.

• A belief that the activity is safe because it will never be found our or publicized - the classic crime-and-punishment issue of discovery. Every act that goes undiscovered reinforces this belief.

• A belief that because the activity helps the company, the company will condone it and even protect the person who engages in it. This belief suggests some confusion over the loyalty being demonstrated here. Companies engaged in unethical behavior – willingly or otherwise – may protect the identity of the personnel involved but only for as long as it is in the company’s best interests to do so.

The challenge for any company in building and operating an ethical business requires a great deal more than simply doing the right thing. The company must devote time to the development of a detailed code of ethics that offers guidance and traction as opposed to traditional general platitudes that are designed to cover a multitude of scenarios with a healthy mix of inspiration and motivation.

Of greater concern is the support offered to employees when they are faced with an ethical dilemma. This involves not only the appointment of a designated person or group to handle such issues, but also the creation and ongoing maintenance of a corporate culture of trust.

The bottom line: it always boils down to a matter of trust.

The Triple Bottom Line

Companies pursue operational efficiency through detailed monitoring of their bottom line – that is, how much money is left over after all the bills have been paid from revenue generated from the sale of their product or service. As a testament to how seriously companies are now taking their social responsibility, many companies now seem to have adapted their own annual reports to reflect a triple bottom line approach, where they provide social and environmental updates alongside their primary bottom line financial performance.

To some degree, there is an aspect of The Emperor’s New Clothes attached to the triple bottom line approach. While it may be easy to support the idea of organization’s pursuing social and environmental goals in addition to their financial goals, there has been no real evidence of how you would measure such achievements. If one subscribes to the old management adage that “if you can’t measure it, you can’t manage it,” the challenge of delivering on any triple bottom line goals becomes apparent.

So, if you can’t measure it, can you really at a bottom line for it? It would appear that many companies are taking a fairly opportunistic approach in adopting the terminology with following through on the delivery of a consistent methodology. Perhaps if one is seeking to make amends for prior transgressions, the “feel good” terminology associated with the triple bottom line approach can make a convincing case. Consider the following from Coca-Cola’s 2004 Citizenship Report.

Our Company has always endeavored to conduct business responsibly and ethically. We have long been committed to enriching the workplace, preserving and protecting the environment, and strengthening the communities where we operate. These objectives are all consistent with – indeed essential to – our principal goal of refreshing the marketplace with high-quality beverages.

Yet, Coca-Cola has its problems. Nice words on paper - but are they followed-through with actions? Coca-Cola has been presented with several complaints over the years. For example:

• Bio-solid waste disposal in India, where the complaint alleged that bottling plant sludge containing high levels of cadmium and other contaminants were distributed to local farmers as fertilizers.
• Pesticides were found in Coca-Cola products in India and in excess of local and international standards.
• In Columbia, its bottler’s union claims repeated incidents with its members at the hands of Coca-Cola officials – threatening and harming union leaders and potential members.

Clearly, it may be easy to make a public commitment to corporate social responsibility, but actually delivering on that commitment to the satisfaction of customers and society can be much harder to achieve.

A Mouse's Tale

In the shadows of the corporate scandals that have dominated the media over the last several years (Enron, Worldcom, Tyco), one of the our largest and most well-known organizations has provided an example of a boardroom drama that shines an unflattering light on corporate governance in practice. The mouse – Disney – delivered a classic power struggle between right and might as disgruntled directors challenged the activities of a CEO whose 20-year performance record appeared to give him absolute power.

The principal lesson from Disney appears to be that, with someone as clever and overbearing as Michael Eisner at the top, the most brilliantly designed governance rules in the world can sometimes mean zilch – nadda. Eisner’s approach to corporate governance can best be identified in his relationships to Disney’s Board of Directors.

• Fact: Although Disney’s bylaws require the BOD hire the president, neither the compensation committee nor the full Disney board reviewed or approved the agreement between Eisner and Ovitz.

• Fact: By the time Ovitz was fired, stock options had made Eisner the company’s second largest individual shareholder, eclipsing even Roy Disney and other members of the family.

• Fact: While Eisner’s ownership was growing, he had consolidated power by isolating board members, compromising their independences, and stripping them of any real oversight.

• Fact: Disney maintained that the other 12 directors were independent in the sense that they didn’t work for the company - a narrow and meaningless definition of independence.

• Fact: Board member George Mitchell earned a $50,000 consulting fee in addition to his board stipend, and his law firm earned hundreds of thousands in legal fees representing Disney on various matters. What was that about not working for the company?

So what is the correct corporate governance model? The answer: there is none? Even with a board that passes all the tests and meets all the established criteria of a particular governance model, ethical conduct can still come down to the individual personalities involved. There is more to effective corporate governance than simply maintaining a specific model and adhering to a set of bylaws. Simply having the mechanisms in place will not in itself guarantee good governance. Clearly put, no system of corporate governance can be totally proof against fraud or incompetence. The real test of any governance structure is level of accountability of each participant.

Oh, and remember – absolute power corrupts absolutely.

I Needed a New Tire . . .

. . . and started to think as a new tire was placed on my car . . . what if the retail outlet that sold me my new tire did so only to gain an incentive from the manufacturer? Let’s face it, retail organizations are sales-driven. They have to be in order to be successful, and salespeople in retail organizations are usually aggressive, looking to peddle those goods where the manufacturer is offering incentives. Suppose the tire store negotiated short-term incentives on specific brands to generate sales, signing an exclusive contract with the tire manufacturer of my new tire, to take every tire they can produce in their new line of tires. That exclusive contract comes with a huge discount based on serious volume. In other words, the more tires the retailer sells, the more money they’ll make – and we’re talking lucrative results for the company and very good bonus money for the salesperson.

Now suppose that one of the store’s salespersons with knowledge about tires took a look at the tire specifications and determined that the specifications were sub-standard.

If the salesperson decides to raise concerns about the product quality of the tires, he will become a whistle-blower. How would he go about the process if he does decide to raise concerns? What should any employee do who has such concerns? For me, any employee including the salesperson at my tire store should start by following the internal process if there is one. If not, he should approach the appropriate regulatory authorities to raise his concerns. If that doesn’t work, he could contact the media as a last resort.

Another question would be whether or not this example of whistle-blowing is ethical. For me, the salesperson’s concerns about the design specifications and quality of the tires, and perhaps even with his extensive work experience, wouldn’t count as definitive evidence of problems with the tires. The employee must have documented evidence that is convincing to a reasonable observer that his or her viewpoint of the situation is accurate, and evidence that the store’s practice seriously threatens and places the public in danger.

Clearly, however, the salesperson faces an ethical dilemma. Should he sell the incentive-laced tires? Or, should he place his job and company at risk by not taking advantage of the incentives, opting to sell those tires where he has confidence in the specifications?

From a consumer’s standpoint and for me as I sat in the waiting area flipping through a magazine, all I could do is reason that I have to trust the person and company I am dealing with – that he or she would not want any harm to come to another person

Trust can be such a fragile thing.

We Are All Stakeholders

The story of Erin Brockovich drew great attention with a movie in which Julia Roberts portrayed the legal assistant as a heroic single mother fighting for the legal rights of the citizens of Hinckley, California. The culprit, the villain was the Pacific Gas & Electric Company (PG&E). The lawsuit accused PG&E of allowing a rust inhibitor to leach into the water table, thus contaminating the groundwater for Hinckley residents. Over a 30-year period, it was alleged the leaching of this toxic substance resulting in debilitating health conditions of local residents. Eventually PG&E reached a multi-million dollar settlement with Hinckley residents.

The case brought fame to Ms. Brockovich and the law firm where she worked, and the movie which was a blockbuster brought additional fame and a watchful eye. A columnist, Michael Fumento started to make accusations against some of the facts in the case. Specifically, he pointed out that according to some the toxic substance was a carcinogen but only when inhaled. Also, he pointed to a study by a university chemist that the toxic substance when ingested would be innocuous. Fumento then highlighted the fact that other communities with adjacent landfills containing the toxic substance found no ill health effects.

Brockovich was given an opportunity to respond to Fumento’s accusations. She cited PG&E’s own documentation confirming the substance was toxic, and stated that there was no doubt that PG&E acted irresponsibly in dumping the rust inhibitor.

For me, this was a classic case of a company abandoning its corporate social responsibility. Clearly, PG&E appeared to desert its commitments in allowing the pollution to take place, and the situation was further compounded by its apparent lack of concern for citizens of the local community in Hinkley, many of whom were both employees and customers.

Also, and as it regards PG&E choosing to settle, by the time the settlement was reached, the case had reached the court of public opinion rather than a legal court. The stories of the tragic deaths and medical suffering had painted a picture so bleak that no scientific data could have swayed opinion. In addition, their conduct in the early stages of the process had created a perspective that they had something to hide.

This case pointed out that companies need to be held accountable for their actions in order to ensure social responsibility. We are all stakeholders when it comes to the environment.

Ethical Dilemmas

The subject of ethics has always been somewhat difficult for me. It is not that I am unethical or allow unethical behavior; however, the reality is that I have spent most of my business life applying rules and policies. As such, I rarely have viewed situations in ethical terms. I do not make ethical judgments, rather I simply apply the rules.

Recently I came across a tale, one that has helped me to better understand what ethics is about.

As the tale goes, in 1842, a ship struck an iceberg and more than 30 survivors were crowded into a lifeboat intended to hold 7. As a storm threatened, it became obvious that the life boat would have to be lightened if anyone were to survive. The captain reasoned that the right thing to do in this situation was to force some individuals to go over the side and drown. Such an action, he reasoned, was not unjust to those thrown overboard, for they would have drowned anyway. If he did nothing, however, he would be responsible for the deaths of those whom he could have saved. Some people opposed the captain's decision. They claimed that if nothing were done and everyone died as a result, no one would be responsible for the deaths. On the other hand, if the captain attempted to save some, he could do so only by killing others and their deaths would be his responsibility; this would be worse than doing nothing, and letting all die. The captain rejected this reasoning. Since the only possibility for rescue required great efforts of rowing, the captain decided that the weakest would have to be sacrificed. In this situation it would be absurd, he thought, to decide by drawing lots who should be discarded overboard. Before implementing his plan, all on the lifeboat were saved by a passing ship.

So, what about the ethical reasoning of the captain. Was his reasoning correct? Was the reasoning of those in dissent correct? Let's take a look at some ethical concepts and place the captain's reasoning in context:

Virtuous Ethics – The Captain acted on the basis that this was his decision to make and that the decision would be a reflection of his individual character and integrity.

Ethics for the Greater Good – the terrible decision to sacrifice the weaker passengers in order to increase the chances of survival for the remaining ones is a classic example of utilitarianism – i.e. the humanity of the ends would justify the inhumanity of the means.

Universal Ethics – The Captain was acting out of duty and obligation in the belief that there was one "right" or at least "appropriate" decision to be made.

What caught my attention in this scenario is that ethically, the captain was unable to live with the belief that if everyone died no one would be responsible for the deaths. It is this flaw that, in my mind, ultimately leads the captain to make a rash judgment in a moment of crisis without really examining the possibility of rescue. By doing so, he attempted to take advantage of the weaker passengers in the name of "survival of the fittest."

Now, if it were me I would have considered rotating passengers in and out of the boat, or asked for volunteers rather than selecting the weaker passengers. Also, I would have delayed my decision for as long as possible to maximize the opportunity for rescue.But, isn't hindsight great.

Regardless, there is no clear-cut rule to apply.