You're eating lunch at a restaurant when you overhear two colleagues loudly discussing privileged, confidential information about a client. In response to this action, do you: a) do nothing, b) confront them and explain why it's wrong to publicly disclose it, or c) notify HR?
Tacks differ. But most experts advise that doing nothing is unacceptable.
Linda Trevino, co-author of "Managing Business Ethics: Straight Talking About How to Do It Right" and a professor at Penn State's Smeal College of Business, says the two colleagues' behavior might damage the business. She suggests going to HR.
Bruce Weinstein, author of "Life Principles: Feeling Good by Doing Good" and a keynote speaker on ethics, suggests another tack.
He says you should go directly to your colleagues and explain why their actions could damage the company. At the same time, he says going to HR is too severe. In fact, Weinstein recommends using this question during hiring to determine if a job applicant will act ethically in such a situation.
Whatever the right course of action, it's clear that companies are taking the issue of business ethics more seriously these days.
After Enron, WorldCom and Arthur Andersen were ruined in 2001-03 due to ethical lapses of CEOs and senior executives, many companies responded by putting more teeth in ethics training. It's too soon to tell if the upshot will be more ethical behavior by business staffers. But the issue is definitely on the table.
"There's more of a recognition by top management that they need to be proactive in managing business ethics," Trevino said. Expanded regulations like Sarbanes-Oxley that compel CEOs to sign financial statements and increased protection for whistle-blowers are all contributing to this enhanced focus on ethics.
Most companies are making cultural assessments of their ethical climates, says Keith Darcy, executive director of the Waltham, Mass.-based Ethics & Compliance Officers Association, which has 1,400 members.
Ethics officers design programs and survey employees about whether the firm is living up to its ethical standards. The Big Four accounting firms ask senior managers if the CEO is ethical. If they get any adverse feedback, they follow up on it, Darcy says.
Ethical training is taking place across the board for senior managers and their subordinates, and "the board must be perfectly fluent in what's going in. They have a fiduciary obligation for oversight," Darcy said.
To ensure that ethics seeps into an organization's culture, ethics must become part of performance management. People need to be rewarded for their ethical actions, not just how many widgets they sell, Trevino says.
To encourage ethical behavior, defense contractor Lockheed Martin LMT bestows an annual Chairman's Award on a worker who displays the most scrupulous behavior.
In one case, Ron Covais, a vice president in business development, was nudged to pay a bribe to win a contract by an executive of an overseas company. He notified the exec's firm, which halted the bidding process, fired the person and restarted the process with a clean slate due to Covais' actions.
For many years, Arthur Andersen had a strong ethical culture, Trevino says. But fixating on profits replaced ethics, and people "were encouraged to just make more money, even if it took lying to clients," she said. The result led to Arthur Andersen's downfall and demise.
Accenture Sets Example
Accenture ACN, the consulting company that split from Arthur Andersen in 1989 long before the issues occurred, highlights its ethical code for employees on its Web site. Clients learn that Accenture is committed to "fostering the highest ethical standards amongst its personnel and preventing and addressing any misconduct and law by personnel."
The firm stresses ethics because "we're in a relationship business, and relationships are built on trust," said Doug Scrivner, its general counsel who runs the ethics program and is based in San Jose, Calif.
Accenture's robust ethics program includes training, reminders and refresher courses and includes specific courses on insider trading, anti-corruption and data privacy. Decision Point, a bimonthly newsletter distributed to employees, explores ethical dilemmas to reinforce the training.
Moreover, ethics are incorporated into Accenture's performance management. Staff is evaluated not just on sales and performance but ethical behavior, Scrivner says.
Though he notes that Accenture split off from Andersen 20 years ago (first as Arthur Andersen Consulting and renamed Accenture in 2000 before the Enron scandal), Scrivner says Andersen forgot what it was about, focusing on getting bigger and neglecting its duties to investors and the public.
Weinstein says stressing ethics and holding staff accountable is a "profitable strategy." Operating as an ethical company promotes positive word of mouth, which helps retain customers.
Ethical practices also avoid lawsuits and transgressing the law, which can be costly. For example, a company might gain short-term revenue from selling its clients' confidential information but still suffer long-term by damaging its reputation, Weinstein says.
Subprime Ethics Gap?
Had companies acted ethically in the subprime mortgage crisis and not offered credit to people who were considered bad risks, many financial services companies might have avoided suffering massive losses. In subprime lending, "taking the high road would have resulted in being more profitable and meeting the needs of its clients," Weinstein said.
Creating an ethical culture has several long-term business benefits. Companies attract and retain better employees. "If you get caught and face huge fines and end up on the front page of the Wall Street Journal, it hurts your reputation," Trevino said. In the Internet age, any company that acts unethically finds the video splashed on YouTube in nanoseconds.
When several mutual funds in 2003 were accused of unauthorized late trading or illegally buying fund shares after the closing bell, those companies lost $900 billion in assets in a matter of weeks, Darcy noted. "There's a flight to integrity," he said. "Who wants to do business with a firm you don't trust?"
Acting ethically is about succeeding in business in the long term. You can get away with some misleading actions short-term, but eventually it catches up with you, Trevino says. If you don't believe her, ask the former execs and stakeholders of Enron, WorldCom and Arthur Andersen.
Source: Investor's Business Daily