Ordering Ethics Rx For Bedeviled Execs

• Gary M. Stern
• On 5:42 pm EDT, Friday September 18, 2009

When James Martin worked at General Electric International Finance in the early 1980s, his business unit failed to hit its numbers one quarter. It was an overriding matter to his boss's boss, who ordered him to cover the shortfall and "squirrel away (phony) earnings in fake accounts with made-up names."

Fearing for his job, Martin complied, but in retrospect he said, "I was 21 years old, felt powerless and didn't have a strong sense of ethics."

Martin, who's now a priest and editor at America, a religious magazine, and the author of "In Good Company: The Fast Track From the Corporate World to Poverty, Chastity and Obedience," isn't alone. Execs at Enron and Arthur Andersen acted unethically, setting the stage for the collapse of those firms.

Despite such high-profile scandals, tough economic times are forcing some companies to cut back on ethics training. In fact, Roy Snell, CEO of the Society of Corporate Compliance and Ethics, said a survey of 604 of its members showed that 36% were spending less on ethics training. Only 15% spent more and 49% were maintaining ethics training budgets. "There was a push four or five years ago after the negative publicity, and now we've had a lull of episodes," Snell said, explaining the decline.

Ghost In The Machine

The decision by some firms to cut back on ethics training may haunt them. Analysts say creating an ethical culture can help sustain long-term growth, not hamper it.

IHS , an Englewood, Colo.-based business-to-business data company with 3,800 employees in 20 offices worldwide, has stepped up its ethics training, says Sean Radcliffe, its chief compliance officer. He says it gets return on its investment from its multilayered ethics training. This includes ensuring that its entire staff knows its code of conduct. There's also online training, hiring an ethics consultant, and stressing ethics at quarterly staff meetings.

Though IHS is focused on performance and growth, Radcliffe says staffers are also trained to do the right thing. "If revenue targets are missed, that will be understood. We strive for success, but not at the expense of our reputation," he said.

Dov Seidman, author of "How: Why How We Do Anything Means Everything ... in Business (and in Life)," says organizations need to focus on values and how decisions are made, not just the bottom line, to stem future frauds, scams and other ethical skids.

The ultimate way to create a company whose employees are dedicated to doing the right thing as a way of doing business: forge an ethical culture that permeates the organization.

"Culture is how things happen, how decisions get made, how performance is rewarded. Every element of the system reinforces the other element," said Seidman, who also serves as CEO of LRN, a Los Angeles-based firm that helps companies develop ethical cultures.

But having mission statements, hiring ethics consultants and encouraging honest employees doesn't ensure an ethical environment unless you have honest leaders. "If you have certain people in power who say 'do this,' ethics goes out the window," James Martin said.

Values have changed since Martin caved in to his bosses' unethical demands. "We no longer live in a 'just do it -- no questions asked' world," Seidman said. Most cultures aren't corrupt, and most leaders don't condone this kind of behavior. "Even if your boss asks you to do something unethical, you can ask and enlist other people for help," Seidman said.

The fall of powerhouses like Bear Stearns and Lehman Bros. has sent a strong message to CEOs and companies. "The source of market power and sustainability isn't about becoming the biggest and throwing leverage around. We've seen these companies go poof," Seidman said.

The carrot-and-stick approach that rewards the salesmen and producers with the highest volume has led to abuses when the company's best practices are based on meeting or exceeding the numbers. Instead, companies need to show inspirational leadership by encouraging staff to mix ethical practices in their everyday business dealings.

Nix Situational Ethics

But creating an ethical culture can be tough to achieve. Many companies focus on ethics, but they also stress hitting and surpassing quarterly numbers. "When those two forces came into conflict, guess which one came aside," Martin said, implying that certain senior managers would do anything to hit their targets. Situational ethics prevailed over doing the right thing.

Seidman argues that ethical companies provide a competitive edge. They resonate with customers and help to retain them. The best employees also leave businesses that skirt the rules, so it helps to keep innovators and leaders by doing the right thing.

Sounding the opposite of Gordon Gekko, the villainous banker played by Michael Douglas in the movie "Wall Street," Seidman said: "The game is up on greed. It's not sustainable." A cultural shift is occurring, he says, causing most people to prefer to work with companies and colleagues they believe in. Martin is more skeptical about the shift. But he agreed that "people are happier and more satisfied when they're not asked to cut ethical corners."

In the end, only time will show if there's been a sea change or merely some ripples in the ethics that govern U.S. companies.

Buzz up!