ethical business cultures: reaping what you sow · 13 copyright © 2010 by the center for ethical...

Copyright © 2003 by the Center for Ethical Business Cultures®.

Copyright © 2010 by the Center for Ethical Business Cultures®

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Celebrating over 30 years of business commitment to ethical cultures.

Ethical Business Cultures:Reaping What You Sow

Minnesota Crop Insurance Conference

Ron JamesRon JamesPresident and CEOPresident and CEO

Center for Ethical Business CulturesCenter for Ethical Business Cultures

15 September 201015 September 2010

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About the Center for Ethical Business Cultures

Mission

To assist business leaders in creating ethical and profitable business cultures at the enterprise, community and global levels

Background31 year old nonprofit organization

Began partnering in 1988 with University of St. Thomas Member of the Advisory Group to the US Sentencing Commission

Advises Boards and Executive Leaders on “Tone at the Top”Building a Bridge Between Thought and Practice Leadership


Why is it Important?

Organizations that build an ethical culture:Do it because it’s the right thing to do

Outperform organizations that don’t

Reduce their exposure to ethical lapses that cause breakdowns

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Goals for the SessionGoals for the Session

Examining and Learning How to Use Different Examining and Learning How to Use Different Ethical Approaches in Business Ethical Approaches in Business

Scanning the Environment to Examine the Trends Scanning the Environment to Examine the Trends in Ethics in Business in Ethics in Business

Insights into How Organizations Build and Sustain Insights into How Organizations Build and Sustain Ethical CulturesEthical Cultures

To highlight how building an ethical culture adds To highlight how building an ethical culture adds value to an organizationvalue to an organization



Examining Ethical Approaches

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Keep OutKeep OutExtremely DangerousExtremely Dangerous

High Voltage!!!High Voltage!!!

As the new mayor of Happy Hills, would As the new mayor of Happy Hills, would you direct that this sign be:you direct that this sign be:

Taken down or altered?Taken down or altered?oror……

Not taken down?Not taken down?


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Ethical ApproachesEthical Approaches

Consequences Consequences What will be the effects of the proposed What will be the effects of the proposed action on any stakeholders?action on any stakeholders?

Absolute Principles Absolute Principles Will the proposed action be in alignment Will the proposed action be in alignment with universal ethical principles?with universal ethical principles?

Synthesis Synthesis Both stakeholder consequences and Both stakeholder consequences and absolute principles must be considered.absolute principles must be considered.

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Ethical ApproachesEthical Approaches

Beyond the Absolute Principles and Consequential Beyond the Absolute Principles and Consequential approaches:approaches:

Duties Duties –– Obligations to a community of common Obligations to a community of common interests, i.e. fiduciary responsibilityinterests, i.e. fiduciary responsibilityRights Rights –– Fair distribution of opportunities and wealth or Fair distribution of opportunities and wealth or basic freedoms and libertiesbasic freedoms and libertiesInterests Interests –– (Consequential) Harms and benefits to the (Consequential) Harms and benefits to the interest of parties affectedinterest of parties affectedVirtue Virtue –– (Absolute Principles) A positive trait of (Absolute Principles) A positive trait of character including prudence, impartiality, courage, character including prudence, impartiality, courage, justice, and belief/trustjustice, and belief/trust



Scanning the Environment

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Who Do You TRUST?How much do you TRUST each institution to do what is right?

(2008 - 2010)

Percent America’sUS/Canada/Brazil

EuropeFrance/Germany/Russia

AsiaChina/Japan/India

Business 2008 58/49/61 30/35/42 54/61/74

Business 2009 36/45/67 30/34/52 62/63/71

Business 2010 54/na/62 36/40/42 62/57/67

Govt. 2008 39/39/22 35/27/38 79/45/49

Govt. 2009 30/51/51 34/36/48 72/45/42

Govt. 2010 46/na/na 43/43/38 74/na/43Source: 2010 Annual Edelman Trust Barometer


Confidence in LeadersConfidence in Leaders

Source: Harris Poll March 9, 2010

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Copyright © 2010 by the Center for Ethical Business Cultures®1313

Ethical Breakdowns in the NewsEthical Breakdowns in the NewsPurdue PharmaBristol Myers-SquibbBank of AmericaJP Morgan ChaseTake-Two Interactive SoftwareRoyal Dutch ShellReliance CommunicationsThe McLaren GroupMattelUBSSociete GeneralePetroChina AGA Medical Co.CitibankBear StearnsSanluBernard Madoff

Purdue PharmaBristol Myers-SquibbBank of AmericaJP Morgan ChaseTake-Two Interactive SoftwareRoyal Dutch ShellReliance CommunicationsThe McLaren GroupMattelUBSSociete GeneralePetroChina AGA Medical Co.CitibankBear StearnsSanluBernard Madoff

Morgan StanleyPutnamQwestUnitedHealth GroupBUCASiemensHewlett PackardParmalatCendantComputer AssociatesKPMGHyundai MotorBoeingAmerican Red CrossJohnson & Johnson

Morgan StanleyPutnamQwestUnitedHealth GroupBUCASiemensHewlett PackardParmalatCendantComputer AssociatesKPMGHyundai MotorBoeingAmerican Red CrossJohnson & Johnson

WorldcomEnronTycoHealthSouthGlobal CrossingArthur AndersonAdelphia

WorldcomEnronTycoHealthSouthGlobal CrossingArthur AndersonAdelphia


How Do You Measure-Up?

Rating the honesty and ethical standards of people and professions (very high/high):

Nurses 83%Medical Doctors 65%Policeman 63%College Teachers 54%Bankers 19%State Governors 15%Lawyers 13% Business Executives 12%Congressman 9%Car Salesmen 6%

Source: Gallup Poll. December 2009. Honesty and Ethics

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Financial Performance

Behavioral Performance

Two Languages of BusinessTwo Languages of Business


Misconduct at WorkMisconduct at Work

2003 2005 2007 2009Source: Ethics Resource Center's 2009 National Business Ethics Survey

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Reporting MisconductReporting Misconduct

Source: Ethics Resource Center's 2009 National Business Ethics Survey


The DisconnectThe Disconnect

OverallSenior Mgmt Manager Non-

Mgmt

Where I work, people do not “get ahead”unless their behavior clearly demonstrates company’s values.

66% 57% 48%

Where I work, ethical issues discussed w/o neg consequences.

77% 72% 60%

Source: Kenexa WorkTrends 2008

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Knowing you would never be caught, would you Knowing you would never be caught, would you act unethically to make more money or get ahead?act unethically to make more money or get ahead?

* Yes and Not Sure combinedSource: Junior Achievement/Deloitte Poll December 2007


2020

Cheating Among MBA StudentsCheating Among MBA Students

56%56% of MBA candidates surveyed of MBA candidates surveyed admitted they had cheated at least onceadmitted they had cheated at least once

““culture of greed within MBA schoolsculture of greed within MBA schools””

““get it done at all costsget it done at all costs””

““shifting priorities from meeting customersshifting priorities from meeting customers’’ needs to needs to protecting shareholders profitsprotecting shareholders profits””

Over 16 years, on every study of cheating, Over 16 years, on every study of cheating, except one, business students led the wayexcept one, business students led the way

Source: McCabe, Butterfield & Trevino, September 2006

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21212121

Top 5 Drivers of Unethical BehaviorTop 5 Drivers of Unethical Behavior

Pressure to meet unrealistic business Pressure to meet unrealistic business objectivesobjectivesDesire to further oneDesire to further one’’s careers careerDesire to protect oneDesire to protect one’’s livelihoods livelihoodWorking within a cynical, demoralized Working within a cynical, demoralized environmentenvironmentIgnorance that the act was unethicalIgnorance that the act was unethicalSource: AMA/HRI The Ethical Enterprise, 2006


22222222

Driving Ethical Culture:Driving Ethical Culture:The Regulatory ResponseThe Regulatory Response

SarbanesSarbanes--Oxley Act of 2002Oxley Act of 2002

Public Company Listing Exchanges Public Company Listing Exchanges

United States Sentencing CommissionUnited States Sentencing Commission

“…“…requirement that an organization shall requirement that an organization shall --promote an organizational culture that promote an organizational culture that

encourages ethical conduct and a encourages ethical conduct and a commitment to compliance commitment to compliance

with the law.with the law.””Source: Amendments to the Sentencing Guidelines; May 10, 2004Source: Amendments to the Sentencing Guidelines; May 10, 2004

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A Collective View:A Collective View:The Regulatory ResponseThe Regulatory Response

Setting the Setting the ““Tone at the TopTone at the Top””

Ethical CultureEthical Culture

Codes of ConductCodes of Conduct

Conflicts of InterestConflicts of Interest

Disclosure/ Disclosure/ TransparencyTransparency

Board IndependenceBoard IndependenceAuditAudit

CompensationCompensation

NominatingNominating--GovernanceGovernance

Auditor IndependenceAuditor IndependenceConsultingConsulting

Audit and TaxAudit and Tax



Building & Sustaining Ethical Cultures

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What is an Ethical Culture?What is an Ethical Culture?

Based on IntegrityBased on Integrity

Discerns and chooses right versus wrongDiscerns and chooses right versus wrong

Laws and RegulationsLaws and Regulations

Societal StandardsSocietal Standards

Reaches for the higher standard in the gray Reaches for the higher standard in the gray areas when all options seem rightareas when all options seem right


Source: Based on Chapter 2 “Mindsets & Culture” in Conscience and Corporate Culture Copyright © Kenneth E. Goodpaster

Self Interest

LawBased

MarketBased

Evolving EnlightenmentEvolving Enlightenment

ValuesDriven

ValuesValuesDrivenDriven

LeadershipEffectivenessLeadershipLeadership

EffectivenessEffectiveness

BalancingStakeholder

Interests

BalancingBalancingStakeholderStakeholder

InterestsInterests

AssessmentAssessment

Process IntegrityProcess Process IntegrityIntegrity

Long-term PerspectiveLongLong--term term PerspectivePerspective

Corporate Conscience

EthicalCulture

Ethical MindsetsEthical MindsetsCharacteristics in Building & Characteristics in Building & Sustaining an Ethical CultureSustaining an Ethical Culture

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Stakeholder ReciprocityStakeholder ReciprocityCommunityCommunity

Investors/Investors/OwnersOwners

GovernmentGovernment--RegulatoryRegulatory Suppliers/Suppliers/

CarriersCarriers

YourOrganization

CompetitorsCompetitors

EmployeesEmployeesCustomersCustomers

EnvironmentEnvironment

BalancingBalancingStakeholderStakeholder

InterestsInterests


Leadership is the key ethical culture factor

Leaders must set the tone by “talking the talk” and “walking the talk”

Top management is generally perceived to exert more pressure on “getting the results”and not on “how the results are achieved”

This translates into get the results “at all costs.” “The ends will justify the means!”

LeadershipLeadershipEffectivenessEffectiveness

Modeling Ethical Behavior is Crucial

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Integrity Relates to Employee Loyalty:34% of employees rated as Truly Loyal vs. 36% as High Risk

91% of truly loyal believe their organization was highly ethical

35% of high-risk believe their organization was highly ethical

Source: Walker Loyalty Report for Loyalty in the Workplace Sept 2007

Integrity Through LeadershipLeadershipLeadership

EffectivenessEffectiveness


3030

Mission Purpose

Vision Image of the future

Values Principles that guide behavior

Ethics & Compliance Codes Legal and regulatory compliance and beyond

Laying the FoundationValues Values

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Shaping Organizational Culture

ValuesThe shared norms and beliefs of the organization that define acceptable behaviorInspirational and directional in natureGives individuals a context to reflect on how their personal values align

Ethics and Compliance Codes of ConductThe standards of behavior established to insure compliance with the law, regulations, and rulesPrescriptive in nature with specific well defined expectations of behavior

ProcessProcessIntegrityIntegrity


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Federal Sentencing Guidelines

Established by the United States Sentencing Commission (USSC) in 1991 with focus on complianceImposes fines, sentencing to probation, orders of restitution and public notices of convictionOffers incentives for organizations to “do the right thing”Updated to emphasize ethical conduct in 2004

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The Seven Minimum Steps

4. Provide communication and training

5. Utilize monitoring, auditing, and reporting

6. Consistently enforce through discipline

7. Take appropriate corrective action

1.1. Establish standards and proceduresEstablish standards and procedures2.2. Make highMake high--level individuals level individuals

responsibleresponsible3.3. Exercise due care in delegating Exercise due care in delegating

authorityauthority


34343434

MarketingMarketing

PurchasingPurchasingFinanceFinance

Human Human ResourcesResourcesSalesSales

ProductionProduction

CommunicationCommunicationRecognitionRecognition

IncentivesIncentivesHiringHiring

AdvancementAdvancement EvaluationEvaluation

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Linking & aligning Mission, Vision, Values and Ethics & ComplianceLeadershipEducation & Training:

Governing AuthoritySenior ManagementMid Level ManagersFront Line Employees

Connecting systems and incentives to valuesSurveying for feedback

Building the Ethical Culture



Do Ethical Cultures Add Value?

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Global Employee Perspectives: The Ethics Index

Ethics themes benchmarked through Kenexa’s WorkTrendsTM with employees around the world

CEBC Ethics Themes:Senior management practices ethical conductCompany serves interest of multiple stakeholdersCo-workers behavior consistent with values Able to discuss ethical issues/concerns Must demonstrate company values to get ahead

The Ethics Themes:The Ethics Themes: Integrated to Integrated to form an Ethics Indexform an Ethics Index

GloballyGlobally

By CountryBy Country

U.S.U.S.

Multi year trendsMulti year trends

By Industry By Industry

By Job TypeBy Job Type

Correlated to business Correlated to business performance and employee performance and employee engagement indicatorsengagement indicators


U.S. Integrity/Ethics Trends

61 60

53 52

37

59 5953 51

43

66 67

5863

50

0

10

20

30

40

50

60

70

802005 2007 2008

Multiple stakeholders

Sr. mgmtsupports ethics

Coworkerslive values

Ethics discussed freely

Must live values to advance

Note: values represent percent favorableSource: Kenexa WorkTrends™ 2008

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> 5 points above norm

± 5 points

of norm

> 5 pointsbelow norm

51

53

54

54

60

61

62

63

67

75

62

Skilled trades

Operators

Laborers

Service

Sales

Clerical

Technical

Professional

Supervisor

Manager

Executive/senior manager

Source: Kenexa WorkTrends™ 2008

CEBC Integrity QuickCheckCEBC Integrity QuickCheck™™

U.S. Job TypeU.S. Job Type


Data Illustration:

The behavior of the people I work with is The behavior of the people I work with is consistent with my companyconsistent with my company’’s mission, s mission, vision and values.vision and values.ExecutiveExecutive ManagerManager FrontlineFrontline

75%75% 63%63% 57%57%

The 1st ElementLaying the Foundation

Source: Gantz Wiley Research WorkTrends 2008

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Data Illustration:

My senior management supports and My senior management supports and practices high standards of ethical practices high standards of ethical conduct.conduct.ExecutiveExecutive ManagerManager FrontlineFrontline

78%78% 73%73% 68%68%

The 2nd ElementEffective Leadership



Data Illustration:

Where I work, ethical issues and concerns Where I work, ethical issues and concerns can be discussed without negative can be discussed without negative consequences.consequences.ExecutiveExecutive ManagerManager FrontlineFrontline

77%77% 72%72% 62%62%

The 2nd ElementEffective Leadership


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Data Illustration:

My company strives to serve the interests My company strives to serve the interests of multiple stakeholders not just the of multiple stakeholders not just the shareholders (financial performance).shareholders (financial performance).ExecutiveExecutive ManagerManager FrontlineFrontline

77%77% 72%72% 65%65%

The 3rd ElementBalancing Stakeholder Interests



Data Illustration:

Where I work, people do not Where I work, people do not ““get aheadget ahead””unless their behavior clearly demonstrates unless their behavior clearly demonstrates my companymy company’’s values.s values.ExecutiveExecutive ManagerManager FrontlineFrontline

67%67% 57%57% 50%50%

The 4th ElementProcess Integrity


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Impact of Ethics U.S. Employees

93

16

92

14

92

15

83

14

92

8

90

10

0

10

20

30

40

50

60

70

80

90

100

Strong Ethical Culture Weak Ethical Culture

Pride Overallsatisfaction

RetentionAdvocacy

Source: Kenexa WorkTrends™ 2008

Note: values represent percent favorable

Reputation improvement

Performance improvement


4646

Questions?Questions?

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For Information on CEBCFor Information on CEBC

Phone the Center:Phone the Center: 651651--962962--41204120

Fax the Center:Fax the Center: 651651--962962--40424042

Email the Center:Email the Center: [email protected]@cebcglobal.org

Visit the Web:Visit the Web: www.cebcglobal.orgwww.cebcglobal.org

Write the Center:Write the Center: 1000 LaSalle Avenue, TMH 3311000 LaSalle Avenue, TMH 331Minneapolis MN 55403Minneapolis MN 55403--2005 2005 USA USA

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ethical business cultures: reaping what you sow · 13 copyright © 2010 by the center for ethical...

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