Ten Steps to Improve Ethics In Your Organization
Article by Herb Rubenstein
Introduction
Today ethical failures are causing more economic loss, more customer disappointment, and more government intervention into the marketplace than ever before. One can ask the question of whether the world was more ethical in the 20th century than it is in the 21st century, but such a question is useless. The only question of any merit is how to fix the now deeply entrenched ethical compromises and ethical failures in our business and governmental sectors around the globe.
One “unintended consequence” of globalization is that a breach of ethics in Germany now causes eleven million illegally manufactured cars to be across the globe polluting far in excess of national standards. Similarly, bribery in Mexico snares one of the largest US firms and will cause it billion in fines, just one of the factors that has driven down its once might stock price by 30% in 2015 alone. Tax evasion by Starbucks, Google, Apple, and many of our favorite “brands” has now gone global with shell corporations being set up in “tax haven” nations that will allow them to hoard cash there and become the new wave of “international tax dodgers.”
All these global ethical failures are merely the tip of the iceberg of cover-ups, failures to follow government regulations, and represent a failed ethic of failing to adhere to the rule of law. While legal compliance and ethical failure are not the same, an important subset of ethical failures is the willful disregard for the law when a company or organization actively seeks to hide its willful disregard for the law. The company that was producing the polluting diesel which got around government-sponsored pollution tests because of software installed in the car to detect that it was being tested and shut down part of the operating system of the car to make it look like it was not polluting above the levels allowed by the government, was at the same time demanding that government give tax incentives for this “energy efficient” and “pollution-reducing” car.
When oil and gas companies routinely seek to hide spills and underestimate their volume in pronouncements to the public, their defenders suggest they are reporting in the best way they can with the best information they had at the time. Yet, time and time again we read that the leak was worse than was previously announced.
When a utility has over three thousand safety and environmental violations, and then a blast due to a reputed gas pipe causes the death of a dozen people in California, it then does everything in its power to keep the fines to the lowest possible amount, even an amount so low that the utility would have little financial incentive to fix its defective ethical culture or pay back to society some reasonable amount for its egregious ethical and practical failures that cause society such great harm.
The bribery at FIFA has tainted sports all over the world and has opened the question of whether actual sports games upon which people bet billions of dollars and upon which the dreams of young kids are made every day, has cast a huge shadow on how unethical sports has become. This list could go on, sex parties for basketball recruits at a basketball powerhouse, Enron-type accounting debacles, over-reporting of income, unethical price gouging by pharmaceutical companies, rampant patent and trademark infringements and the corresponding legal response by patent trolls who shake money from law abiding companies who do not want to face the huge costs of the frivolous lawsuits being filed every day.
Globalization has increased awareness in two different ways. First, it has increased the media’s ability to report ethical abuses and poor ethical practices. Secondly, however, it has increased the knowledge, ability, and opportunities for companies and government agencies to figure out new and devious ways of being unethical, as they maintain the hope that they will not be caught. The explosion of opportunity to be unethical has outpaced the ability of the media and citizens to catch companies and government agencies in unethical acts, even this supposed age of “transparency.”
It was not a government agency that caught Volkswagen’s cheating software. It was a professor and students at the University of West Virginia that devised an unorthodox, although very sensible way, to test the pollution produced by cars on the road. But for these heroes, Volkswagen would have gotten away with one of the largest ethical failures in the history of capitalism.
Where do we go from here is the right question to ask. This article provides ten steps to improving the ethical culture and the ethical practices of both businesses and government agencies worldwide. Certainly there are even better ways than the ten ways provided in this article to improve ethics in organizations, and it is the hope of this article that a real change in behavior and a real change in the ethical cultures of organizations takes place using these ten steps and even better steps that will emerge in the forthcoming literature on improving ethics.
Why is this so important now? There are seven reasons:
1. Fines for unethical business practices are on the rise all over the world and will rise substantially during the next decade
2. Organizations are much more likely to be caught today and punished today for their unethical business practices
3. Consumers are starting to refuse to do business with companies that are guilty of unethical business practices
4. A new punishment, debarment, is taking hold and if a company is found to have committed unethical business practices other companies, government agencies, nongovernmental organizations, and consumer groups will refuse to do business with this company again. This is the new form of “ethical boycott” that can be placed against an entire company, or can be placed on an individual who has been found to have committed an unethical act. People are now being barred from the securities industry and this type of action will grow to many sectors.
5. Awareness of the internal unethical business practices is being spread by social media and this force cannot be stopped
6. No longer is the public willing to accept the argument that “this was an isolated act” or pardon a company for an action that was many years ago since the public is now interested in how the company covered it up for so long, thus prolonging the agony for a company that committed unethical acts many years ago.
Now we turn to the ten steps I recommend that organizations embrace immediately to improve their ethics practices and their overall culture. Many organizations will already be doing some of these. In many professions there is already a “Model Code of Ethics,” ethics training as a precondition for getting licensed in a particular area. However, just because an industry or sector like law, accounting, medicine, academic research, psychology, and other professions have such a code and possibly even some enforcement mechanism for ethical violations brought to their attention, does not mean that these ethical codes or enforcement mechanisms have any positive impact whatsoever on the behaviors in your particular organization. I applaud every profession that has such codes and enforcement mechanisms, but true ethical improvement will take place at the individual level and the separate organizational level in order to improve significantly the ethical behavior and eliminate the unethical behavior in any industry or sector.
Improving Culture and Practices
There is a significant difference between improving a culture and improving a practice. I define culture as the general way that people in an organization think, decide, act, respond, and communicate, especially when there are no guidelines or rules to follow. Culture is the thread that runs through the sum of all actions of an organization. A practice is a one-off action that may be repeated or repeatable but stands alone and does not impact a lot of other practices in an organization.
To improve a practice, one can institute a rule, some rewards, punishments, guidelines, or secure voluntary changes in how one or more people do something in an organization. To change a culture of an organization, one needs to be able to define what culture is in order to get a starting point. We have to look for the right words to describe the culture. For example, is the culture of your organization Ethical? Collaborative? Hierarchical? Fast Paced? The challenge is that many people will say the organization’s culture is A or B, good things, when it fact it is not. There is nowhere this is truer than when you ask people in an organization if their culture is ethical. Of course, they will say yes, even though the organization may pay a lot of fines for violation a lot of regulations, have a lot of safety related accidents, pollute the environment far more than would be needed for them to remain profitable, and pays women less than men for the same job.
How To Change The Ethics Culture of An Organization
Therefore, to change a culture people in organization first need to learn what the culture actually is and describe it accurately. In the sections below where I outline specific steps to make your organization more ethical, there are four categories of activities that will make the culture and practices more ethical. They are:
1. Establish New Policies and Guidelines
2. Create and Support a New Information Pipeline
3. Change the Governance and Support Structure Regarding Ethics
4. Focus on Results
To accomplish these four areas of change requires nine steps listed below. Each step has sub-steps and together they form a program for improving the ethical culture of the organization.
Step One – Establish New Policies and Guidelines
1. Set ethical standards, including new ethics policies and guidelines; be very specific
2. Establish a code of conduct
3. Provide training to everyone on the new ethical standards and show clearly in the training that “we used to do things this way and now we are going to do things differently.”
4. Keep revising the code of ethics as the organization learns of ethical breaches and keep making the code of ethics more and more specific
Step Two – Set Standards for Your Industry or Sector
1. Identify common unethical practices in your industry and sector and expose them with the intention of stopping them
2. Write, speak, publish, give seminars, and conference workshops on the new ethical standards for your industry or sector
3. Promote the development of an ecosystem in your industry or sector that supports improving ethical practices. For example, create an “ethics committee” in trade associations
4. Encourage or demand that your supply chain companies conduct regular polling of its employees to measure how ethical their organization is (preferably by an outside organization) and demand that they report this information to your organization
Step Three – Publicize Ethical Issues Within Your Organization
1. Conduct regular polling of your employees (preferably by an outside organization) to assess your organization’s current ethics level and report the results to all of your employees
2. Develop a long list of known or suspected ethical challenges or deficiencies that occur often in your organization
3. Share this list with all employees and keep adding to this list on a periodic basis
4. Create an ethics newsletter with hard hitting examples of ethical failures within the organization
Step Four – Develop Ethics “Hotline”
1. Encourage people to report ethical failures and allow them to do this anonymously
2. Analyze the reports from the hotline carefully to identify patterns of unethical behavior and categorize them
3. Begin to figure out and publish within the organization what you believe to be the drivers of unethical behavior
4. Create a solid communication platform so that people will know what is communicated through the ethics “hotline” and what actions management undertakes in response to every report unethical behavior.
Step Five – Create A New Governance Structure That Supports Ethics
1. Create a position called Chief Ethics Officer with specific duties, powers, budget, reporting structure, and responsibilities
2. Put “ethics” on the agenda for meetings
3. Have the CEO include ethics related topics in speeches and newsletters
4. Ensure that every department, division, and/or geographic location of the organization has a person responsible for “ethics”
Step Six – Develop Rewards and Punishments for Ethical/Unethical Behaviors
1. Make sure rewards and punishments, and the standards behind the rewards and punishments, are made “public” within the organization to acknowledge and hold people accountable
2. Institute a zero tolerance or a zero-repeat tolerance standard
Step Seven – Create Quick Adjudication System To Find The Facts When They are Disputed
1. Possibly have a person or team of persons ready to serve in the role of judge and jury, and this person or persons may come from outside the organization.
2. Have clear procedures when a person is accused of an ethical breach and they deny it for the collection and presentation of evidence and how a decision will be rendered in the case
3. Have a specific budget reserved for this situation
Step Eight – Identify The Costs of Unethical Behavior and Report Them
1. Give periodic reports of how much money unethical business practices have cost the organization, including all investigative, adjudicative, lost revenue, and other costs associated with unethical behavior
2. Monitor the trends of these costs and seek to minimize them
Step Nine – Monetize The Value of Your Organization’s New High Ethical Standards
1. Seek a clear competitive advantage from your excellent ethics via branding, building your organization’s reputation, reducing employee turnover, improving your supply chain, paying fewer fines, improving sales, etc.
2. Promote merger and acquisitions of organizations at a very low price that have been guilty of ethical violations and improve their ethical standards and reap the rewards of turning around unethical companies Become bullet proof in foreign countries that demand bribes by being so strong that no one will ever demand a bribe from your company, but you will still be welcome to business in that country
3. Create a “cut above” mentality for your high ethics standards
Conclusion
It seems like a no brainer with costs of unethical behavior skyrocketing and the likelihood of being caught skyrocketing, that there would not even be a need for ethics training and significant action on the part of organizations to enforce high ethical standards. However, teachers in large numbers continue to falsify the results of their students taking standardized tests. A large percentage of resumes are intentionally “fluffed up” constituting fraud. Cheating on expense accounts is rampant. Turning in false time sheets by professional organizations is the norm, not the exception.
Globalization has opened the door for companies to go to the countries that will let them and their suppliers cheat – cheat on the construction of their plants so that they fall down and kill workers. Cheat on abiding by government regulations for mining thus causing workers to be killed and streams and air to be polluted.
And globalization means that when someone is caught with unethical behavior in one country, punishments against that company can be instituted by many countries all at once. The Foreign Corrupt Practices Act was designed to reduce corrupt behavior. This act was not every effective in the beginning, but now with the internet and instant communication in writing, which means that it is permanent, bad acts by companies are being recorded and will cause them substantial harm for a very, very long time.
You may think these ten steps are overkill. If Volkswagen had them in place, they would be fifty billion dollars better off by the end of this decade than they will be because they did not have them in place. These steps will not cost any company even five million dollars a year, but will potentially save the company billions of dollars of fines, lost revenue, investigative costs, and the demoralization of the employees when the company’s unethical behavior becomes the talk of the “globe.”