Beyster Institute

Ethics Make Us Better

By Sid Scott

Sid Scott
Sid Scott, chairman,
Woodward Communications, Inc.

Recently, I read that Dennis Kozlowski, former CEO of TYCO who has been in prison for more than six years for stealing from his former employer is eligible for parole in 2014. Kozlowski had asked the parole board for mercy (early release), which was denied. While he is serving this sentence because of criminal acts, it raised again for me the importance of practicing ethics in business and in life.  I’m also reminded that being an employee-owner/owned company doesn’t make us immune to ethical problems.

At the time Kozlowski was brought to trial for his misdeeds, the media was filled with other examples of ethics/criminal violations. Remember Enron? They were the so-called ‘smartest guys in the room’-- Kenneth Lay, Jeffrey Skilling, et al., who convinced employee owners and others to put all or most of their retirement and investment dollars in Enron stock. A lot of unethical folks went to prison, but the victims—the employee owners and the shareholders only got minimal restitution. The highly regarded audit company, Arthur Anderson, folded because they failed to catch the accounting games that led to the inflated stock prices and the ultimate failure. Enron brought about the Sarbanes-Oxley legislation that has had a positive and not so positive effect on public companies; however, we continue to have ethical scandals throughout our society. Is it because people haven’t learned the lessons of Tyco and Enron, or is it because of other factors? Likely yes and yes.

How are ethics different from laws?
Laws are societal rules passed by governmental bodies (countries, states, cities, etc.) and generally enforced with various penalties—fines, prison time. Ethics are rules of conduct and approaches, adopted by and sometimes enforced by groups, associations, companies, etc. While they don’t carry the same penalties as laws, they often affect employment, licensure, reputations and memberships. Sometimes, laws and ethics overlap, but as has been often noted, adherence to ethics typically requires actions that meet higher standards of behavior than just meeting legal requirements. This difference has been stated as meeting the ‘spirit of the law’ as well as the ‘letter of the law.’ Companies often have rules that must be met, but these rules might allow individuals to cheat because the employee owners are on an honor system. For example, a company might set a per-mile rate for using one’s own vehicle for company business. While the employee owner must not charge the company more per mile than the limit, he or she is allowed to report the number of miles traveled each month. Many employee owners report the exact number of miles traveled (following the letter and the spirit), while some may ‘fudge’ by adding miles not traveled (following the letter of the rule, but also committing a crime and not following the spirit of the rule). This same ethical situation is presented when hourly employee owners are on their honor to fill out timecards or timesheets on hours worked. The opportunity to falsify actual time is present and can be tempting. Expense accounts for business and travel are also only as true as the individual who completes the form.

Why do we make ethical mistakes?
In the examples above where trust is given to employee owners to be honest and forthright and they turn in false amount of business mileage or hours worked, we could conclude that the employee owner is completely at fault. While these examples are both crimes and ethical challenges, there may be more to the situation than meets the eye. For example, how is business conducted within the organization? Are there other examples of people ‘fudging,’ cheating or being unethical? Do those in management flaunt their power or privileges? Do employee owners in general feel they are fairly or unfairly compensated with pay and benefits? While examples of others cheating does not mean that it’s acceptable to do it also, when leadership sets bad examples often others follow their lead.

Besides having poor examples from those in leadership or managerial positions, the reasons that contribute to unethical behavior areas are as follows. Some suggestions to help you are listed.

  1. No clear set of acceptable ethical behaviors
    You can find good examples. There are lots of sources locally and on the Internet. Check with your library, a local college or university if you need help getting started. Another place to start is to go to your web browser and put in ‘business ethics’ or ‘business ethics articles.’
  2. Not training everyone on the acceptable ethical behaviors
    Just having a set of ethical principles and a written explanation of acceptable ethical behavior doesn’t do an effective job of teaching everyone. Develop a training program and make it a mandatory part of the company culture. It’s just as important as safety training, customer service training or ownership training.
  3. Having a separate set of ethics for a division, department or level
    While it seems obvious, there are many examples of “do as I say, don’t do as I do.” It never works with children and it won’t work with adults either. We all have to follow the same rules and principles for the benefit of everyone.
  4. The lack of a whistleblower program
    Sarbanes-Oxley requires public companies to have a safe place for employee owners to anonymously report unethical or criminal behavior. It works for private companies, too. Many boards of employee-owned companies have adopted whistleblower policies.
  5. Not admitting when we make a mistake
    No one is perfect and all of us understand it if we are honest with ourselves. The best leaders and companies encourage people to own their goofs and help everyone learn from it. We are very forgiving and supportive of leaders who show their humanness.

A final thought, make sure that everyone lives by the ethics your organization develops. Enron had a 64-page code of ethics but the leaders didn’t follow it. Here is an excerpt:

“As officers and Enron Corp., its subsidiaries, and its affiliated companies, we are responsible for conducting the business affairs of the companies in accordance with all applicable laws and in a moral and honest manner. We want to be proud of Enron and to know that it enjoys a reputation for fairness and honesty and that it is respected."

These words from their document sound wonderful but are sad as we reflect on what went wrong in actuality. The words are an example of what happens when we don’t “walk the walk.” In the spirit of employee ownership, let’s agree to do what we can to make ethics a part of how we act. Our stakeholders will appreciate it and we’ll be rewarded with their loyalty.

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