Today in the wake of business and financial scandals and resultant prosecutions such as those involving Martha Stewart, World Com's Scott Sullivan, and Bernard Ebbers, Tyco's Dennis Kozlowski and Mark Swartz, Adelphia's John Rigas and the CEO of Enron, there has been an increasing focus amongst government leaders and the public upon business practice and business culture. Government Officials and members of the public as well as responsible members of the corporate and business communities have begun to recognize the value that flows to a business and its stakeholders -- the customers, the employees, the Board of Directors and the stockholders -- from adopting and adhering to a code of conduct or code of business ethics.
A code of conduct has been defined as:
the principles, standards, and rules of behavior that guide the decisions, procedures and systems of organization, that contribute to the welfare of its key stakeholders, and that respect the rights of all constituents affected by its operations. The code should address the values of an organization and how those values are reflected into a larger society.
There are many versions of codes of conduct. Typical codes usually include, "a) statements of moral principles, standards of conduct or practice, business guidelines, or corporate values; b) goals such as "the greatest good for the greatest number," "respect for others," and "a fair distribution of costs and benefits"; c) virtues such as honesty, compassion, fairness and accountability." A company's choice of an approach to a code of conduct depends upon the objectives of management. Some objectives may include avoiding legal behavior that violates organizational policy, satisfying the concerns of stakeholders, or creating a culture where employees and managers follow a prescribed standard of conduct.1
It has been said that:
A business's approach to ethics depends on the tone set at the top by its chief executive and board of directors. By tone I mean the qualities and style that characterize the organization's behavior, from greeting you at reception to honoring your invoices on time.
All of this feeds through to the tone that the company, though its employees, displays toward all if its stakeholders and manifests itself in how it conducts its business. Does it always endeavor to do the right thing or does it routinely cut corners to secure that deal? There is a growing recognition that an ethically bankrupt business risks becoming a financially bankrupt one. Ethics matter.
At the start-up stage, a business's core values reflect those of the entrepreneurs who formed it. This includes the way that they interact and build relationships with other parties. As the business grows, these relationships will change. The relationship that is most affected is the one between the owners and the employees. At the outset, the owners will know everyone and the growth of the enterprise will be closely allied to the effectiveness of teamwork. As a company recruits more people, the closeness of its original team may start to diminish. New employees will bring with them different values, ideas and aspirations. These can be an important part of helping the organization to develop, but such changes do need managing. In a small company where the directors know everyone the tone is clear. But, as the enterprise grows - and certainly once it has gotten to a size where not everyone is familiar with each other - problems can manifest themselves if there's a lack of guidance on what's expected of people. This underlines the importance of leadership to guide growth.
Leadership is not only about the person at the top; it manifests itself at many levels - the team leader, the project manager, the regional director and so on. It's important that they all recognize the example they're setting. It's human nature to emulate one's leader, so, if employees see that their boss is brusque and bullying in his dealings with people, they might copy him in the belief that such behavior is the way to advance in the organization.2
The benefits of implementing a code of ethics for a business organization have been described as follows:
Putting in a code of ethics supports a business because it's an integral part of building a culture within the organization. By following best practice and developing a code based on shared core values in consultation with employees, it can become the glue the cements the company together.
In the main, business leaders recognize that operating ethically is the right thing to do. They also understand that it's not always easy to achieve. It only takes one individual not to behave in the way the company would expect for a customer to be lost - potentially a real cost. So there is a defensive business case to be made along with the sustainable business case, which states that ethical companies tend to be better managed, have better employment relations and achieve better financial performance in the long run.3
In these difficult times where our country is struggling to contain profound economic reversal and our leaders are working to cope with and stem a crisis in investor and consumer confidence in the financial markets and in the general economy, it is incumbent upon all of us in the business community to adopt a posture that will further our companies' profitability and productivity by helping to promote the economic security of our employees while serving to benefit our clients and customers. By adopting and adhering to ethical business/codes we will be ensuring that ethically principled business organizations will neither be morally nor financially bankrupt and we will be guarding against the recurrence of a corporate environment and business culture that led to the contracting of credit, the collapsing of companies and financial markets, and the wholesale reduction of net worth in this country in the last few months.
Now is the time to build on the energy generated by the recent Presidential election signifying a change in our leadership by calling for a bipartisan and unified approach to dealing with the problems confronting our Country. Let this serve as a call for action to our business leaders to review their business practices and, when appropriate, to revise them to reflect a code of more principled business conduct. By doing so the business community will be working to demonstrate its corporate social responsibility, not only to the companies' stakeholders - but to the public at large. These difficult times require us to behave more responsibly - "to do the greatest good for the greatest number" - and at the same time to maximize our productivity and profitability. We can recapture our former standard of living, restore the confidence that is lacking in our economy and in our financial institutions and restore the faith of people throughout the world in our nation's promise of the "American Dream".
*A speech prepared for the Paterson Federation of the Knights of Columbus to be delivered at its 13th Annual Flagship Ball on November 8, 2008 by John J. Harper, Esquire, recipient of the Corporate Ethics Award.
1Corporate Code of Conduct, Corporate Social Responsibility, BMBA 9201, Michelle Ann Benedeck, 2006, pp. 2-3.
2Be Upstanding, Philippa Foster Bank, Financial Management, Oct. 2006.
3Be Upstanding at pp. 20-21.
