I originally published this article in September, 2015, but with recent ethical issues in well-known companies such as Wells Fargo and Volkswagen, I feel it’s a good time to revisit the idea of senior leader’s responsibility for ensuring ethical behavior in the organizations they lead.
In my performance excellence work with organizations that are using the Baldrige (Baldrige applicants, AHCA – the American Health Care Association Quality Award applicants, or members of the Alliance for Performance Excellence) or European Foundation for Quality Management (EFQM) Criteria, I find that many organizations are challenged in responding to the Criteria that address ethical behavior.
Why? Because they already have a set of values that they expect people to live by and they haven’t had any legal violations. But “‘How do you know…?’ [my favorite question to clients] that your organization is living by its values?” Are you willing to wait until you have a violation to find that your values-based culture is not as embedded as you thought it was?
Both the Baldrige and EFQM Criteria emphasize the role of senior leaders in ensuring ethical behavior:
Baldrige: “How do senior leaders action demonstrate their commitment to legal and ethical behavior? How do they promote an organizational environment that requires it?”
EFQM: “Leaders develop the mission, vision, and ethics and act as role models. [Leaders] champion the organization’s values and are role models for integrity, social responsibility and ethical behaviour, both internally and externally, to develop and enhance the organization’s reputation.”
I recently had the opportunity to attend an excellent seminar at University of St. Thomas School of Law on “How Much Ethical Behavior Can We Expect from Our Government and Business Leaders?” My interest was primarily in the business side of the discussion – maybe I’ve just given up on the “politician” side of government…
Some interesting thoughts from the speaker, Dr. Kirk Hanson, Executive Director of the Markulla Center for Applied Ethics at Santa Clara University on why there are ethical business dilemmas:
- the perception or reality that aggressive competitors don’t live by the same standards
- pressure from activist shareholders for short-term earnings
- the temptations of excessive salaries – with high CEO salaries, the great incentive to keep the job at all costs
- the belief in the “theory of the firm” – that firms exist and make decisions in order to maximize profits
- vagueness of the term “ethics” – and a lack of sophistication by leader in the philosophy of ethical behavior
- a perception by leaders that it is not their “right” to define values and ethics beyond the law
- a sense of entitlement based on position – “I’m a highly paid CEO – I deserve this” – whatever “this” may be
- poor preparation – a lack of training in how to address ethics, so the default becomes compliance.
What do leaders have to do to address ethical behavior in the firms they lead?
- They must know (or develop) the values of the enterprise. The ethics or culture of a firm should not change with a new CEO. Leaders should invest in the creation of an ethical culture, and should be willing to invest in character formation activities that support that culture.
- Identify the potential issues the firm faces and address specific issues with relevant groups. Ethics and culture should become specific to what a department does, not just nice-sounding corporate-speak. For instance, a sales department or an international department should consider where potential ethics/culture issues may arise for them and address them in advance.
- Know the impact of good and bad decisions. The time to understand the impact of bad decisions should not be after someone is caught violating an ethical guideline…and the impact often goes beyond personal repercussions. Consider what would happen if an ethical breach was on the front page of the local newspaper business section – or in a blog pointing to your organization.
- Have the courage to act ethically. Are you as a senior leader – or as a member of the Board of Directors – willing to give up revenue for values? Are you willing to engage in discussion of ethical issues? Are you willing to control your own self-interest?
My question to the panel discussion at the end of the session was “‘How do you know…’ that the organization is behaving ethically? Are there measures that can be implemented to assess progress in ensuring ethical behavior?” After being told “That’s a great question…” there was discussion of what actions are in place in the organization and what can be done, but no good answer to measures of ethical behavior.
One key learning I’ve gained from the EFQM is the need for Results measures of both “Performance” and “Perception.” In my work with high-performing organizations, I find that the easiest measures of ethics are perception measures; for instance, a statement on an employee survey that assesses on a five-point scale the response to “I trust the senior leaders of our organization to make ethical decisions.” It’s more difficult to come up with performance measures, other than measures of ethical violations or other measures of poor behavior.
What do you believe are some proactive measures of ethical performance, rather than just perception, that doesn’t focus on just the negative performance?
Core Values Partners, Inc., helps organizations focus, align, and accelerate their performance excellence efforts through effective deployment of the Baldrige Criteria for Performance Excellence and the EFQM Excellence Model. They work in close partnership with clients to advance excellence.
Core Values Partners, Inc.