Performing at a Higher Level –
Building Your Company’s Ethical Competency
Professor Lynn Sharp Paine
John G. McLean Professor of Business Administration
Harvard Business School
Leadership Forum 2002 –
Ethical Challenges for Business and Government Leaders
ICAC, Hong Kong, December 12th, 2002
© Lynn Sharp Paine, 2002
Ethics as a corporate priority
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On July 9, 2002, U.S. President Bush declared that “America’s
greatest economic need is higher ethical standards.”
In August 2002, the New York Stock Exchange proposed that
listed companies be required to adopt and disclose codes of
business ethics and conduct.
In April 2002, an advisory panel to Japan’s prime minister called
on companies to adopt codes of behavior to restore consumer
confidence in business.
In March 2002 the Swedish government launched an initiative to
promote a higher ethical standard and greater social
responsibility among Swedish companies.
© Lynn Sharp Paine, 2002
Ethics as a corporate priority
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In 2001, European Commission green paper proposing a
European framework for corporate social responsibility.
In 2000, London Stock Exchange began to require that listed
companies disclose whether they have policies for managing
significant risks, including legal, health, safety, environmental,
reputation, and business probity risks.
In 2000, the OECD issued a revised set of ethical guidelines for
multinational companies.
In 1999, the UN Secretary-General called on leading companies
worldwide to adopt a set of guiding principles for corporate
social responsibility.
© Lynn Sharp Paine, 2002
Departing from a long tradition
The corporation as amoral …
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13th century: Pope Innocent IV
– as “fictional persons” lacking body and soul, corporations cannot be
punished
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17th century: Sir Edward Coke, Chief Justice, King’s Bench
– as “fictional persons” lacking a soul, corporations cannot commit
treason, be outlawed, or excommunicated
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18th century: Edward Thurlow, First Baron, Lord Chancellor
– as “fictional persons,” corporations have neither “pants to kick” nor a
“soul to damn”
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19th century: Chief Justice John Marshall
– as “artificial beings,” corporations have only those properties conferred
by charter of creation
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20th century: Nobel Economist Milton Friedman
– as “artificial persons,” corporations cannot have “real” responsibilities
© Lynn Sharp Paine, 2002
Differing perceptions
Self Perception
Others’ Perception
vs.
Ethical Leader
Ethical Neutral Leader
Source: Linda Klebe Treviño, Laura Pincus Hartman, Michael Brown, California Management
Review, vol. 42, no. 4 (Summer 2000).
© Lynn Sharp Paine, 2002
How do employees perceive management?
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Do your CEO and other senior managers know
what type of behavior goes on in the
company?
Are your CEO and other senior managers
approachable if an employee needs to deliver
bad news?
Would your CEO or other senior managers
authorize illegal or unethical conduct to meet
business goals?
Would your CEO and other senior managers
respond appropriately if they became aware of
misconduct?
Source: KPMG, 2000 Organizational Integrity Survey Summary (2,390 employees in selected industries).
© Lynn Sharp Paine, 2002
Employees’ perceptions of management
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Only 43% believe their executives know what
type of behavior goes on.
Only 45% believe their executives are
approachable with bad news.
Only 62% believe their executives would not
authorize illegal or unethical behavior.
Only 64% believe their executives would respond
appropriately if they became aware of
misconduct.
Source: KPMG, 2000 Organizational Integrity Survey Summary (2,390 employees in selected industries).
© Lynn Sharp Paine, 2002
Managing corporate values – 1995
Forbes 500 Companies (237 respondents):
Date Introduced
Revised in ‘90s
< 5 yrs.
>20 yrs.
Code of Ethics
91%
18.5%
15.5%
82%
Values Statement
53%
51.0%
8.0%
83%
Corporate Credo
34%
41.0%
22.0%
81%
All Three Documents
49 cos.
Source: Patrick E. Murphy, “Corporate Ethics Statements: Current Status and Future Prospects,”
Journal of Business Ethics 14: 727-740 (1995).
© Lynn Sharp Paine, 2002
Origins of misconduct
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individual wrongdoing
good people with
– insufficient knowledge and awareness
– inadequate job skills
– lacking prudence, judgment, courage
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management and organizational design
– misaligned management systems
– inadequate information flows
– perceived management indifference
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social and institutional context
– inadequate legal and regulatory framework
– pressures from unethical customers, competitors
© Lynn Sharp Paine, 2002
Points of view
House member:
“So you looked at it from a financial
point of view and not a consumer
safety point of view?
Firestone exec:
I’m sorry to say that I believe that is the
case.”
Source: Congressional Hearings, U.S. House of Representatives, September 6, 2000.
© Lynn Sharp Paine, 2002
The manager’s compass
© Lynn Sharp Paine, 2002
Performing at a higher level
Some implications:
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Adequacy of standards and policies
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Adequacy of decision models and criteria
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Suitability of organizational structures, systems, processes
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Suitability of performance measures and incentives
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Suitability of prevailing habits and attitudes
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Adequacy of leadership models and competencies
© Lynn Sharp Paine, 2002