Chapter 6
Fostering Ethical Behavior
The Year of the Whistle-Blower
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Time magazine’s “Persons of the Year” for 2002 were
Sherron Watkins, Coleen Rowley, and Cynthia Cooper,
three prominent whistle-blowers.
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Watkins is the Enron vice president who wrote a letter to
chairman Ken Lay warning him that the company was using
improper accounting procedures.
Riley is an FBI staff attorney who caused a sensation with a
memo to FBI director Robert Mueller about how the bureau
ignored pleas from her field office to investigate Zacarias
Moussaoui, now indicted as a 9/11 co-conspirator.
Cooper disclosed to WorldCom’s board of directors that the
company had covered up $3.8 billion in losses through
fraudulent bookkeeping.
Over the last few years, many major corporations,
including Enron, Arthur Andersen, Tyco, and
WorldCom, have been the subjects of huge scandals.
Encouraging Ethical Behavior
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Ethics are principles of morality or conduct.
Business ethics are rules about how
businesses and their employees ought to
behave.
Business ethics help to guide an
organization’s efforts and offer a foundation
for its culture.
The need for ethical behavior in organizations
has been dramatized by some very visible
ethical violations, including kickbacks, bribes,
and myriad other forms of corruption.
Bribes and Kickbacks
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Bribery in overseas dealings has increased sharply in
the last two decades; it has been estimated that
bribes paid to acquire large contracts in developing
countries now exceed 15% of the contracts’ value.
Outright bribes and payments for guanxi, or
“connections,” total $3 billion to $5 billion in China.
Kickbacks occur when someone who has won a
contract or made a sale through favorable treatment
gives back part of the profits from the transaction to
the party providing the favor. They are proliferating.
Sweatshops
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Many U.S. companies have been charged with running inhumane
sweatshops, most of them in developing countries, with low wages, long
hours, and unhealthy conditions, often employing children or forced labor.
John Sweeney, President of the AFL-CIO, said corporations are well looked
after “while 250 million children around the world go to work, not school,
and tens of thousands of workers are chained into forced labor and prison
camps.”
Activists charge that many products made by Gap and Nike, among others,
are manufactured in Third World sweatshops.
The Fair Labor Organization is an anti-sweatshop group. Its members agree
to accept the group’s code of conduct and accept external monitoring of
their compliance to the code.
In 2003 Nike agreed to pay the Fair Labor Organization $1.5 million in a
settlement relating to working conditions in its foreign factories.
Ethics and Firm Performance
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One recent study found that companies that had
an “ethical commitment” -- as evidenced by
inclusion of ethics codes in the management
reports within annual reports -- had much higher
levels of performance than did those without
such codes.
Also, some companies with an “ethical”
commitment had higher scores on Fortune
reputation ratings.
Committing specific unethical acts may have
disastrous consequences for organizations and
their officers.
Whistle-Blowing
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Whistle-blowers are individuals who report to the
press, government, or other parties outside the firm
illegal or unethical activity within the firm.
Whistle-blowers may find their jobs and careers
threatened.
About 35 states now have laws protecting whistleblowers.
The federal False Claims Act allows whistle-blowers to
sue government wrongdoers in the name of the United
States.
Opponents of whistle blower protection argue that it
may be misused by marginal employees, may result in
sidestepping of internal resolution mechanisms, and
may lead to “dialing- for-dollars” whistle-blowing.
Legal Remedies for Unethical Behavior
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One of the earliest legal codes dealing with unethical behavior
was the Code of Hammurabi, consisting of 282 rules outlining all
aspects of public involvement.
Governments are increasingly applying criminal laws to
companies and company executives.
The Foreign Corrupt Practices Act of 1977 was enacted in
response to disclosures that American companies were paying
bribes to high government officials in foreign countries in an
attempt to win contracts and sell products and services.
The 1991 Sentencing Guidelines for Organizations provide tough
sanctions, including jail sentences and fines in the millions of
dollars, for those convicted of corporate lawbreaking.
In response to financial scandals, Congress passed the SarbanesOxley Act of 2002, intended to increase the transparency,
integrity, and accountability of public companies.
The Code of Hammurabi
6. If anyone steal the property of a temple or of the court, he shall
be put to death, and also the one who receives the stolen thing
from him shall be put to death.
55. If any one open his ditches to water his crop, but is careless,
and the water flood the field of his neighbor, then he shall pay
his neighbor corn for his loss.
102. If a merchant entrust money to an agent (broker) for some
investment, and the broker suffer a loss in the place to which he
goes, he shall make good the capital to the merchant.
106. If the agent accept money from the merchant, but have a
quarrel with the merchant (denying the receipt), then shall the
merchant swear before God and witnesses that he has given this
money to the agent, and the agent shall pay him three times the
sum.
115. If any one have a claim for corn or money upon another and
imprison him; if the prisoner die in prison a natural death, the
case shall go no further.
196. If a man put out the eye of another man, his eye shall be put
out.
Guidelines for Ethical Behavior
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Be honest, direct, and open in your dealings with
others.
Take ethical stands on difficult issues.
Ask whether your actions respect the rights of
others.
Ask whether your actions are just.
Ask how you would feel if the act was done to
you.
Use your power in ethical ways.
Apply the sunlight test.
“Always do right. This
will gratify some people,
and astonish the rest.”
Mark Twain
Encouraging Ethical Behavior in Others
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Promote, communicate, and reward ethical
behavior as a key value.
Model ethical behavior in public and private.
Speak out against unethical behavior when you
see it.
Communicate expectations regarding ethical
behavior, including through a code of ethics.
Make sure that goals don’t push employees into
unethical behavior; unreasonable goals are often
the motivation for lying, cheating, and stealing.
Encouraging Ethical Behavior in Others
(Continued)
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Encourage ethics training.
Give employees ways to voice their ethical
questions and concerns, such as through use of
ethics hot lines and ombudsmen.
Set up internal programs to resolve ethical
conflicts.
Create a culture of ethics.
Lockheed Martin
Code of Ethics and Business Conduct (Excerpt)
Lockheed Martin aims to set the standard for ethical conduct at
all of our locations throughout the world. We will achieve this
through behavior in accordance with six principles: Honesty,
Integrity, Respect, Trust, Responsibility, and Citizenship.
Honesty: to be truthful in all our endeavors; to be honest and
forthright with one another and with our customers, communities,
suppliers, and shareholders.
Integrity: to say what we mean, to deliver what we promise, to
fulfill our commitments, and to stand for what is right.
Respect: to treat one another with dignity and fairness,
appreciating the diversity of our work force and the uniqueness of
each employee.
Trust: to build confidence through teamwork and open, candid
communication.
Responsibility: to take responsibility for our actions, and to speak
up — without fear of retribution — and report concerns in the
workplace, including violations of laws, regulations and company
policies, and seek clarification and guidance whenever there is doubt.
Citizenship: to obey all the laws of the United States and other
countries in which we do business, and to do our part to make the
communities in which we live and work better.
http://www.lockheedmartin.com/wms/findPage.do?dsp=fec&ci=13120&rsbci=131
27&fti=0&ti=0&sc=400
A Short Code of Ethics
A Very Short Code of Conduct
ITT Industries Code of Corporate Conduct:
Doing the Right Thing – Always
http://www.ittfluidtechnology.com/conduct/start/
The Bottom Line: Encouraging Ethical
Employee Behavior
Develop a
Code of
Ethics
Communicate
Standards for
Ethical
Behavior to
Employees
Provide
Ethics
Training to
Employees
Model
Appropriate
Ethical
Behavior for
Employees
Establish and
Maintain an
Organizational
Culture That
Values Ethical
Behavior
Enforce a
Zero-Tolerance
Policy for
Unethical
Employee
Behavior
Design and
Implement
Policies That
Identify
Unethical
Behavior
Design and
Implement
Policies That
Reward Ethical
Employee
Behavior