ABOVE THE BOARDHow Ethical CEOs Create Honest Corporations

A book report

By

Marc M. Guison

Ateneo Graduate School of Business

For

Dennis T. Gonzalez, PhD

Business Ethics

We have seen in recent corporate history a litany of corporate scandals that rocked the

foundations of the business world. Huge corporations whose economic outputs are larger than most

of the developing countries have suddenly imploded under the weight of stock manipulation,

unscrupulous accounting procedures and deliberate enculturation of business competitiveness

anchored on ‘doing whatever it takes to win’. Small ethical cracks in the business foundation had

gone too many and had been widely ignored by all of their stakeholders – employees, board of

directors, stockholders, regulators, auditors and analysts.

In the aftermath, we are faced with a realization of how fragile our economic system is and

how much of it depends on values that are both difficult to measure and, in the current world, even

more difficult to acquire. These are not mere economic values of profitability; but values of integrity,

of truth, and of plain and simple honesty.

It is in this context that the three authors - Patrizia Porrini, Ph.D., Lorrin Hiris, D.P.S., and Gina

Poncini, Ph.D. - wrote this book. They do not seek to expound on the voluminous literature available

discussing why and how these corporate scandals happened. They seek to provide answers to how

effective CEOs build an ethical culture within an organization by providing actual cases of ethical

companies that had passed the test of time.

This book review is divided into two parts. First is a summary of the critical concepts and

assumptions of the book. The second part is a critical reflection piece that juxtaposes the book’s

ethical concepts and assumptions with the ethical standards, insights and concepts that we have

discussed in class.

Part I Book Summary

The central theme of the book is an attempt to present to its reader different ways by which a

CEO can create a culture of ethics within an organization (Porrini, et al., 2009 p. 13). This book is

about how senior leaders can use different tools and techniques to enculturate corporate values to

the daily lives of their employees.

But before going into details of the different techniques employed by CEOs to create this

ethical culture, the reader must be able to fully understand the critical assumption of the book on

individual responsibility on building this culture. All the tools and techniques exampled in the book

rest on an assumption that the ultimate enablers of an ethical company are its employees.

“Employees-whether just a few or tens of thousands- are constantly acting on behalf of their company

as they go about their day-to-day activities.” (Porrini, et al., 2009 p. 11)

The crux of forming the ethical culture rests on how well the employees will embrace the

values that the company enshrines in its written code of conduct, corporate communication media,

lectures and trainings. The tools and techniques described in the book purports to setup an

environment that will encourage employees to act ethically in their day-to-day activities. It is the

behavior of the employees that is key to building this culture. “You cannot legislate integrity…So it’s

not what is on the piece of paper that’s important, but rather, it’s how people act on a day-to-day

basis.” (Porrini, et al., 2009 pp. 188-189)

Interspersed across the chapters of the book are the different manners by which the CEOs

entrench ethical culture within their organization. In all cases, it would seem that employees have

welcomed the introduction of values system in their company as well as the re-engineering of

corporate framework that enables transparency and accountability in light of recent scandals.

The first technique discussed in the book is how CEOs use narratives to bring to life the

corporate values that have been codified in their employee handbooks, posters, procedure manuals,

etc. The codification of the company’s core values is inadequate in influencing the employees’ day-

to-day activities. Those values have to come to life through stories and anecdotes about the founder

of the company and the employees who exhibited those values. At Walgreens, CEO Dave Bernauer

said, “So we talk about what we do, not to boast, but to recognize our people who practice ethical

behavior in memorable ways.” (Porrini, et al., 2009 p. 25) As a result, with an employee base of over

226,000 people in different parts of the country, the stories about their people who exhibited a

corporate value while in the line of duty “inspires them to build a similar story of their own”. (Porrini, et

al., 2009 p. 25) So as these stories are told repeatedly in the company over a period of time, it

becomes a ‘legend’ that everybody gets to know. Even if there is natural turnover and new people

are coming in, the stories told and re-told by their fellows reinforce the ethical foundation and direct

the ethical compass of the new hires towards the core values.

The use of narratives necessitates that the CEO sit down with the employees to discuss these

stories. It opens up a dialogue between frontline employees and their senior leaders. It is at this

point that the use of stories to enliven corporate values becomes more critical. One challenge in

companies is how different people interpret the corporate values differently. With CEOs and senior

leaders opening dialogue with employees to discuss these values, in very vivid terms and practicable

ways through stories, there is more clarity on what those values really stand for and how one can

make it part of their day-to-day lives. CEO Jeff Fettig of Whirlpool said, “Holding workshops or open

dialogue meetings in work teams to discuss these values has been instrumental in shaping behavior,

gaining alignment, and working through the dilemmas that arise as we apply the values to our

decisions.” (Porrini, et al., 2009 p. 29)

The ultimate benefit of this narrative technique is really to make and keep ethical values alive

within an organization. Like in Pilgrim’s Pride, a Fortune 500 company and is over 50 years in the

industry, the ethical standards of its founder are continuously upheld by its more than 55,000

employees. As it expanded, the stories about the company founder’s humble beginnings during the

Great Depression to the foundation and eventual success of the company are deeply rooted in

company culture. (Porrini, et al., 2009 pp. 39-40) His story, being told and re-told, encapsulated the

ethical values that cannot be withered by vapid time.

The next technique discussed by the book is about how CEOs of companies with strong

ethical foundations dealt with challenging situations and ethical tensions. The most interesting case

presented by the authors is the Xerox Corporation.

Xerox Corporation ranked number one in its industry in Fortune’s 2005 “Global Most Admired

Companies” list and the Business Ethics magazine ranked the company Top 10 among US

corporations for business ethics. (Porrini, et al., 2009 p. 51) Xerox faced fiscal crisis in 2000. Anne

M. Mulcahy became Chairman and CEO in a time when a ‘perfect storm’ engulfed Xerox. In her

words, it was indeed a perfect storm, “Revenue and profits were declining. Cash on hand was

sinking. Debt was mounting Customers were irate. Employees were defecting. Shareholders saw the

value of their stock cut in half and continuing to head south.” (Porrini, et al., 2009 p. 53)

It was a success story in the end. In 2005, Xerox was out of the red with $859 million in

profits. How the company managed this stellar success was rooted on the leadership ability of

Mulcahy in energizing the company’s employees towards a clear goal. The definitive ethical value

that Mulcahy exhibited was honesty. During the time of crisis, she was upfront with her people about

the status of the company and was very clear on her plans to move forward. She engaged her

employees directly. (Porrini, et al., 2009 p. 57) She traveled 100,000 miles to different company

locations around to globe, held 40 town hall meetings, sent letters and television broadcasts directly

to the employee – all to communicate and open dialogue with them. In the final analysis, the

employees trusted her and her strategy and mobilized towards the goal. (Porrini, et al., 2009 p. 58)

Mulcahy upheld the values of the company through the tough times. Although there were

temptations to sacrifice values for expediency, Mulcahy remained steadfast. “Although we needed

and wanted to turn the company around as quickly as possible, we insisted on doing things right – no

corner cutting.” (Porrini, et al., 2009 p. 59) This galvanized the company and its employees and

reaffirmed the strength of the ethical culture that company had established.

The third technique is about how CEOs can use “mixed modes to capture the attention and

enthusiasm of employees.” (Porrini, et al., 2009 p. 73) As I have mentioned earlier, the book’s basic

assumption is that it is the individual behavior of employees that enables the ethical culture. Enron,

WorldCom, and Andersen have the best written ethical standards and codes of conduct that

corporate America had seen. But these were not sufficient to bring home the message of integrity.

“The most effective codes are visually prominent and carefully articulated, but this is not enough.

Ethically alert organizations know this. They make efforts to ensure attention to the codes and to

motivate employees to enact the codes and make them part of their everyday activities.” (Italics

supplied) (Porrini, et al., 2009 p. 73)

Several cases were used to cite examples of different modes to effectively motivate the

employees to embody corporate values. For CEO Richard A. Goldstein of International Flavors &

Fragrances, the company must place a number of systems that would “clarify and enforce their

position on ethical behavior.” (Porrini, et al., 2009 p. 75) Once a year, managers and employees are

required to undergo refresher trainings and have to sign and certify the code of conduct. IFF also has

multiple whistleblower mechanisms (email, phone) that are made available to all employees.

The critical point in IFF’s ethical standard is the importance of aligning the ethical systems with

the rest of the company’s operational processes and procedures. Goldstein said, “One system that

absolutely must be aligned with a company’s values and ethical standards is its rewards system.”

(Porrini, et al., 2009 p. 76) If the ethical standard is to ensure that quality of products is of paramount

importance, a line manager cannot sacrifice that just because the rewards system is challenging him

to produce more products at lower costs. This will confuse the employees.

Hospira, a healthcare company, uses creativity and fun in keeping ethical values alive. CEO

Christopher Begley describes, “In fact, at Hospira, we have a team dedicated to making fun a part of

the fabric of our lives - coming up with creative and interactive ways to reinforce Hospira’s vision,

values and commitment.” (Porrini, et al., 2009 p. 80)

Lastly, in the case of Xerox, Mulcahy shared a “multi-pronged approach” to social responsibility

and business ethics. These are initiatives on “caring for the environment”, “enabling government

legislation” within the company (Sarbanes-Oxley), “corporate philanthropy”, encourage “employee

volunteerism” to serve the community, and lastly, “diversity” and balance workforce. (Porrini, et al.,

2009 pp. 89-91)

The next set of techniques revolves around how the CEO can influence the outside world by

responding to external forces and their advice to future generations.

For responding to external forces, the critical example is environmental stewardship. While

companies have to innovate, ethics encompasses a responsibility to the larger environment.” (Porrini,

et al., 2009 p. 151) At Texas Instruments, part of their innovation was to produce microchips that will

not use lead as an ingredient. In the 1980’s the law did not require them to do that but knowing that

lead has harmful impact to the general public and environment, they had initiated these changes. It

was only in 2003 that the EU had legislated against the use of lead on semiconductors and Texas

Instrument was way ahead of its competitors on compliance. The critical message given here is that

ethically alert companies go beyond mere compliance. They choose the higher road. Given that

environmental stewardship is an ethical value they espouse, TI managed to live out that value and in

the long run, reap the benefits. (Porrini, et al., 2009 pp. 152-155)

For addressing future generations, the book proposes education of business leaders as key to

engendering ethical companies of the future. CEOs emphasized the need of incorporating Business

Ethics in the business school curricula. It was only in the mid-1980’s that business ethics became a

mainstream subject for business schools. (Porrini, et al., 2009 p. 184) It further asserts that business

ethics should not be confined into a subject but must be germane to all the business subjects that

students need to attend. (Porrini, et al., 2009 pp. 173-174)

Part II Critical Reflection

I shall begin with the question: why is the CEO the central player of this book? The book

answers this question with a proverb, “the fish rots from the head”. (Porrini, et al., 2009 p. 33) From

WorldCom to Enron, CEOs have a profound impact on the character and ethical integrity of an

organization. No matter how well-written the code of conduct is, or how well articulated the core

values are, the CEO has the power to break the very foundation of ethical standards within his

company. People like CEO Kenneth Lay of Enron have wielded this power in front of his worldwide

audience.

In our discussion, we’ve tackled the topic of Power and Ethics. We defined power as

“intelligence, determination, position and resources for maintaining or changing the direction of an

event or the flow of history”. (Power And Ethics, 2009) All CEOs have the position power to influence

the events within an organization, affecting each and every one of the stakeholders. Several of them

even have personal power because of their charisma, relationship with his people and expertise.

CEOs are given power to be able to manage his company to reach its business goals. “Power is

necessary to manage successfully.” (Power And Ethics, 2009)

This unique position of the CEO as the chief executor of power within a company is a source of

profound impact on individuals of the company. This power can “be destructive or constructive,

hurtful or helpful, harmful or beneficial.” It can “humanize or dehumanize”. It can “ennoble or

corrupt”. (Power And Ethics, 2009) The cases in the book exemplified ways by which the acts of a

single person in the company can be directly influenced by the disposition of power by the CEO. The

book supports our conclusion that “Ethics helps power to be positive in its goals and effect.” (Power

And Ethics, 2009) The central theme of the book is that ethically-alert CEOs enculturate ethics in the

company through different techniques and more importantly by being ‘ethics exemplars’ themselves,

whom employees emulate. (Porrini, et al., 2009 p. 191)

What the book is not able to provide is a discussion on how a CEO can manage himself to be

ethically sound. As a reader, one will find the tools and techniques to be very practical and can be

done in his own organization. However, the ultimate success of the techniques on developing ethical

culture is anchored on the disposition that the CEO is ethically aware and morally sound. No matter

how well these techniques are employed, if the CEO himself is not ethically prepared, we cannot

expect that these will work. The book is lacking in respect to providing the reader an insight on the

CEO’s intrapersonal skill to manage oneself. How does a leader become an ethically-centered

leader?

This reminded me of the lecture of Prof. Dr. Johan Verstraeten of Katholieke Universiteit

Leuven. In his lecture, he emphasized the importance of leadership in an organization and why

several companies are in shortage of good leaders. He argued that there are four reasons why

leadership has been problematic in recent years: problem of language, inner disconnection, alienation

from deeper self and manipulation of the soul. (Leadership Spirituality, 2009) The book intersects on

at least two of his ideas.

The problem of language centers on the limited usage of language in business. In everyday

corporate life, we are used to utilitarian, empirical language in day-to day activities. We have the best

means of measuring individual contribution in empirical valuations, balanced scorecards and

performance appraisals. Leaders have stereotyped the individual to the limited meaning that

numbers can measure. He quoted Hannah Arendt, “Via stereotyped phrases we try to protect our

place in the system, but instead of guaranteeing life, we place it under a sort of anesthesia.”

(Leadership Spirituality, 2009) With the way that CEOs and senior leaders have established the

business language –like “from human relations to human resources” – the company has

dehumanized its employees to mere objects.

The book skirted this idea when it discussed the use of narratives and stories to enliven

corporate values. The CEOs in the book have, in all cases, recognized that storytelling promotes

understanding of the employees of how values work and why they are important. (Porrini, et al., 2009

p. 20) You cannot measure integrity, truth, justice, and honesty in purely empirical terms. But you

can make them be felt by everyone through stories. Prof. Verstraeten’s solution to the problem of

language is the integration of the 1st language (empirical) with the 2nd language (understanding and

wisdom). (Leadership Spirituality, 2009) The techniques proposed in this book can aptly

complement Prof’ Verstraeten’s idea of the 2nd language as practiced by ethically sound corporations.

A leader must be able to distinguish these languages and be able to use both in establishing an

ethical culture in their organization.

The second problem is inner disconnection. It is the confusion between “role-integrity” and

“integral integrity”. (Leadership Spirituality, 2009) Role-integrity is basically being able to perform

(comply) with the leader’s functional duties and responsibilities in the company. In business terms,

and in most cases using the 1st language, these duties and responsibilities focus on profitability. As

far as Enron CEO Kenneth Lay sees his leadership role, it is doing whatever it takes to win (be

profitable). What a CEO must understand is “integral integrity”, which is “integrating his role to the

bigger picture.” (Leadership Spirituality, 2009)

While the book does not tackle this directly, it complements this idea in some of its cases. A

case in point is Texas Instruments CEO Rich Templeton whose company chose the higher road in

making microchips that are lead-free even though it is not yet required by law. (Porrini, et al., 2009

pp. 152-153) If he sees his leadership in light of “role-integrity” it is enough to maintain the use of

lead. But he saw himself and his company in light of “integral integrity” where he understands the

difference between what is legal and what is morally right.

A CEO-leader also sees his role in relation to the bigger picture in terms of human rights. In

class, we discussed the importance of human rights as an ethical standard. Human rights are

defined as “rights that every person possesses by virtue of being human and an image of God.”

(Utility, Rights and Justice, 2009) The book recognizes the need for CEOs to recognize human rights

as integral to building a culture of ethics in the company. CEO William V. Hickey of Sealed Air

Corporation said, “We’ve evolved from a definition bounded by political rights and physical security to

one where economic and social rights and culture are part of the mix. And no matter where you are

in the world, the workplace is always a nexus where economy and society come together.” (Italics

supplied) (Porrini, et al., 2009 p. 111) In building a corporate culture of ethics, the CEO must be able

to champion human rights inside and outside the company premises. As the world has seen a

preponderance of multinational companies, it becomes inevitable that we will face human rights

issues at multiple points in time and at different workplaces.

There are indeed some countries where respect of human rights is wanting. A case shared in

the book exemplified how a company can be ethically sound in a country that has human rights

issues. CEO William Hickey described a situation where each time a woman becomes pregnant, in

that country’s law, she is effectively tendering her resignation. This is something that his company

rejected. They continued to employ pregnant women in that country. (Porrini, et al., 2009 p. 115) An

ethically-centered company cannot separate itself from upholding human rights, even if the external

environment is providing an opportunity to exploit.

This case also intersects with the topic of relationship of legality and morality. “It is safe to

assume that what is illegal is also immoral, but not the other way around.” (Italics supplied) (Business

Ethics - 1st Session, 2009) While it was legal for company to remove pregnant women from their

labor force and replace them with others who can have fewer production constraints due to

pregnancy, CEO Hickey chose the ‘higher road’ of what is morally right. He added that when faced

with a dilemma, it is within their guidelines that they apply the stricter statute. “From time to time, two

different ways of doing business come into conflict. When that happens we opt for what we call the

‘higher road’. So if our Code is stricter, we apply the Code.” (Porrini, et al., 2009 p. 113) This can be

applied by senior leaders to ensure that their companies are insulated from external pressures.

In our discussion on Superior Governance, the concept of ‘higher road’ plays a central role.

There a 3 types of governance - public, corporate and sustainability governance. (Superior

Governance, 2009) “Public governance relates to the evolving relationship between business &

government…to growing public demands for large companies to be more transparent & accountable

in their interactions with government bodies & officials”. (Superior Governance, 2009) When it

became common practice in society to submit to bribery and corruption in running a business, CEOs

and leaders have the moral obligation to choose the higher road of not succumbing to short term

gains. When our nation’s leaders have shown blatantly how they can circumnavigate the law for

personal gains in connivance with huge businesses, business leaders across the country are faced

with a dilemma of either taking the higher moral ground and pay the price or joining the bandwagon of

corruption as it is clear that high rollers are often protected and not prosecuted. “It is perhaps in the

fight against corruption that the business community’s response has been weakest…This is the path

which says—my competitors don’t pay their taxes so why should I.” (Business and Nation-Building,

2004) In building an ethical culture within a company, one should not limit the horizons to within the

confines of the workplace. It must transcend the boundaries of the corporation.

Faced with the fragility of our economic system in light of the corporate scandals of recent

history, this book is a must read for anyone who seeks ways to galvanize his organization and point it

towards the right direction of doing what is right. As business leaders we have the unique opportunity

and duty to influence the proliferation of ethical values in our companies and in the larger society.

The best practices of CEOs that are presented in this book should complement most, if not, all of the

business ethics topics that we have tackled in class.

In conclusion, I dare to say that when the values of integrity and honesty are fully inculcated in

the company’s culture where we belong, and are therefore ingrained within the hearts and minds of

the employees we serve, they can faceoff with the human face of corruption as the human face of ethics that our society desperately needs today.

12 November 2009

BibliographyBusiness and Nation-Building. del Rosario, Ramon V. 2004. Makati City : Ateneo Graduate School of Business, 2004.

Business Ethics - 1st Session. Gonzalez, Dennis. 2009. Makati City : Ateneo Graduate School of Business Lecture, 2009.

Leadership Spirituality. Verstraeten, Johan. 2009. Quezon City : Ateneo School of Government Lecture, 2009.

Porrini, Patrizia, Hiris, Lorene and Poncini, Gina. 2009. Above the Board: How Ethical CEOs Create Honest Corporations. New York : McGraw Hill, 2009.

Power And Ethics. Gonzalez, Dennis. 2009. Makati City : Ateneo Graduate School of Business Lecture, 2009.

Superior Governance. Gonzalez, Dennis. 2009. Makati City : Ateneo Graduate School of Business Lecture, 2009.

Utility, Rights and Justice. Gonzalez, Dennis. 2009. Makati City : Ateneo Graduate School of Business Lecture, 2009.