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Business Cultures®. 1
Copyright © 2011 by the Center for Ethical Business Cultures®
1
Copyright © 2011 by the Center for Ethical Business Cultures®Celebrating over 30 years of business commitment to ethical cultures.
Building and Sustaining an Ethical Culture
Ron JamesRon JamesPresident and CEOPresident and CEO
Center for Ethical Business CulturesCenter for Ethical Business Cultures
September 14 2011September 14 2011
Copyright © 2003 by the Center for Ethical
Business Cultures®. 2
Copyright © 2011 by the Center for Ethical Business Cultures®
About the Center for Ethical Business Cultures
Mission
To assist business leaders in creating
ethical and profitable business cultures at
the enterprise, community and global levels
Background
�33 year old nonprofit organization
�Began partnering in 1988 with University of St. Thomas
�Member of the Advisory Group to the US Sentencing Commission
�Advises Boards and Executive Leaders on “Tone at the Top”
�Building a Bridge Between Thought and Practice Leadership
Copyright © 2011 by the Center for Ethical Business Cultures®
Why is it Important?
Organizations that build an ethical culture:
�Do it because it’s the right thing to do
�Outperform organizations that don’t
�Reduce their exposure to ethical lapses
that cause breakdowns
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Copyright © 2011 by the Center for Ethical Business Cultures®
Goals for the DayGoals for the Day
�� To develop an understanding of individual and To develop an understanding of individual and
organizational ethics and values in the workplace.organizational ethics and values in the workplace.
�� To focus on the leader’s role in achieving To focus on the leader’s role in achieving
performance goals within the highest standards performance goals within the highest standards
of integrity and ethical behavior.of integrity and ethical behavior.
�� To explore the importance of aligning systems in the organization To explore the importance of aligning systems in the organization
to drive the desired behavioral expectations.to drive the desired behavioral expectations.
Copyright © 2011 by the Center for Ethical Business Cultures®66
Organizing the Organizing the DayDay
�� Examining Examining Ethical Approaches Ethical Approaches
�� “Happy “Happy Hills”Hills”
�� Linking Personal & Organizational EthicsLinking Personal & Organizational Ethics
�� The Parable of the The Parable of the SadhuSadhu
�� Scanning the EnvironmentScanning the Environment
�� When Values CollideWhen Values Collide
�� The Letter of the Law CaseThe Letter of the Law Case
�� Building and Sustaining Ethical CulturesBuilding and Sustaining Ethical Cultures
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Copyright © 2011 by the Center for Ethical Business Cultures®Celebrating over 30 years of business commitment to ethical cultures.
Examining Ethical Approaches
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Keep OutExtremely DangerousHigh Voltage!!!
As the new mayor of Happy Hills, would
you direct that this sign be:
�Taken down or altered?or…
�Not taken down?
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Ethical Approaches
� Consequences
�What will be the effects of the proposed
action on any stakeholders?
� Absolute Principles
�Will the proposed action be in alignment
with universal ethical principles?
� Synthesis
�Both stakeholder consequences and
absolute principles must be considered.
Copyright © 2011 by the Center for Ethical Business Cultures®
Ethical Approaches
� Beyond the Absolute Principles and Consequential
approaches:
� Duties – Obligations to a community of common
interests, i.e. fiduciary responsibility
�Rights – Fair distribution of opportunities and wealth or
basic freedoms and liberties
� Interests – (Consequential - Utilitarian) Harms and
benefits to the interest of parties affected
�Virtue – (Absolute Principles - Kantian) A positive trait
of character including prudence, impartiality, courage,
justice, and belief/trust
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Copyright © 2011 by the Center for Ethical Business Cultures®Celebrating over 30 years of business commitment to ethical cultures.
Linking Personal & Organizational EthicsThe Parable of the The Parable of the SadhuSadhu
Copyright © 2011 by the Center for Ethical Business Cultures®
PresentingPresentingAs McCoy, would you have carried the sadhu to safety?
or…
Left him to his own resources?
The Parable of the Sadhu
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Copyright © 2011 by the Center for Ethical Business Cultures®
“Teleopathy”
� The unbalanced pursuit of purpose in either individuals or organizations.
� This mindset is a key stimulus to which ethics is a practical response.
� The principal symptoms of teleopathy are fixation, rationalization, and detachment.
Copyright © 2011 by the Center for Ethical Business Cultures®
Teleopathy
� Fixation on tangible goals or purposes without moderation
� A tendency to rationalize or even deny responsibilities and realities that might impede the
accomplishment of those goals or purposes
� A general separation of the ethics of business goals
from the ethics of everyday life leads to emotional
detachment from the full human implication of pursuing those goals.
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Antidotes to Teleopathy
� Fixation to perspective…understanding that the goals we set for ourselves are part of a larger mission
� Rationalization to frankness …practice, practice, practice telling the truth when exaggeration or denial appear attractive
� Detachment to engagement… learning to keep the “head” (what we have to do) and the “heart” (how we do it and who is affected) in healthy communication
Copyright © 2011 by the Center for Ethical Business Cultures®Celebrating over 30 years of business commitment to ethical cultures.
Scanning the Environment
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Who Do You TRUST?
How much do you TRUST each institution to do what is right? (2008 - 2011)
Percent
America’s
US/Canada/Brazil
Europe
France/Germany/
Russia
Asia
China/Japan/
India
Business 2008 58/49/61 30/35/42 54/61/74
Business 2009 36/45/67 30/34/52 62/63/71
Business 2010 54/na/62 36/40/42 62/57/67
Business 2011 46/na/81 48/52/41 61/53/70
Govt. 2008 39/39/22 35/27/38 79/45/49
Govt. 2009 30/51/51 34/36/48 72/45/42
Govt. 2010 46/na/39 43/43/38 74/42/43
Govt. 2011 40/na/85 49/33/39 88/51/44
Source: 2011 Annual Edelman Trust Barometer
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Confidence in LeadersConfidence in Leaders
0
10
20
30
40
50
60
70
80
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
Source: Harris Poll March 9, 2010
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Copyright © 2011 by the Center for Ethical Business Cultures®
Ethical Breakdowns in the News
1919
•Purdue Pharma
•Bristol Myers-Squibb
•Google & Yahoo (China)
•Toyota Safety Recalls
•Financial Services Sector
Meltdown
•Royal Dutch Shell
•BP Amoco Oil Spill
•Denny Hecker
•Tom Petters
•Bernie Madoff
•Societe Generale
•PetroChina
•AGA Medical Co.
•Ahold
•Bear Stearns
•Sanlu
•Purdue Pharma
•Bristol Myers-Squibb
•Google & Yahoo (China)
•Toyota Safety Recalls
•Financial Services Sector
Meltdown
•Royal Dutch Shell
•BP Amoco Oil Spill
•Denny Hecker
•Tom Petters
•Bernie Madoff
•Societe Generale
•PetroChina
•AGA Medical Co.
•Ahold
•Bear Stearns
•Sanlu
•Morgan Stanley
•Putnam
•Qwest
•UnitedHealth Group
•BUCA
•Siemens
•Hewlett Packard
•Parmalat
•Cendant
•Computer Associates
•KPMG
•Hyundai Motor
•Boeing
•American Red Cross
•Johnson & Johnson
•Morgan Stanley
•Putnam
•Qwest
•UnitedHealth Group
•BUCA
•Siemens
•Hewlett Packard
•Parmalat
•Cendant
•Computer Associates
•KPMG
•Hyundai Motor
•Boeing
•American Red Cross
•Johnson & Johnson
•Worldcom
•Enron
•Tyco
•HealthSouth
•Global Crossing
•Arthur Anderson
•Adelphia
•Worldcom
•Enron
•Tyco
•HealthSouth
•Global Crossing
•Arthur Anderson
•Adelphia
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How Do You Measure-Up?
Rating the honesty and ethical standards
of people and professions (very high/high):�Nurses 81%
�Medical Doctors 66%
�Policeman 57%
�Clergy 53%
�Bankers 23%
�Lawyers 17%
�Business Executives 15%
�State Officeholders 12%
�Congressman 9%
�Car Salesmen 7%Source: Gallup Poll. December 2010. Honesty and Ethics
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Financial
Performance
Behavioral
Performance
Two Languages of BusinessTwo Languages of Business
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Misconduct at WorkMisconduct at Work
0%
10%
20%
30%
40%
50%
60%
2000
55%
46%
52%
56%
49%
2003 2005 2007 2009Source: Ethics Resource Center's 2009 National Business Ethics Survey
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Reporting MisconductReporting Misconduct
0%
10%
20%
30%
40%
50%
60%
70%
2000 2003 2005 2007 2009
56%
64%
53%
58%
63%
Source: Ethics Resource Center's 2009 National Business Ethics Survey
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The Cost of Ethical BreakdownsThe Cost of Ethical Breakdowns
27% of fraud cases were corruption
46% of cases detected by tips
Typical fraud timeframe (from the time it began
to the time it was discovered): two years
2006: U.S. organizations lose 5% of annual revenues
(estimated value ~ US$652 billion)
2008: U.S. organizations lose 7% of annual revenues
(estimated value ~ US$994 billion)
2010: typical organization loses 5% of annual revenues
(estimated value ~ $2.9 trillion worldwide)
Source: ACFE 2010 Report to the Nation on Occupational Fraud & Abuse
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Cheating Among MBA StudentsCheating Among MBA Students
�� 56%56% of MBA candidates surveyed of MBA candidates surveyed
admitted they had cheated at least onceadmitted they had cheated at least once
��“culture of greed within MBA schools”“culture of greed within MBA schools”
��“get it done at all costs”“get it done at all costs”
��“shifting priorities from meeting customers’ needs to “shifting priorities from meeting customers’ needs to
protecting shareholders profits”protecting shareholders profits”
�� Over 16 years, on every study of cheating, Over 16 years, on every study of cheating,
except one, business students led the wayexcept one, business students led the waySource: McCabe, Butterfield & Trevino, September 2006
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Driving Ethical Culture:Driving Ethical Culture:The Legislative/Regulatory ResponseThe Legislative/Regulatory Response
��SarbanesSarbanes--Oxley Act of 2002Oxley Act of 2002
��Public Company Listing Exchanges Public Company Listing Exchanges
��United States Sentencing CommissionUnited States Sentencing Commission
��DoddDodd--Frank Act of 2010Frank Act of 2010
��SEC Rule Making (2011SEC Rule Making (2011--2012)2012)
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A Collective View:A Collective View:The Legislative/Regulatory ResponseThe Legislative/Regulatory Response
�� Setting the Setting the
“Tone at the Top”“Tone at the Top”
��Ethical CultureEthical Culture
��Codes of ConductCodes of Conduct
��Conflicts of InterestConflicts of Interest
��Disclosure/ Disclosure/
TransparencyTransparency
��Whistleblower RewardsWhistleblower Rewards
��Board IndependenceBoard Independence
�� AuditAudit
�� CompensationCompensation
�� NominatingNominating--GovernanceGovernance
��Consultant IndependenceConsultant Independence
�� Audit and TaxAudit and Tax
�� CompensationCompensation
�� Shareholder AccessShareholder Access
�� Executive CompensationExecutive Compensation
Copyright © 2011 by the Center for Ethical Business Cultures®
Legislative/Regulatory ThemeLegislative/Regulatory Theme
“…requirement that an organization shall “…requirement that an organization shall --
promote an organizational culture that promote an organizational culture that
encourages ethical conduct and a encourages ethical conduct and a
commitment to compliance commitment to compliance
with the law.”with the law.”
But you can’t legislate integrity!But you can’t legislate integrity!
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Copyright © 2011 by the Center for Ethical Business Cultures®Celebrating over 30 years of business commitment to ethical cultures.
When Values CollideLetter of the Law CaseLetter of the Law Case
Adapted by Jon Adapted by Jon PekelPekel From A True Story Fictionalized by Doug WallaceFrom A True Story Fictionalized by Doug Wallace
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�� Who are the stakeholders?Who are the stakeholders?
�� What are the conflicts? What are the conflicts?
�� What are the key issues?What are the key issues?
�� What are the choices?What are the choices?
�� What’s the decision process?What’s the decision process?
Key QuestionsKey Questions
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What’s the Decision Process?What’s the Decision Process?
Testing the decisionTesting the decision::�� Is it legal?Is it legal?��Does it fit the organization’s values and comply with Does it fit the organization’s values and comply with it’s conduct standards?it’s conduct standards?
��Does it create harm or benefit (to a few or to many)Does it create harm or benefit (to a few or to many)��What does my ethical compass say?What does my ethical compass say?��Am I comfortable discussing my decision in the Am I comfortable discussing my decision in the public eye?public eye?
Creating an ethical advantageCreating an ethical advantage::��Have I identified and considered the interests of the Have I identified and considered the interests of the affected stakeholders?affected stakeholders?
��Have I modeled behavior that I would want Have I modeled behavior that I would want replicated?replicated?
��Am I appropriately using the organizational systems Am I appropriately using the organizational systems to reinforce the desired behavior?to reinforce the desired behavior?
Copyright © 2011 by the Center for Ethical Business Cultures®Celebrating over 30 years of business commitment to ethical cultures.
Building & Sustaining Ethical Cultures
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What is an Ethical Culture?What is an Ethical Culture?
�� Based on IntegrityBased on Integrity
�� Discerns and chooses right versus wrongDiscerns and chooses right versus wrong
��Laws and RegulationsLaws and Regulations
�� Societal StandardsSocietal Standards
�� Reaches for the higher standard in the gray Reaches for the higher standard in the gray
areas when all options seem rightareas when all options seem right
Copyright © 2011 by the Center for Ethical Business Cultures®
Source: Based on Chapter 2 “Mindsets & Culture” in Conscience
and Corporate Culture Copyright © Kenneth E. Goodpaster
Self
Interest
Law
Based
Market
Based
Evolving EnlightenmentEvolving Enlightenment
ValuesValuesDrivenDriven
LeadershipLeadershipEffectivenessEffectiveness
BalancingBalancingStakeholderStakeholderInterestsInterests
AssessmentAssessment
Process Process IntegrityIntegrity
LongLong--term term PerspectivePerspective
Corporate
Conscience
Ethical
Culture
Ethical MindsetsEthical MindsetsCharacteristics in Building & Characteristics in Building & Sustaining an Ethical CultureSustaining an Ethical Culture
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� Mission � Purpose
� Vision � Image of the future
� Values � Principles that guide behavior
� Ethics & Compliance Codes � Legal and regulatory compliance and beyond
Laying the FoundationValues Values
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Shaping Organizational Culture
Values�The shared norms and beliefs of the organization
that define acceptable behavior
�Inspirational and directional in nature
�Gives individuals a context to reflect on how their
personal values align
Ethics and Compliance Codes of Conduct�The standards of behavior established to insure
compliance with the law, regulations, and rules
�Prescriptive in nature with specific well defined
expectations of behavior
Values Values
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Federal Sentencing Guidelines
�Established by the United States Sentencing
Commission (USSC) in 1991 with focus on
compliance
� Imposes fines, sentencing to probation, orders
of restitution and public notices of conviction
�Offers incentives for organizations to “do the
right thing”
�Updated to emphasize ethical conduct in 2004
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The Seven Minimum Steps
4. Provide communication and training
5. Utilize monitoring, auditing, and reporting
6. Consistently enforce through discipline
7. Take appropriate corrective action
1. Establish standards and procedures
2. Make high-level individuals
responsible
3. Exercise due care in delegating
authority
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Oversight & ManagementRoles and Responsibilities
Separate attention now given to the roles and
responsibilities of three types of organizational
officials:
�Members of the governing authority (i.e., Board)
�Executives comprising an organization’s
managerial leadership (i.e., “high-level
personnel”)
�One or more specific individual(s) having day-
to-day operational responsibility for an
organization’s compliance and ethics program
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� Data Illustration:
The behavior of the people I work with is The behavior of the people I work with is consistent with my company’s mission, consistent with my company’s mission, vision and values.vision and values.
ExecutiveExecutive ManagerManager FrontlineFrontline
75%75% 63%63% 57%57%
The 1st ElementLaying the Foundation
Source: Gantz Wiley Research WorkTrends 2008
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� Leadership is the key ethical culture factor
� Leaders must set the tone by “talking the
talk” and “walking the talk”
� Top management is generally perceived to
exert more pressure on “getting the results”
and not on “how the results are achieved”
� This translates into get the results “at all
costs.” “The ends will justify the means!”
LeadershipLeadership
EffectivenessEffectiveness
Modeling Ethical Behavior is Crucial
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� Data Illustration:
My senior management supports and My senior management supports and practices high standards of ethical practices high standards of ethical conduct.conduct.
ExecutiveExecutive ManagerManager FrontlineFrontline
78%78% 73%73% 68%68%
The 2nd ElementEffective Leadership
Source: Gantz Wiley Research WorkTrends 2008
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� Data Illustration:
Where I work, ethical issues and concerns Where I work, ethical issues and concerns can be discussed without negative can be discussed without negative consequences.consequences.
ExecutiveExecutive ManagerManager FrontlineFrontline
77%77% 72%72% 62%62%
The 2nd ElementEffective Leadership
Source: Gantz Wiley Research WorkTrends 2008
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Stakeholder ReciprocityStakeholder Reciprocity
CommunityCommunity
InvestorsInvestors
GovernmentGovernment--
RegulatoryRegulatory SuppliersSuppliers
Your
Organization
CompetitorsCompetitors
EmployeesEmployeesGuestsGuests
EnvironmentEnvironment
BalancingBalancing
StakeholderStakeholder
InterestsInterests
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� Data Illustration:
My company strives to serve the interests My company strives to serve the interests of multiple stakeholders not just the of multiple stakeholders not just the shareholders (financial performance).shareholders (financial performance).
ExecutiveExecutive ManagerManager FrontlineFrontline
77%77% 72%72% 65%65%
The 3rd ElementBalancing Stakeholder Interests
Source: Gantz Wiley Research WorkTrends 2008
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46464646
MarketingMarketing
PurchasingPurchasingFinanceFinance
Human Human
ResourcesResourcesSalesSales
ProductionProduction
CommunicationCommunicationRecognitionRecognition
IncentivesIncentivesHiringHiring
AdvancementAdvancement EvaluationEvaluation
ProcessProcess
IntegrityIntegrity
With Organizational ProcessesWith Organizational ProcessesAligning Core Business FunctionsAligning Core Business Functions
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� Data Illustration:
Where I work, people do not “get ahead” Where I work, people do not “get ahead” unless their behavior clearly demonstrates unless their behavior clearly demonstrates my company’s values.my company’s values.
ExecutiveExecutive ManagerManager FrontlineFrontline
67%67% 57%57% 50%50%
The 4th ElementProcess Integrity
Source: Gantz Wiley Research WorkTrends 2008
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Impact of Ethics U.S. Employees
93
16
92
14
92
15
83
14
92
8
90
10
0
10
20
30
40
50
60
70
80
90
100
Strong Ethical Culture Weak Ethical Culture
Pride Overallsatisfaction
RetentionAdvocacy
Source: Kenexa WorkTrends™ 2008
Note: values represent percent favorable
Reputation improvement
Performance improvement
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� Linking & Aligning Mission, Vision, Values
and Ethics & Compliance
� Leadership
� Education & Training:� Governing Authority
� Senior Management
� Mid Level Managers
� Front Line Employees
� Connecting systems & incentives to values
� Surveying for feedback
Building the Ethical Culture
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Questions?
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For Information on CEBCFor Information on CEBC
�� Phone the Center:Phone the Center: 651651--962962--41204120
�� Fax the Center:Fax the Center: 651651--962962--40424042
�� Email the Center:Email the Center: [email protected]@cebcglobal.org
�� Visit the Web:Visit the Web: www.cebcglobal.orgwww.cebcglobal.org
�� Write the Center:Write the Center: 1000 LaSalle Avenue, TMH 3311000 LaSalle Avenue, TMH 331
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