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Monday, June 13, 2011

Corporate Ethics Codes: A Waste of Time?

Ethics codes are not enough; that is to say, making applications of ethical principles explicit is not sufficient, even where they are grilled into employees in recurrent training sessions. Indeed, individuals or a dominant coalition can use a code’s existence as window-dressing. For example, in his letter on July 1, 2000 announcing Enron’s new and improved 65 page Code of Ethics, Ken Lay writes, “Relations with the Company’s many publics . . . will be conducted in honesty, candor, and fairness.” If Ken Lay can trumpet a code of ethics, who’s to say who is out there now acting unethically in business under the cover of an effervescent code.

Fundamentally, ethical conduct is a matter of individual character, the more questionable sort being readily influenced by a sordid corporate culture. Therefore, looking out for character in hiring is paramount. Lest it be thought that candidates will ignore social desirability and readily give clues as to an unethical predilection in answer to facile “what would you do if” interview questions, common sense may dictate that references should be followed up and permitted to go on at length on the candidate’s character as per ethical conduct. In getting a sense of one’s ethical character, it is not enough to rely on stock questions.

Of course, if the managers with power, such as Ken Lay, are unashamedly unethical in their conduct, there would be stiff intangible penalties involved in acting ethical further down the line, even if unethical candidates have been screened out. Furthermore, if the CEO is also chairman of the board of directors, the board itself may be compromised in policing ethics in upper management.

However, if a company’s dominant coalition is serious about bringing its ethical code to life in the organization, compensation for ethical conduct must go beyond “rewards” or prizes. That is to say, compensation for such conduct must rival compensation for profitability. To say that ethics is important and then to relegate its bearers to receiving praise and recognition, plus perhaps a prize, is to introduce hypocrisy into the organization, from which point an unethical culture can easily take root.

In terms of whistleblowers, not tolerating retaliation is just a start. Compensation for the whistleblowers must be upped, for they risk much and thus show tremendous courage and fortitude—qualities that can come into play in taking a profitable strategy and running with it to fruition against seemingly daunting obstacles.

In short, stockholders, directors and upper echelon managers must put their money where their mouths are to be taken seriously as having a credible code of ethics that is alive in their organization and not merely window-dressing that can serve as a viable subterfuge for nefarious conduct.