I spend a lot of time thinking about systems in organizations, and how they work. If I had to name two criteria that I look for in any organization they are: 1) that it knows very clearly what it is about, and 2) that it runs well. What the exact product is is actually far less important to me than these two criteria. The first item goes to vision or purpose. The second, “runs well,” ties the first to efficiency and closely related concerns.
In the book, Value Shift: Why Companies Must Merge Social and Financial Imperatives to Achieve Superior Performance, Lynn Sharp Paine argues that ethical behavior requires deliberate and continuing effort, and in doing so delineates what an ethical organization looks like, from the inside and from the outside, from the executive seat to the lowest rung of employment.
Trust and respect are extraordinarily difficult to restore, once lost. If there is one overarching theme in Value Shift, it’s that trust is paramount. Companies and organizations must earn and maintain the trust of their employees as well as their clients and shareholders in order to be truly successful. It’s a simple prescription that has a lot of intuitive appeal. If filling this prescription were simple, though, there would be little need to discuss “what went wrong” with firms like Enron, Salomon Brothers, or more lately, Bear Stearns. So it can hardly be clearer, in light of these and other recent events, that an ethical breakdown can mean an organization that is itself at risk of failure.
All of the ethical virtues Paine names must first be translated into management behaviors in order to generate trust. Primarily, they are truth, reliability, fairness, and respect. Without them, she argues, symptoms of trouble appear: nothing can be taken at face value, people stop communicating openly and honestly, truth-tellers are penalized or self-censor, and everything becomes a “get it in writing” and “keep CYA memos” situation. At very least this diverts activity from productive uses to protective maneuvering. And of course it is demoralizing.
Paine makes the case that ethics can and should be a priority, and discusses the pros and cons of choosing ethical behavior in the face of additional — and possibly competing — priorities, like profitability and stakeholder concerns.
The reader is offered four important reasons up front why ethics is an “ought to be” component of any organization. These include managing and eliminating risks associated with individual and corporate misconduct, improving organizational functioning by creating trust through responsibility for actions, improving market position by shaping the organization’s identity, and building good relationships through civic positioning — basically being a “good citizen” with respect to other groups and the larger community.
All well and good. Everybody, seemingly, espouses ethical behavior — publicly. But does it work? Is ethical behavior also efficient behavior? In other words, Does Ethics Pay?
The answer is — yes, and no, and sometimes. In the short run, making an ethical decision may be financially costly, as when the makers of Tylenol decided to destroy about $100 million worth of possibly contaminated product in 1982, after the discovery of product tampering and the related deaths of seven Tylenol consumers. In the long run, that decision demonstrated that ethical concerns superceded financial ones and helped restore maker Johnson & Johnson’s reputation. Just the opposite occurred in the course of the 2001 Enron financial scandals.
The ethical-financial strategy that Paine is espousing is what she calls the center-driven company. The center-driven company’s decisions must “pass tests of both ethical and financial rationality.” At the same time, she is wary of values initiatives.
Once we have considered what wearing an ethical suit of clothes full-time means in terms of risk management, organizational functioning, and market and civic positioning, it is worthwhile to consider the value of creating and running an ethical organization for a fifth reason — for its own sake.
If, as Paine says, superior work has both a financial and an ethical dimension, then it is more important than ever to stop thinking of values as “occupying the blank spaces surrounding a company’s formal processes and systems,” as “a management tool,” or as a “value system” managers can implement “without disturbing any of their company’s other systems or processes.” If this sounds more like a Reformation than a marginal adjustment, it probably is. That’s why, no doubt, she has placed so much emphasis on making the greatest effort to get it right, right from the start.
Palasek is Director of Educational and Academic Programs for the John Locke Foundation.