This week’s “Daily Journal” guest columnist is Dr. Karen Palasek, Director of Educational and Academic Programs for the John Locke Foundation.
I spend a lot of time thinking about systems in organizations, and how they work. I probably shouldn’t; it’s not really my job. Nevertheless, 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, and I’ll be talking a bit about that in an upcoming Shaftesbury luncheon. The second, “runs well,” ties the first to efficiency and closely related concerns, and that brings me to today’s topic.
For my contribution to this week’s Daily Journal I have decided to give an overview of the Lynn Sharp Paine book Value Shift: Why Companies Must Merge Social and Financial Imperatives to Achieve Superior Performance. Paine’s work forms the basis of our discussions of ethics and leadership in the John Locke Foundation’s E.A. Morris Fellowship for Emerging Leaders program. We give it serious attention there because ethical leadership and ethical behavior on the part of people in an organization are not a presumptive default. 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. Paine’s is a work that deserves serious attention. Either directly or indirectly, much of it speaks to whether there is a culture of trust that allows all people involved to perform at their best.
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. Ignoring or encouraging the unethical behavior of some employees devalues other employees who are not engaged in the same game. And as we note in our ethics and leadership seminar, it’s a destructive situation that frequently presents more losing options than winning ones.
Paine’s book is much more than a rundown of corporate misbehavior and woes, however; it’s an analytical blueprint on how to “get ethics right.” She 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. There is also a fifth reason that appears later, as it will here.
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? We spend some time talking about this in the discussion part of our leadership program, I think to good purpose.
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 and subsequent collapse, which left employees and investors permanently in the lurch for Enron’s astounding mismanagement and failure to uphold even basic standards of ethical behavior.
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 — she actually calls it pessimism about — values initiatives, noting: “It is not enough to merely roll out a values statement, distribute a code of conduct, or exhort people to higher values…. In other words, management and organization are the vehicles through which beliefs, values, and convictions are transformed into corporate action.”
What many organizations wind up doing, the author warns, in the face of numerous claims on their attention and focus, amounts to a clutter of programs or projects aimed at specific issues such as diversity, social responsibility, self-awareness, or sensitivity training. Each remains unrelated to the others and detached from any coherent organizational ethic. In these cases it would be better, experts have argued, not to have any ethics “program” at all.
To avoid this clutter, or category confusion, Paine argues that center-driven organizations should instead integrate six essential components of ethics and performance: performance measurement, compensation and reward, hiring and orientation, information and communication, planning and coordination, and new project development. Examples of key elements she gives are: completely open information on performance data available to any employee on an “as wanted” basis, decentralized and even non-expert decision making, hiring only those candidates who fit and support the company’s value system, conducting an employees’ evaluation of the company against its espoused principles, and tying bonuses at all levels to performance.
Finally, once we have considered what wearing an ethical suit of clothes full-time can mean for an organization 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. Having coincidentally attended a conference on cultural and moral relativism just recently, I am more convinced than ever of the for its own sake position.
Lynn Sharp Paine is undoubtedly correct in concluding that values are integral to the question of “how the agency is structured and how its processes are worked out.” 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.