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Creating and Maintaining an Ethical Corporate Climate

A Book Produced by the Woodstock Theological Center's Seminar in Business Ethics

Copyright © 1990 Woodstock Theological Center. All rights reserved. Published by Georgetown University Press (ISBN 0-87840-521-6).

 

TABLE OF CONTENTS

Participants

Foreword

Executive Summary

Section I  The Challenge

Section II  The Values

  1. Responsibility of Purpose
  2. Responsibility to Constituencies
  3. Honesty
  4. Reliability
  5. Fairness
  6. Integrity
  7. Respect for the Individual
  8. Respect for Property

Section III  The Corporate Climate

Section IV  Check Points

Conclusion

Participants

Dr. Margaret M. Blair, co-rapporteur
Economic Studies Program
The Brookings Institution
Mr. Willard C. Butcher
Chairman
The Chase Manhattan Bank
Mr. Willard C. Butcher
Chairman
The Chase Manhattan Bank
Rev. William J. Byron, S.J.
President
The Catholic University of America
Mr. E. Eugene Carer
Washington, D.C.
Mr. A. W. Clausen
Chairman & CEO
BankAmerica Corporation
Rev. James L. Connor, S.J.
Director
Woodstock Theological Center
Mr. Lloyd N. Cutler
Wilmer, Cutler, and Pickering
Dr. Thomas Donaldson
School of Business Administration
Georgetown University
Dr. Karen Gaertner
School of Business Administration
Georgetown University
Dr. Kenneth E. Goodpaster
University of St. Thomas
Dr. Ronald M. Green
Religion Department
Dartmouth College
Hon. Joseph A. Grundfest
Stanford Law School
Mr. John H. Gutfruend
Chairman and CEO Salomon Brothers, Inc.
Hon. Lee H. Hamilton
U. S. House of Representatives
Mr. Thomas S. Johnson
President
Manufacturers Hanover Trust Co.
Mr. J. W. Kaempfer
The Kaempfer Company
Mr. Duane R. Kullberg
Managing Partner, CEO - retired
Arthur Andersen & Co.
Rev. John Langan, S.J.
Kennedy Institute of Ethics
Georgetown University
Mr. Martin Lipton
Wachtell Lipton Rosen & Katz
General Edward C. Meyer
CILLUFFO Associates
Rev. Leo J. O'Donovan, S.J.
President
Georgetown University
The Honorable Henry David Owen
Consultants International Group
Dr. Lynda S. Paine, co-rapporteur
Harvard Business School
Dr. Robert S. Parker
Dean, School of Business Administration
Georgetown University
Mr. Charles O. Rossotti
Chairman and President
American Management Systems, Inc.
Mr. Andrew G. C. Sage, II
Glen Cove, New York
Rev. Donald W. Shriver, Jr.
Union Theological Seminary
Hon. William Stanton
The World Bank
Mr. D. C. Thomas
President & COO
I.T.T. Corporation
Mr. Raymond C. Tower
President & COO - retired
F.M.C. Corporation
Dr. Patricia H. Werhane
Henry Wirtenberger Prof. of Ethics
Loyola University
Mr. Howard H. Williams, III
McKinsey and Company, Inc.
Dr. J. Philip Wogaman
Wesley Theological Seminary

FOREWORD

"Creating and Maintaining an Ethical Corporate Climate" is the product of two years of study and two major conferences of members of the business community, government, and academia. This report distills highlights of those conversations and offers evaluation and recommendations for creating and maintaining an ethical climate in a business corporation.

Those whose names appear above were participants in the process. Not every member of the group subscribes to every sentence in this report, but all support its basic contents and sentiments, deeming its distribution within the business community and beyond to be useful. Their support does not involve any organization with which they may be affiliated. They hope their shared experience and insight may help other corporate leaders who face similar ethical challenges.

This project was conceived in the fall of 1988, while the members of the Woodstock Theological Center's continuing Seminar on Business Ethics were discussing ethical dilemmas in the conduct of mergers and acquisitions. From those conversations came a publication, entitled, Ethical Considerations in Corporate Takeovers (Georgetown University Press, 1990). The group, however, felt that deeper, systemic issues still needed to be addressed.

This publication represents the group's investigation into the often overlooked influence of a corporate environment upon an individual's ethical behavior. From personal experience, the group generated a checklist of practical questions for executives intent upon creating and maintaining an ethical climate. This checklist and the introductory executive summary provide a brief overview of the whole statement.

For this publication we are grateful to the Seminar Steering Committee: General Edward C. Meyer, Ambassador Henry Owen, Mr. Howard H. Williams, III, and Rev. John P. Langan, S.J. We are indebted to Dr. Lynda Sharp Paine and Dr. Margaret M. Blair who shared the role of rapporteur.

We are happy to acknowledge our gratitude to Bank of America, Chemical Bank, Manufacturers Hanover Trust Company, and an anonymous foundation for financial support for this project.

Studies and published reports on ethical issues in corporate life are a major dimension of Woodstock's work. The Woodstock Theological Center was established at Georgetown University in 1974 by the Society of Jesus to study the interaction between moral values and problems facing contemporary society.

James L. Connor, S.J.
Director
Woodstock Theological Center
December 1, 1990


EXECUTIVE SUMMARY

Leadership from the top is the single most important factor in creating and maintaining an ethical climate in any business. That having been said, however, how should effective leadership be exercised?

Corporate executives and managers face risks and problems in the workplace today that are placing extraordinary new demands on them for moral leadership. Issues confronting them range from chemical dependency on the part of workers or other managers, to race and gender discrimination, insider trading, industrial espionage, bribe-giving or bribe-taking, embezzlement, or other white-collar crime. Moreover they, and their companies, may be held accountable for injury to individuals or to the environment resulting from malfeasance or negligence by employees.

Besieged by problems that may seem out of their control, some corporate leaders complain that they encounter people in the business world who are preoccupied with financial success and steeped in a culture of selfish individualism. Self-indulgent permissiveness, they fear, has become so pervasive and corrosive that these executives have lost confidence that their employees and colleagues will act in ethically responsible ways. As a result, they are worried more than ever about law suits, institutional instability, and the erosion of respect for business as a profession, as well as about the substance of ethical dilemmas they confront in conducting their business.

In response to these troubling issues, the Woodstock Theological Center Seminar in Business Ethics brought together a group of corporate executives, academics, and religious leaders to discuss these problems, share experiences, analyze more closely the roots of the difficulties, and develop suggestions for ways in which concerned business leaders can meet the challenge presented by them.

This monograph summarizes their findings.

Section I below explores some sources of the belief that there has been some breakdown in ethical discipline in business, and its implications for corporate executives. In particular, it examines several social and economic trends that are simultaneously weakening and redefining boundaries of firms, expanding the social claims being made on them, and undermining the discipline, loyalty, integrity, and sense of social responsibility of individuals who work for them. Because of these trends, many executives believe that they must, more than ever, take action to ensure that ethical standards are maintained, even as their capacity to establish and enforce such standards by fiat has been diminished. Thus their task becomes one of creating a workplace climate in which ethics is so integral to day-to-day operations that ethical behavior is virtually self-enforcing. In fact, a key insight that emerged from the deliberations of the Woodstock group was that ethical behavior in business is not simply a matter of the character and virtue of each individual involved in a business enterprise, but that it is, partly at least, built into the environment within which individuals work.

Section II discusses eight values which the Woodstock group feels are critical to a strong ethical climate and a healthy ethical role for business in the larger society. These include responsibility, honesty, reliability, fairness, integrity, respect for individuals, and respect for property.

Section III considers the elements of corporate culture, and how ethical considerations must be woven into the fabric of that culture. While different for every firm, that culture must increasingly be participatory rather than authoritarian. Thus, the maintenance of ethical standards requires both consensus and commitment on the part of virtually all managers and employees.

Section IV presents a checklist of questions to help managers begin the tasks of assessing how well their firms are doing, and of developing ways to improve the ethical climate in their firms.

The Conclusion offers a few final thoughts on the commitment required from top managers.


SECTION I
THE CHALLENGE

The business community has been buffeted by problems in recent years that have challenged its moral and ethical leadership and raised fundamental questions about ethical standards within corporations. Insider trading problems on Wall Street, charges of bribery, self-dealing and gross incompetence in the savings and loan fiasco, claims of damage to employees from racial or gender discrimination, charges of negligence or malfeasance in product liability lawsuits and environmental accidents, and problems of injury and productivity loss resulting from substance abuse by employees have put corporate managers on the defensive. Whether ethical problems are greater now than in previous times is not clear, but participants in the Woodstock group are uneasy about what they regard as a weakening in ethical norms in society at large, and about the problems this creates for the executive who wants to run a "clean" company, where ethical standards are set and maintained at a high level.

The concerns expressed by those assembled for this study seem to arise from several broad social and economic trends. The workplace and the institutional arrangements in which work gets done have been undergoing massive changes in recent years because of the takeover, breakup and reconfiguration of corporations, the decline of unions, and the broad shift from a mass-production, manufacturing-based economy to a service-based economy. Alongside these economic trends, two related and long-running cultural trends are transforming American society. The first is the expansion of cultural diversity (an inevitable consequence of liberal immigration policy, increasing travel and reporting on events abroad, and the growth in importance of international trade); and the second is the growth of emphasis on individualism and individual rights, both in the economic and the political communities.

The effect of these trends has been to weaken cultural cohesiveness in American society in general. Consequently, it is no longer reasonable to assume that most of the workers and managers who come to work for a corporation share a common set of values and a common interpretation of those values. Nor is it necessarily reasonable to assume that lenders, shareholders, suppliers, customers, and communities where a company operates share a common understanding about the obligations and priorities of the firm. The latter fact raises a whole set of questions about the appropriate social role of firms, while the former may account for corporate leaders' growing concern about the ethical climate within their firms and the problem of building ethical commitment into their operations.

In the course of its deliberations, the Woodstock group quickly came to appreciate that ethical standards, if they are to have significant influence on behavior, must be built into the very climate and culture of the firm. Ethical behavior in business is not simply a matter of the character and virtue of each individual involved in a business enterprise. It is also a product of, and a contributor to, the ethical climate in which that firm operates. In fact, many benefits of individual good deeds may be lost if they are not supported by a strong ethical climate. Thus, if the norms of society at large do not provide enough direction, discipline, and reinforcement to set high standards and elicit consistent ethical behavior in the business environment, it will be up to the leaders of corporations to create a climate that encourages and enforces ethical standards in their workplace.

Though always important, this task has taken on a new urgency for corporate executives. The traditional mission of the corporation has been primarily economic. Its moral imperative was regarded as largely fulfilled if the economic goals of the firm, and the means it used to achieve those goals, did not violate the values of society. While these principles are still valid, a number of members of the Woodstock group felt that in today's world, a further responsibility is now falling on corporate leaders to define explicitly the standards that must be adhered to by the firm and its employees, and to create a climate that will support those standards.

This view arises from the realization that a corporation is a community of its own, although it obviously also exists within a larger community of the nation or nations in which it operates. Like other communities, it thrives on trust, shared values, and a shared commitment to worthwhile objectives. If the moral context of the larger society fails to instill these qualities in the people who participate in corporations, the leaders of these organizations must work all the harder to fill the void by consciously creating an ethical business climate.

In doing so, business leaders cannot take for granted that values they may hold are necessarily common to all employees and other constituents of the firm. For this reason, participants in the Woodstock group felt that the first step for corporate leaders hoping to create an ethical climate in their firms is to identify and articulate the values they regard as vital if business is to function effectively and make a positive contribution to the larger society. The next section identifies a core set of ethical values, and discusses the implications of a commitment to these values.

SECTION I I
THE VALUES

Ethical values are different from personal desires or business objectives. They find support in diverse religions and moral philosophies; they also arise from our common participation in society and thus respond to specific individual and social needs. Without general respect for honesty, for example, communication would be impossible. Fidelity to commitments makes planning and coordination possible. Ethical values enhance human freedom. They help us to coordinate and guide our individual choices and actions in a world of limited rationality, limited knowledge, and limited sympathies. They provide the foundations for social trust and cooperation and a framework for individual aspirations and constraints that give meaning to more personal objectives. The very centrality of ethical values to our lives and our traditions underlines the need for them to last over time.

Some fundamental ethical values related to the purpose, responsibilities, and conduct of business firms and of the individuals in those firms are outlined below. Participants in the Woodstock project intend the brief discussion of each value to serve as a starting point for more concrete consideration in the context of each firm's business. Each concept sets minimum requirements of conduct, which establish an operational floor of commitment. It also suggests certain aspirations, which set a tone and establish the possibility for moral improvement. Managers concerned about managing the ethical climate of their organizations will want to elaborate these values and consider how they come into play in their businesses.

A. Responsibility of Purpose

The starting point for any organization must be a purpose and a set of goals that reflect the organization's obligation to serve the larger human community. While a corporation or business organization exists to generate income and wealth for its employees and its investors, the products or services it sells should be ones that its employees and shareholders can point to with pride as good things for society to have or use. A firm committed to this standard will obviously rule out any clearly illegal or immoral activity, such as the selling of cocaine, but it also may rule out certain legal but questionable activities as inconsistent with its self-definition and its moral purpose.

B. Responsibility to Constituencies

A responsible organization, like a responsible individual, will be concerned about the impact of its behavior on others. Many classes of individuals are affected by how a business conducts its affairs. Typically, the groups most directly affected are employees, customers or clients, stockholders and creditors, suppliers, competitors, the local communities in which it operates, and the general public. Being responsible to these constituencies means conducting business in a way that respects their legitimate rights and interests, and is mindful of their concerns and needs. Fulfilling the firm's responsibilities to its constituencies may require the firm to institute systems or procedures for identifying and weighing their concerns, for anticipating and monitoring the impact of its action on these groups, for sometimes involving them in decision-making, and for disseminating information to these groups.

C. Honesty

Honesty requires the avoidance of deception and careless misrepresentation of information on which others may rely. Communications, both internal and external, should be truthful and accurate. Care should be taken, for example, to ensure that accounting, financial reporting, and marketing efforts are not misleading. Honesty also calls for directness and candor with colleagues and openness to inquiries from legitimate constituencies, insofar as compatible with the obligations of confidentiality and with other responsibilities. In some cases, honesty may require specific disclosures, so that affected parties will have access to relevant information.

D. Reliability

Reliability implies fidelity to promises and other commitments. Making promises that cannot be kept, such as committing to unrealistic delivery dates, or breaking promises when advantageous, undermines the ability of others to conduct their affairs and plan for their future. Reliability also calls for acknowledgment of implicit commitments, such as the commitment to protect confidences received in the course of doing a job.

Competence and quality are subcategories of reliability. Executives, managers, and employees must all strive to perform according to the technical standards required for their jobs, to avoid careless mistakes in the performance of these jobs, and to offer only those goods and services that they are competent to provide. Likewise, the products which the firm sells should live up to the performance standards specified or implied for the product. Although competence and quality are more often thought of as nonethical values or business goals, they are closely connected to ethical values. Incompetence, carelessness, or the production of flawed goods injures the firm's constituencies and increases the pressure to violate other ethical principles.

E. Fairness

The requirements and standards of fairness are varied. In its most general sense, fairness requires an equitable distribution of burdens and benefits. Individuals, whether employees, suppliers, customers, or shareholders, should not be disadvantaged for irrelevant reasons of race, gender, religion, ethnic background, or sexual orientation. Favoritism for irrelevant reasons is inappropriate as are certain forms of unfair competition. Taking advantage of the vulnerable and ignoring the legitimate claims of those who have been wronged are other forms of unfairness. Self-dealing by executives and self-defined compensation programs that are not reasonably related to performance are inherently unfair to the rest of the firm. They undermine fair dealings throughout the organization and contribute to a climate of cynicism.

F. Integrity

Employees at all levels, but especially managers and executives, should not subject themselves to improper influences or conflicts of interest that may undermine their ability to exercise independent, unbiased judgment. Financial and personal involvements, as well as the use of drugs and other substances, may interfere with their ability to do good work or to exercise good judgment on behalf of their firm or client. Managers also should try to ensure that employees are not subjecting themselves to such improper influences. Loyalty in carrying out the duties of a job is an important aspect of integrity. Integrity also implies self-control and self-respect. In its fullest sense, it requires managers to act with the courage of their convictions, to adhere to moral requirements even when there is a price for doing so, and to be willing to answer to both their superiors and their subordinates for the consequences of their actions.

G. Respect for the Individual

Respect for the individual requires fairness, honesty, reliability, and many of the other values already discussed. Beyond that, however, it involves recognition that individuals participate in valuable relationships outside the firm, as well as respect for individual autonomy and privacy, for a sphere of personal choice that is left to the individual. Recognition of this principle limits duties that the firm may impose on individual employees, as well as the types of information it may seek from them. The firm that respects the individual rights and needs of its employees also will provide them with relevant information when it is necessary for them to make important personal decisions.

While business firms must respect a certain zone of privacy and autonomy of individual employees, there also may be important reasons why firms may require that employees provide highly personal information to the firm. Corporations are being asked by society to participate in the provision of certain personal and social benefits that may be only indirectly related to the business needs of the firm, such as education and training, health care, child care, substance abuse counseling, unemployment benefits, and pension funds. Clearly, detailed personnel records must be kept for these purposes. But respect for the individual requires that the firm use these records with care and discretion, and only for legitimate reasons. An important part of the job of human resource managers and of managers of company benefit programs is to find the right balance point between these competing claims and goals.

H. Respect for Property

Respect for property requires recognition of the proprietary rights of others and the exercise of care in handling assets of all types tangible property, patents and proprietary processes, confidential information, and real estate. Special care must be shown when business activity involves the property of others and the property of the public, including the natural environment.

Commitment to all these values, as outlined above, benefits not only the life of the whole society, but the internal functioning of the firm and the operation of the economy of which it is a part. Shared value commitments form the basis of trust and cooperation, simplify the task of management, help the firm avoid legal trouble, and reduce the need for excessive managerial oversight. They also contribute to employee morale. People take pride in working for companies where ethical values define a way of life, and find strength and reassurance in the knowledge that ethical judgment is expected from them and highly valued. They also strengthen the firm's reputation, which makes it easier to do business with customers, suppliers, and other external constituencies. Corporate indifference to ethical values, on the other hand, may lead some of its otherwise good and responsible employees to neglect the ethical dimensions of their behavior or to act in ethically questionable ways that harm themselves, the firm, or external constituencies of the firm. At the very least, it frustrates and demoralizes individuals trying to behave in an ethical manner.

The Woodstock group felt that the above values are basic and essential, and are the foundation upon which such business goals as profitability, market leadership, or innovativeness rest. In cases where these basic values and business goals seem irreconcilable, managers may find that the conflict is actually between short-run and long-run objectives. In the long run, the failure to adhere to such values as integrity and reliability hurts profitability. When examined carefully, there may be far fewer conflicts between ethical values and business goals than is commonly thought to be the case.

Nonetheless, there may be times when two or more ethical values are brought into conflict. For example, respect for the privacy of individuals may conflict with an employer's legitimate need to be certain that workers who are responsible for public safety or who operate dangerous equipment are not under the influence of chemical substances that affect their performance. When policies are set that give preference to one ethical value over another, managers should explain the decision to all affected parties, and seek ways to minimize any damage to the competing value.

The climate of social trust that results from common adherence to ethical principles is, like clean air and water, a public good. Individual transgressions, negligence, or passivity can tear apart an ethical climate because that climate is not a static thing but an ongoing process, being constantly molded and changed by the official and unofficial decisions and behaviors of the firm and its various participants.

The next section discusses the features of an ethical climate, and the way in which the ethical norms and expectations within the firm are built into, and expressed by, the numerous practices, operating procedures, expectations, performance measures, and rules of thumb by which the firm does business every day.

SECTION III
THE CORPORATE CLIMATE

An ethical climate is not a thing, but a process. It is both the setting in which all the multiple large and small transactions of the groups and individuals involved in the firm take place and the net effect of all those transactions. The explicit rules and implicit understandings that govern all those transactions are built on precedent, constantly evolving, fluid, flexible, living, repetitious, and organic. So, an ethical climate is either developing or deteriorating, enriching itself or impoverishing itself. It needs constant care and attention.

The all-pervasive, cumulative quality of an ethical climate makes the task of building such a climate harder in some ways and easier in others. Easier because successes build on themselves. As the track record grows and ethical considerations are increasingly known to matter within the organization, social pressure on every individual to adhere to ethical norms will increase. But harder because effort must be directed at every level and facet of the firm at the very time that employees of the firm are becoming more autonomous and less tolerant of hierarchal and paternalistic organizational structures.

In the United States, corporations exist in an environment that has increasingly oriented people to think individualistically, rather than socially. Liberalism, as it emerged from the Enlightenment, put less emphasis on community, especially its authority, and more emphasis on the freedom of individuals to discover truth and establish values on their own. Moreover, specialized production and services are now replacing mass production as the base of the economy, while technical change is moving decision-making authority down and making workers more independent. The effect is to create a world in which excessively authoritarian corporations may be doomed to failure. Some young people born into a culture of individualistic liberalism may find it difficult to work effectively in an authoritarian, rule-oriented, paternalistic, bureaucratically structured firm. Likewise, some firms may find it difficult to be flexible and responsive enough to meet the rapidly changing needs of its customers. For these reasons, the guiding concept for corporate structures has changed from highly centralized control to more decentralized participation.

While the role of leadership cannot be overstated, the executive interested in making ethics an integral part of corporate culture must be sensitive to this changing reality of the contemporary corporation. An ethical climate can be developed, fostered, and rewarded; it is more difficult for it to be imposed by edict. It will be more effective if it begins with consensus and is secured by commitment. Consensus requires development of a shared understanding of the values to be honored, a shared interpretation of values in the business context, and a shared language of values. Commitment can best be ensured by making certain that the internal procedures and explicit and implicit rules of thumb by which the firm operates are consistent with the identified core values, even when this involves short-term costs or trade-offs against business objectives. Commitment also must be reinforced by programs and procedures in which rewards and punishment, honor and dishonor for individual actions, signal and give substance to the firm's commitment to the core values.

This sounds complicated, but what it means is that some attention must be paid at every phase of the firm's operations to ethical issues and to the development of a climate in which ethics is routinely taken into account. The tone and example set by top management is of utmost importance in creating and maintaining a strong ethical climate. But good intentions at the top of the organization may not necessarily be enough to elicit commitment by employees to ethical standards. The ethical climate is also strongly affected by the strategic choices of the firm, its organizational structure, hiring policies, performance standards, reporting and information systems, reward and incentive programs, and internal controls. Management's task is to design organizations and procedures that make it easier rather than harder to do the right thing.

The ethical influence of forces external to the firm also cannot be ignored. Pressures for unethical behavior sometimes emanate from suppliers, customers, venture partners, and competitors. Responding to such external pressure for ethical short-cuts may require management to take a leadership position in defining ethical values, not only in its own firm, but in the industry as a whole, and not only through their example in that firm, but also through their involvement in wider education, research, and discussion of ethics.

The tools that management uses to influence the firm's ethical climate are the same tools they use to set its strategic goals and objectives, and to recruit, train, motivate, direct, evaluate, and compensate employees. Obviously, corporate executives can develop codes of ethics and appoint ethics committees to talk to both employees and management about ethical concerns. These are worthwhile actions, but their effectiveness will be limited unless they are part of an ongoing concern for ethics that permeates the firm in many other ways. Ethical standards and goals should be an integral part of the corporate identity. They should be spelled out explicitly in the firm's mission statement, and top management must exemplify these standards by their personal behavior.

A prospective employee's first encounter with the firm probably will be with the hiring office or personnel department. That initial interaction also will introduce the person to the firm's ethical style. They should learn at once that high ethical standards are set for all employees, that a commitment to values identified in the firm's mission statement is considered a necessary qualification for the job, and that the firm recruits and hires in a fair, non-prejudicial way.

A new employee also should discover that ethical matters are discussed alongside technical and procedural ones in training programs, seminars, discussion groups, and in the firm's formal and informal publications, newsletters, memos, and other communications. Ethical standards are reinforced by the anecdotes, mottoes, and maxims that make up the firm's oral culture. Over time, employees should observe that instruction or counseling from supervisors sometimes includes a discussion of ethics, and that routine decision-making and goal-setting are based in part at least on ethical criteria. Employees also should learn that monitoring and control systems exist that make it difficult to conceal gross ethical violations, and that such violations will elicit sanctions and penalties. More importantly, they should learn that ethical standards are taken into account in performance evaluations and in the structure of incentive and compensation systems, and that exemplary conduct is recognized and rewarded.

A firm that incorporates ethical considerations deeply into its day-to-day operating style will find that it earns a reputation among its customers, clients, competitors, and investors as a fair, honest, and reliable firm with which to do business. The communities where the firm operates will, over time, probably come to appreciate its presence in the community, respect its employees as good corporate citizens, and cooperate with it in building facilities and creating jobs.

SECTION IV
CHECK POINTS

This last section is based on the group's conviction that a strong ethical climate cannot be created in an organization by means of a few mechanical measures overlaid on a structure that other-wise gives little emphasis to ethical considerations. Ethics must be integral to all operations of the firm. But executives who want to create or strengthen this kind of ethical climate in their firms must start somewhere. The following checklist of questions provides some suggestions. It is not intended to be comprehensive or absolute, but rather to stimulate thinking about the different and complex ways in which the message about the organization's norms, expectations, and requirements can get built into everyday interactions as well as formal structures.

The questions are organized roughly in order of priority. The first two groups of questions (A and B) examine top management's degree of consensus about and commitment to ethical values. Without absolute commitment at the top level, a program to instill ethical values in an organization will have little chance of success. Group C explores the level of consensus about and commitment to ethical values among lower level managers and rank and file employees, while Group D asks about efforts to build consensus and commitment. The next three groups of questions (E, F, and G) probe whether and how formal and informal procedures and policies in the company support the consensus and commitment explored in earlier questions. Question groups H and I look at procedures for dealing with breaches of ethical standards, while the final question serves as a litmus test for whether the organization has established a strong ethical climate.

A. Does top management have a common understanding of and strong commitment to ethical values?

  1. Do the organization's purpose, responsibilities, and governing principles of conduct stress these values?
  2. Are there forums for top managers to discuss the organization's ethical values?
  3. Do top managers routinely discuss ethical questions and work out differences?
  4. What are the ethical challenges currently facing top management?

B. Do management's actions and policies reflect the organization's ethical values?

  1. Do individuals chosen for promotion and recognition exemplify those values?
  2. Do management's strategic choices reflect those values?

C. Do employees throughout the firm share management's ethical values and commitment?

  1. How does management communicate the ethical values that should guide employee conduct?
  2. Are these communications clear and effective?
  3. Is ethics included in orientation and training programs for new employees?
  4. Does management monitor the ethical climate of the firm?
  5. Is top management aware of the ethical concerns of employees at all levels?
  6. Is top management aware of the barriers to ethical conduct that may exist at various levels of the organization?

D. Do managers at all levels work to build shared ethical values?

  1. Does the firm hold seminars, workshops, and discussion groups on ethics?
  2. Does the organization periodically revise and update its code of conduct, credo, or ethics statement? Does top management participate in this activity? Do rank and file employees participate?
  3. Do employees in various functional areas meet to discuss ethical questions specific to their area?
  4. Do ethical issues come up in informal discussions?
  5. Do managers discuss ethical issues with their subordinates?
  6. Are employees comfortable discussing ethical questions with their bosses?
  7. Are ethical matters addressed in formal communications such as newsletters, memoranda, and policy statements?

E. Does management provide employees with ethical guidance when needed?

  1. Does management have a method for identifying and clarifying areas where ethical standards are unclear or in conflict with other objectives of the firm?
  2. Does management monitor and report on ethical problems in the industry that may affect employees' ability and willingness to uphold the firm's standards?
  3. Do employees have opportunities to raise ethical questions and concerns? Do they use these opportunities?
  4. Does management communicate with employees concerning areas of ethical uncertainty or vulnerability?
  5. Do supervisory personnel regard ethical guidance as part of their job?

F. Are ethical considerations included in personnel decisions?

  1. Are job candidates informed about ethical expectations and standards?
  2. Is commitment to the firm's stated values included among the organization's hiring criteria?
  3. Are ethical considerations built into personnel evaluations and promotion decisions?

G. Does the firm's system of rewards include ethical accountability?

  1. Does performance reporting include ethical performance?
  2. Do employees' goals and objectives include goals related to maintaining a strong ethical climate?
  3. Are compensation and bonuses affected by ethical performance?
  4. Does the organization identify and recognize individuals who make extraordinary contributions to maintaining the organization's ethical values?
  5. Does the compensation system avoid penalizing employees who are unable to achieve financial or other business objectives because of ethical constraints?
  6. Is management confident that employees will not be rewarded for financial accomplishments achieved using unethical methods?

H. Does the organization have a procedure for identifying and dealing with ethical violations?

  1. Does the organization have a hotline, ombudsman, ethics office or other designated channel for employees to raise ethical questions about the conduct of their immediate supervisor?
  2. What are the designated channels for reporting, investigating, and sanctioning violations?
  3. Does the organization have adequate controls to prevent and detect ethical violations?
  4. Are reporting relationships structured to promote honest and accurate communication?

I. Does the organization have designated personnel whose job it is to monitor and promote an ethical climate?

  1. Does the board have a standing ethics committee or is the audit or other board committee charged with monitoring the ethical climate?
  2. Is there an ethics committee or office within the firm to handle day-to-day questions and activities related to ethics such as conducting seminars and training programs, carrying on research, providing guidance to employees, investigating ethical violations, and reviewing the ethical impact of firm policies?

J. As a result of all the above, does every employee consider ethical conduct, supervision, and guidance part of the job?

CONCLUSION

Managing the ethical climate of an organization is not easy given the myriad influences, both internal and external, on the firm. Corporate ethics programs will not completely eliminate unethical conduct, nor will they resolve all of the perplexing conflicts of ethical values that arise in various social and economic arenas today. Nevertheless, managers' efforts to strengthen the ethical climate in their organizations will have real benefits for employees, for the performance of the firms, and for society at large. By legitimizing the discussion of ethical considerations in business, by standing up for ethical values despite short-term costs, by giving serious consideration to problems of conflicting values, managers and executives can contribute to strengthening their organizations and to building public trust in business.