BUSINESS ETHICS

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BUSINESS ETHICS

• NACD Silicon Valley ChapterMay 15, 2008

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Panel Participants

• Jim BalassoneMarkkula Center for Applied Ethics
  at Santa Clara University
• Mark BertelsenSenior Partner at Wilson Sonsini
  Goodrich Rosati
• David SugishitaNon-executive Chairman of Atmel
  Corporation Director of Ditech Networks and
  Micro Component Technology
• Richard C. BlakeSenior Associate at Wilson
  Sonsini Goodrich Rosati

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Roadmap/Takeaways

• What is ethics?
• What are the common traits in a corporate ethical
  collapse?
• Case study how should one approach an ethical
  dilemma?
• Why do good people do bad things?
• Appendix What are the characteristics of an
  ethical organization?

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What is Ethics?

• Ethics are standards of behaviorvalues or
  principlesthat suggest how human beings should
  act
• As executives and managersleading others
• As individual contributors
• As department and project team members
• Ethics is about doing the right thing when no
  one is watching

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Common Traits in Ethical
CollapseMarianne Jennings, Seven Signs of
Ethical Collapse

• Intense pressure to achieve numbers (WorldCom)
• Fear and silence dissent is abhorred (Rite Aid)
• Inexperience and a bigger-than-life executive
  (HealthSouth)
• Weak board of directors (Sarbanes-Oxley fixes)
• Conflicts of interest (No conflict, no
  interest)
• Innovation like no other (suspend natural laws)
• Goodness in some areas atones for evil (Adelphia)

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Case Study

• The chief financial officer of a company on whose
  board you sit informs you that last week the
  companys founder and chief executive officer was
  seen in public smoking marijuana with a
  representative of the companys largest customer
  at the industrys largest trade show.
• What would you do?

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Principles of Ethical Behavior

• Character is essential to ethical behavior
• Ethical or unethical behavior is consistent
• Ability to make people more ethical?
• Normal distribution curve of character
• 10 angels, 80 good folks, 10 sinners
• Are all illegal/unethical acts committed by
  sinners (bad apples)?

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Psychological Imperatives to Unethical Behavior

• What makes good folks do bad (evil) things?
• Research of Phillip Zimbardo, the Stanford Prison
  Experiment (1971) and Abu Ghraib Courts Martial
  testimony (2004-5)
• Dispositional factors character flaws sinners
  a.k.a. bad apples masquerading as good folks
• OR
• Situational factors environmental catalysts or
  conditions that lead good folks to do bad things,
  e.g. bad barrels that turn good apples into bad?

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Dispositional Factors Power amplifies character

• GreedDennis Koslowski (Tyco), Dick Strong
  (Strong Capital)
• HubrisMartha Stewart (Omni Media), Elliot
  Spitzer
• What is the typical organizational response to
  executive and lower-level bad apples?

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US Armys Response to Abu Ghraib

• Rogue misbehavior of misfits male and female
• Specific, narrow, failure of command, training,
  and leadership only one of twelve Tiers at Abu
  Ghraib during the night shift
• Simple, fast, and clean
• Army and civilian leadership took responsibility
  without taking accountability
• What would be the alternative?

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Situational Factors Creating Bad BarrelsRemember
the Seven Signs

• Intense Pressure to act quickly
• Dont think at all
• Dont see the ethical issue(s)
• Dont identify the key stakeholders
• Dont consider the consequences
• Lack of individual or group preparation
• Deflecting and stalling tactics
• A framework for quick analysis

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Situational Factors Creating Bad Barrels
(contd)Remember the Seven Signs

• Lack of leadership and role modeling
• Bad barrel makers
• Four factors motivating individual ethical
  behavior
• Group behavior and dysfunction high exit cost
• Diffusion of responsibility authority and
  responsibility separated
• Complex, arbitrary, rules-based standards
• Unclear, unevenly enforced policies and practices

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Best Practices in Ethics and Compliance

• Risk Assessmentcreate priorities words and
  actions always consistent
• Values-based, compliance-supported materials and
  activities
• On-going, highly interactive, work group-based,
  case study education and training
• Everyone held accountablerewards and punishment
  are made transparent

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Appendix

• The Ethical Organization

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The Ethical Organization

• Clear Set of Values
• Open and Effective Communication of Values
• Leaders Exhibit the Values
• Values embodied in policies and procedures
• Open dialogue about value decisions
• Accountability everyone held to these values
• Consistency words and actions in sync

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Values Statements

• Best Practices
• Grow out of the experience of the organization
• Broad input in identifying the values
• One pager (4-6)
• Where It Can Go Wrong
• Unrelated to company decisions, actions
• Deliberate misreading of meaning
• Ignore reality of global operational differences

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Code of Conduct

• Best Practices
• Organized and comprehensive
• Applies to all employees, consultants, etc.
• Annual review and sign-off
• Examples, Q and A
• Where It Can Go Wrong
• Impenetrable, looks like legal wrote it
• Captures last years trivia
• Exemptions (routinely) granted

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Training and Communication

• Best Practices
• On-going communication about values
• New hire (first 60 days) and regular training in
  values
• Training that focuses on recent issues
• Training that emphasizes responsibility of
  individuals
• Training that helps employees know how to raise
  issues
• Where It Can Go Wrong
• Obvious lip service regarding values
• Cynical references by managers
• Reductionist approach to trainingdo the least
  cheapest

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Leadership Modeling

• Best Practices of Leaders (particularly the CEO)
• A walking embodiment of valuesin public and
  private
• Talks about the values difficult choices
• Tells stories about putting values to work
• Where It Can Go Wrong
• Behavior at odds with values in the workplace
• Private-life behavior inconsistent
• Values never mentioned

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Governance of Ethics and Values

• Best Practices
• Senior executive overseeing ethics effort
• Qualified and respected ethics officer (Rosemary)
• Active audit or ethics committee of board
• Periodic reporting to board
• Where It Can Go Wrong
• Assignment to lower level manager
• Ethics officer not motivated or risk adverse
• No real expectation that reports will lead to
  improvements

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Systems that Embody Values

• Best Practices
• Performance evaluation system has explicit
  reference to values
• Repetitive systems have values expectations and
  judgments
• Key decisions examined in light of values
• Where It Can Go Wrong
• Fuzzy stuff in performance evaluations ignored
• Some systems deliberately left out, e.g.
  compensation
• Key decisions made on purely financial criteria

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Ways to Discuss Difficult Ethics Cases

• Best Practices
• Employees confident they can take tough case to
  boss and actually get help
• Top executives take tough ethics cases seriously
• Mechanisms exist for vetting cases HelpLine,
  Ombudsman, etc
• Employees believe that retaliation does not occur
• Where It Can Go Wrong
• Dont ask culture plausible deniability
• Fear of negative management reaction
• Unwillingness of executives/managers to share
  burden

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Compliance Enforcement

• Best Practices
• Audit everything importantrisk assessment
• Investigation and enforcement thorough and
  respectful
• Discipline appropriate, just, and public
• Where It Can Go Wrong
• Compliance is the whole of the values message
• Top performers given a pass
• Compliance systems protect only the company