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Incorporating Ethics into the Organization

Miriam Schulman

Management guru Peter Drucker was famous for asking his consulting clients the basic strategic question, "What business are we in?"

To integrate ethics into the strategy, businesspeople have to add three more questions, according to Robert Finocchio, Dean's Executive Professor at Santa Clara University:

What do we stand for?

What is our purpose?

What values do we have?

The former president, CEO, and chairman of Informix Corp., Finocchio offered prescriptions for incorporating ethics into the organization's strategic plan and suggestions for implementation at the March 2006 meeting of the Business and Organizational Ethics Partnership, a project of SCU's Markkula Center for Applied Ethics.

As a first principle, Finocchio argued that ethics is not integrated into strategy by proclamation. He also put it more colloquially: "Whenever someone tells me how honest or ethical he or she is, I hold on to my wallet."

While ethics should be part of the company's mission statement, long-term strategic plan, public pronouncements, and codes of conduct, unless it is also a "cornerstone of the organizational culture," it will not be effectively integrated into the business strategy, he said.

To really incorporate ethics, he presented these "prescriptions":

  1. Don't be in an unethical business in the first place ("In Finocchio's view some people might think tobacco, arms, and pornography may be examples of businesses that fit that description.").
  2. Obey the law and spirit of the law everywhere you do business.
  3. Articulate a complete strategy, including purpose.
  4. Explicitly articulate values as a key component to the strategy. Values must also be real, and must reflect actual behavior, especially among the organization's leaders.
  5. Don't rely on auditors, ethics officers, compliance officers, cops, regulations, manuals, and audits as the vehicle to insert ethics into the strategy.
  6. Emphasize principles more than rules. (This is the best way to be more demanding of the organization.)
  7. Individual ethical responsibility and accountability are never trumped by some corporate or organizational imperative.There is no "my company said it was ok" defense.
  8. Be totally transparent with your constituents, and make that part of the strategy.
  9. Have a framework and process for the resolution of ethical issues.
  10. Have the right organizational structure.
  11. Have rewards based on the right metrics.
  12. Make employee development part of strategy and make ethics training part of employee development.
  13. Encourage all employees to be challenging and demanding in the ethical domain (of everyone in the organization, including the bosses).

Finocchio went on to offer two practical suggestions for implementing his prescriptions: making an ethics performance evaluation part of the organization's standard end-of-year assessment and creating a strategic plan ethics checklist for the coming year.

The ethics performance evaluation would look at how the organization actually behaved, including such issues as transparency and opportunities for celebrating ethical behavior. The company would examine whether its actions over the past year had been consistent with its purpose and values.

In planning for the next year, the company would ask itself a series of questions, including:

Is our purpose sufficiently well articulated?

Do we face new legal requirements?

Do we have new constituents?

If we acquire another organization, how will it be ethically assimilated?

Are our rewards structures appropriate?

Is there any need to change the mechanics (constituent communication, employee training, organizational structure, issue resolution processes)?

How will we measure our performance?

Do we have new goals/objectives in the ethical domain?

Finocchio's presentation was part of a two-day meeting of the Business and Organizational Ethics Partnership. Other speakers at the March Partnership meeting included Dan Sweeney from the Center for Corporate Excellence on "Tone at the Top and Executive Compensation"; Stephan Rothlin, general secretary of the Center for International Business Ethics in Beijing on "Business Ethics in China" ; and Frank Daly, Markkula Center Fellow, Eric Pressler, Apple Computer, and Sam Piazza, Hewlett Packard, on "Rules-Driven and Values-Driven Ethical Approaches: Trade-offs."

The Business and Organizational Ethics Partnership brings together executives and scholars in a forum designed to increase the members' knowledge about effectively managing ethics in their organizations. Founded in 2003, the partnership currently includes 14 business organizations and ten faculty members who share the goals of honing ethics and compliance policies and practices, and advancing the state of business ethics knowledge.

Miriam Schulman is the communications director of the Markkula Center for Applied Ethics.

Mar 22, 2006

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