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Sunday, Jan 29, 2023

Staying on the Ethical Track

This month, jurors decided the fate of Tyco International’s former chief executive, Dennis Kozlowski, but the dramas involving business leaders on trial for questionable conduct continue to unfold.

How could all this have happened? How did it come to be that several respected, educated and presumably experienced executives face judge and jury? Who should have or could have headed this off?

The fact is, most people believe they’re ethical. What’s more, they’ll profess ethical behavior, blame others for unethical behavior and convince allies they’re right even under ludicrous circumstances.

But jurors did not buy Kozlowski’s defense that he had no motive to steal and demonstrated no criminal intent. Kozlowski and former Tyco Chief Financial Officer Mark Schwartz both said decisions about loans and bonuses rest on Tyco’s board, which approved the compensation.

Managerial leaders owe it to themselves and their employees to be honest about where they stand ethically. They’re also responsible for telling colleagues of their plan of action to close the gap between where they are and where they can be in the practice of ethical managerial leadership.

CEOs have to proactively take charge of their company’s ethical behavior. The first step: develop a self-improvement program for their own ethical practices.

Without an internal system of values, roles and standards, subordinates are left to react to ethical challenges on a more personalized basis, which will inevitably provide inconsistencies and not inspire a workforce to act ethically.

Even the most ethical people can find themselves derailed from an ethical course. You would be surprised how the smallest, inconsequential decisions can start leaders on the wrong path. Some examples:

Lack of a Professional System A manager without an ethical framework is like a pilot flying without instruments. If Arthur Andersen had had a professional system in place, some, if not all, of Enron’s irregularities would have been brought to light much earlier. This system must also be enforced and embraced from the most senior level; otherwise, it will simply be a code of ethics displayed on walls and in annual reports.

Low Behavioral Integrity Quotient This common derailer is found in the manager who fails to match his words to his actions, which will eventually erode credibility and trust in the workplace and among key stakeholders. Enron Chairman Ken Lay famously urged his employees to buy company stock. Meanwhile, his BIQ was quickly heading south as he secretly sold millions of shares in advance of the firm’s failure.

Overconfidence When a manager denies himself fresh perspectives and relies solely on his own instincts, unethical behavior is more likely to occur. Kozlowski’s claim that his failure to report compensation bonuses in the neighborhood of $25 million was merely an administrative oversight shows a clear lack of accountability, not to mention a void in ethical leadership.

How we define, communicate and live our values will determine whether ethical behavior in our organization is on the incline or decline. The primary and most powerful resource in a manager’s toolkit to put ethical behavior on track is to create a professional system to identify and address these common ethical derailers.

When faced with ethical challenges, employees need to be motivated to follow the ethical course. There are many good reasons to care about managing with ethics. The foremost rationale is that it makes solid economic sense. Second, it’s simply the right thing to do. These are lessons never considered, much less shared or learned, at HealthSouth, WorldCom or Tyco International Ltd.

*Charles Kerns is a licensed psychologist and associate dean of academic affairs for the Graziadio School of Business and Management at Pepperdine University.


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