[music]
I'm Kirk Hanson, executive director of the Markkula Center for Applied Ethics
at Santa Clara University.
This is one of a series of short videos presenting the core ideas of ethics and business ethics.
This is on how do companies really manage ethics?
What are the four alternative strategies that companies have pursued and do pursue in managing
the ethical culture of their organizations?
The four strategies are to rely on employees' values, not to have any kind of a formal corporate
ethics program.
Secondly, to engage in managing ethics essentially as compliance with the law.
Thirdly, exhorting people, ethics exhortation, exhorting people to act ethically.
And the fourth, called managing values, is to define a set of values and then manage
to those.
These are very distinctly different ways of managing ethics and corporations generally
will focus on one of the four strategies, so let's talk about each for a couple of moments.
First, reliance on the character of the employees.
Here, there's an assumption built in that everyone in our company or in our organization
is ethical and honorable, "We don't have to pay much attention to this.
You expect ethical behavior from your staff and you'll get it.
Let's not worry so much about it.
We hire good people and that's enough."
There's risks of this, of course.
One is that not everyone is ethical indeed or is ethically strong can resist the temptations
which come in any organization.
Secondly, not everyone may share the same ethical values, believe that the same things
are ethical, how employees should be treated, or what's fair in sales and marketing, or
whatever.
Thirdly, not everyone is sophisticated enough, i.e., intelligent enough or alert to be able
to see and identify ethical issues when they arise and then to resolve them in a way that
is consistent with the company's ethical expectations.
These are all risks of simply saying, "Our people are ethical.
Let's not worry further about it."
The second approach which companies take is essentially a compliance approach.
And in a compliance approach, you establish standards of minimum behavior, usually based
on the law, maybe including a few other things in terms of don't steal from the company,
work hard, and so on.
You write detailed standards stating explicit rules about how one is to comply with that
expectation and then you establish penalties, sometimes severe penalties for violating those
minimum standards.
A compliance approach, as I say, is very common.
I would say more companies take a compliance approach than any other in the United States.
But there are also some substantial risks associated with a purely compliance orientation.
Amongst those are that you may give the signal that the company wants only minimum behavior,
"Don't go beyond that.
Don't be more ethical than you have to be."
Secondly, it may imply that lower level employees are the target of the whole ethic system,
compliance system.
The compliance is defined in hard-and-fast rules so that person on the shop floor can
follow the rules.
"We here in the executive sweet don't have to follow rules," some companies tend to think
in those terms.
The last risk is that a compliance approach gives no guidance for the most difficult value
choices where two goods or two difficult choices are confronting one another, and it's difficult
for the organization to decide, "Should we give up that piece of business in order not
to participate in a repressive society?
Or what's the fairest thing to do with a particular employee?"
Sometimes, those are very close calls, very complex, and a compliance approach rarely
gives any kind of guidance as to how to handle those kind of difficult cases.
A third approach, which has become common in a number of companies, is what I'll call
ethics exhortation.
It's stating or exhorting people within the organization to act ethically.
But in only those general terms, we want everyone here to use their highest ethical standards
every day on the job.
Or use the same standards here at work that you use at home, although that could be problematic
at times.
Some companies go beyond the simple exhortation to actually train people in an ethical decision
model or process about how to think ethically, but the key thing is that they never get below
this general exhortation to act ethically.
They don't say what that really means.
So the risks, if you don't, are these.
It doesn't give you any help in identifying the specific correct ethical standards that
we want you to follow in working at this organization.
It gives you no guidance in those conflicting cases or complex ethical choices.
And it may, in the most cynical organizations, imply that employees are to pay the cost of
actually acting ethically.
We told you, it's the concept of deniability, "We told you to act ethically, of course,
we gave you really tough sales goals.
The only way you could achieve those was by engaging in bribery.
But now, that's on your conscience, not ours, if we get prosecuted for that.
We're going to claim that we told you that ethically, and we're going to blame it all
on you."
That's one of the risks of this kind of exhortation approach alone.
The fourth approach, which I think the most enlightened companies are beginning to try
to implement is what is often called managing values.
And the concept here is that you'd define corporate values, which are how we want to
behave and all the kinds of interactions that we have, as well as the ethical minimums or
ethical standards, even compliance standards.
So you have compliance, plus the concept of a set of ethical values that one wants to
have incorporated into every aspect of the business.
The key here is that you've got to require every level in the organization to think through
how those values get lived in research, or in sales, or in marketing.
How they get lived in every aspect of the business.
What you do then is you educate people to those values.
You, as a manager or an executive, model those values yourself.
And they can watch how you apply them to the real situations that you deal with.
And then you reward people who do reflect those values and implement them.
That's all a part of the process of managing values.
The key tasks in managing values are that you have to define what they are, and you
have to define what they are for each of the functions or levels within the organization.
You've got to communicate those values over and over again.
You've got to design systems to support the values.
You've got to reward the behavior consistent with them.
You've got to keep an open door because even with a set of values that you say implement
this in aspects of our business, there are going to be tough cases.
And you need to have an open door to the boss, or an open door somewhere in the organization,
where a person can get help in making the toughest choices.
You've got to have an audit system to deal with the more compliance-oriented minimum
standard cases.
And finally, you need to renew the values frequently.
In the best-managed organizations, we find that corporations renew the values, roll them
out once again, brand new communications effort about every third year.
And if you don't, those values tend to atrophy and weaken over time.
The advantages to managing this, parallel to the risks we talked about of the other
three before, is it does give guidance for all types of choices and decisions.
I can always refer back to those values and say, "Okay, if this is how we want to treat
our employees, this is how we want to treat our customers, and so on."
I can say, "Does this action that I propose reflect that?"
It makes managing values an integral part of managing whatever the function is in the
company that I'm managing.
It is a part of how I manage the sales function, or how I manage the partnering function, for
example.
However, it takes more management effort.
More effort to try to get every level of the organization to understand what the values
are, how they apply to their work, and then to implement them.
Those are the four approaches to managing ethics and managing values in an organization.
They're very distinct.
And companies, generally, will adopt one of them as their primary vehicle.
Thank you.
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