Ethics, front and center Featured

8:00pm EDT August 26, 2008

In the post-Sarbanes-Oxley world, ethics policies, by necessity, have taken a front seat in many companies. While many companies believe they have business ethics under control with documentation, what is happening to the culture of business ethics?

“Businesses are often ruled by ‘thou shall nots,’” says Denise Schoenbachler, dean of the College of Business at Northern Illinois University. “This, of course, is critical, but it is also important to stress the ‘thou shalls.’”

Smart Business learned more from Schoenbachler about the state of ethics in today’s businesses and what companies can do to create a truly ethical business environment.

Businesses are creating business ethics policies, but how is this different from creating an ethics culture?

The majority of businesses are run ethically and with good principles, but several major scandals have broken the public trust. While the more stringent rules and regulations are a good thing — and necessary given the criminal misconduct of executives in these high-profile cases — these restrictions are reactive. Defining an organization’s character through ethical behavior is a proactive approach. That’s where culture comes in. Culture is really a set of shared values — a belief system — that shapes behavior. The significance of a culture of ethics is that it both defines an organization and also impacts everyday issues within the organization. As a simple example, employees are more likely to share the belief that it is not OK to pad expense accounts. And these employees will influence the behavior of their peers. But because companies have spent so much time, energy and money on government compliance, the practice of viewing ethics in a culture-based way may be taking a backseat.

Are there other reasons that fundamental business ethics are falling by the wayside?

Time, and in more than one way. Employees are more likely to engage in ethical behavior if they know they are in the company for the long haul. The lack of company/employee loyalty in this global economy has a big impact. Another element is the enormous pressure many employees are under to show short-term results and financial gains. This leads to the feeling of ‘deliver at any cost’ because Wall Street’s quarterly earnings expectations have compressed companies’ long-term performance into an extremely narrow three-month performance window.

What happens in businesses when there is a weak or nonexistent ethics culture?

Sound ethics are at the core of any successful business. The compliance route leads to after-the-fact policy-writing and mandated training programs. Those are all fine and well, but without an ethics culture, the business may open itself up to questionable or even criminal activity within the company, in spite of all the policies. It’s also extremely expensive. Existing research finds that companies spend approximately $1.1 trillion per year in systems costs just to comply with standards, notwithstanding the costs associated with lawsuits or judgments.

How can businesses make sure they have an ethical business culture?

The culture of an organization has to be lived and breathed at the top on a daily basis. Leaders must personify an ethical business culture and make it a visible reality. If it is not a leadership initiative, it will fail. It can be as simple as being very clear and direct about what the organization’s character is, what the policy is, the consequences and what is considered right and wrong. Business leaders should explain the financial consequences for lapses in ethical behavior. Business managers cannot turn a blind eye to even seemingly minor infractions. There must be consequences. Because if employees get away with the little infractions, it is reinforced behavior and can lead to bolder unethical behavior.

Along with the ‘thou shall nots,’ reinforce the ‘thou shalls’ — that is, explain what to do when faced with an ethical dilemma. This can be done through education and role-playing, for example. While you need to make it clear that improper behavior will be called attention to, you also need to reward good behavior and choices and publicly recognize achievements.

Human resources and hiring personnel should always ask candidates about their training in ethical business practices. Academia is part of the solution, as well. Business schools that are AACSB-accredited (The Association to Advance Collegiate Schools of Business) now must include business ethics within the curriculum. Some are taking this a step further by teaching business ethics in an applied sense. So, the next generation of working professionals will have had vast exposure to business ethics as a skill set.

DENISE SCHOENBACHLER is the dean of the College of Business at Northern Illinois University. Reach her at denises@niu.edu or (815) 753-6225.