Right and wrong Featured

8:00pm EDT June 25, 2007

Few things are as scrutinized these days as the ethical behavior of CEOs. “Business has the responsibility to set the tone for social consciousness,” says Satinder Dhiman, professor of management at Woodbury University. “That’s where the ethics and credibility come in.”

Smart Business spoke with Dhiman about how critical ethics in business has become and what’s necessary to develop a culture of ethical business behavior.

How important is ethics?

There is an intense credibility gap that I would almost describe as a credibility crisis. A [New York] Times/CNN poll in 2002 reported that 71 percent of people who were polled said a typical CEO is less honest than a typical person. Now, that is serious. When [people] think that a CEO is less honest than the average person working in the corporate world, that should be described as a credibility crisis.

What is considered ethical behavior by businesspeople?

Moral uprightness and honesty toward all the constituents of business. For instance, by being a leader, you assume the responsibility that you have to act in a morally upright manner because the stakeholders have entrusted their money and expectations to you. Ethical behavior would be acting with moral uprightness toward all the stakeholders. What would be considered unethical?

Unethical behavior would be when the CEO or the leader acts in contradiction to what could be called moral uprightness and does not act in a responsible manner toward all of the stakeholders. For example, when a CEO spends $1 million throwing a birthday bash for his wife, $6,000 for a shower curtain and so forth, or when CEOs use the money to further their personal ends, they feed personal greed. That is unethical behavior in the business sense of the word.

What dangers are there when a company’s executives are unethical?

Unethical behavior is like a leak in the organization’s coffers. The employees and the customers get short-changed.

But I think it creates a credibility crisis in society. Companies like Tyco and Enron, by doing what they did, created a credibility crisis and, from a larger point of view, the economy suffered. It created a ripple effect.

How can instilling ethics as a standard practice safeguard a business’s interests and reputation?

When the fence of the farm starts eating the farm, there is no crop left to harvest. The fence is supposed to safeguard the farm. The accounting practices [of a business] are supposed to be the fence and the mirror of what a company’s financial position is. If they cease to be that, then that’s where the problems start.

Start by instituting proper checks and balances and by introducing proper accounting processes and procedures. By doing that, you can reduce what Alan Greenspan once called the ‘avenues to greed.’

It also has to do with the ethical training of people. A company has values, and then people that work in the company have their values. Research shows that if people have their own strong values of uprightness and moral integrity, it is more likely that you will have an ethical workplace than if it is the other way around.

Many times, we think what is legal is ethical, which is not the case. What is legal is the baseline, then you ask yourself what is right. And then you ask how you feel doing what may not seem honest.

I would start at the top. When you hire CEOs, during the interview, look for such signs as inflated view of oneself and marked indifference to the plight of others. Hire CEOs who have a track record of honest work and do not suffer from egomania.

What can you do to reinforce that message throughout an organization?

Start with a good role model; the CEO who sets the tone and sends a clear message that the funds of the company will never be misappropriated for one’s personal ends. That’s the role model part.

Gandhi says, ‘Be the change you want to bring about in the world.’ So these CEOs need to be the change, in the ethical sense, that they want to bring about in the company.

Second, the organizational culture has to have openness and transparency. The information, communications, the way dealings are done, nothing should be done behind closed doors.

I’m not talking about giving all the payroll details to everybody, but anything short of that should be public information. You have to have a culture that supports this kind of openness, where you do not shoot the messenger and where people are free to speak their minds.

SATINDER DHIMAN is a professor of management at Woodbury University. Reach him at satinder.dhiman@woodbury.edu or through the university’s Web site at www.woodbury.edu.