Setting a good example Featured

8:00pm EDT April 25, 2007
The ethical breaches at Enron, Tyco and Adelphia vividly illustrate the damage that can occur when the leader of a company chooses to act in an unscrupulous manner. The profound lack of ethics on display can cost employees, officers and shareholders dearly.

To circumvent such problems, it is important for top management to set a good example. After all, an environment conducive to high ethical standards is good for business. Companies that behave ethically are rewarded in the form of loyalty, honesty and productivity from employees, customers and suppliers.

A company lacking ethical standards is destined to fail, points out Satinder Dhiman, a professor of management at Woodbury University. “Without an ethical framework, business or any kind of exchange is not possible,” he says.

Smart Business spoke with Dhiman about the importance of ethics in a business setting.

How should a company go about developing a culture of ethical business behavior?

A company’s culture is not something that can be mandated from above; it has to be nurtured. An ethical framework and processes have to be developed at every level of the organization. Although top management can initiate certain processes and provide a clear message about the importance of proper conduct, the culture is determined from the grass roots up.

How important is it for management to align their behavior with their beliefs in regards to ethics?

If there is one way that humanity has discovered, in regards to effectively changing behavior, it is role modeling. There is no other way to affect change in a group setting. People learn more by watching their leaders than by listening to their speeches. It is of paramount importance that employees and staff get a consistent message from the top leaders and that these values are aligned.

How should a company’s ethical standards be communicated to employees?

We can use modern technologies like e-mail, we can have bulletin boards, we can have town hall meetings, but what really matters is how a company practices ethical principles on a daily basis. The ethical framework has to be tangible in a company’s daily conduct.

Nothing underscores a message as forcefully as when a company takes a stance on an issue that has lasting ethical implications. In this manner, you communicate the message in a way that employees are acutely aware of where management stands. You can have it written all over the walls, but if you don’t live it, then it won’t be effective.

If a breach in ethics does occur, what steps should be taken to rectify the situation?

This is a question that has been asked many times since the collapse of Enron. The first step would be not to justify or rationalize the breach and to admit there is a problem. The chiefs of Enron kept saying until the end that they had done nothing wrong. If a breach has already occurred, it is important to be honest. They say that when you speak the truth, you don’t have to worry about remembering. If you try to gloss over things, it adds insult to injury and worsens the matter. Also, after admitting that there is a problem, it is important to establish a preventive mechanism so that you have early warnings about these kinds of things happening in the future.

How have new technologies affected ethical issues in businesses?

New technologies have impacted business because information is more easily accessible and more universally available. I remember someone saying that it is not that there is more crime today, it is just that there are more reporters. Technology has made news about scandals mainstream and more available to public scrutiny than ever. There is no hiding anymore. New technologies have made things more transparent.

There are also more preventive mechanisms in place. The stock market crash about 80 years ago may not happen today because we have mechanisms in place that warn us early of potential problems. This is the salutatory effect of technology.

SATINDER DHIMAN is associate dean of business and a professor of management at Woodbury University. Reach him at satinder.dhiman@woodbury.edu or (818) 252-5138.