Emerald Group Publishing Limited
Copyright © 2000, MCB UP Limited
"Quick takes" presents the key points and action steps contained in each of the feature articles. Catherine Gorrell prepares these summaries.
Page 4When good companies do bad thingsPeter Schwartz
Most people believe they work for a good company, but time and again the media tell the story of a company that has gotten itself into trouble. Why? Because business reputations have become more exposed as companies and the media have globalized, and input to the media is widespread. In addition, the victory of capitalism brings new responsibilities to corporations as state functions are privatized, and non-government organizations have moved environmental issues to the center of society's thinking and now present new challenges in human rights.
At the same time, the importance of reputation is growing. Employees want to work for a good company. Customers want to buy goods and services from companies they believe in. Shareholders would prefer to be associated with good companies. The new definition of a good company contains three factors: profitability, striving to meet the aspirations of all stakeholders, and integrity – being honest, ethical, uncompromising about values and principles, and in tune with society.
It takes a long time to build a reputation, but it can be destroyed in a single event as shown in the case examples of Royal Dutch Shell, Unocal, Texaco, Nike, and others. But crises do not come without warning. Almost every crisis has its signals. Someone in the company is usually aware of it, but the signals are suppressed because there seem to be more important things on the agenda.
Why do good companies do bad things?
There is no culture of debate; suppressing new ideas is the worst thing to do in a time of rapid change.
The sole measure of performance is financial.
Employees are discouraged from being whole people with values and concerns.
Networks are too narrow and include only "people like us."
The impact of decisions are not thought through.
Ethics are believed to be someone else's concern.
There is little or no self-examination.
When a crisis comes, the worst response is denial. Company leaders must face it and take appropriate action. And they must identify the lessons learned and incorporate them into the company's DNA. Reputation must be viewed as a result of the business, along with profit, products and services, employment opportunities, and social impact. And the vulnerabilities of every strategy must be tested. The challenges will continue. Business leaders must begin now to move ethics and responsibility from the periphery to the center of strategy.
Page 12The new rules: ethics, social responsibility and strategyIan Wilson
The central question confronting strategy today is how to respond to the new rules that are being set by changing industry and market structures and higher public expectations of companies' social and ethical performance. Thus, the soft aspects of strategy – the values that set the tone of the corporation and the management culture that guides decision making – are assuming greater importance.
The public debate about the state of business's ethical behavior is not new; however, there are new elements. The new rules that determine ethical behavior include seven key points.
Legitimacy is based on the presumption that the public standing of a corporation rests fundamentally on the execution of its social purpose – to serve society by providing needed goods and services – rather than on its ability to maximize profits.
Governance concerns ethical, legal, and organizational issues. Nothing could be more loaded with moral significance than the questions surrounding the roles and responsibilities of the various stakeholders in the corporate system.
Equity rests on the same foundation. But definitions of equity and fairness are hard to come by and exist more in the mind of the observer than in any dictionary, which makes the corporation's task more difficult to prescribe.
Environment and the concept of sustainable development are forming a new dimension in human morality. The ecological ethic redefines the relationship between man and nature, moving from a dynamic of exploitation to one of conservation and harmonization.
Employment ethics guide the organization's culture and its relationships with employees. Because of the closeness of this relationship, ethics play a more important and diverse role here than in any other stakeholder relationship.
Public-private sector relationships are shifting as deregulation and privatization grow. This shift requires that corporations exert more self-restraint and greater self-discipline, substituting self-policing for government regulation and moderating the pursuit of economic gain with stronger ethical restraints.
The new rules are driven by societal change. The corporation is a social institution, charged with a vital economic function. Its task is not to initiate social change, but to perform its economic function within the parameters of socially acceptable standards of behavior. As these standards change, so must corporate conduct.
Page 17The conscience of an organization: the ethics officeRobert W. Rasberry
Business today finds itself living the Pinocchio fairytale. Like Jiminy Cricket, who, as the puppet's conscience, advises him to always tell the truth and do the right thing, the ethics office has become the corporate conscience. Pinocchio learns to resist temptation, discovers what he values, and becomes a real boy. Corporations improve results by adopting integrity-based ethics management.
The ethics office. The ethics office began as a government initiative to address the problems of contract compliance in the defense industry. Gradually, the government initiative created a new social consciousness regarding ethics in all businesses. In the late 1980s, corruption in the financial world caused the federal government to institutionalize ethics with a law that considers a corporation to be a moral agent, responsible for its employees' conduct.
Integrity-based ethics management. Business leaders who seek a "higher moral ground" have now moved to an integrity-based approach to ethics management. This approach goes beyond a rule base to a culture that embraces core values and an uncompromising implementation of legal and ethical principles. These principles are embodied in the strategic planning process and evidenced in the daily decision making and actions of the firm. This approach starts at the highest level of an organization, with leaders in top management who buy into the core values, have aligned their personal values with company values, and serve as guardians of the process.
The ethics officer. Today, there are over 600 member companies in the Ethics Officer Association. Many ethics officers are general counsels in their firms. Others carry titles such as vice president of ethics, director of business compliance, manager of internal audit, or some combination of those titles and responsibilities.
The ethics code. The code of ethics must be developed, periodically reviewed according to company policies, benchmarked to codes of similar companies, and approved by the board of directors. Ethical codes often demand a standard of behavior that is higher than the law requires. For the integrity-oriented organization, the code's intent is to shape employee behavior.
Proper implementation of an ethics program leads to increased trust among all stakeholders, improved customer service and retention, increased productivity, employee commitment and retention, decreased legal problems, and greater profitability.
Page 22Globalization at Internet speedJacques Manardo
"Going global" is one of the guiding business imperatives of the new century. But there is no magic formula or even a clear definition of what a truly global organization is.
This article outlines the main findings of the Innovative Leaders in Globalization program as presented at the World Economic Forum's Annual Meeting in Davos, Switzerland, in January 2000. The program is a joint effort of Deloitte Touche Tohmatsu and the World Economic Forum.
In 1999, the program developed a Globalization Framework to structure the concept of globalization. The six capabilities of the framework include: governance and responsibility; strategy and finance; marketing, sales, and service; operations and technology; research and development; and human resources management. The article explains how successful companies globalize their operations in each of these areas.
Governance and responsibility, for example, define the objectives, accountability, and stewardship for a global organization: What purpose does the company serve? Who should have final managerial and decision-making authority? The answers to these questions differ markedly around the world. The survey data show three key findings:
There is a growing consensus that effective governance is a competitive tool in the global company's arsenal.
There is a broad recognition that the boards of directors of global companies should be comprised of leaders with worldwide experience and geographic diversity.
The complexities of international legal and business issues are exponentially greater as a company operates in more and more countries.
However, the research also identifies some common issues and recommendations to be considered.
Establishing effective global governance is a much more complex task than establishing domestic governance practices.
As the number of regions in which it operates increases, the global company will need to determine if its standards of ethics and environmental responsibility will be fixed or adjustable, depending on the practices of local business and governments.
Global companies will need to design strategies for establishing goodwill internationally and locally.
The Internet has already altered the global economic landscape. It creates both opportunities and disruptions. It will be up to the world's leaders to ensure that the Internet is allowed to reach its full potential as a vehicle for increased trade and globalization – for the benefit of all.
Page 28May the worst man winAlexander S. Theodhosi
Succeeding in the commercial world requires dexterity with self-serving behavior and exclusionary methods. A predisposition to maneuver and machination goes a long way in a company's pursuit of a leadership position – and these qualities, more often than not, can be traced back to the character of the people managing the enterprise. In fact, a company's dominance is a reflection and a direct outworking of the anti-competitive tendencies of its leaders.
The author draws case examples from the actions of business and political leaders of the present and the past.
Thomas Watson turned the Computer-Tabulating-Recording Company into IBM and ruled the data processing world for several decades. Watson learned his monopolistic ways under an apprenticeship with John Patterson at National Cash Register.
Bill Gates studied the methods of Napoleon, John D. Rockefeller and Standard Oil, General Motors, and IBM and determined from the very beginning that all computers would someday be running his software – and his software alone.
Andy Grove orchestrated Intel's Operation Crush, which marked the beginning of the aggressiveness and combativeness of today's Intel and was aimed at quieting the competitive nuisances interfering with its leadership in the microprocessor industry.
Phil Knight and his marketing machine have made Nike one of the most hated and, at the same time, admired companies of our generation. Phil Knight is an ultra-competitive, clever, shrewd man who figured out a way to make all other athletic shoe companies irrelevant by connecting his products with the awe and romance of primordial athletic competition.
Robert Moses, who is credited with almost single-handedly building the parks, causeways, and civic facilities in the boroughs of New York City, resorted to political force and strong-arm tactics to get his projects built. Moses learned from Al Smith that a man's associations matter, and getting the right people on one's side is important.
Thus, in the same way that commerce is an extension of human activity, manipulation and self-serving behavior and all other human qualities, savory and unsavory, will find their way into the commercial setting. To ask people, whether in business or government or any other field, to cease aggressive and manipulative behavior is to ask people to stop being human.