Lessons from the U.S. Credit Crisis: Greed Reflects a Failure of Leadership Working Paper Examines Possible Link Between Overconfident Executives and

Fraud Ban Ki-Moon Attempts to Boost Ethical Standards Inside the UN Secrets of Leadership Success: Assuaging Executive Pomposity ERC and Other Institutes - Key Roles for Chief Ethics Officers Taking a Step Back: Executives on Business & Society Business Leadership and Employee Health Management Competencies for Socially Responsible Decision Making India's Infosys: Ethical Business in Developing Country "Stewardship Ethics" - A Model for Reform Moral Management - Report by the ERC Fellows Program Executives' Personal Integrity: A Board Issue? (RadioShack Case) A Model Ethical Leader - Aaron Feuerstein Computer Associates Article on Restoring Reputation Ronald Berembeim on "Why Ethical Leaders Are Different " Jon Huntsman Book on Ethical Leadership

 

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Lessons from the U.S. Credit Crisis: Greed Reflects a Failure of Leadership

Excerpts from a new Knowledge@Wharton article.

"Reprinted with permission from Knowledge@Wharton - the online research and business analysis journal of the Wharton School of the University of Pennsylvania."

In light of the recent credit crisis that has taken place in the United States, Knowledge@Wharton has devoted a whole section of articles which provide analysis on different aspects of the crisis.  Many financial corporations have suffered enormous losses and undergone substantial changes.  Many commentators have focused on the causes and consequences of the crisis.  Taking a different track, former Wharton dean Russell Palmer has written an article focusing on the crucial lessons of leadership, the lack of which, in his opinion, contributed to the meltdown.

The following are excerpts from the original article.

"While much of the discussion about the crisis has focused on its causes and the need for regulatory reform, I have a different perspective: I believe the situation offers an opportunity to learn crucial lessons about leadership, and if these are heeded, the U.S. will end up with a financial system that is stronger than ever.

 What caused the crisis? In my view, greed was the underlying factor. Wall Street hedge funds and others are looking for any financial machination that they can find to hype their financial returns. The whole mortgage fiasco is just the latest example.

Greed reflects a failure of leadership; turning your head to ignore the high risk because you are making big earnings today certainly shows a lack of leadership. How many people on Wall Street have been subject to less than robust oversight by their organization because they were producing such big contributions to the firm's earnings? Allowing your organization to be a party to contributing to this scheme -- even if you know that you will not be directly affected -- is not a mark of leadership. It is a sign of greed.

Much debate has taken place in recent weeks about whether the Federal Reserve, led by Ben Bernanke, and the Treasury Department, headed by Hank Paulson, did the right thing in brokering Bear Stearns to be acquired by J.P. Morgan. Since then, Paulson has proposed several sweeping changes to reform the financial system.  It's evident that we need more transparency in the system than we have now. For example, hedge funds are among the least transparent investments that anyone can make. Still, investors keep pumping money into hedge funds because they get such high returns most of the time.  In the end, the investors must make their own decisions based on adequate information and take responsibility for those decisions.

With all this as background, let me now turn to some of the main leadership lessons to be learned from the crisis on Wall Street.

First and foremost, integrity is the key to leadership -- and that is not always evident on Wall Street. Something as important as our system for financial transactions and our economy has to be built on integrity and trust as opposed to questionable and disreputable activities. Integrity begins at the top.

Another important leadership lesson involves the role of board members. Too often, in the past, boards of directors have let the CEO escape responsibility by firing a couple of people down the line and going back to work. Boards of directors must provide appropriate oversight, but boards will never know enough about the complex world of finance and the derivatives transactions that are being effected today. Boards need to provide detailed oversight, and so they have the responsibility to see that outside experts are brought in, if necessary, to assess the risk profile of the organization.

Finally, the leaders of these firms must be at the forefront of addressing the crisis and take personal responsibility.

Even though Bear Stearns has gone under, I see no reason why that should happen to the financial system. Strong leadership leads to resilience. Once the system regenerates, in some cases with new leadership, I am convinced that it will be as strong as before, if not stronger."

Posted 6/23/08

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Working Paper Examines Possible Link Between Overconfident Executives and Fraud

Excerpts from a new Knowledge@Wharton article.

"Reprinted with permission from Knowledge@Wharton - the online research and business analysis journal of the Wharton School of the University of Pennsylvania."

No one makes it to the top ranks of corporate management without a healthy amount of self-assurance. Confidence underlies decisive, strong leadership, but does overconfidence lead managers to cross the line and commit fraud?

New Wharton research that combines results from the psychology literature and SEC fraud enforcement records is examining how top executives might be inclined to engage in fraudulent behavior because they are overconfident about their firm's ability to perform in the future.

Wharton accounting professor Catherine M. Schrand and doctoral student Sarah L. C. Zechman are developing a paper titled, "Executive Overconfidence and the Slippery Slope to Fraud" that examines patterns in frauds to determine if some frauds evolve, not out of pure self-interest, but because executives are overly optimistic that they can turn their firms around before fraudulent behavior catches up with them.

Schrand describes the path leading to fraud. An executive believes his firm is experiencing only a bad quarter or patch of bad luck. He also believes it is in the best interest of everyone involved -- management, employees, customers, creditors and shareholders -- to cover up the problem in the short term so that these constituents do not misinterpret the current poor performance as a sign of the future. In addition, he is convinced that down the road the company will make up for the current period of poor performance. It is the optimistic executive or overconfident executive who is more likely to have these beliefs.

"He may stretch the rules just a bit or engage in what you might call a 'gray area' of earnings management. But say it turns out that he was wrong and things don't turn around as expected," Schrand continues. "Then he has to make up for the prior period. That requires continuing fraudulent behavior and he has to do even more in the current quarter."

Keeping Up the CharadeTo assess whether overconfident executives are more likely to commit fraud, the researchers reviewed Securities and Exchange Commission accounting and enforcement releases (AAERs) from the 1990s and 2000s to examine patterns in companies that are engaged in fraud.

The authors explore the relationship between executive confidence and fraud across industry, firm and individual variables. They found fraud is more likely in industries that are complex and undergoing rapid growth, such as high-tech. Schrand notes that the most meaningful variable in linking fraud to specific industries is high stock-return volatility."The sample demonstrates industry clustering in risky, dynamic, high growth industries that face significant idiosyncratic risk," the paper states. "The management literature has shown that such industries are attractive to overconfident executives." But Schrand acknowledges that such industries also may exhibit more fraud because the incentives to commit fraud are greater or because it is easier to commit it.

As further evidence, the researchers examined firm and individual characteristics to gauge the effect of overconfidence on fraud. To observe trends, the study compared firms that had been identified by the SEC as experiencing fraud to a matching sample of firms of similar size and in the same industries that had not been sanctioned by the SEC.

Premeditated vs. AccidentalIn reviewing the SEC data, the researchers identified two types of fraud. One is outright, premeditated or "opportunistic" fraud. The other is naïve, almost accidental fraud that fits with the authors' idea that executives who find themselves in a jam are inclined to turn to fraud to cover up minor earnings management in prior periods.  

On the firm level, she says, the research focuses on looking at other decisions made by firms exhibiting fraud -- including dividend policy, capital structure and tax strategy -- that also are correlated with executive overconfidence. If overconfidence is the explanation for fraud, then firms at which fraud occurred should make other decisions that reflect overconfidence. Schrand notes as an example that theses firms also tend to pay lower dividends, or no dividends, compared to matching firms. "This finding is consistent with survey evidence about overconfident executives and dividend policy. The idea is that overconfident executives think they have something better to do with the money than pay it out in dividends," says Schrand.

When it comes to looking at the individual characteristics of executives likely to commit fraud, the analysis is not that statistically compelling, Schrand cautions. The psychology literature identifies individual characteristics that are related to overconfidence -- such as

commitment to a project -- and characteristics of the decision maker based on his experience, such as past successes, education or military service, and even fundamental traits, such as gender.

The authors also looked into the role of corporate governance as a device to alter the relationship between overconfidence and fraud. They found no significant differences between the fraudulent firms and the matching sample on commonly studied governance features such as block ownership, board size and board composition. The paper says this result suggests executives at fraudulent firms were more overconfident than those at firms where fraud did not occur, and that better governance was not in place to counteract their tendency to commit fraud.

Just because overconfidence might lead to bad decisions in particular circumstances, it should not be the only, or even primary, consideration when evaluating executives, Schrand says, adding that a growing body of literature indicates that confident and optimistic leaders might make what would be viewed as bad decisions in certain circumstances, but overall, they also have assets that any firm needs to succeed. "Given that the firm has to hire the whole person, you might actually want somebody who exhibits this bias. But, you should recognize that the overconfidence, which has its positive aspects, can also have a downside."

Posted 3/7/08

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Ban Ki-Moon Attempts to Boost Ethical Standards Inside the UN

After disclosing his own financial records, the United Nations' Secretary-General is encouraging senior officials to do so as well

Now for the first time, the United Nations is making public the financial disclosure statements of those at the Under-Secretary-General and Assistant-Secretary-General level, or the United Nations’ most senior officials. 

Xinhua reported more than 90 senior UN officials have followed the lead of UN chief Ban Ki-moon to disclose their 2007 financial statements. Ban and UN Deputy Secretary-General Asha-Rose Migiro made their financial disclosure statements public in 2007.  According to Xinhua, each official's statement must be reviewed by Pricewaterhouse Coopers, a firm hired by the UN to examine such documents, before a public summary is made available.

At a senior officials retreat in August 2007, Ban emphasized his belief in public disclosure:

“Because I believe in leadership from the top, I have made complete, public disclosure of my assets -- in a way that no Secretary-General has done before. I have been loud and clear about honesty: our UN will not tolerate corruption or abuse of power.”

The Secretary General has dedicated a special section on the website to “Ethical Standards,” under his own self-named category.  Here, one can view the disclosure statements of both Ban and Asha-Rose, as well as the newly added statements of senior officials.

Public disclosure is not a requirement of the UN Financial Disclosure Program, according to the UN website, and is done so on a voluntary basis.  The primary purpose of the program is to ensure that potential conflicts of interest arising from staff members' financial holdings, private affiliations or outside activities can be identified, and advice provided as to how best to manage any potential conflicts of interests in the best interests of the UN.

Posted 2/4/08

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Secrets of Leadership Success: Assuaging Executive Pomposity

At a business leadership conference, sponsored in part by Wharton Executive Education, two speakers, Lee Hecht Harrison and Richard Greene, addressed the issue of how to create an “ethical culture” starting with executive leadership. Harrison redefines “ethics” in terms of “decent” acts.  Greene emphasizes how effective public speaking can go a long way in earning respect. The following are excerpts from the summary of their presentations, posted by the Wharton Business School.

Reprinted with permission from Knowledge@Wharton - the online research and business analysis journal of the Wharton School of the University of Pennsylvania., USA

After realizing the need for recognizing the importance of promoting an ethical organizational culture, and adding it to the US Federal Sentencing Guidelines, Lee Hecht Harrison was appointed Worldwide Chief Ethics and Compliance Officer of Adecco, an international human resource management company.  In this position, he redefined what it meant for a company to be ethical.

What he concluded mirrors the words of former SEC Commissioner Cynthia Glassman, who said that while the government can mandate ethical compliance, “we cannot legislate ethical behavior.” For Harrison, even the word “ethics” itself seems too abstract; he replaces it with what he sees as a more intuitive, common-sense word: decency.

“Our willingness to be decent at work cannot depend on whether business is up or whether we’re in a bad mood or whether it’s raining.  Decencies don’t amount to anything unless we take the trouble to make them come alive through concrete acts in all kinds of weather,” Harrison said.

For those at the top, this can mean such actions as being the first to volunteer for ethics training; honoring those with unglamorous jobs, like office cleaning; and listening to people at all levels of the organization. 

He also counseled executives to avoid the trap of “executive pomposity.” Being generous with praise and recognition will earn leaders what Harrison calls “psychic income.”  At the end of the day, said Harrison, the words of poet Maya Angelou ring true: People will forget what you said, they will even forget what you did, but they will never forget what you made them feel.”

Stirring up feelings is one skill Richard Greene, public speaking coach, believes is lacking among many individuals today. The first task of a speaker is to realize his or her purpose in speaking, wither it involves addressing several prospective customers across a boardroom table or a convention of thousands. One of the biggest pitfalls for speakers in a corporate communication setting is perceiving a speech or presentation as a performance. The best communicators have understood that public speaking is not a performance; it’s about making a connection with others, Greene said.

Greene offered advice that can be summed up in four words: “it’s not about you.”

To read the entire summary, see the posting on Wharton's website.

Posted 8/27/07

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Leading Corporate Integrity: Defining the Role of the Chief Ethics and Compliance Office

A Report by Representatives of leading U.S. business ethics organizations that came together under the auspices of the Fellows Program of the Ethics Resource Center. This is

the first cooperative study of its kind by these institutions:

The Ethics Resource Center

The Business Roundtable Institute for Corporate Ethics

The Ethics and Compliance Officer Association (ECOA)

The Open Compliance and Ethics Group (OCEG)

The Society of Corporate Compliance & Ethics (SCCE)

From the report: - A close look at ethics and compliance programs across companies suggests that there is wide disagreement about the best way to situate a CECO.

Conversationswith CECOs also quickly reveal their frustration: these professionals cannot fully

do their jobs. Their issue is not the desire to perform; rather, despite goodintentions on the part of their employers, many CECOs are set up for failure due

to deficient resources, inadequate preparation, or insufficient authority.

Key Findings:

Today, many organizations are choosing to consolidate the critical responsibility for ethics and compliance programs under a chief ethics and compliance officer (CECO).But the specific roles and reporting lines for this relative newcomer among corporate management positions are not always clearly defined; many CECOs report feeling set up for failure due to insufficient authority or inadequate resources.

This paper is intended to serve as the starting point for a dialogue within corporate management circles—particularly among CEOs, boards of directors and the CECOs themselves—about the proper placement, qualifications, and responsibilities for a leader of the corporate ethics and compliance function. This paper also provides resources and identifies additional steps for further examination of this critical management function.

The Bottom Line: CECOs Add Value

CECOs whose roles are clearly and properly defined and who are empowered tocreate and maintain strong ethics programs:

• Help provide shelter from severe sanctions in the event of legal/regulatory difficulty;• Contribute to the establishment of an enduring ethical culture;• Help other corporate leaders prevent misconduct or effectively address it when it occurs; and,• Provide a public demonstration of the organization’s commitment to integrity.

The Cornerstone: A Clearly Defined Role

To truly be a value-added function, the CECO must have a well-defined role and be endowed with adequate resources. This demands a balance between tailoring the job to an organization’s unique characteristics and providing the CECO with the basic authority and tools that should be universal for all who hold such positions.

At minimum, a CECO should be:• Held accountable to the governing authority while carrying out its delegated fiduciary responsibilities;• Independent to raise matters of concern without fear of reprisal or a conflict of interest;• Connected to company operations in order to build an ethical culture that advances the overall objectives of the business; and,• Given the authority to have decisions and recommendations taken seriously at all levels of the organization.

The CECO also must have the financial and human resources necessary to comprehensively promote standards, educate the workforce, and respond to potential violations in a timely manner.

Assuring Access and Independence: Reporting Relationships &Accountability

A CECO’s line of reporting is perhaps the single biggest influence on his or her credibility and authority within the organization. Ideally, the CECO will have:

• Employment decided and terminated only at the direction of the board of directors;• A direct reporting relationship to either the board or the CEO;• Direct, unfiltered access to the board; and,• Performance goals defined by the board and CEO.

The CECO position should be augmented by the board’s appointment of one independent director or member of the audit committee, knowledgeable about business ethics and compliance, with accountability for ethics and compliance.

Responsibilities: Being a Full Member of the Executive Team

A CECO should be a full member of executive leadership, expected to:

• Oversee assessment of organizational risk for misconduct and noncompliance;• Establish organizational objectives for ethics and compliance;• Manage the organization’s entire ethics and compliance program;• Implement initiatives to foster an ethical culture throughout the organization;• Supervise ethics and compliance staff embedded throughout the organization;• Frequently inform the board of directors and senior management team of risks, incidents, initiatives driven by the ethics and compliance program, and progress toward program goals;• Implement a program of measurement to monitor program performance; and,• Oversee periodic measurements of program effectiveness.

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Taking A Step Back – How 48 Top Executive’s See Business’ Role in Society

“Never has it been more important to know what is on the minds of corporate leaders. Companies are being driven by short-term demands while the challenges of a rapidly changing world require them to address long-term issues. In this climate, the role of business is being redefined..,”

So begins Step Up: A Call for Business Leadership in Society, a January 2007 report by the Boston College Center for Corporate Citizenship (BCCC) based on the interviews of  48 top executives—including 26 CEOs—representing 27 major multinational companies including IBM, Citigroup, GE, Nestle, and Verizon. EthicsWorld has featured research showing the importance of leadership in building and managing ethical companies (see Moral Management). However, BCCC’s report reveals a surprising level of ambiguity in the minds of corporate executives on broad ethical issues. The report highlights areas where further discussion, innovation, and clarification are needed. The following are some of the reports key findings:

How Executives Define Business’ Role in Society

”Each executive interviewed chose the definition they said best describes how business relates to society:

27% In pursuing private profit, companies should take care to protect the environment, uphold the rights of workers, and be a good neighbor to communities.

25% A company should lead with its heart and nurture its soul as it makes money. It should inspire other companies to aim high. It should do more than simply avoid doing harm; it should consciously seek to do good.

23% Other

15% Unprincipled capitalism ultimately inflicts damage on all its stakeholders. The good company leads by demonstrating the moral principles of capitalism, and by showing the connection between those principles and financial success.

6% The private search for profit advances the public good. An executive's duty is to create wealth for investors. Society is best served when a company does well.

4% Private enterprise best serves the public good when it is subject to public intervention (e.g. taxation, publicspending, regulation). It is government's role to correct market failures. Business should not decide matters of public policy."

Dynamics Driving Change

The executives identified four major dynamics that are driving the change in the business-society relationship: globalization, corporate governance, a new social contract, and the role of government.

Limits on Corporate Responses

The CEOs identified 7 factors which they believe most limit current corporate responses to CSR:

1. Making Values Meaningful - While there was much discussion about companies “living there values,” many CEOs were hesitant to go into detail about how these values are implemented, managed both on a day-to-day basis and in times of ethical crises. The report highlights confusion over how to build values-based organizations – it points out an stalemate between the recognition that values cannot always be codified and the reality that without rules and means of measurement, they are difficult to administer in corporate cultures that stress efficiency and productivity.

2. Rules Based Enterprise – Many of the interviewees believe business is becoming too regulated, hindering efficiency.

3. Limitations of Corporate Responsibility - Reflecting the above resistance to regulation – many executives believe CSR should be a voluntary initiative.

The current structure of many companies narrows corporate social responsibility: “Major companies have various offices and officers to deal with that relationship [business and society] , from the general counsel, to the community affairs office, to lobbyists, and so on. Corporate responsibility is only a small part of this, and may not even be referred to at all when confronting major aspects of the business-society relationship such as corporate taxation, tort reform, and investments. For the most part, it offers little practical guidance about wrestling with the negative externalities of efficiency and competitiveness (e.g. the consequences for workforce consolidation), even though companies frequently deal with the consequences of this (e.g. severance packages, placements), and they are an important element of how companies are perceived."

4. Company Resources Alone are Never Enough – to effectively tackle many issues, even when business' work together.

5. Influence of Ownership - The report notes that many of the executives talking in terms of values-based companies are mostly in charge of private firms or partnerships.  As articulated by Unocal Chairman and CEO Chuck Williamson: “On the one hand, you’ve got Wall Street squeezing you harder and harder for shorter and shorter term performance. On the other hand, you have a broader constituent base that wants more than financial results. … Most CEOs will tell you, ‘This is damn hard work.’”

6. The Media and Others - Executives said that the black-and-white way that the media and others, such as academics, cover the business-society relationship limits their flexibility in dealing with social issues. For instance, academic ecnomists often treat corporate attempts to consider environmental or social concerns as a waste of money while the media often demonizes companies for their impact on larger society.

7. Leadership - “Part of what we see today is executives who want to address societal issues because they are important to their companies and business as a whole, yet hesitant to take it too far because of the reaction that may come from investors, analysts, board members, or the media. As a result, more often than statements about leadership, what one hears from executives is a desire to achieve what they can while keeping a low profile.”

What Needs To Be Tackled

The report lists four themes that must be tackled in order to clarify confusion over the business-society relationship:

1. Challenging the short-term perspective of the capital markets2. The respective roles of business and government in public policy3. Creating a soft landing to globalization4. Courageous leadership

For the full report, including a list of executives interviewed and quotes in each of the above sections, visit BCCC's website.

Posted 2/15/07

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Business Leadership's Responsibility to Employee Health

How Workplace Wellness Programs Can Prevent Chronic Disease and Increase Productivity

In a new report - Working Towards Wellness: Accelerating the Prevention of Chronic Disease - developed in conjunction with the World Economic Forum’s Working Towards Wellness initiative to increase business engagement in preventing chronic diseases - PriceWaterhouseCoopers (PWC), a professional services firm, describes how and why the business world should help prevent chronic diseases by implementing workplace wellness programs. "With the commitment of business leaders, workplace wellness strategies and collaboration of public-private partnerships," it argues, "the epidemic of chronic disease can be managed effectively. In doing so, employers can enhance the productivity of the workforce, reduce the growing burden of healthcare costs, make the workplace more attractive and build a better and more healthy global community.”

Offering statistics and case studies on behaviour changes and their relation to the workplace and the wellness initiatives that companies such as Nestle, Cadbury Schweppes, Pepsi Co and Microsoft are taking, the report explains how employee health programs benefit companies and offers guidelines for implementing them.

The following summarizes key sections of the report:

The Economic Costs of Chronic Disease and The Business Case for Prevention

According to PWC, chronic disease is the leading cause of death and disability worldwide and caused approximately 60% of deaths in 2005. Furthermore, only 3% of all government health expenditure was directed at prevention and public health in 2004 in the member countries of the Organization for Economic Cooperation and Development (OECD) – a number which many businesses and policymakers acknowledge is insufficient. Because of this and because most of the active workforce (approx. 54% of the global population) spend the majority of the their time at work (the nature of which, the report notes, is becoming more sedentary and unhealthy) businesses have an enormous opportunity to use the workplace to promote long-term behavioural changes that will benefit not only employees and communities – but also their bottom lines.

PWC reports that there are several reasons businesses implement wellness programs:

1. To improve performance and productivity and reduce indirect costs such as absenteeism and presenteeism (on-the-job effectiveness) - About 2% of capital spent on workforce is lost to disability, absenteeism and presenteeism caused by chronic diseases.

2. To cut the healthcare costs of employees – Approximately 2% of capital spent on workforce goes towards direct health care costs.

3. To gain competitive advantage by being more attractive places for people to work - A survey by the American Association of Occupational Health Nurses in 2003 found that 60% of employees regarded wellness programmes as a good reason to remain with their current employer.

4. To be more socially responsible and to improve their corporate image -  Several organizations that track and set standards for Corporate Social Responsibility (CSR) – such as the Global Reporting Initiative and World Business Council for Sustainable Development - cite attention to employee health as a key indicator of CSR.

Standards for Implementing Wellness Programs

PWC argues that preventing chronic diseases requires a strategy that begins with standards for structuring and measuring success. These are:

"LeadershipPromote active leadership of senior management in wellness initiatives

Culture - Align wellness goals with business strategy- Create a supportive environment and culture focused on wellness

People - Target interventions based on unique characteristics of employee population- Offer incentives to encourage participation and better outcomes- Use targeted and ongoing mass communication

Process- Collaborate with external parties through public-private partnerships- Establish evaluation and monitoring programmes to measure change, outcomes and financial impact"

The process for implementing these standards is depicted below:

 

To access the full report visit PWC's website.

Posted 2/7/07

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Leadership Qualities and Management Competencies forCorporate Social Responsibility

Research developed in the UK and based upon a broad range of experiences at such major multinational corporations as IBM, Shell, Cargill and Unilever, highlights pragmatic approaches to training executives for managing the challenges of corporate social responsibility – both at headquarters and abroad. The research has been pursued by Director of Research and Development Andrew Wilson, Patricia Hind on Ashridge's faculty, and Prof. Gilbert Lenssen of the European Academy of Business and Society (EABS) and published by Ashridge Business School in the UK in its July 2006 report to EABS, ‘Leadership Qualities and Management Competencies for Corporate Responsibility.’ It is of value to both corporations and to business schools that are now increasing their focus on CSR. 

The report argues that in order for a company to be truly responsible, its management must learn to reflexively integrate social and environmental considerations into their

everyday business decision-making processes. While organizational culture plays a large role in facilitating ethical considerations, the authors believe companies can also encourage socially responsible decision making by ensuring their leaders and managers possess a certain set of ‘competencies,’ which can be taught and developed.

They argue that there are five ‘reflexive abilities’ which responsible leaders must possess in order to effectively integrate social and environmental considerations into their management: 1. systemic thinking 2. embracing diversity and managing risk 3. balancing global and local perspectives 4. meaningful dialogue and developing a new language and 5. emotional awareness. In the following excerpts from the report, the authors present case studies outlining the way in which several of the organizations studied are training their employees in these skills. Finally, they offer suggestions for business schools on developing responsible leaders.

Case Studies in Developing Responsible Leaders

Several organisations (including Cargill and Shell) help managers to develop a strategic vision by taking a real issue that has been discussed by the senior management team and testing out responses and reactions in discussions with the next tier of managers. Usually this involves designing exercises based on real investment decisions to enable people to practice applying principles of corporate responsibility and explore for themselves how business value can be generated. In this way, they are encouraged to think outside their direct area of responsibility, take a long-term perspective and develop a broader understanding of the issues facing the organisation.

Another approach (used by Unilever and others) is to expose senior managers to places in the world that are very different to their home base. For some companies serving in a managerial role as an ex pat is a requirement for progression up the corporate hierarchy. Interviewees suggested that this experience helps people to develop an understanding of the complexities of operating a global business by seeing first-hand the social and environmental realities of operating in developing economies.

One of the approaches to integrating corporate responsibility in Johnson & Johnson is through the development of country champions – identifying people across the business that are knowledgeable about the issues and are charged with implementing local initiatives and raising awareness and understanding among their colleagues. This network of people is supported by biannual development initiatives that bring people together, often with external experts and advisors, to share experience across the company and explore latest trends and developments in the pharmaceutical sector and beyond.

IBM recently undertook an inclusive communications exercise – the “values jam” – which helped to promote awareness about corporate responsibility. This was a 72 hour on-line discussion for all 320,000 employees on the values of the

company. It is not a one-off process but was started by the CEO over two years ago and the debate continues. One result has been the creation of a new set of values. The top management team are now leading discussions on how to apply and implement these values throughout the company, including the development of on-line training in relevant issues for senior managers. 

Beyond these company specific initiatives, many of the companies involved in the research address issues of corporate responsibility in their graduate recruitment programmes where they are making participants more aware of the broader issues facing business today. Often the explicit purpose is to instil a sense that corporate responsibility is part and parcel of the way the company operates.

In addition, some companies have developed stakeholder role playing exercises to develop the skills of participants in dialogue, negotiation and conflict management. Such programmes are seen to be more challenging and more beneficial that traditional approaches to media handling or external communications.

It is also interesting to note that in developing relevant programmes, many companies are entering into partnerships with external experts on social and environmental issues by working with NGOs and pressure groups. Such organisations are felt to bring valuable skills and knowledge that informs both the design and delivery of initiatives addressing issues of sustainable development and corporate responsibility. The external perspective of a potentially critical third party is seen as an important ‘reality check’ and avoids an inward looking, self-referential perspective.

 

Three Lessons for Business Schools

1. First, drawing from the direct experience of the companies participating in this research, it is clear that management development for corporate responsibility needs to address fundamental questions of how an individual views the world – how he or she ascribes value to certain types of management and corporate behaviour.

Developing a person’s knowledge and skills will inform their world view and values to a certain extent. However, the reflexive abilities identified through this research describe the more fundamental features of an individual’s character and personality. Giving people the opportunity to question, explore and make meaning of the values and assumptions that inform their decision-making process requires a carefully structured process of analysis and reflection – something that is not necessarily compatible with much of the traditional content of management development programmes in business schools.

2. Second, the experience of businesses outlined above suggests that this process cannot necessarily be done in the traditional classroom environment. There is a strong need for

greater use of experiential learning techniques – exposing people directly to the situation and giving them the opportunity to reflect and experiment with potential ways of dealing with the experience.

3. Third, it is vitally important that a traditional European business education should avoid what some describe as “cultural imperialism” – inadvertently promoting the social, political and economic norms and values of an Anglo-American business viewpoint. As we reported in Section Four, interviewees argued strongly that responsible leadership requires an appreciation of culture diversity. This view was extended by some to question the use of business models that focus exclusively on maximizing shareholder returns to the exclusion of other stakeholders.

For more case studies and the full report, see Ashbridge’s website.

Posted 1/11/07

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India’s Infosys: A Case Study for Attaining Both Ethical Excellence and Business Success in a Developing Country

At conference after conference on corporate ethics, values, governance and social responsibility the major speakers either come from leading European and U.S.

companies, or from consulting firms and academia that use Western firms as their models. There is, all too often, an unspoken and widespread sense that companies in

developing countries either adhere to lower standards for so-called “cultural” reasons, or just “cannot afford” the luxury of the high model Western norms. Such arrogance

is commonplace. The approaches pursued by Infosys of India deserve far greater attention – as a model for all companies, wherever they happen to be headquartered.  

To download this article as .pdf

Infosys Opens NASDAQ, Co-Founder Moves Up to Chief Mentor PostN. R. Narayana Murthy is as well known as a promoter of corporate governance reform and excellent corporate workplace ethical practices, as he is as the co-founder of Infosys Technologies Ltd., the Mysore-based company that is one of India’s new technology leaders. Murthy, who turns 60 later this month, is relinquishing key executive positions in the company he co-founded in 1982 to become the enterprise’s Chief Mentor. Much like Bill Gates at Microsoft, Murthy has pioneered a technology revolution and as his corporation has become firmly established and very successful, so he has distanced himself from day-to-day operations.

N. R. Narayana Murthy

Infosys, which employs over 58,000 people worldwide, provides consulting and IT services. It is one of the pioneers in strategic offshore outsourcing of software services. Murthy is a fervent believer in globalization, a major influence on the thinking of author Tom Friedman (The World Is Flat: A Brief History of the Twenty-first Century) and a leader of India’s technology revolution. His approach to corporate governance and workplace values has been no less influential on the most dynamic and successful technology companies in India. Infosys highlights itsperspectives at www.infosys.com

On July 31, 2006, Murthy opened the NADSAQ market from his corporate headquarters in Mysore. He said, “Twenty-five years ago, we founded Infosys with a vision of the global delivery model. That vision has been validated as the tide of globalization has swept across the world and businesses are dramatically changing how they run their organizations. Opening the NASDAQ market from India is not only a great honor for Infosys, but also illustrative of the emerging new world.”

The Company’s Vision Is: "To be a globally respected corporation that provides best-of-breed business solutions, leveraging technology, delivered by best-in-class people." And, its Mission is: "To achieve our objectives in an environment of fairness, honesty, and courtesy towards our clients, employees, vendors and society at large."

Infosys’s stresses that its operations are driven by key values that it calls C-LIFE:

Customer Delight: A commitment to surpassing our customer expectations. Leadership by Example: A commitment to set standards in our business and

transactions and be an exemplar for the industry and our own teams. Integrity and Transparency: A commitment to be ethical, sincere and open in

our dealings. Fairness: A commitment to be objective and transaction-oriented, thereby

earning trust and respect. Pursuit of Excellence: A commitment to strive relentlessly, to constantly

improve ourselves, our teams, our services and products so as to become the best.

Corporate Governance is an area of critical importance to Infosys and one where it has sought to be a global leader. It is seeking to use its model example to promote far higher standards in India and Murthy has been one of the most vocal and influential advocates of corporate governance reform in his country.

The company states: “We believe that sound corporate governance is critical to enhance and retain investor trust. Accordingly, we always seek to ensure that we attain our performance rules with integrity. Our Board exercises its fiduciary responsibilities in the

widest sense of the term. Our disclosures always seek to attain the best practices in international corporate governance. We also endeavor to enhance long-term shareholder value and respect minority rights in all our business decisions.”

The Infosys corporate governance philosophy is based on the following principles:

1. Satisfy the spirit of the law and not just the letter of the law.Corporate governance standards should go beyond the law.

2. Be transparent and maintain a high degree of disclosure levels. When in doubt, disclose.

3. Make a clear distinction between personal conveniences and corporate resources.4. Communicate externally, in a truthful manner, about how the company is run

internally.5. Comply with the laws in all the countries in which the company operates.6. Have a simple and transparent corporate structure driven solely by business needs.7. Management is the trustee of the shareholders’ capital and not the owner.

Infosys stresses that at the core of its corporate governance practice is the Board, which oversees how the management serves and protects the long-term interests of all the stakeholders of the company. It states: “We believe that an active, well-informed and independent Board is necessary to ensure the highest standards of corporate governance. Majority of the Board, 9 out of 16, are independent members. Further, we have compensation, nomination, investor grievance and audit committees, which are comprised of independent directors.”

“As a part of our commitment to follow global best practices, we comply with the Euroshareholders Corporate Governance Guidelines 2000, and the recommendations of the Conference Board Commission on Public Trusts and Private Enterprises in the U.S. We also adhere to the UN Global Compact Programme.” To promote corporate social responsibility the company established a philanthropic foundation in 1996, which is mostly engaged in social, health and education programs in India.

Murthy is the chairman of the governing body of the Indian Institute of Information Technology, Bangalore and the Indian Institute of Management, Ahmedabad. He was the Chairman of the Committee on Corporate Governance appointed by the Securities and Exchange Board of India (SEBI) in 2003. He is a member of the Board of Overseers of the University of Pennsylvania's Wharton School; Cornell University Board of Trustees; Singapore Management University Board of Trustees; INSEAD's Board of Directors and the Asian Institute of Management's Board of Governors. He is also a member of the Advisory Boards and Councils of the William F. Achtmeyer Center for Global Leadership at the Tuck School of Business, the Corporate Governance initiative at the Harvard Business School, and the Yale University President's Council on International Activities.

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Stewardship Ethics – A Model for Reform in Corporate America

“Profit with Honor – The New Stage of Market Capitalism”book by Daniel Yankelovich, chairman of Viewpoint Learning, of Public Agenda

and of DVG. Inc. Yale University Press.

Review by Mckenzie Lock, EthicsWorld Editor

In his new book, “Profit with Honor: The New Stage of Market Capitalism,” Daniel Yankelovich, chairman of Viewpoint Learning of Public Agenda, seeks to explain and provide solutions to the current crises of corporate scandals and mistrust in American business. He examines the social and historical context in which these scandals are taking place and which influenced them. Drawing from history, corporate case studies, and his research experience in the fields of public opinion and social values, Yankelovich argues that American society has abandoned its traditional belief in “enlightened self interest” of “doing well by doing good” and has instead adopted a narrow, legalistic view of right and wrong (“If I didn’t break the law, I didn’t do anything wrong”).

According to Yankelovich laws and regulations can only go so far in curbing abuse. He suggests that the performance pressures on business people, combined with the powerful effect of group-think within institutions, ensures that corporate America continues to find ways to avoid and to manipulate even the most draconian of regulations. He offers a normative solution to the current crisis: a model of stewardship ethics, which needs to work in tandem with regulations, and which he believes can benefit and strengthen not only communities and corporate stakeholders, but also the corporations and individuals working in them. Innovative business leaders can advance market capitalism to its next stage of evolution by encouraging business norms that concurrently stress the legitimacy of profit making as well as, and as much as, the importance of the guardianship roles that companies give to employees, customers, and the larger society.

Yankelovich begins by describing how a set of normative and economic trends, namely deregulation, the linking of executive compensation to stock performance, and the introduction of “win for myself” values, have led to the string of corporate scandals that started in 2000 with Enron’s bankruptcy. These trends created the conditions for what he terms a “perfect storm,” the results of which are illustrated by stories of corporate scandal in the media and by mounting mistrust in and cynicism of business.

According to Yankelovich, the current period of mistrust is not unique. He points out that there have been several episodes of low confidence in American business. Following each episode, he writes, the business community worked hard to regain public trust only to betray it once more. Each time this happens, Yankelovich argues, it becomes harder and harder for corporate American to regain the legitimacy it once enjoyed, a phenomenon he refers to as the “screwed again affect.” As a result, we are now in the

midst of a record high of cynicism towards the social value and ethical potential of the capitalist system.

What led to this high? Yankelovich attributes the current corporate moral crisis to “seven deadly norms” currently functioning within American corporate culture, many of which are out-growths of larger societal values, such as individualism and laissez-faire doctrine.

These are:

1. The equating of wrongdoing exclusively with illegality.2. The emphasis on winning at any cost.3. The belief within the business world that “gaming” the system is a good sport. 4. The belief that conflict-of-interest is for wimps. 5. The treatment of CEOs as royalty, as illustrated in the excessive CEO compensation packages that we see today.6. The twisting of the concept of shareholder value 7. The belief that free market economies require de-regulation. He writes that this has had its greatest effect on traditional gatekeepers, such as auditors and lawyers, by encouraging them to abandon their emphasis on auditing for more profitable consulting roles, resulting in myriad opportunities for conflict-of-interest.

In order to weaken the stronghold that these norms exert on corporate thinking and practice, Yankelovich argues that business leaders, namely top management and Board Directors, whom he believes have the greatest ability to drive the impetus for change, must aggressively pursue stewardship ethics in every decision they make, all-the-while ensuring that their employees do the same.

In promoting stewardship ethics as a new model for business ethics, Yankelovich is keen to emphasize its differences from the Corporate Social Responsibility (CSR) movement: 

First, he writes that, while CSR arises mainly from NGO’s, who place a higher priority on social good than on profits, which they view with ambivalence, stewardship ethics arises from within business and considers profits both essential and ethically sound as well a necessary precondition for business operations.

Second, while CSR often adds an ethical burden to business goals, stewardship ethics reconciles profitability with caring for specific stakeholders.

Third, while CSR assumes all good deeds are inherently and equally desirable, stewardship ethics presupposes that good deeds must also advance the company’s core mission.

Fourth, while CSR is often adopted as an “add-on” by many companies - an easy-to-meet charitable gesture - stewardship ethics requires genuine transformation within companies.

 

According to Yankelovich, stewardship ethics reflect the widely-accepted idea that more is expected of those of those with substantial resources and economic power: in every business decision, companies and the individuals that manage them must view themselves as “guardians” - protecting and balancing a diverse array of interests for the  long-term. Central to stewardship ethics are the concepts of selectivity and caring – that is, choosing specific stakeholders to care for in business decisions and aligning the companies interests with theirs while at the same time taking into consideration changing societal and industry-specific conditions.

Equally important in Yankelovich’s vision is the idea of “enlightened” self-interest, which resists the short-term, stock market driven incentives that have led many business into scandal, and instead opts for long-term success. To accomplish this he makes several suggestions, including extending the holding period before a CEO can sell his or her stock or linking executive compensation to variables such as return on equity, cost control, and revenue and profit growth, that reflect the company’s actual performance, rather than its stock price.

Long-term self-interest, Yankelovich writes, relates to trust, most importantly from employees and consumers, which, when earned, translates into enormous long-term profitability. Particularly in a democracy, where so many interactions hinge on good status, trust, and more broadly reputation, can constitute a company’s most valuable asset. 

At the end of “Profit with Honor” Yankelovich offers solutions for several vital tactical issues involved in implementing stewardship ethics, such as dealing with the issue of disappointing Wall Street expectations; balancing the interests of other stakeholders with those of shareholders; staving off “win-at-all costs” norms; and, reconciling profitability with stewardship ethics. 

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Moral Person + Moral Manager = A Reputation for Ethical Leadership

By Linda Klebe Trevino, Laura Pincus Hartman, Michael Brown

This is the title of landmark research undertaken several years ago. As the Enron trial is taking place, as corporate ethics are more in the headlines than ever, and as the new National Business Ethics Survey by the Ethics Resource Center highlights the crucial role of corporate culture on perceptions of workplace ethics, EthicsWorld believes that these findings are of particular importance and relevance in today’s corporate environment.

This research by three U.S. scholars was based upon the findings of a study by and supported by the Ethics Resource Center Fellows Program and appeared in the California Management Review  42.4 (2000): 128-142 Copyright University of California, Walter A. Haas School of Business Summer 2000.

The following is the summary and a few selected excerpts from the full article:

Plato asked, which extreme would you rather be: "an unethical person with a good reputation or an ethical person with a reputation for injustice?" Plato might have added, "or would you rather be perceived as ethically neutral-someone who has no ethical reputation at all?" Plato knew that reputation was important. We now understand that reputation and others' perceptions of you are key to executive ethical leadership. Those others include employees at all levels as well as key external stakeholders.

A reputation for ethical leadership rests upon two essential pillars: perceptions of you as both a moral person and a moral manager.The executive as a moral person is characterized in terms of individual traits such as honesty and integrity. As moral manager, the CEO is thought of as the Chief Ethics Officer of the organization, creating a strong ethics message that gets employees' attention and influences their thoughts and behaviors. Both are necessary. To be perceived as an ethical leader, it is not enough to just be an ethical person. An executive ethical leader must also find ways to focus the organization's attention on ethics and values and to infuse the organization with principles that will guide the actions of all employees.

An executive's reputation for ethical leadership may be more important now than ever in this new organizational era where more employees are working independently, off site, and without direct supervision. In these organizations, values are the glue that can hold things together, and values must be conveyed from the top of the organization.Also, a single employee who operates outside of the organizational value system can cost the organization dearly in legal fees and can have a tremendous, sometimes irreversible impact on the organization's image and culture.

We found that just because executives know themselves as good people-honest, caring, and fair they should not assume that others see them in the same way. It is so easy to forget that employees do not know you the way you know yourself. If employees do not think of an executive as a clearly ethical or unethical leader, they are likely to think of the leader as being somewhere in between-amoral or ethically neutral.

Ethical Leader    Being an ethical person is the substantive basis of ethical leadership. However, in order to develop a reputation for ethical leadership, the leader's challenge is conveying that substance to others. Being viewed as an ethical person means that people think of you as having certain traits, engaging in certain kinds of behaviors, and making decisions based upon ethical principles. Traits are stable personal characteristics, meaning that individuals behave in fairly predictable ways across time and situations and observers come to

describe the individual in those terms. The traits that executives most often associate with ethical leadership are honesty trustworthiness, and integrity. A very broad personal characteristic, integrity was the trait cited most frequently by the executives. Integrity is a holistic attribute that encompasses the other traits of honesty and trustworthiness. Trustworthiness is also important to executives as are honesty, sincerity, and forthrightness.

Moral ManagerIn order to develop a reputation for ethical leadership, a heavy focus on the leadership part of that term is required. The executive's challenge is to make ethics and values stand out from a business landscape that is laden with messages about beating the competition and achieving quarterly goals and profits. Moral managers recognize the importance of proactively putting ethics at the forefront of their leadership agenda.

What Does Ethical Leadership Accomplish?The executives we talked with said that ethical leadership was good for business, particularly in the long term, and avoids legal problems. "It probably determines the amount of money you're spending in lawsuits and with corporate attorneys . . . you save a lot of money in regulatory fees and lawyer fees and settlement fees." They also said that ethical leadership contributes to employee commitment, satisfaction, comfort, and even fun. "People enjoy working for an ethical organization" and it helps the organization attract and retain the best employees. "If the leadership of the company reflects [ethical] values. . . people will want to work for that company and will want to do well." Finally, employees in an organization led by an executive ethical leader will imitate the behavior of their leader and therefore the employees will be more ethical themselves.

ConclusionBeing an ethical leader requires developing a reputation for ethical leadership. Developing a reputation for ethical leadership depends upon how others perceive the leader on two dimensions: as a moral person and as a moral manager. Being a moral person encompasses who you are, what you do, and what you decide as well as making sure that others know about this dimension of you as a person. Being a moral manager involves being a role model for ethical conduct, communicating regularly about ethics and values, and using the reward system to hold everyone accountable to the values and standards. Ethical leadership pays dividends in employee pride, commitment, and loyalty-all particularly important in a full employment economy in which good companies strive to find and keep the best people.

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When Is The Top Executive’s Personal Integrity a Board Issue?RadioShack's CEO's Personal Ethics Raise Questions

(The following report was written on February 16, 2006 excerpted from the Star Telegraph - RadioShack announced on Feburary 20, 2006 that its CEO had resigned.)

The Fort Worth Star-Telegram newspaper in Texas has been investigating the credential of David Edmondson, Chief Executive Officer of the Radioshak Corporation and found that he not only faced drunken-driving charges, but that he claimed academic credentials that he never had. On February 16, 2006 the Star-Telegram reported that Edmondson admitted to the allegations and that the Board of Directors has launched an investigation using outside counsel.

U.S. Boards of Directors have increasingly felt bound to investigate personal ethics issues of top managers when these have become the subject of high-profile rumor. A former CEO of Boeing was asked to resign when rumors spread of an alleged affair with an employee. The new RadioShack case falls into the same category in an era when there is mounting pressure on Boards to ensure that the corporate code of conduct applies to the CEO and that he can serve as an outstanding ethical role model for the company. Research shows that the “tone at the top” has a major influence on a corporation’s culture.

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The Star-Telegram had previously uncovered inaccuracies in the executive's résumé, which said he held a Bachelor of Science degree, and in his corporate biography, which said he earned degrees in theology and psychology. The college Edmondson attended has no record of his graduation and never offered psychology degrees.

"The contents of my resume and the company's website were clearly incorrect," Edmondson said in his statement. "It is my belief that I received a THG diploma, not a BS degree as I asserted. I clearly misstated my academic record, and the responsibility for these misstatements is mine alone. I understand that I cannot now document the ThG diploma." A Th.G. degree is awarded for completing a three-year program in theology.

"I apologize to the board and the employees for the confusion I have created by carrying erroneous information on my resume and mishandling my explanation of it," Edmondson's statement continued. "I will provide all information to the board in order to clarify these issues. In a separate statement, RadioShack's board said it will retain counsel "to advise the board on the facts and on RadioShack's employment policies."

The statements were released on the eve of a two-day meeting with Wall Street analysts and investors in Fort Worth. RadioShack plans to release its 2005 financial results Friday, and Edmondson and other top executives are scheduled to address the investor conference that day.

Edmondson told the Star-Telegram last week that he spent the 1977-78 academic year as an on-campus student at Pacific Coast Baptist Bible College and finished a Th.G. program in theology by correspondence while working at a church in Colorado. He said his pastor at the church advised him in his studies and was his liaison to the school during the two years he took correspondence courses. The small college, which moved to Oklahoma City in 1998 and was renamed Heartland Baptist Bible College, had no record

of Edmondson being enrolled beyond the fall semester of 1977 and spring semester of 1978 and had no record of him taking correspondence courses.

Edmondson's former pastor, Ron Hoover, who is now retired and living in Missouri, said Tuesday that he did not recall Edmondson working to finish his degree at Pacific Coast Baptist when the two men worked together at Security Baptist Temple in Colorado.

Edmondson told the Star-Telegram last week that his diploma was destroyed in a 2004 garage fire at his home, and he suggested that the school was missing part of his student file. The 46-year-old executive also said he was unaware that his biography, which was posted on the company's Web site and distributed to the news media, said he had a psychology degree. Edmondson said he only minored in the subject. The résumé that Edmondson submitted to RadioShack when he joined the Fort Worth-based electronics chain in 1994 lists his academic credentials as "BS, Pacific Coast Baptist College, San Dimas, CA, Theology-Psychology 1980." A profile attached to the résumé notes that Edmondson "majored in Theology with a minor in Psychology."

The Star-Telegram began looking into Edmondson's credentials after learning that the executive, who started two churches before making the transition to a full-time business career, is scheduled to go to court in April to fight his third drunken-driving charge. Edmondson was arrested in Southlake in January 2005 on suspicion of driving while intoxicated. The last time Edmondson faced a DWI charge, for a July 2000 arrest in Fort Worth, the offense was reduced to obstruction of a highway and Edmondson received deferred adjudication probation. Edmondson also faced a DWI charge in Dallas County in 1988, before he was employed by RadioShack. He was acquitted in 1990.

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 A Model Ethical Business Leader

Aaron Feuerstein Receives Leadership in Ethics Award From ERC Fellows

On January 26, 2006 the Fellows of the Ethics Resource Center awarded the 2005 Stanley C. Pace Leadership in Ethics Award at a dinner in Washington DC.  Mr. Feuerstein, the former owner and CEO of the Malden Mills company in Lawrence, Massachusetts, lamented that “doing the right thing” is not as natural and as immediate a reaction to ethical problems in business as it should be. He asserted that “outsourcing and offshoring” are trends that go against the grain of “doing the right thing” when it comes to honoring the dignity of corporate employees.

Mr. Feuerstein said that the governing principle that employers should have relative to their employees is the biblical notion “to love thy neighbor as thyself.” He said this should be the basis of corporate social responsibility. He said that he always sought to be guided by the core mission statement of his company, which mandated that Malden Mills

should be a “caring and ethical corporation that benefits all of its stakeholders – its employees, its community, and its shareholders.”

Mr. Feuerstein, 86, has been awarded a host of honorary degrees and many honors for his ethical leadership in business. At the award ceremony the Fellows of the ERC replayed an interview that Mr. Feuerstein gave to the US prime time television program “60 Minutes” on the CBS network 14 years ago, which underscored the extraordinary lengths to which Mr. Feuerstein went to assist his company’s employees when the major Malden Mills plant was destroyed in a fire. Interviewer Morley Safer asked Mr. Feuterstein why he did not just take the $300 million in insurance money, rather than spending a vast sum to keep paying the wages of employees and while rebuilding the plant. He simply replied, “well it was the right thing to do.”

The ERC Fellows are corporate chief ethics officers and distinguished business ethics professors. Carol Marshall, Chair of the Fellows Program said, "Mr. Feuerstein is being recognized for his extraordinary efforts to support his firm's employees. His commitment to his employees and to the community of Lawrence is a rare and outstanding example of ethical leadership."

It was recalled that immediately after the massive fire the company’s employees all came together and Mr. Feuerstein first assured them that they all would be paid full wages for at least 30 days. He continued to pay the workers. In some respects, as one listened to him and saw the old CBS television segment, it became clear that the bond that the owner of Malden Mills had forged over a lifetime with his employees went far beyond a focus on the maximization of profit for shareholders. He built a deep sense of trust and of “family” which held the company in good shape in difficult times.

Mr. Feuerstein was nominated for the Stanley Pace award by ERC Fellow Professor Paul Fiorelli, Director of the Williams College of Business Center of Business Ethics and Social Responsibility, who noted, “Aaron Feuerstein embodies the best of corporate leaders who are willing to risk their own finances for the benefit of other stakeholders. He and his wife Louise continue to demonstrate outstanding support for ethics leadership.”

The Pace Award was established in 1999 in honor of Stanley C. Pace, former chairman and chief executive officer for General Dynamic Corporation. Previous winners of the Stanley C. Pace Award include the Founders of Transparency International, Sir Mark Moody Stuart, former CEO of the Royal Dutch/Shell Group of Companies, Ira A. Lipman, Chairman of the Board and President, Guardsmark, LLC, John E. Pepper, Retired Chairman and CEO, The Procter & Gamble Company, and Norman R. Augustine, Retired Chairman and CEO, Lockheed Martin Corporation.

Nominations: The ERC Fellows will be accepting nominations for the 2006 Stanley C. Pace Ethics and Leadership Award this spring, with an official call for nominations in May 2006. Visit http://www.ethics.org/fellows/index.html for more information.

 

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When the company is in trouble, what are the critical actions the new CEO must take to clean up the ethics mess?

Computer Associates Business Week November 21, 2005

The BW article highlights actions taken by CEO John Swainson in the course of the last 12 months as he took the helm of ailing Computer Associates International Inc. and rapidly moved ahead with radical changes. The BW article noted: "Swainson's journey at Computer Associates is a case study of how one chief executive is struggling to pull off a disaster-recovery project. No turnaround is easy, but patching up an outfit that has been beset by scandal is one of the most challenging situations an exec will face. While few will ever have to deal with such an extreme case, the hurdles Swainson faces at the $3.5 billion company can provide leadership lessons for any manager.

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Why Ethical Leaders Are Different

By Ronald E. Berenbeim

Principal Researcher and Director of The Conference Board’s Working Group on Global Business Ethics Principles. Mr. Berenbeim has written 33 Conference Board studies and played leading roles in many institutional initiatives on global ethics.

He writes: “An ethical leader understands that open and contentious debate is essential to making the best possible decisions. Good leaders don’t just subject themselves to the need to test their ideas—they welcome the opportunity and have a zest for intellectual combat.”

In a May 2005 report, the author pointed out that many reforms have been seen in recent times, but their value is questionable if “a company does not have ethical leaders who are insistent on establishing within their companies an environment of trust, accountability, and transparency.”

Excerpts from Mr. Berenbeim’s Essay:

Ethical Leaders Don’t Hide From Debate. As an example of ethical leadership of the highest order, consider the case of Jawaharlal Nehru. In 1937, Nehru had just been elected to a second consecutive term as President of the Indian National Parliament…Nehru understood that a leader is most ethical—and effective—when his or her power is limited both by institutional arrangements and the criticism that results from harsh public scrutiny. If the Congress Party and the Indian press lacked these resources, he believed that it was necessary for him to supply the discipline that these countervailing forces ordinarily would have imposed.

An ethical leader understands that open and contentious debate is essential to making the best possible decisions. And openly debated decisions result in better outcomes. Some years ago, a research study focused on the behavior of members of investment clubs, small and somewhat informal gatherings of private individual investors, in the United States. The researchers found that those groups in which the members enjoyed one another’s company, reached consensus quickly, and were unfailingly polite and civil, had a significantly poorer performance record than the clubs whose investment choices were the result of contentious debate.

Although encouraging debate is essential, ethical leadership must balance the need for robust discussion with the requirement of commitment to a common purpose. Where such a consensus is lacking there is a danger of polarization which will cause people to avoid the risk of winding up on the wrong side and in so doing limit their comments to information that everyone already has.

Ethical Leaders Are Active Participants. The second point to be derived from the Nehru incident is that leaders need to be active participants in the debate over alternatives. In some circles, it has become a fashionable corporate model for the CEO to say to the senior executives, “You people thrash it out, reach a consensus, and send me your recommendation.” Such a decision-making process has serious flaws. The most robust internal processes are of no avail if the leader is exempt from them. Good leaders don’t just subject themselves to the need to test their ideas—they welcome the opportunity and have a zest for intellectual combat. They realize that there is more to leadership than giving orders. Ethical leaders understand that their views and decisions are in large measure determined by their contact with the people they lead.

Institutional Sustainability Comes First. The third key principle of ethical leadership well understood by Nehru entails an understanding of limits— not those that are imposed by institutional arrangements, the need for public approval, or even self-discipline—but rather the limits of human mortality. The final task of ethical leadership is to put in place the requirements for institutional sustainability that survives the loss of any one person. Perhaps the best test of leadership is the state of the enterprise 20 years after the leader has left. Are decisions made in an orderly way? Is the leadership accountable? Is the transfer of power completed without serious disruption? Has the founding vision survived but also been able to accommodate itself to changing economic, social, and political realities?

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Winners Never Cheat: Everyday Values We Learned As Children (But May Have Forgotten)

By Jon M. HuntsmanWharton School Publishing

In 1970, Jon M. Huntsman started a small entrepreneurial firm with his brother. By 2000, Huntsman Corp. had grown to become the largest privately held petrochemical and plastics business in the world. In his new book, Huntsman offers a "moral compass" for business leaders and others to live by that is based on his own experiences.

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