An Inside Look at Business Ethics

Articles for Distribution Management

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The ethics of conducting business in your organization is a two-way street. We would do well to apply here a lesson we learned in our early years: Look both ways before crossing.

In this first of a two-part series, let’s consider this topic a little differently from the typical focus; that is, from an internal perspective. How do business ethics apply between employer/manager and employee/associates? This is indeed a two-way street with plenty of detours, dead ends and stop signs.

Use the term business ethics these days and companies caught with their hands in the cookie jar come to mind almost immediately. Transgressions by Enron, WorldCom and many more high-profile corporations have spawned cries for greater regulation and stiffer penalties for those who fudge on inflated bottom line projections in hopes of higher stock values and smiles from Wall Street.

Let’s consider this topic a little differently, from an internal perspective. In other words, how do the concept and practice of business ethics apply between employer/manager and employee/associates?

There is a climate of ethics that exists in each and every organization. This can be so palpable in some as to be obvious even to the most casual observer. It doesn’t necessarily coincide, however, with the statement of ethics or integrity that often appears in a mission, vision or statement of corporate values.

This climate, at its most negative, comes across as a sort of game to see who can get the most first. Look at it as a distorted version of the Golden Rule: Do unto others before they do unto you. A downward spiral of unethical practices from both parties, this situation occurs where employer/manager and employee/associate pit themselves one against the other, creating an internal competition for advantage. This directs energy primarily inside the organization, robbing precious resources from attention to external customers, forces and opportunities.

A wholesaler has a third party “shop” its sales counter operation, checking to ensure that everything is happening according to procedure, i.e., by the book. The third party discovers that one of the wholesaler’s longstanding people is readily and regularly stealing from the company by “selling” inventory to cash customers, bypassing the computerized inventory system and pocketing the money. Knowing well the cause of confusion, he is silent when others question why physical inventory product counts (the shelf) never seem to match computer reports (the book).

The individual, with the company for more than 20 years, has a partner in the criminal operation. Both are terminated and prosecuted to the full extent of the law. No one can tell for certain how many years of theft or dollars are lost to this underhanded practice.

The power of tradition strengthens and perpetuates such schemes. “It’s been going on so long here that no one will even notice or realize what you’re doing,” the veteran associate whispers to the most recent hire. Make the company’s storeroom your own supply closet. Take what you need, as long as it’s within certain limits and no one will ever know. Associates closest to the company’s day-to-day processes learn early and often where the company runs primarily on trust and employs few if any systems to help ensure ethical practices.

The prospect of eliminating a climate of ethics based on tradition is comparable to removing the smell of stale smoke from a cocktail lounge. It can be done, though not easily or quickly.

The hiring manager is desperate to fill a critical customer service position. Losing his top performer due to a spouse’s relocation, he quickly pulls out the resume file and gets a help wanted ad in the newspaper. In less than a week he interviews several candidates, chooses his favorite and makes an offer.

Hoping for a higher base; the hiring manager’s top choice is confident in her ability and certain that the promised 90-day performance and compensation review will put her at or above her desired level of income. She accepts the offer based on a verbal commitment and goes about her work in exemplary fashion. Meanwhile, onlookers make side bets on how long her enthusiasm will last.

Little does she know that no one in the organization has ever had a performance appraisal, let alone a 90-day compensation review. Still new to the organization, she sees the 90-day mark come and go with no word from the hiring manager. She sees how busy things are and chalks it up to simple oversight. Another month, then another goes by and she begins to question whether there was ever any true intent to follow through on this commitment. If she were to ask another associate, she would find similar promises also lacking follow through.

With financial strings attached to the hiring manager’s promise, the organization plays host to a subtle and damaging practice. While follow through in many organizations comes from commitments made with the best of intentions, the singular intent behind this promise was to fill the vacancy and move on to other issues.

The hiring manager will rarely if ever be held accountable for this one. The new associate either stays and serves with a level of resentment bubbling just below the surface or leaves without an exit interview, preventing human resources from discovering that a single promise made and not kept caused additional turnover and added unnecessary cost and credibility issues in the organization.

An owner discovers that his assistant in charge of handling cash and making the bank trips has been pocketing portions of deposits and falsifying deposit slips for more than a year. A single mother, this person sees her financial needs as much higher than that of her compensation.

Despite documented procedures in virtually every other area of the business, no safeguards are in place to prevent the theft. This ethics transgression goes indefinitely until detected, untouched by milestones including end of year financials and more. The offender is quite careful by taking small sums at first, and increasing them over time.

Total damage is estimable only by guessing as everyone else focuses on his or her job and remains clueless about the ongoing violation. In this case, one person assigned to handle all aspects of the deposits removes any need for an accomplice, so she works alone. Termination, prosecution, a new cash handling process and a change of accounting firms address the issue and prevent a repeat performance.

The rationalization many use as their basis for stealing from their places of employment ties into a deeply held belief that they are worth more than they are paid. The line of thinking goes something like this: “Look at all the money coming through here. I work hard for this company and it’s raking in tons of money. They’re making a killing. I can ask for a raise, but either it won’t happen or the raise will be so small that it’s just not worth it. This company owes me at least this much. If I do this carefully, they’ll never miss it.”

The manifestations of those acting on such beliefs range from stolen property to stolen time. Concerning the latter, organizations measuring productivity as a key indicator of their success and progress often overlook the true root cause and try to find efficiencies in other areas.

Associates certainly don’t volunteer the fact that they take frequent or elongated breaks as self-determined compensation bonuses, so the symptoms and the sickness tend to continue unchecked.

Two wrongs don’t make a right, as they say. In the case where two sides vie for who can get away with the most while incurring the least notice and punishment, there are more than two wrongs at work. In a sense, these organizations are driving on the wrong side of the street.

First, leadership is primarily responsible for the practices of the organization, both internally and with external organizations and customers. Where theft and other unethical practices flourish, leaders have either missed the subtle or not-so-subtle traffic signals of wrongdoing or they resign themselves to living with a certain level of otherwise unacceptable behaviors and systems. The wrong, then, is the failure to address the condition directly and emphatically.

Second, misperception plays into many of these instances. Managers may feel they can say and do whatever it takes, short of stealing from the company, to get their jobs done. A small promise to the newly hired associate certainly doesn’t make much difference in the big picture. Associates sense, often incorrectly, that the company is getting rich on high profits, partly by paying its people less than they deserve.

Without input and information to the contrary, these beliefs flourish and practices consistent with them abound. The wrong at work here is the lack of education to create clear understanding about ethical practices and their importance as a foundational pillar of any organization.

Just what are the rules of the road where internal business ethics are concerned? How do leaders and managers ensure that proper standards are met? How does the individual associate feel good about handling things ethically and properly? Some tips:

Clearly communicate expectations and consequences – Every manager and associate should know without a doubt that certain behaviors are unacceptable within the organization. A values statement such as, “We keep our promises – period” can be helpful. Illustrated, situational examples of what’s right and what’s wrong make the point even more clearly. Periodic reminders of the organization’s promise to prosecute offenders without exception can remove the temptation before the illegal behavior takes place. This is more than a printed statement displayed on the wall. Repetition will serve you well.

Lead by example – Know that your walk is much louder and clearer than your talk. Be above reproach in all matters where people, policy and resources are concerned. When suspected violations surface, stick to your own code of ethics by doing what you promised (or threatened) to do. That includes imposing consequences regardless of a person’s position. There is comfort in the certainty that comes from a promise kept, one that reinforces the honest practices of 95 percent or more of the people within the organization.

Investigate promptly and resolve quickly – When you find suspicion of wrongdoing, give immediate, undivided attention and action to stop it and prevent the perpetrator from further acts.

For the time that you focus on this, nothing is more important to the company’s well being, despite orders begging to be filled and service that must continue. Never allow such issues to become inquiries long after the fact, i.e., cold cases.

Teach business literacy to prevent misconceptions – Most owners are dismayed at the level of financial understanding of the business not only by their associates but also by their managers. If you believe your organization is immune to this condition, make up a true-false quiz of 10 basic financial statements about your business. (You can also get a sample quiz free of charge for the asking by contacting us at jcarroll@uperform.com.) Give the quiz to your managers and check the scores. Once you recover from the shock and understand the typically low level at which your managers understand company finances, it will become abundantly clear how little your associates really know about the true numbers required to operate the company and how many pennies of net profit are typically left from each dollar of sales revenue.

Participate in and share comparative compensation studies – Check with your trade association nationally and/or business school or a similar organization locally and participate in compensation surveys to see where you fit with pay levels for roles in your organization. By reading these yourself, you’ll stay abreast of market trends and know where you need to be to keep your pay rates at or above the median. By sharing these, you help people understand the going rate for their skill sets such that they can focus on improving their value to generate greater levels of compensation.

Navigating the streets of solid business ethics for your organization must include sound practices throughout. Make sure that you consider all facets of internal practices and look at them regularly so that no dark corner becomes the breeding ground of larger and eventually insurmountable problems.

John Carroll is an entrepreneur, consultant, author and president of Unlimited Performance, Inc. in Mount Pleasant. The Society for the Advancement of Consulting recently granted him Board Approval for consulting to emerging growth companies, making him one of only 14 professionals worldwide with that distinction. You can reach him at jcarroll@uperform.com or call 1-877-755-8844.