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TOP STORY
 Business
Ethics
The CEO: Building an Ethical Culture
- Moral Leadership
- An Ethical Environment
- Who's Accountable?
- Additional Resources
Moral Leadership
According to TEC
speaker
Harvin Moore, the
overriding challenge for TEC members is fully understanding how, as CEOs
and key business leaders, you are the symbol of your organization.
"Providing
leadership by identifying moral issues is where all chief executives
live on a daily basis," Moore says. "The challenge is to put ethical
dilemmas in their proper context, characterize the issues correctly and
move forward from that point."
The first step is
examining all areas of potential ethical conflict, including:
- Government laws and regulations
- Use of corporate assets
- Political contributions
- Gifts and favors
- Trade secrets and propriety information
- Quality/service
-
Prices/bidding
-
Conflicts of interest
- Employee relations
A close scrutiny of one's personal conduct must not be overlooked. "One
common example of bad conduct is running personal expenses through the
company that aren't legitimate corporate expenses," Moore says.
"Sometimes the actions aren't illegal -- just sleazy. But if you buy
your spouse a Mercedes-Benz and charge it to the company when she's not
an employee -- that's outright tax fraud."
Even if your
actions aren't unlawful, he adds, they send a terrible message.
"Your behavior is
disproportionately symbolic to employees. If there's a disconnect
between what you say and what you do, employees will see it -- and, most
likely, emulate the wrong behavior."
Fellow TEC speaker
Peter Schutz concurs.
"Whether it's simply through ethical behavior or by instituting a
full-blown ethics program, the company's leader must stand behind his or
her actions fully. If a mistake is made, admit it. Anything less runs
the risk of breeding cynical attitudes among the staff that are very
difficult to dislodge."
A working paper
entitled, "Moral Person and Moral Manager: Developing a Reputation for
Ethical Leadership," and co-authored by Linda Trevino, Laura Hartman and
Michael Brown, categorizes different types of leaders:
- Ethical leaders --
These executives are committed to acting in an ethical and transparent
manner; not only are they morally responsible for their actions, they
are perceived that way throughout the organization. They also
strive to foster a culture that emulates their own dedication to ethical
behavior.
- Unethical leaders -- Individuals who feel that ethics is not relevant to the workplace.
They make pragmatic decisions without concern for the moral implications
of these decisions. These people aren't necessarily making unethical
choices; ethics just doesn't enter into the equation.
- Ethically neutral leaders --
These individuals may be committed to ethical behavior, but
no one knows it. They are perceived as lacking interest in the ethical
nature of their actions, not because they've done anything wrong, but
because -- to others who work for and with them -- their decision-making
process is not easily interpreted or understood.
- Hypocritical leaders --
These people choose to act without any ethical structure.
Which leader are
you?
Unfortunately, many
executives remain unaware of the moral consequences of their decisions.
"The foundation of leadership is moral behavior -- how we relate to and
interact with others," Moore says. "It doesn't have to be anything as
extreme as insider trading or sexual harassment, though of course these
are unacceptable behaviors. Do you fully understand the motives behind
why you do what you do? Or the impact of your decisions on other people?
If you see that something's wrong, do you have the will to change your
behavior?"
Moral leadership
is:
-
A framework of principles.
A personal code of conduct should be so integral to your
viewpoint that unethical behavior never becomes an option.
-
"Selling" ethics to others.
You are the leader.
Lead by example. Your decisions and actions send a clear message of what
is tolerated and what isn't.
- Respecting yourself and others.
Although people may define "respect" in different
ways, everyone knows when they're being "disrespected." Moral leadership
supports actions that avoid any harm or discourtesy to others.
Says Schutz:
"There's no way around it. You have to be conscious of what's right and
wrong in all areas of decision-making. Set an example for others. Assert
your own viewpoint on integrity and honesty. As your reputation grows,
so will the respect and dedication others show you within the
organization."
An
Ethical Environment
In a small business
where the founder/owner's presence is felt by everyone, it may not be
necessary to document his or her values. However, says Schutz, as the
company grows, those values are in danger of getting lost.
"Especially in
large organizations, the leader must establish a culture that says 'We
will never knowingly mislead our customers. We will never not keep our
commitments to customers and suppliers.' Customers must always know who
they're doing business with."
Adds Moore: "To
foster an ethical environment, first you have to create one. If
something serious happens in your company, you want people to feel safe
in coming to you and talking it over."
At the same time,
by virtue of your position as CEO or senior executive, you're often the
last person to hear about such things (even when you should be first).
To encourage openness, Moore advocates a strict "no retribution" policy
for people wishing to express their concerns.
"You may not like
what they have to tell you, but if you want people to come forward, you
have to be able to listen without dumping on them. Encourage people to
participate. Make sure to protect the whistle-blowers."
Other actions
toward building an ethical workplace:
-
Address issues.
If you know a specific issue is generating confusion or lowering
morale, either address it yourself or appoint someone known by others to
be honest and trustworthy, and charge them with investigating the
problem. As part of the process of resolution, examine the types of
behavior that may have caused the problem in the first place.
-
State your mission.
Does everyone in your company know where you stand on
ethical matters, or do you just assume they do? Perhaps employees see
you as committed, first and foremost, to company profits -- when in fact
you see those profits as a means to an end, i.e., further growth and
expansion. In such circumstances, you may be perceived as being
indifferent to ethical considerations, and others may tailor their own
behavior to match what they see as your own priorities.
"Misunderstandings
like these can be avoided when you speak clearly and forthrightly about
the importance of your mission, both personal and for the company at
large," Moore notes. "A well-crafted mission statement generates
commitment to a specific goal and defines the organization in a way that
makes people proud to be a part of it -- and dedicated to emulating the
ethical behavior they see at the top."
Who's Accountable?
Ethical misconduct
flourishes in an atmosphere of secrecy and misinformation. For this
obvious reason, say the TEC experts, the goal should always be to create
transparency and accountability in decision-making.
"This applies to
the people at top and throughout the organization," Schutz says. "When
lines of decision-making are clearly outlined and everyone knows who has
ultimate responsibility, it's much harder for employees to fall prey to
bad behavior or to blame others when something goes wrong. Each
individual should be held accountable for their actions, regardless of
rank or seniority."
In an ethical
environment, Moore adds, "employees understand that ethical behavior is
more important than profit or cost-cutting. They see through example
after example that moral actions are rewarded and immoral actions are
punished. They understand that leadership holds itself to the highest
standards and that no one, however 'vital' to the company, can be
protected from the consequences of unethical behavior."
Created for MyTEC. Copyright 2002, TEC
Worldwide, Inc.
All rights reserved
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LESSONS
LEARNED
Simple
Audit Question Reveals Year-long Embezzlement
Accountant's Stealing:
Well-Concealed
A routine annual audit turned
up a case of employee embezzlement that took a TEC member by surprise -- and
explained the company's loss of $126,000 over a 12-month period.
It's almost impossible to
believe how easily the employee, an accountant, cheated his employer using
an ATM machine, and how close he came to avoiding detection.
The TEC member shared his
story in the spirit of helping others avoid similar deception, and with the
assurance that his identity would not be revealed.
The Mistake We Made
"We caught this guy in August
2002, and this had been going on for roughly 12 months," says the member.
The culprit was an accountant
who reported to the financial controller.
"The big mistake we made was
having the same person bank checks who also did the bank reconciliation,"
explains the member.
The accountant handled checks
customers mailed in, and selectively stole a check here and there. Although
the stolen checks were made out to the company, the accountant simply
deposited them, through the ATM machine at his bank's branch, into his
personal account.
Most banks have worked on an
"honor system," trusting that checks deposited in personal accounts were
addressed to the individual whose account received them.
Back at the office, the
accountant/thief would take corresponding invoices from the checks and mark
them "paid" in the accounting system. When subsequent checks came in from
the same customers for newer invoices, the accountant would deposit those
checks into the company's bank accounts but leave the invoices as
"unpaid/outstanding."
By keeping the newer invoices
"unpaid," they wouldn't be detected because the company did not pursue
delinquent accounts until 30 to 45 days past due.
"He was gradually creating a
larger and larger pool of unpaid invoices. After a time, our accounts
receivable were starting to look bigger than they should have. Eventually,
he would have been detected. But looking back over his resume, we saw that
he had been in jobs only 12 months at a time. In fact, we found out he was
actively applying for new jobs when he got caught," the member explained.
To Catch a Thief
This member's company, which
he founded in 1996, conducts an annual audit.
"Our auditors picked one
invoice at random and said, 'Show me the paper trail for this invoice, up to
the point where there's money in the bank,'" the TEC member recalls, awed at
the serendipity of the choice.
"We were able to show every
step except for the fact that the money wasn't in the bank. That could have
been just one mistake, but then we found that other checks were missing,
too. When we were trying to find out where money had gone, we asked
customers to fax back canceled checks, and there was the account number that
matched this guy's personal account," the member explains.
The accountant stole 35
checks, amounting to $126,000, over a 12-month period. He took his first
check within 30 days of joining the company, which suggests he knew what he
was doing and perhaps had done the same thing at a previous employer.
"The thing that was most
galling about it was that, in the middle of all this, we had a cash crunch
in the company and I had to go lay off a few people because otherwise we
weren't going to be able to meet payroll. In that same month, he had taken
$11,000," says the member.
The TEC member called the
community police department and they sent an officer. The employee was off
work at the time, so the officer went to his house and arrested him.
"He confessed to the police,
but now with the benefit of a lawyer behind him, he's changing his plea in
an attempt to avoid being convicted of a felony, if at all possible," says
the member.
Born in Vietnam, he faces the
possibility of being sent back if he is charged with a felony. The thief was
in his early 30s, married with two small children. He was friendly,
hard-working and he played on the company basketball team.
"He came with glowing
references, including one from a friend of mine. Had you met this guy, you
would have absolutely no idea this was going on," says the TEC member.
Burned by a Bank Loophole
It's possible that no human
eye ever sees the "payee" or "amount" portion of a check deposited into a
personal ATM account -- which shocked the TEC member who has been
investigating how this could happen.
"Apparently the banks have
determined it's less expensive to compensate for problems that arise in this
system than it is to hire people to review checks and ensure that everything
is correct," the member says.
"Obviously we're pursuing
this through legal channels, but it is a real eye-opener to see that banks
have set it up this way," he says.
The member reiterates his
advice about the importance of what accountants call "segregation of
duties."
"That is, a different person
should bank the checks than the one who reconciles the statement. It's a
very simple change people can make, and it could save a lot of money," he
says.
Created for
MyTEC. Copyright 2003, TEC Worldwide, Inc.
All rights reserved.
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