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Essays Sales Ethics

It's a cliché, but when it comes to ethical culture, tone from the top – or how the most senior people in your organisation act – really does count.

Leaders set the example. They determine direction, goals and priorities. They make important decisions and choose who and what to reward. And when things go wrong, they determine the consequences. Getting the role models and authority figures in your company to walk the talk may be the single most important thing you can do to build your culture of integrity.

How not to lead

Figures show there’s work to do to get corporate leaders to live by the high ethical standards expected of them. As people rise up the hierarchy the stakes get bigger, and so do the pressures and temptations. Yet if the very people who are meant to act as role models behave badly, this is bound to trickle down to employees, too.

OECD analysis of foreign bribery enforcement actions reveals that most international bribes are paid by large companies, with senior management knowledge. This pattern is repeated in the US, where ERC’s National Business Ethics Survey 2013 found that over half of misconduct incidents involved supervisory to top management (see Figure 2). Senior managers were responsible for a quarter of observed misdeeds and were more likely than lower-level managers to flout rules.

FIGURE 2. Most misconduct committed by managers

Source: Ethics Resource Center, 2014. National Business Ethics Survey of the US Workforce (NBES 2013), Arlington: ERC.

Actions say it all

Integrity is a fundamental leadership attribute and it’s essential for a strong, ethical culture that good conduct starts at the top. ‘Do as I say, not as I do’ cannot be the basis for a culture of integrity. Ethical leadership includes the following traits:

  • Aligning thoughts, words and deeds.

  • Modelling the behaviour we ask of others.

  • Learning as well as teaching.

  • Considering stakeholder needs, including global society and the planet.

Leaders who demonstrate 24/7 integrity and establish ethical conduct as a priority by putting in place high standards, setting a good example and communicating openly will exert the positive influence on employees that is the oxygen of strong ethical culture. Follow-through is vital. A good example, according to Ethisphere’s Timothy Erblich, is GE. ‘When someone raises their hand they’ll get a call from GE President and CEO Jeff Immelt or someone to say ‘‘Good job, we’re glad you did that!’”

The role of the CEO

As the head of the company, the CEO has an oversize role in shaping the ethical culture: they set the example. The way they act, the messages they send and the objectives they choose are key determinants of company culture. Scania’s Andreas Follér agrees. ‘The CEO is the company embodied’, he stresses, ‘I can’t overemphasise how crucial it is that the CEO is active. That’s more or less their top task – to safeguard and remind the organisation of its culture.’

The boss is a powerful influence when it comes to ethical culture change. Their role includes:

  • Framing the big picture around ethics and leading the senior management team in determining the organisation’s values.

  • Articulating clear demands and expectations for ‘how’ as well as ‘what’ business objectives must be achieved in line with those values.

  • Keeping an open door for dialogue and continually reinforcing ethical culture by being a ‘storyteller’.

  • Creating a positive legacy by empowering others to make right choices for the long term.

It takes around five years to push ethical culture change down through middle management. With the average tenure of a listed company chief executive just five years, their focus should be on leaving a positive legacy by embedding values for the long term and empowering others to carry on the baton.

The role of the board

The board’s primary function in creating and maintaining a culture of integrity is to oversee the long-term interests of the company and its stakeholders and see that value is generated in an ethical way. Its responsibilities include helping to steer corporate values and ensuring that the executive team adequately balances corporate objectives with risk management and values-led behaviour so that long-term value generation is safeguarded for all stakeholders.

A well-functioning board holds the CEO and senior leadership to account by asking the right questions, verifying that adequate checks and balances are in place to manage risk, supporting tough calls and – if necessary – changing the team if they fail to deliver against company values and stakeholder expectations. Betsy Rafael, a director at Autodesk and GoDaddy, calls this a ‘noses in but hands off’ tactic. The board needs to stay alert to red flags like inconsistencies, decisions that clash with values, and make sure that particularly high-stakes situations where values may be compromised ‘pass the sniff test’.

By working closely with the relevant steering group, internal audit, ethics and HR functions, the board can monitor the ethical climate of the organisation and health of the E&C programme. A good way to take the ethical pulse is to invite open-ended discussion about problems and use visits to unofficially ‘kick the tyres’ and ‘get under the hood’ of the E&C programme.

The role of the manager

It’s when values are lived consistently by every person in the company that a culture of integrity is created. Managers are responsible for embedding values through the ranks. Says RBS’s Laing: ‘Tone from the top is very important but not helpful if that just turns into a diktat about how you must behave. People also have to think for themselves.’

Managers are key to ensuring this happens. They serve as an essential conduit to deliver and reinforce the message in a multitude of ways to frontline employees, and have the best view and insight into real-life operational challenges that people face on the job.

“Tone from the top is fine, but what about the ‘‘muddle in the middle?’’ 30,000 of our 42,000 people are either blue collar or frontline. If you don’t embed the culture in these people you’ve failed. They won’t breach the bribery act in a material way, the Serious Fraud Office won’t be knocking on your door, but if you don’t deal with the culture here, the culture won’t be right in the organisation, and things will become problematic.” Sam Al Jayousi, Group Compliance Manager, Carillion 

As well as being a role model, their first job is to engage their team or unit in defining how the values contained in the CoC translate and apply in daily work. This means using their unique understanding of each role – and the challenges and risks that go with it – to develop clear guidelines. These will differ according to function: sales, for example, face very different sets of issues to R&D and this should be factored into guidelines.

Their second task is to set balanced key performance indicators (KPIs) that reward behaviour consistent with the company’s values and don’t put staff under unfair pressure to cut corners. Giving immediate feedback – both good and bad – is essential, along with making sure promotions reflect good performance on values and ethics metrics as well as bottom line results.

Finally, the manager needs to foster a ‘speak-up’ culture by making it clear that their door is always open for discussion, that reports will be acted on, and that no sanctions will be taken against whistleblowers. Providing regular feedback on investigations helps build this trust.

Ultimately, values are everybody’s business. The integrity of an organisation boils down to the sum of individual choices and actions of every employee. Along with modelling ‘right’ behaviours, senior leaders need to ensure that effective education and incentives are there to empower each individual to do things right.

Leadership tips

  • Make high personal integrity, good character and strong alignment with your company’s values key criteria for promotion to all leadership roles.

  • Bake the requirement to consistently walk the talk into management job descriptions and monitor whether their stated business objectives actively support ethical conduct throughout the organisation.

Tips for the CEO

  • Keep ethics high on your CEO’s radar with excellent regular briefings, strong messaging and great stories to tell that... p48 box

This is an edited extract from the book 'Creating a Culture of Integrity', part of the DōShorts Sustainable Business Collection


OECD  culture  cr culture  Good culture  Leadership  Responsible leaders 

The scandal that recently enveloped Wells Fargo teaches an important lesson about running an ethical business. And Wells Fargo was trying to run an ethical business, despite its huge blunder. For example, Well Fargo avoided many of the pitfalls and risky investments that plagued other big banks in 2008/2009.

Here is what happened. Several years ago Wells Fargo decided it was not doing enough cross-selling, Cross-selling means getting customers who use one service, such as checking, to use other services, such as savings or credit cards. There is nothing wrong with cross-selling - all banks do it. Wells Fargo developed a specific strategy to encourage cross-selling, which was to involve its employees in telling customers about other products and services.

In order to encourage employees to support the program, Wells Fargo employed the time honored strategy of providing incentives to employees who succeeded at cross-selling. This is where everything went wrong. Employees not only responded to these incentives by cross-selling, they manufactured fake accounts in the names of existing Well Fargo customers. Some customers figured this out, but many didn't and ended up paying fees on accounts they didn't even know they had. The problem was huge. In attempting to correct the problem the company fired 5,300 employees and lost its highly respected CEO, John Stumpf.

Well Fargo made a number of mistakes including not publicly acknowledging the problem soon enough and not having adequate controls to detect the fake accounts. But what is unique about this problem is that so many employees were involved in the wrong doing. Unlike many corporate crises, this was not one or two rogue executives in an otherwise healthy organization. This was plain wrong-doing on a massive scale.

The Wells Fargo mess teaches a clear lesson which is that you get what you pay for. Specifically, you can talk yourself blue in the face about ethics, as many Wells Fargo managers did, but you can not send employees a clearer signal than their paycheck.

The first reason this is important is that when organizations think about creating an ethical culture, they almost always ignore the organization's reward system. They print codes of conduct, mandate training and establish ethics hotlines. But if you are rewarding the wrong things, you will get the wrong behaviors. This is as true of the clerk at your local branch bank as it is of the top levels of an investment bank. Organizations signal what they really care about through their reward systems. Remember that the one corporate document every employee reads is their paycheck.

The importance of this lesson goes well beyond ethics. An army of management consultants is advising businesses that they can get more out of their employees if they adopt one or another reward strategy instead of pay for performance. The idea is that you can get better performance out of employees if you abandon pay for performance in favor of one or another strategy that rewards "the whole person" and not just the paycheck. The peak of this phenomenon is called holocracy, a veritable tangle of cross cutting evaluations and peer-enforced group-think.

The Wells Fargo case shows once again the power of pay for performance. Unfortunately, it also showed the power of pay for performance when you pay for the wrong performance. The performance systems of most organizations are the jealously guarded hostages of fortress HR. Executives who want to run truly ethical - and effective - organizations need to tear down the walls of this fortress before engaging in silly talk about the greater good. You will have a lot better chance of avoiding the sort of ethics crisis that Wells Fargo has undergone if you take charge of your organization's reward system. You cannot leave your organization's greatest source of influence on its employees in the hands of the organization's bureaucracy.

Previously published in the CEO Magazine

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