Business Ethics: How to Build Real Values into your Business
by Vince Cavasin, Partner,
Morningstar Consulting Group, LLC

This article first appeared in the December 2003 print edition of detroiter magazine.

The field of business ethics - which has been formally recognized for only about 40 years - is receiving more attention now than ever before. Business schools are adding classes on it, the press is talking about it, consultants are selling it-but ultimately, where is the value?

The Three Categories of Value

The value can be divided into three categories, listed here in ascending order of magnitude: 1. Tactical; 2. Legal; and 3. Intangible.

Tactical value: Employee theft and fraud costs U.S. businesses tens of billions of dollars per year. An effective ethics program creates a culture in which employees are motivated to uphold positive values-and one in which the negative consequences of unethical behavior are clear. Such a program can greatly reduce employee theft and fraud.

Legal value: The Federal Sentencing Guidelines for Organizations (FSGO) guide judges in sentencing organizations found guilty of ethical violations, but also provide incentives for organizations to create ethical compliance programs. Organizations that follow the FSGO incentive criteria face reduced sentences if they are found guilty of ethical violations. While the FSGO are often considered only in the context of larger companies, the median size of prosecuted organizations is 20 employees-with the median fine exceeding $100,000. Statistics like this show that compliance programs can have compelling value even for the smaller businesses that seldom consider them worth the effort.

Intangible value: Few would argue that there's a personal-perhaps spiritual-value in leading an ethical life, and that this value is enhanced by leading an ethical business life. As a business leader, your greatest strength lies in your ability to leverage the people that work for and with you, and your ethical choices are more visible-and have a more significant impact on society-than those of people in most other careers. These two facts combine to make ethical leadership crucial, since not only can unethical leadership decisions hurt large numbers of people (pick an example from any of the recent corporate accounting scandals), but your employees (and probably others in your community) naturally follow your example. Use your position wisely; create an organizational culture of ethics, and its benefits will accrue not only to your bottom line, but also to each individual employee, to the community, and to society as a whole.

From Values to Value

The aforementioned FSGO criteria provide a good checklist for developing an ethics compliance program; more information is available at http://www.ussc.gov/corp/Murphy1.pdf.

However, the FSGO don't cover the crucial precursor to the development of any ethics program: corporate values definition.

Values are the fundamental, timeless principals that guide your organization's actions. Before you can define an FSGO-compliant ethics program, your leadership team must reach consensus on your corporate values. Consensus is important because people often describe a common value using different language, or assign different meanings to the same word. For example, both the marketer and the factory foreman may hold "honesty" as a value-but the marketer's definition may allow room for "positioning" that the foreman finds distasteful.

Gaining consensus on values across the leadership team is the hard work of defining corporate ethics; be prepared to devote at least three or four facilitated workshop sessions to the exercise. Once you have your values defined, the next step is to obtain buy-in from the general workforce. This is best done in small group settings with participation of at least one member of the leadership team, and with accompanying incentive programs if appropriate.

The goal in these sessions is not just to mandate management's list of values, but to demonstrate the benefits of having each employee on board with them, and to address any obstacles to their implementation. A well-facilitated discussion can convey such benefits at the individual, team, and corporate levels. For example, if workplace safety is a corporate value, the benefit to the individual is reduced risk of injury; to the team, it's reduced likelihood of being injured by a teammate's carelessness; and to the corporation, improved safety may result in lower insurance premiums and positive PR. Incentives, especially at the team level, may be appropriate in this case. And management must deal with any obstacles-e.g. emphasis on production schedules at the expense of safety-that may surface during the sessions.

In parallel with these values-alignment sessions, work can begin on the policy creation, documentation, monitoring, and enforcement efforts necessary to implement an FSGO-compliant ethics program. Successful completion of both tracks of work will create real value in the tactical, legal, and intangible categories.