ARTICLES - PERFORMANCE

What is Happening?

The recent ethics crisis has challenged our trust in the business world.  Who will be the next corporate giant to fall?   Who is responsible?  What are the standards we are living by?  Are there any ethics out there?

Of course the public is outraged, and rightly so!  However, who should we direct our anger toward, the CEOs, the CFOs, the Anderson accounting firm, the training the accountants received, the demands of stockholders (that’s us)?

Our recent hostile distrust of major corporate giants has been rapidly gaining velocity and, frighteningly, appearing to become even worse.  Should we blame all business entities?  Is everyone unethical?  The cynic would say “YES!”  But wait a minute.  Are we not to blame too, for the lack of ethics in business?  It is always easier to blame the other guy.  There is no question that many of the corporate officers and accountants did “creative bookkeeping”, and other deceptive things to get financial rewards (personal and corporate), but why did this happen?

The answer is never as clear and easy as we would like.  For many years we praised the very persons and accounting firms that generated the enormous profits of the late 1990s and early 2000s. (If you reinforce bad behavior, why would you expect any thing other than more bad behavior?)  No one seemed to question ethics or “interesting” accounting practices.  When money is coming in our greed takes over, we cheer on those who made the corporate returns “look” so good.  I loved it, and jumped on the band wagon like everyone else.  It was really fun.  And like many others, I patted myself on the back for the great business decisions I made. (Especially in the “.com” stocks) The major business publications even made the talented CFO for Arthur Anderson (and other disgraced corporation’s CFOs and CEOs) their executives of the year.  Hold on my good friend.  If we look closely at what is happening we will see that we need to share the blame for the decompensation of trust in businesses.   

What?  I am to blame for the problems of Enron and Author Anderson?  Yes, at least partially.  We, as business owners, stockholders, and employees participating in corporate “success” have encouraged a focus of attention on MONEY, PROFITS, and STOCK RETURNS.  We demand more and more.  Competition is greater than ever.  But we could not tolerate business realities (i.e. occasional loses, economic fluxuations, the costs of corporation stabilization after very profitable years), and did not allow for the people leading the businesses to be held in high regard if they couldn’t continue to “produce” like (what appeared to be the case) for other companies.  Our anxiety of not keeping up put extreme pressure on executives and financial leaders to find ways to please the individuals they believed they were accountable to.  

An example of the financial deception we see frequently is akin to going to Los Vegas and taking $100 to spend on gambling.  After “hitting it big” on the slot machines, we return home to brag about the two big jack pots we collected.  The first for $50 and the second for $100.  Hey, I am really good at this! A 50% profit.   However, did you do what most people do?  Spend money from your left pocket and put the “winnings” in the right pocket?  Then, when calculating the winnings you only look at what is in the right pocket.  We often fail to balance the money gained against the costs of getting that money.  In this example, it is very possible that the cost of winning the first $50 was $100 and the cost of winning the $100 cost $50.  What is your profit? Zero.  In fact the cost of the flight, lodging, food, gifts, transportation, airport parking fees set you back considerably.  If it was fun, it probably was worth it and didn’t harm anyone else, but don’t deceive yourself by “creative calculating”.   

Like the persons we criticize, we have ego needs, we want to look smart, we want to be seen as great business decision makers and we aspire to get ahead. With the tendency to emphasize money and material possessions as the criteria for success and high regard in our society, we all are unintentionally tempted to sacrifice some of our guiding principles.  Nevertheless, we do not all give in to the temptation.  Do you?  Many have, and more will be challenged about their integrity in the coming months. 
I wish that ethical decisions would be easy to make, but sometimes we fail to look closely at the decisions we make and how they affect not only employees, stockholders, boards of directors, etc., but there impact on the new generation of corporate “stars”.  What will they consider the RIGHT THING TO DO? 

When a junior executive approached me regarding the ethical dilemma she was faced with I was more compassionate than I thought I would be.  She was “told” to change the numbers on the annual report (of her subsidiary corporation) to the international corporate headquarters.  The President of this company needed numbers to reflect a profit to avoid the likely selling of “his” company, losing his big salary (watch for this to be challenged in the near future) and his power and prestige.  She was well aware of the consequences of not responding to the President’s demand.  She would almost certainly lose her job.  What would this mean to her family, her house payments, her insurance benefits, or her community status?  Would she be made to look foolish (or be sued) by someone disputing her “accurate” figures?  What would you tell her to do?  How should she go about doing it?  What are the consequences?   

Who are you really responsible to?   
In a 2000 Business Week/Harris poll Americans were asked which of the following two propositions they support more strongly.                               
Corporations should have only one purpose--to make the most profit for their shareholders--and pursuit of that goal will be best for America in the long run.
--or—
 
Corporations should have more than one purpose. They also owe something to their workers and the communities in which they operate, and they should sometimes sacrifice some profit for the sake of making things better for their workers and communities.
An overwhelming 95 percent of Americans chose the second proposition.

Actually, according to Robert Hinkley, author of How Corporate Law Inhibits Social Responsibility, our corporate laws support the notion of “ethical and social concerns as irrelevant, or as stumbling blocks to the corporation’s fundamental mandate” of only “operating in the interests of the shareholders”.

“We must remember that corporations were invented to serve mankind.  Mankind was not invented to serve corporations.  Corporations have the rights of citizens, and those rights should be balanced by obligations to the public.”

Hickley further states, “we must challenge the myth that making profits and protecting public interest, are mutually exclusive goals.”
It is my hope that President Bush’s push for responsibility in the financial and accounting industries will lead us to maintain higher standards and that the criminals and corruption will be deal with firmly.  Nevertheless, the political battles have already started and have distorted the real issue.  Each person’s need to “soul search” their own personal integrity in business decision making.  Despite the fact that ethics are not the clean clear rules we wish for, the primary obligation of all true leaders is to personally take the responsibility for the companies they direct. As President Bush has already said, “make the CEO’s sign on the dotted line for all financial reports.”

Not all business leaders are bad, corrupt, deceitful, and greedy.  Decisions are difficult to make, and many will be viscously attacked by numerous (informed and uninformed) critics.  But holding true to your integrity is the way you winNo matter how wealthy a person is, they can never buy respect back once it is lost.

Business ethics are emphasized in 90% of business schools, according to Madsen and Shafritz, in their book “Essentials of Business Ethics.  Values management reminds us that 

1. Managing ethics is a process.
2. The bottom line of an ethics program is accomplishing preferred behaviors in the workplace.
3. The best way to handle ethical dilemmas is to avoid their occurrence in the first place.
4. Make ethics decisions in groups, and make decisions public, as appropriate.
5. Integrate ethics management with other management practices.
6. Use cross-functional teams when developing and implementing the ethics management program.
7. Value forgiveness.
8. Note that trying to operate ethically and making a few mistakes is better than not trying at all.

When the money is counted and the reports are in, will you be able to stand tall and look at every person in your life and say, “I was ethical.  I did it the right way, the most honest and responsible way I could do it.”   I am a good role model, not only for the business world, but for human integrity and dignity.  


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