ETHICS, EXPECTATIONS, AND BOARD DYNAMICS

Dr. Bradley R. Agle

George W. Romney Endowed Professor

Marriott School of Management

Fellow, Wheatley Institution

Brigham Young University

BECOMING A POSITIVE DEVIANT: ETHICS IN THE BOARDROOM

Name the Company?First Clue

• This company inflated its financial statements by way of complex “straw deals”

Name the Company?Second Clue

This company made large financial donations to politicians who could influence regulations affecting its industry

Name the Company?Third Clue

• This company’s accounting firm, Arthur Andersen, served both consultancy and auditor roles, and paid a steep price for its role in the scandal (although it resigned the account years before the scandal unfolded)

Name the Company?Fourth Clue

This company was forced into bankruptcy, decimating the retirement funds of trusting investors and costing taxpayers billions of dollars

Name the Company?Fifth Clue

• All of the events referred to in the earlier clues occurred at this company during the 1980’s

Ethical Corporate LeadershipPersonal Behavior

Corporate

Leadership

Ethical

Leadership

Cynicism

Bad

News

Confusion/

Lack of Recognition

Active

Inactive

Positive Negative

1991 U.S. Sentencing Guidelines Seven Steps of Due Diligence

• Develop Compliance Standards & Procedures• Give One Executive Overall Responsibility• Ensure That Executives are Trustworthy• Communicate Standards & Procedures• Create Steps to Ensure Compliance• Enforce Standards Consistently• Modify Program Appropriately

Corporate Leadership

2004 Amended U.S. Sentencing Guidelines

• Requirements are Enhanced with greater Rigor and Detail

• As a Fundamental Proposition, organizations must promote an organizational culture that promotes ethical conduct and commitment to compliance with the law

• Requires Boards and Executives to assume the oversight and management of compliance and ethics programs

• This presumes active leadership in defining the content and operation of the program

2004 Amended U.S. Sentencing Guidelines – Minimum Requirements

• Organizations must:• Identify areas of risk where criminal violations

may occur• Train high-level officials as well as employees

in relevant legal standards and obligations• Give compliance and ethics officers sufficient

authority and resources to carry out their responsibilities

Areas of Influence in Creating an Ethical Organizational Culture

• 1) Formal statements of organizational philosophy, charters, creeds, materials used for recruitment and selection, socialization

• 2) Design of physical spaces, facades, buildings• 3) Deliberate role-modeling, teaching, and

coaching by leaders• 4) Explicit reward and status system, promotion

criteria

Areas of Influence in Creating an Ethical Organizational Culture

• 5) Stories, legends, myths, and parables about key people and events

• 6) What leaders pay attention to, measure, and control

• 7) Leader reactions to critical incidents and organizational crises

• 8) How the organization is designed and structured• 9) Organizational systems and procedures• 10) Criteria used for recruitment, selection,

promotion, leveling off, retirement, and firing

Ethical Role Modeling

• What makes one an ethical role model?

• Findings from my research with Drs. Trevino and Weaver at the Ethics Resource Center…

Personal Behavior

Ethical Role Models

What they are not (or at least not necessarily):

1 Perfect

2 Distant

3 Successful

Four Dimensions of Ethical Role Models

Interpersonal BehaviorsEthical Action and Expectations of SelfFairness with OthersArticulation of Ethical Standards

Interpersonal Behaviors

• Care, Concern, Compassion

• Support and Take Responsibility for Others

• Values and Maintains Relationships

• Hardworking and Helpful

• Accentuates the Positive

• Accepts others’ failures

Ethical Action and Expectations of Self

Honesty, Integrity, TrustworthinessHumilityHolds self to high ethical standardConsistently ethical in public and private lifeSelf-sacrificialAccepts responsibility for, and open about, own

ethical failings

Fairness with others

• Distributes resources equitably

• Open to and solicitous of input

• Respects other equally – never condescending, even in disagreements

• Offers explanations of decisions

Articulating Ethical StandardsArticulating Ethical Standards

Communicates high ethical standardsCommunicates high ethical standards Holds others ethically accountableHolds others ethically accountable Puts ethics above personal/company interestsPuts ethics above personal/company interests Uncompromising, consistent ethical valuesUncompromising, consistent ethical values Takes long-term multiple stakeholder Takes long-term multiple stakeholder

perspectiveperspective

Warning:Bathsheba Syndrome

Top Leaders:

• Have Privileged Access

• Can Lose Strategic Focus

• Can Come to Believe that the Rules Don’t Apply to Them

• Oftentimes Have a Well-Earned, but Inflated Belief in Their Ability to Control Events

The Importance of Leadership

• “Never underestimate the power of a small group of people to change the world – indeed, nothing else ever has” Margaret Mead

Business Ethics in 2011:Where will the Leadership

Come From?

Comments and Questions