Executive role models crucial in building ethical workplace culture

Building an ethical culture has become increasingly important for boards and CEOs, but the task is not as simple as instituting policies and procedures. Employees are looking for consistent role models, according to a researcher at the W. P. Carey School of Business. Setting high standards means companies must take a good, hard look at their leadership and view it in all settings. They must recognize that executive behavior off the job can affect the firm in a variety of ways.

Building an ethical culture has become increasingly important for boards and CEOs, but the task is not as simple as instituting policies and procedures for the office. Employees are looking for consistent role models, according to Marianne Jennings, professor of legal and ethical studies at the W. P. Carey School of Business. They want leaders whose behavior does not change with venue.

"Employees look for a true role model, not just someone who behaves when others are looking, such as at the office," says Jennings. "It is always fascinating to read employee feedback on ethics programs. Inevitably there will be this type of comment: 'My supervisor harps about ethics and then I see him in the local bar after work and have no respect after that,' or, 'His conduct around women gives him no credibility when it comes to ethics.'"

Setting high standards means companies must take a good, hard look at their leadership and view it in all settings, Jennings says. It's all about the example provided by the leaders — from top executive ranks, through managers and supervisors — and recognizing that behavior off the job impacts the firm in a variety of ways.

Once, Jennings says, there was an inherent assumption that a certain level of maturity and moral development came with executive rank. "That's no longer true," Jennings says. Recent court records provide many examples of high fliers who have brought themselves and their companies to ruin through personal and professional misbehavior.

Jennings, who consults with companies such as Boeing concerning professional culture, often tells her clients to look at their retreats and other off-site office events first. While strategic and planning retreats and training have their place, Jennings warns that it is often at the accompanying social activities that lines are crossed.

"Those types of activities — and what happens there — very often set the culture back at the office because employees hear about it," Jennings explains. Many companies are trying to provide a back door out of the trouble that results from outrageous private behavior by instituting a so-called 'morals clause' in contracts. This allows the company to terminate should the employee or contractor be accused of breaking the law.

The issue was still new in 1996, when Michael Irvin of the Dallas Cowboys entered a guilty plea after he was caught in a motel room with two topless dancers, a teammate and cocaine. Dallas area Toyota dealers, which had struck an endorsement deal with Irvin, sought to break the contract and demanded damages for the impact of his behavior on their sales.

Irvin, who ended up performing 800 hours of community service, gave back the Landcruiser and settled the $1.4 million suit filed by the dealers for an undisclosed amount after they had to scrap their ad campaign that featured him. With this case and others that arose at about the same time, "Dealers and others have now learned that they have to have a morals clause," Jennings says. "If there is a criminal charge or evidence of criminal behavior, the clauses give them the right to cancel."

Another example is the recent case of Kate Moss. The super-thin celebrity lost three lucrative modeling contracts, including a deal with Europe's largest clothing store, after a tabloid released still images it claims to have originated in a video showing her using cocaine. H&M, the fashion retailer, had planned to use Moss in the launch of a new line by designer Stella McCartney, but cancelled out after stating that Moss' presence would not be "consistent with H&M's clear disassociation from drugs."

Interestingly. H&M had originally released a statement of support for Moss. Customer feedback and outrage caused H&M to rethink its position and cancel the contract. Confronted with an analogous circumstance, "[Other] companies are now beginning to do the same — not just because of the external public relations impact, but also because of the effect it has on an ethical culture," Jennings says.

A company can also build its ethical code into employment agreements, beginning with new hires and promotions – especially officers and executives. "In negotiations, companies can say, "In exchange for this level of compensation and the opportunity to represent the company, here are our expectations,'" Jennings says.

Companies can spell out the types of prohibited conduct, or could simply use a phrase such as 'professionalism.'

— Marianne Jennings, professor of legal and ethical studies

Jennings notes that terms like 'professionalism' are already in use to set workplace standards. "'Collegiality,' for example, is a requirement for tenure and retention at many universities," she explains. "It is a general term that represents the ability to 'play well with others,' and courts recognize it as a valid term and condition of employment."

Privacy is inevitably part of the business ethics backdrop, but defining it can be tricky, Jennings notes. Companies clearly have jurisdiction in certain areas, such as promulgating a rule that a leader cannot have an amorous relationship with someone who reports to them. "In most companies married couples cannot report to each other," she said. "Some companies — Wal-Mart is one — have a romance rule." No romances are allowed between employees working in the same area; however, if one party were to transfer such a relationship would be acceptable.

"Companies are on solid ground here because there's a fine line between love and hate and romance and affairs and sexual harassment," she explains. But "off-duty" conduct is more difficult to navigate, she concedes. "The higher the employee's position, the easier it is to justify dipping into private life issues because of the potential impact of those issues on the company."

Jennings notes Jack Welch, the man who helped turn General Electric into a $400 billion corporation, had an extremely high-profile, messy divorce. The divorce itself was clearly a private matter — indeed, the affair with the then-editor of Harvard Business Review and Jane Welch's petition for divorce occurred after Welch had retired, Jennings said. But the revelations that emerged from the proceedings profoundly impacted GE to the point of SEC examination of disclosures in GE's filings about Welch's retirement package.

"There comes a point when the lives of the officers and the company's issues are inextricably intertwined — this is the realization many companies are coming to," she says.

Reports from employees about the unprofessional off-duty behaviors of other employees should be taken seriously, because they could be signposts pointing to internal issues, she says. And, when these off-duty behaviors cause problems at home, often the impact will spill into the work day, where other workers witness and endure the fallout. Companies that hope to rise above the notoriety and distraction of a prominent leader's ethical lapses should strive to catch the pieces before they fall, says Jennings.

"Massachusetts Mutual is perhaps the most recent example," she said. "Claire O'Connell arrived at a company board meeting to let the board know that she suspected her husband, then-CEO Robert O'Connell, was having an affair with the company's top female executive. While Mrs. O'Connell did not speak at the meeting, the board began an investigation that has raised questions about O'Connell's retirement account and piqued an investigation by state officials. O'Connell and the female executive were fired.

Boeing is another very public example, Jennings recounts. The culture at Boeing suffered damage because of the behavior of former Boeing CEO Phil Condit, who reportedly conducted a series of affairs, including several with employees. Harry Stonecipher came back from retirement to refocus the company on ethical standards, but was forced to resign after himself admitting to a short affair with a colleague.

"Stoneciphers's crime was not the fling with a much younger woman," she said, "but rather the breach of Boeing's code of conduct — a code he had helped create." Unwilling to return to "the wild Condit days," the board was forced to act and even Stonecipher agreed that he needed to leave, says Jennings.

"The problem is that so few companies survive the wild behavior of executives," says Jennings. The fate of leader and company appear to be locked together. "Enron was wild, Tyco was wild, Worldcom was wild with the trials of executives revealing affairs, parties and an atmosphere of personal decadence," she said. In contrast are the companies that have caught leaders in destructive behaviors in time to mitigate damage. Jennings says the question is not about whether an executive holds an alternative belief, for example open marriage.

"The question is, do you want an executive with an open marriage running your company? You don't have to decide the open marriage issue — you have to decide if you have enough employees who accept that as evidence of a good leader." Jennings says in her experience, that's not usually the case. Further, there are non-moral, judgment issues that also dominate employee discussions.

She says employees may feel they have neither the time nor the money for an open marriage, and have little respect for those who do. "If you leave out the values issues and focus on simply the time and demands constraints that employees see, you return not to the morals question, but another more practical one: 'How can a guy running a company have this much time on his hands?'"

Jennings says when evaluating these situations, a focus on dedication and work ethics trumps any perceived value differences.

Jennings' fifth edition of her textbook, Case Studies in Business Ethics, was just republished in February of 2005. Her latest book, The Seven Signs of Ethical Collapse, will be published by May 2006.