In the highly charged business organizations of the 1990s, ethical business behavior is being discussed in many corporate boardrooms. With well publicized instances of individual and organizational violations of the law, the need for such consideration is obvious. A survey by Deloitte & Touche in 1988 gives insight into the beliefs of America's business leaders regarding the ethical climate in today's businesses.

These leaders agree that the attitude of the CEO has the most significant role in effecting ethical standars, while at the same time short-term profitability, a factor that CEOs can directly effect, is the second highest and most threatening condition to American business ethics. Finally, these business leaders believe that ethical business practices strengthen a company's competitive position and the adoption of a code of business ethics is perceived to be the best method for encouraging ethical business behavior.

These results lead to the premise that long-term improvement of America's business ethics lies in a three-fold approach.

* First, it is necessary for employees to understand that expectations for ethical behavior in an organization begin at the top and that senior management expects all employees to act accordingly.

* Second, the best method of indicating this top-down attitude is adoption and explicit, unconditional support of a corporate code of conduct.

* Third, specific training sessions are necessary to prepare managers to consider ethical implications of all business decisions.

This article presents a methodology for helping readers, as business advisors, to educate clients and colleagues in improving the ethical climate of their businesses by implementing the three-fold approach. Evidence suggests that a training seminar on ethical conduct improves awareness of issues. The value of seminars is demonstrated in two studies that indicate that graduates of collegiate programs including ethics courses have strong feelings about the need for such training. Barach and Nicol report that 62% of respondents who took the "Business, society and Individual" course at Tulane University indicated that they benefitted from the course. The second study, consisting of graduates who took a similar course at Amos Tuck Graduate School of Business, was conducted by Purcell who concludes. "While many respondents said the basis for their ethical training came in their early family life, most also said that the seminar helped to sharpen these earlier commitments and point them towards practical decision making in business."

Prior to offering this type of seminar, there must be a corporate code of conduct to form the framework of the discussion.

ORGANIZATIONAL CODE OF

CONDUCT

The process of improving organizational ethics begins with developing a meaningful code of conduct. There are many excellent examples of these documents available (see accompanying sidebar). The author has chosen the document produced by Caterpillar Inc. as a well-designed, comprehensive example. The comprehensive nature of this commpany's code is illustrated by the list of its section headings in Table 1. Obviously these headings would be adjusted to fit the appropriate areas of another organization. Most organizations require a code designed for their own purposes.

Although all sections of the Caterpillar document are important, there is one area that is essential for ultimate success of employee compliance. The section titled "Reporting Code Compliance" outlines the mechanism by which every manager must periodically acknowledge understanding of the code and report any departure. The more effective codes require the reports to be in writing and submitted to someone outside operating management--in the case of Caterpillar, to Corporate General Counsel; however, the internal auditor is also an excellent choice.

SUPPORT OF TOP

MANAGEMENT

The next step is to communicate to all employees that the Code originates at the highest levels of management and that compliance is a condition of employment. This indication of total support is the only way to integrate the policy into daily working relationships of employees. After distributing the Code to every employee, it is helpful to have senior management present a summary in meetings with employees. These meetings allow management to clarify the intentions of the document. It should be made clear that no violation, even one that may appear to help the company, is acceptable. Meetings will establish the commitment to the code and let all employees know that upper management is also going to abide. These meetings need not be long, although time should be allowed for questions.

TRAINING

The third and final leg of this program, seminars, involves the greatest use of time and resources. However, it often yields the greatest positive results. The goals of seminars should be to:

* Increase awareness of ethical consequences of business decisions.

* Develop a decision model for managers that includes a consideration of ethical ramifications of their decisions.

* Integrate relevant cases and vignettes that reinforce the organization's code.

* Outline procedures to be followed to request information about or interpretation of the code, including reporting procedures.

* Allow an opportunity for managers to sign the knowledge affidavit, presented later.

The first purpose of the seminar is to remind managers that their decisions have some ethical consequences. Most of these decisions are made without considering such consequences because the results are obvious. For example, managers generally do not consider the consequences of buying influence when taking a customer or prospect to lunch because it is a normal business practice. Yet, it is a matter with ethical ramifications, because the manager must decide when limits have been reached. The understanding that decisions have ethical ramifications helps managers construct a decision-making model that allows them to consider these ramifications as part of the process.

Some situations that participants will consider are normal business practices, such as customer entertainment; other situations require more analysis and thought. For example, does a payment to an official of a foreign government constitute an illegal payment or just the cost of doing business? Situations should be constructed in a manner that requires managers to assess the role of decision makers at different levels within the organization. This provides each manager with the opportunity to see issues from different perspectives, some that have direct consequences for the decision maker, and some that have no apparent direct consequences. As managers make increasingly complex and difficult decisions, the siminar leader can demonstrate that sometimes the choice involves accepting the least harmful option rather than the most beneficial one. Later, through use of scenarios or vignettes demonstrating ethical problems, the leader can take the learning process full circle and reflect on how a problem might have been avoided.

Vignettes

Having identified that decisions have ethical consequences, the seminar should deal with information that managers will be able to discuss in an open and non-threatening environment. Discussion leaders should use two types of cases: First, (such as those available from the National Association of Accountants on videotape), present general scenarios reflecting ethical dilemmas faced by managers. These cases allow for discussion of alternative actions as well as a post mortem on the actions presented. Lively discussion is certain to occur.

A second set of cases should be designed in-house to place managers in situations that might arise in daily business routines. These cases should be used progressively from easiest to most difficult. Some scenarios also should involve acceptable actions that might otherwise appear unacceptable. Each story does have two sides!

For example, the seminar leader might begin with a case involving employee relations or personnel issues. The following is a case used to put managers into the roles of subordinates faced with difficult decisions.

You are an employee of Merlin Stone Inc. You have been employed here for five months and enjoy your job very much. Moving up within the organization is a comptitive process and you believe that you have been doing a good job. It involves about 40% travel, and there are nine others with a similar job responsibility. All ten report to the same supervisor. You are in your office after submitting travel reimbursement requests for the past two weeks when your supervisor calls you into his/her office and says the following:

"I am very happy with your performance during the five months you have worked here. I get good reports from all of the people you work with but I do have one problem."

At this point your supervisor hands you the four travel reimbursement requests which you submitted earlier that day.

"The problem is that your travel expenses are out of line with all of the other staff at your level. In fact, your requests are averaging 25% lower than everybody else. If I send them forward, I will create problems for the entire division. I would like you to bring your requests in line with those of your colleagues and see to it that your future requests also stay in line with the others."

What would you do?

The following example illustrates the type of case to be discussed later in the seminar. It places managers in the position of the Board of Directors and asks how to resolve a problem at this level.

You are a Director of a major film company. Five years ago, with the company on the verge of bankruptcy, the Board hired a new president. Today, profits in excess of $100 million are bing reported. There is no doubt that the dramatic recovery of the company is directly due to the astute turnaround skills, new directions, and overall leadership provided by the new president.

The presiden is paid $4,500 per week plus bonuses and enjoys elaborate fringe benefits. Recent allegations of "unauthorized financial transactions" on his part, however, have led to his suspension, with full pay, until the problem can be investigates. As it tuns out, you have clear, irrefutable evidence that the president has stolen over $84,000 from the company by forging checks and padding expense accounts. What would you do?

Both of these cases have stimulated lively and diverse discussions from seminar participants. Table 2 includes a list of general topics that can involve ethical problems. They can be used when developing internal cases related to the specific organization offering the seminar. They are listed in alphabetical order, and few industry specific situations are identified.

A significant benefit from discussion during the seminar is the identification by the managers of a variety of opinions, many of which are acceptable. This awakening to diverse views of colleagues helps build an awareness by managers that there is more than one approach that yields acceptable results. This will help eliminate dogmatic opinions of managers and help them be more sensitive to the variety of ethical values of peers and subordinates.

The Decision Model

Having laid the groundwork for earlier cases, the leader can begin to build a decision model that will integrate ethical considerations into participants' decisions. This can be introduced in a general form during the second set of cases, building to a complete model with the most complex decisions.

* Identify ethical dilemma.

* Identify alternative actions.

* Identify parties affected by each action (stakeholders).

* Determine consequences of each effect.

* Select the most beneficial/least harmful alternative.

The first steps in this model involve identification of an ethical dilemma and possible alternative courses of action. The discussion leader should use the first inhouse case to initiate this model. It is sometimes difficult for managers to identify ethical dilemmas if they believe the answers are obvious. This may make it necessary to bait the audience with pointed questions that might exaggerate the obvious answer. Once participation has begun, the discussion leader should ask the group for all possible alternative actions to be taken. These responses should be listed for all to see to address resulting questions. Next, managers should be asked to identify as many potentially affected parties as possible. It is important that

managers understand the variety of parties effected by business decisions. This list should also be visible to all participants. Table 3 presents a list of potentially affected parties that have surfaced in prior sessions.

This list includes a variety of levels of effected parties, from the individual to society. It is important to work toward identification of community or societal implications, because this broadens the ethical perspective of employees. It is generally true that the broader the perspective of the decision maker the better the result of a decision.

A neutral discussion leader is essential so that no bias is evident either for or against any potentially affected groups or individuals. It is important that the intent of the seminar is not to create ethical values of employees but to broaden their ethical perspectives and add ethical considerations to their respective decision processes.

Ramifications and Decision Basis

Once potentially effected parties have been identified, participants should be instructed to evaluate the ramifications of each of their suggested decisions regarding these parties. This is a practiced skill because many consequences are too minor to consider and many are too far removed to be obvious to every decision maker. This is another area in which the process of listening to one's colleagues, subordinates, and superiors can broaden perspectives. Remember, the objective is to establish a normal process within which these consequences will be considered by all managers for all decisions. This is an area that can evoke intense discussion because the next step is to prioritize these consequences.

Participants are likely to have significantly different attitudes toward prioritization, depending upon personal ethical values. For example, managers who could be classified as egoists are likely to place highest priorities on items that affect them, short-term or long-term. Managers who may be classified as utilitarians will tend to prioritize according to a theory or utility to which they most closely identify. Although all utilitarians espouse decisions resulting in the greatest good relative to evil, the definition of the greatest good will depend upon the background of each decision maker. It is sometimes difficult to determine that the decision maker is a utilitarian from the decision indicated. However, it is easy to obtain this information from reasons that managers give for their decisions. And there may also be idealists who search for the common good.

Although it should not be the intent of the seminar to change an individual's ethical decision basis, it is beneficial for participants to understand that there are different foundations upon which individuals anchor decisions and, in fact, that individuals alter beliefs throughout their lives. This can be helpful throughout an individual's career when it is necessary to understand that other people's decisions, although different from their own, may still be acceptable ethical decisions.

There is a significant difference of opinion regarding whether a discussion leader should indicate a personal decision. Many believe that the discussion leader should not indicate any correct decisions in case discussions, since this may bias later discussions. This can be a difficult concept to accept because all participants seek resolutions. If this issue becomes problematic, the discussion leader can ask for votes of participants as to whether one, or more than one, solution is acceptable. At the conclusion of each discussion vignette, it may be beneficial to indicate some clearly wrong decisions, as defined by management, so that participants can draw a baseline from which to operate. This is often best accomplished by having an upper-level manager attend as a participant and add insights about any wrong solutions after discussion has been completed. This person should also take part in all discussions; however, care must be taken to ensure that other participants are comfortable discussing issues in front of the attending upper manager.

Closing discussion should include an indication that the code of conduct is a minimum level of expectation. This is best done by the CEO, or other high-ranking corporate representative, and should indicate organizational support for the ethical conduct of business in the organization and expectations for reporting of violations. It is helpful to indicate that the whistle-blower syndrome does not exist in the organization, and a reward structure for appropriate reporting of violations might be implemented. The CEO's presentation should conclude with distribution of a statement similar to the following:

I have read the _____ Code of Conduct and understand the contents of the document. I am aware of no violations of this Code except as indicated below. Signed: _____ Date: _____ Exceptions: _____

SUMMARY

The plan for improving the ethics of an organization will succeed if the three steps outlined are followed. The adoption of a corporate code of conduct is the first and most important step. However, it is insufficient if the process stops at that point. Employees must understand that management expects all employees, at all levels, to adhere to the code. The meetings that are designed to introduce employees to the code present an excellent opportunity for senior management to impress on every individual the importance of compliance and the seriousness of the issue. To enhance ethical performance of managers, they must recognize the ethical considerations of the decision model. Every employee should examine the reasons behind their decisions and the ramifications of alternatives. The ethics seminars introduce this process, provide an opportunity for managers to evaluate their own ethical decision base, and expose the decision bases of others.

Finally, overall integration of corporate ethics with personal ethics should be discussed. Usually it is preferable that employees not differentiate between the two, because a conflict could arise as to the higher level of ethical decision making.

(*1) See also: "Ethics and Professionalism: The CPA in Industry," by Jeffrey R. Cohen and Robert M. Turner, The CPA Journal, April 1990. Businesses have a continuing interest in the ethics of the workplace. An article in The New York Times, July 29, 1990, described the code of the Bethlehem Steel Corporation similar to the model one proposed in this article.

REFERENCES

A Code of Worldwide Business Conduct and Operating Principles, Caterpillar Tractor Co., May 1, 1985.

Barach, Jeffrey A. and Elisabeth A. Nicol, "Teaching Ethics in the Business School," Collegiate News and Views, Fall 1980, pp 5-8. Ethics in American Business, Touche Ross, January 1988.

Purcell, Theodore V., "Do Courses in Business Ethics Pay Off?" California Management Review, Summer 1988, pp 50-58.

Michael R. Lane, PhD, CPA, is Associate Dean of the College of Business and Associate Professor of Accounting at Bradley University, Peoria, IL.