On July 21, 2010, President Barack Obama signed the landmark Dodd-Frank Wall Street Reform and Consumer Protection Act into law. The Wall Street reform act is one of several initiatives either placed in force or under consideration worldwide that have been crafted in the wake of the global economic meltdown. The message behind the Wall Street reform act was that since the financial sector had failed to clean its own house, the government would do the necessary cleaning.
Even before the reforms contained in this bill became law, many companies had implemented their own ethics and corporate responsibility programs. When carefully thought out and well executed, such forward thinking policies not only allow companies to avoid legal and ethical dilemmas, they may positively impact the bottom line. In times of crisis, a progressive ethics policy may literally allow a company to survive.
This article presents general descriptions and analysis concerning issues related to developing a business ethics policy for a business, along with ideas to consider and a measure of opinion. Every entrepreneur and business owner must develop the specifics of an optimal ethics strategy to pursue for his or her own company.
Transparency and General Business Ethics
A broad consensus exists that irresponsible Wall Street speculation coupled with exotic investment schemes and opaque business practices combined to create a near perfect storm when various bubbles burst. Because the immediate impact of the financial crisis
was so great, spreading from ordinary families to entire government banking systems, many regulatory bodies along with the general public urged swift and decisive action.
The reasoning behind many “sunshine” regulations is that greater openness serves as a deterrent for unethical or illegal activity. Along with demands for more disclosure, many legislative bodies along with the general public have demanded greater accountability. Especially for companies that engage in international trade or manufacturing, many customers demand accountability throughout the supply chain, questioning such practices as child labor or lax environmental standards for a company’s domestic or overseas operations, writes Doug Pinkham, president of the Public Affairs Council.
Smart business owners and entrepreneurs do not wait for government intervention or public backlash to implement a business ethics strategy. Setting your own standards for transparency and accountability allows you, as a company owner or director, to engage customers and stakeholders, while safeguarding trade secrets or information that legitimately should remain confidential. Require your employees, and especially your executive officers, to complete ethics training. If you have more than one location, empower (rather than compel) local employees to interact with community organizations about matters important to the community at large. Offer real incentives to your employees for ethical conduct, and be prepared to walk the walk at the executive level concerning ethical conduct.
Hefty top-level employee bonuses and fat executive compensation packages, coupled with government bailouts funded by taxpayer dollars did not sit well with the general public, nor with many legislators, at the height of the financial crisis. While it’s true that adequate compensation is necessary to attract and retain the best talent, a company that wishes to establish and maintain a reputation for ethical business conduct must be prepared to answer tough questions about employee compensation, especially at the executive level. An equitable, or at least reasonable executive compensation strategy is key to developing a business ethics policy for a business.
While many entrepreneurs and business owners will not be subject to limits on employee raises and bonuses proposed by the Securities and Exchange Commission in March 2011, the expectation that out-sized executive compensation will go unnoticed is so much wishful thinking. Determine a workable structure for employee compensation down the line. If cost cutting is a valid concern, be prepared to demonstrate sacrifice at the executive level with a pay freeze or a give-back of all or part of your own bonus rather than expecting your employees to shoulder the entire burden without complaint.
Please continue to the next page to read more about developing a business ethics policy for a business.
Many companies promote engagement with community stakeholders as a major aspect when developing a business ethics policy. Sponsoring charitable organizations and local events is a legitimate means of promoting your company in a positive light. However, insisting on so-called naming rights can generate cynical reactions and less-than-favorable publicity.
An alternate strategy is to empower local employees to interact with community organizations on a volunteer basis about matters important to the community at large as ambassadors of the company. One way to promote your company’s corporate citizenship while improving employee morale is to allow your workers to make donations to their favorite charities with funds provided by the company, Susan Adams writes in Forbes. Both worker satisfaction and productivity often rise in reaction to programs of this type.
Social Networking and Community Engagement
Technology also figures in the need to develop a business ethics policy – with cable television and high-speed Internet, the world has become a 24/7 place. When Facebook and YouTube can ensure worldwide exposure of company-related news and images, favorable or otherwise, in a matter of minutes, companies must prepare a proactive Internet and social networking policy along with a press and public relations strategy. Communication and engagement are essential. However, many corporations employ only half the strategy involved with a social networking campaign.
Your company’s web page can serve as more than a static promotion piece. Provide downloadable copies of annual reports, information on upcoming projects or ongoing research. Post the ethics policy and accountability goals on your company website, along with the steps you have taken to fulfill them. Provide a feedback form to encourage feedback from visitors.
Your business can have a Facebook page and collect thousands of “fans,” but this does little to enhance a company’s reputation. In fact, such strategies can backfire if would-be “fans” view a company’s social networking efforts as manipulation. Transparency is key. Providing legitimate examination copies and product samples for objective reviews is fine, but gifting bloggers with “swag” in a quid pro quo exchange for favorable commentary will damage the credibility of your company and the blogger alike.
Social Networking and Employee Conduct
The ethical challenge facing companies and social networking technology is twofold – engaging stakeholders, including impacted communities as well as customers and stockholders – and devising a workable policy for employee social networking conduct on and off the job. As a company owner or manager, implementing policies concerning Internet and access to social networking sites, designed to increase security, are completely legitimate, and may even be mandated if your company handles sensitive demographic or financial data.
However, a policy of limiting or blocking Internet access on your company’s computers in an attempt to force employees to focus exclusively on work, is a lost cause. Smart phones and personal laptops with wireless connectivity allow employees to circumvent locked-down company networks. Moreover, companies are beginning to experience pushback from younger workers who expect Internet access as SOP at their jobs. A smarter strategy is to recognize the way young workers conduct their working day. What looks like wasting time may actually be an employee engaging a friend for help with a work-related issue, Martha Irvine writes.
Attempting to control employee conduct after hours is also questionable. While companies can and do terminate employees for social networking conduct away from the job, the issue is far from settled ethically or legally. As a company owner or manager, you are on more solid legal ground in establishing a business ethics policy that prohibits employees from presenting themselves as spokespeople or agents of the company without official permission. Moreover, companies may find themselves with increasingly limited job candidate prospects if they insist on rigid standards of behavior during their employees’ off-hours as future generations of Internet-savvy workers enter the labor market.
Please continue to the next page to read more about developing an ethics policy, and the “triple bottom line.”
The “Triple Bottom Line”
Adapting the so-called “triple bottom line,” approach, also known as 3BL, directs companies to look beyond yearly or quarterly stock dividends to consider “people, planet and profit” in developing a business ethics policy. Ethical and socially responsible companies should evaluate the impact of their company’s policies on the social welfare of the people in communities where they are located, along with environmental concerns, according to the 3BL model.
However, the idea has come under sharp criticism from commentators such as Wayne Norman and Chris MacDonald, who claim that it is impossible to measure social impact in any meaningful way. Assigning a dollar value or another measurable standard to company ethics strategies is subjective at best. How does a 3BL model evaluate a company that makes a significant charitable donation, yet is facing a class-action sexual harassment lawsuit?
Without imposing measurable standards, 3BL diminishes social and environmental impact to a vague afterthought to the conventional profit motive. In this respect, 3BL principles are hardly new, Norman and MacDonald argue. Nonetheless, the priorities that shape a 3BL model can provide a valuable tool in developing a business ethics policy.
Having a sound business ethics policy in place allowed Johnson and Johnson, the makers of Tylenol, to survive perhaps its greatest crisis. In the 1980s, the company faced a devastating reality: their medicine was literally poisoned by a saboteur. The company held itself accountable for preserving public safety at the cost of nearly all the company’s market share, taking the initiative of recalling all Tylenol capsules from the market after the first reported cyanide poisoning death in 1986. When Tylenol was re-introduced to the market, the company had designed tamper-resistant caplets and packaging to reassure the public of the safety of its product. Johnson and Johnson’s decisive and transparent handling of the situation was widely credited in saving the company.
By contrast, oil giant BP suffered tremendous losses in stock value and reputation after its initial optimistic reports of the damage from the April 2010 Deepwater Horizon oil spill disaster in the Gulf of Mexico proved to be less than forthcoming. The company even became the subject of takeover speculation, which subsided as the failed well was finally capped after spilling oil into the Gulf for months.
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- Andrew Crane and Dirk Matten. Ethics of Executive Pay Limits, in Crane and Matten Blog, retrieved at https://craneandmatten.blogspot.com/2009/02/ethics-of-executive-pay-limits.html
- James Hyatt.The Ethics of Social Media – Part I: Adjusting to a 24/7 World, in Business Ethics, retrieved at https://business-ethics.com/2010/12/14/the-ethics-of-social-media-part-i-adjusting-to-a-24-7-world/
- James Hyatt.The Ethics of Social Media – Part II: Playing by New Rules, in Business Ethics, retrieved at https://business-ethics.com/2010/11/19/the-ethics-of-social-media-part-ii-playing-by-new-rules/
- Martha Irvine. Young Workers Push Employers for Wider Web Access, in The Seattle Times, retrieved at https://seattletimes.nwsource.com/html/businesstechnology/2009458359_apustecblockedofficeinternet.html
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- Doug Pinkham. A Guide to Corporate Transparency, at Public Affairs Council, retrieved at https://pac.org/ethics/a-guide-to-corporate-transparency
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- Flickr, Facebook Merger, by Asthma Helper, in Asthma Helper’s photostream
- Fickr, Oil Spill, Gulf of Mexico (NASA, International Space Station Science, 05/04/10), in NASA’s Marshall Space Flight Center’s photostream
- Flickr, Wall Street Subway Mosaic, by epicharmus, in epicharmus’ photostream