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What Does it Mean for an Organization to Have an Ethical Culture?

Transcendent Values Must Lead the Way

Are organizations ethical? How can we know? One way is to ask key questions such as:

  • What are the values that inform ethical behavior?
  • What is necessary to ethically evaluate whether and how their actions affect stakeholders?
  • Does the organization have an ethical culture in place?
  • Is top management engaged in setting an ethical tone at the top?
  • How are those who deviate from ethical standards treated?
  • Do organizations follow relevant laws and regulations in place (compliance function)?
  • What is the role of the chief compliance officer (CCO) in ensuring ethical values are followed?

Organizations, like people, must know right from wrong; good from bad and act accordingly. Employees, middle managers and senior management must take their cue from the ethics code or credo and walk-the-talk of ethics.

Values-Based Decision Making

One problem with organizations today is the values defined in their code of conduct or credo are not the ones practiced. The values might include fair treatment of others, the avoidance of conflicts of interest, being responsible and accountable for actions, and so on. These are worthwhile values but, in practice, the organization might pursue its own interests without regard to the effects on stakeholders. They might play favorites in the performance evaluation system, overlook allegations of sexual harassment, and engage in other unfair treatment. In other words, some organizations treat ethical behavior as a suggestion, not something to necessarily follow in practice.

The Case of Johnson & Johnson

Another problem that has been with us for many years is companies that sell unsafe products. A recent example is Johnson & Johnson. Last week a jury in Alameda, California awarded Patricia Schmitz $12 million in damages based on her claim that J&J’s baby powder and Shower to Shower products contained asbestos that caused her mesothelioma. It was determined that the company knew about the asbestos and the jury found it guilty of negligence. 

That’s just the beginning for J&J. The company also lost several major lawsuits over allegations that asbestos in its talcum powder contributes to ovarian cancer. For example, in a 2018 lawsuit, a St. Louis jury awarded almost $4.7 billion in total damages to 22 women and their families. Dozens of additional lawsuits are outstanding.

How can this happen at a company that used to be admired for its ethics? For years, business schools used the J&J  “Credo” to teach business ethics. Here’s an excerpt from J&J’s Credo:

J&J Credo

“We believe our first responsibility is to the patients, doctors and nurses, to mothers and fathers and all others who use our products and services. In meeting their needs everything we do must be of high quality. We must constantly strive to provide value, reduce our costs and maintain reasonable prices.”

All this sounds good on paper but J&J did not follow up with actionable, ethical decision-making. Why? The culture has changed over the years to emphasize profits over the public good.  

Self-Transcendent Values

What’s needed to reverse course and enhance ethical values is to start with a commitment to self-transcendent values, not the self-enhancing values that often drive decisions (i.e., pursuit of profits at all costs). The self-transcendent values go beyond self-interest to consider how actions affect employees, customers and clients. They include the following: Culture

Benevolence. Enhancing and preserving the well-being of other people.

Universalism. Protecting and enhancing the rights of all people.

Truthfulness. Being honest and reliable in word and deed.

Fair treatment. Avoid favoring one employee/group of employees over another unless ample reason exists to do so. Commit to a culture of equity, diversity and inclusion.

Kindness and compassion. Listen to the needs of stakeholders; be considerate of employees and understand their needs and concerns; give back to communities.

Trustworthy. Only sell products and provide services that meet the needs of customers; be accountable for decisions.

Ethical Culture

According to the Society for Human Resource Management, strong ethics builds trust and trust is the key to improving employee engagement and commitment. A positive culture enriches the experience of a firm and a negative one diminishes it. Organizations with positive, virtuous ethical cultures enjoy bottom-line and top-line benefits, including:

  • Higher employee job satisfaction.
  • Increased legal compliance and rule-following.
  • Increased organizational commitment.
  • Increased cooperation.
  • Increased management success.
  • Increased attraction of high potential talent.
  • Lower health care costs.
  • Lower legal risk.

An ethical culture can go a long way to keep in check unethical behaviors and illegal activities. What’s most important is that the culture should be built on a foundation of integrity. Employees must feel that when they report wrongdoing to upper management their concerns will be listened to and addressed, and they will not be retaliated for raising issues of concern. 

Final Thoughts

Both ethics and compliance are integral parts of the culture of an organization. However, what many organizations fail to see, or to internalize into their DNA, is that ethics requires a long-term commitment to do the right thing, not making decisions based on short-term gain or profit. 

Some organizations emphasize compliance not ethical behavior. But, ethics requires going beyond mere compliance with the rules. The rules can't always tell us what's right and what's wrong.

All-too-often compliance is treated like a checkbox of what must be done to not run afoul of the laws instead of an ethics-based approach to decision-making. This makes ethics all-too-often an after-thought instead of the foundation of decision-making.

Integrity and ethical culture go hand-in-hand. There needs to be a commitment by all members of an organization to do what is right not because of any payoff but, instead, because it's precisely the right thing to do.

Blog posted by Steven Mintz, aka Ethics Sage, on June 18, 2019. Visit Steve’s website and sign up for his newsletter. Follow him on Facebook and “Like” his page.