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ABOVE THE BOARD<br />How Ethical CEOs Create Honest Corporations<br />A book report <br />By<br />Marc M. Guison<br />Ateneo Graduate School of Business<br />For<br />Dennis T. Gonzalez, PhD<br />Business Ethics<br />We have seen in recent corporate history a litany of corporate scandals that rocked the foundations of the business world. Huge corporations whose economic outputs are larger than most of the developing countries have suddenly imploded under the weight of stock manipulation, unscrupulous accounting procedures and deliberate enculturation of business competitiveness anchored on ‘doing whatever it takes to win’. Small ethical cracks in the business foundation had gone too many and had been widely ignored by all of their stakeholders – employees, board of directors, stockholders, regulators, auditors and analysts.<br />In the aftermath, we are faced with a realization of how fragile our economic system is and how much of it depends on values that are both difficult to measure and, in the current world, even more difficult to acquire. These are not mere economic values of profitability; but values of integrity, of truth, and of plain and simple honesty.<br />It is in this context that the three authors - Patrizia Porrini, Ph.D., Lorrin Hiris, D.P.S., and Gina Poncini, Ph.D. - wrote this book. They do not seek to expound on the voluminous literature available discussing why and how these corporate scandals happened. They seek to provide answers to how effective CEOs build an ethical culture within an organization by providing actual cases of ethical companies that had passed the test of time.<br />This book review is divided into two parts. First is a summary of the critical concepts and assumptions of the book. The second part is a critical reflection piece that juxtaposes the book’s ethical concepts and assumptions with the ethical standards, insights and concepts that we have discussed in class. <br />Part I Book Summary<br />The central theme of the book is an attempt to present to its reader different ways by which a CEO can create a culture of ethics within an organization CITATION Por09 p 13 l 1033 (Porrini, et al., 2009 p. 13). This book is about how senior leaders can use different tools and techniques to enculturate corporate values to the daily lives of their employees.<br />But before going into details of the different techniques employed by CEOs to create this ethical culture, the reader must be able to fully understand the critical assumption of the book on individual responsibility on building this culture. All the tools and techniques exampled in the book rest on an assumption that the ultimate enablers of an ethical company are its employees. “Employees-whether just a few or tens of thousands- are constantly acting on behalf of their company as they go about their day-to-day activities.” CITATION Por09 p 11 l 1033 (Porrini, et al., 2009 p. 11) <br />The crux of forming the ethical culture rests on how well the employees will embrace the values that the company enshrines in its written code of conduct, corporate communication media, lectures and trainings. The tools and techniques described in the book purports to setup an environment that will encourage employees to act ethically in their day-to-day activities. It is the behavior of the employees that is key to building this culture. “You cannot legislate integrity…So it’s not what is on the piece of paper that’s important, but rather, it’s how people act on a day-to-day basis.” CITATION Por09 p 188-189 l 1033 (Porrini, et al., 2009 pp. 188-189)<br />Interspersed across the chapters of the book are the different manners by which the CEOs entrench ethical culture within their organization. In all cases, it would seem that employees have welcomed the introduction of values system in their company as well as the re-engineering of corporate framework that enables transparency and accountability in light of recent scandals. <br />The first technique discussed in the book is how CEOs use narratives to bring to life the corporate values that have been codified in their employee handbooks, posters, procedure manuals, etc. The codification of the company’s core values is inadequate in influencing the employees’ day-to-day activities. Those values have to come to life through stories and anecdotes about the founder of the company and the employees who exhibited those values. At Walgreens, CEO Dave Bernauer said, “So we talk about what we do, not to boast, but to recognize our people who practice ethical behavior in memorable ways.” CITATION Por09 p 25 l 1033 (Porrini, et al., 2009 p. 25) As a result, with an employee base of over 226,000 people in different parts of the country, the stories about their people who exhibited a corporate value while in the line of duty “inspires them to build a similar story of their own”. CITATION Por09 p 25 l 1033 (Porrini, et al., 2009 p. 25) So as these stories are told repeatedly in the company over a period of time, it becomes a ‘legend’ that everybody gets to know. Even if there is natural turnover and new people are coming in, the stories told and re-told by their fellows reinforce the ethical foundation and direct the ethical compass of the new hires towards the core values.<br />The use of narratives necessitates that the CEO sit down with the employees to discuss these stories. It opens up a dialogue between frontline employees and their senior leaders. It is at this point that the use of stories to enliven corporate values becomes more critical. One challenge in companies is how different people interpret the corporate values differently. With CEOs and senior leaders opening dialogue with employees to discuss these values, in very vivid terms and practicable ways through stories, there is more clarity on what those values really stand for and how one can make it part of their day-to-day lives. CEO Jeff Fettig of Whirlpool said, “Holding workshops or open dialogue meetings in work teams to discuss these values has been instrumental in shaping behavior, gaining alignment, and working through the dilemmas that arise as we apply the values to our decisions.” CITATION Por09 p 29 l 1033 (Porrini, et al., 2009 p. 29)<br />The ultimate benefit of this narrative technique is really to make and keep ethical values alive within an organization. Like in Pilgrim’s Pride, a Fortune 500 company and is over 50 years in the industry, the ethical standards of its founder are continuously upheld by its more than 55,000 employees. As it expanded, the stories about the company founder’s humble beginnings during the Great Depression to the foundation and eventual success of the company are deeply rooted in company culture. CITATION Por09 p 39-40 l 1033 (Porrini, et al., 2009 pp. 39-40) His story, being told and re-told, encapsulated the ethical values that cannot be withered by vapid time.<br />The next technique discussed by the book is about how CEOs of companies with strong ethical foundations dealt with challenging situations and ethical tensions. The most interesting case presented by the authors is the Xerox Corporation. <br />Xerox Corporation ranked number one in its industry in Fortune’s 2005 “Global Most Admired Companies” list and the Business Ethics magazine ranked the company Top 10 among US corporations for business ethics. CITATION Por09 p 51 l 1033 (Porrini, et al., 2009 p. 51) Xerox faced fiscal crisis in 2000. Anne M. Mulcahy became Chairman and CEO in a time when a ‘perfect storm’ engulfed Xerox. In her words, it was indeed a perfect storm, “Revenue and profits were declining. Cash on hand was sinking. Debt was mounting Customers were irate. Employees were defecting. Shareholders saw the value of their stock cut in half and continuing to head south.” CITATION Por09 p 53 l 1033 (Porrini, et al., 2009 p. 53)<br />It was a success story in the end. In 2005, Xerox was out of the red with $859 million in profits. How the company managed this stellar success was rooted on the leadership ability of Mulcahy in energizing the company’s employees towards a clear goal. The definitive ethical value that Mulcahy exhibited was honesty. During the time of crisis, she was upfront with her people about the status of the company and was very clear on her plans to move forward. She engaged her employees directly. CITATION Por09 p 57 l 1033 (Porrini, et al., 2009 p. 57) She traveled 100,000 miles to different company locations around to globe, held 40 town hall meetings, sent letters and television broadcasts directly to the employee – all to communicate and open dialogue with them. In the final analysis, the employees trusted her and her strategy and mobilized towards the goal. CITATION Por09 p 58 l 1033 (Porrini, et al., 2009 p. 58)<br />Mulcahy upheld the values of the company through the tough times. Although there were temptations to sacrifice values for expediency, Mulcahy remained steadfast. “Although we needed and wanted to turn the company around as quickly as possible, we insisted on doing things right – no corner cutting.” CITATION Por09 p 59 l 1033 (Porrini, et al., 2009 p. 59) This galvanized the company and its employees and reaffirmed the strength of the ethical culture that company had established. <br />The third technique is about how CEOs can use “mixed modes to capture the attention and enthusiasm of employees.” CITATION Por09 p 73 l 1033 (Porrini, et al., 2009 p. 73) As I have mentioned earlier, the book’s basic assumption is that it is the individual behavior of employees that enables the ethical culture. Enron, WorldCom, and Andersen have the best written ethical standards and codes of conduct that corporate America had seen. But these were not sufficient to bring home the message of integrity. “The most effective codes are visually prominent and carefully articulated, but this is not enough. Ethically alert organizations know this. They make efforts to ensure attention to the codes and to motivate employees to enact the codes and make them part of their everyday activities.” (Italics supplied) CITATION Por09 p 73 l 1033 (Porrini, et al., 2009 p. 73) <br />Several cases were used to cite examples of different modes to effectively motivate the employees to embody corporate values. For CEO Richard A. Goldstein of International Flavors & Fragrances, the company must place a number of systems that would “clarify and enforce their position on ethical behavior.” CITATION Por09 p 75 l 1033 (Porrini, et al., 2009 p. 75) Once a year, managers and employees are required to undergo refresher trainings and have to sign and certify the code of conduct. IFF also has multiple whistleblower mechanisms (email, phone) that are made available to all employees.<br />The critical point in IFF’s ethical standard is the importance of aligning the ethical systems with the rest of the company’s operational processes and procedures. Goldstein said, “One system that absolutely must be aligned with a company’s values and ethical standards is its rewards system.” CITATION Por09 p 76 l 1033 (Porrini, et al., 2009 p. 76) If the ethical standard is to ensure that quality of products is of paramount importance, a line manager cannot sacrifice that just because the rewards system is challenging him to produce more products at lower costs. This will confuse the employees. <br />Hospira, a healthcare company, uses creativity and fun in keeping ethical values alive. CEO Christopher Begley describes, “In fact, at Hospira, we have a team dedicated to making fun a part of the fabric of our lives - coming up with creative and interactive ways to reinforce Hospira’s vision, values and commitment.” CITATION Por09 p 80 l 1033 (Porrini, et al., 2009 p. 80) <br />Lastly, in the case of Xerox, Mulcahy shared a “multi-pronged approach” to social responsibility and business ethics. These are initiatives on “caring for the environment”, “enabling government legislation” within the company (Sarbanes-Oxley), “corporate philanthropy”, encourage “employee volunteerism” to serve the community, and lastly, “diversity” and balance workforce. CITATION Por09 p 89-91 l 1033 (Porrini, et al., 2009 pp. 89-91)<br />The next set of techniques revolves around how the CEO can influence the outside world by responding to external forces and their advice to future generations.<br />For responding to external forces, the critical example is environmental stewardship. While companies have to innovate, ethics encompasses a responsibility to the larger environment.” CITATION Por09 p 151 l 1033 (Porrini, et al., 2009 p. 151) At Texas Instruments, part of their innovation was to produce microchips that will not use lead as an ingredient. In the 1980’s the law did not require them to do that but knowing that lead has harmful impact to the general public and environment, they had initiated these changes. It was only in 2003 that the EU had legislated against the use of lead on semiconductors and Texas Instrument was way ahead of its competitors on compliance. The critical message given here is that ethically alert companies go beyond mere compliance. They choose the higher road. Given that environmental stewardship is an ethical value they espouse, TI managed to live out that value and in the long run, reap the benefits. CITATION Por09 p 152-155 l 1033 (Porrini, et al., 2009 pp. 152-155)<br />For addressing future generations, the book proposes education of business leaders as key to engendering ethical companies of the future. CEOs emphasized the need of incorporating Business Ethics in the business school curricula. It was only in the mid-1980’s that business ethics became a mainstream subject for business schools. CITATION Por09 p 184 l 1033 (Porrini, et al., 2009 p. 184) It further asserts that business ethics should not be confined into a subject but must be germane to all the business subjects that students need to attend. CITATION Por09 p 173-174 l 1033 (Porrini, et al., 2009 pp. 173-174)<br />Part II Critical Reflection<br />I shall begin with the question: why is the CEO the central player of this book? The book answers this question with a proverb, “the fish rots from the head”. CITATION Por09 p 33 l 1033 (Porrini, et al., 2009 p. 33) From WorldCom to Enron, CEOs have a profound impact on the character and ethical integrity of an organization. No matter how well-written the code of conduct is, or how well articulated the core values are, the CEO has the power to break the very foundation of ethical standards within his company. People like CEO Kenneth Lay of Enron have wielded this power in front of his worldwide audience.<br />In our discussion, we’ve tackled the topic of Power and Ethics. We defined power as “intelligence, determination, position and resources for maintaining or changing the direction of an event or the flow of history”. CITATION Gon09 l 1033 (Power And Ethics, 2009) All CEOs have the position power to influence the events within an organization, affecting each and every one of the stakeholders. Several of them even have personal power because of their charisma, relationship with his people and expertise. CEOs are given power to be able to manage his company to reach its business goals. “Power is necessary to manage successfully.” CITATION Gon09 l 1033 (Power And Ethics, 2009)<br />This unique position of the CEO as the chief executor of power within a company is a source of profound impact on individuals of the company. This power can “be destructive or constructive, hurtful or helpful, harmful or beneficial.” It can “humanize or dehumanize”. It can “ennoble or corrupt”. CITATION Gon09 l 1033 (Power And Ethics, 2009) The cases in the book exemplified ways by which the acts of a single person in the company can be directly influenced by the disposition of power by the CEO. The book supports our conclusion that “Ethics helps power to be positive in its goals and effect.” CITATION Gon09 l 1033 (Power And Ethics, 2009) The central theme of the book is that ethically-alert CEOs enculturate ethics in the company through different techniques and more importantly by being ‘ethics exemplars’ themselves, whom employees emulate. CITATION Por09 p 191 l 1033 (Porrini, et al., 2009 p. 191)<br />What the book is not able to provide is a discussion on how a CEO can manage himself to be ethically sound. As a reader, one will find the tools and techniques to be very practical and can be done in his own organization. However, the ultimate success of the techniques on developing ethical culture is anchored on the disposition that the CEO is ethically aware and morally sound. No matter how well these techniques are employed, if the CEO himself is not ethically prepared, we cannot expect that these will work. The book is lacking in respect to providing the reader an insight on the CEO’s intrapersonal skill to manage oneself. How does a leader become an ethically-centered leader?<br />This reminded me of the lecture of Prof. Dr. Johan Verstraeten of Katholieke Universiteit Leuven. In his lecture, he emphasized the importance of leadership in an organization and why several companies are in shortage of good leaders. He argued that there are four reasons why leadership has been problematic in recent years: problem of language, inner disconnection, alienation from deeper self and manipulation of the soul. CITATION Ver09 l 1033 (Leadership Spirituality, 2009) The book intersects on at least two of his ideas.<br />The problem of language centers on the limited usage of language in business. In everyday corporate life, we are used to utilitarian, empirical language in day-to day activities. We have the best means of measuring individual contribution in empirical valuations, balanced scorecards and performance appraisals. Leaders have stereotyped the individual to the limited meaning that numbers can measure. He quoted Hannah Arendt, “Via stereotyped phrases we try to protect our place in the system, but instead of guaranteeing life, we place it under a sort of anesthesia.” CITATION Ver09 l 1033 (Leadership Spirituality, 2009) With the way that CEOs and senior leaders have established the business language –like “from human relations to human resources” – the company has dehumanized its employees to mere objects.<br />The book skirted this idea when it discussed the use of narratives and stories to enliven corporate values. The CEOs in the book have, in all cases, recognized that storytelling promotes understanding of the employees of how values work and why they are important. CITATION Por09 p 20 l 1033 (Porrini, et al., 2009 p. 20) You cannot measure integrity, truth, justice, and honesty in purely empirical terms. But you can make them be felt by everyone through stories. Prof. Verstraeten’s solution to the problem of language is the integration of the 1st language (empirical) with the 2nd language (understanding and wisdom). CITATION Ver09 l 1033 (Leadership Spirituality, 2009) The techniques proposed in this book can aptly complement Prof’ Verstraeten’s idea of the 2nd language as practiced by ethically sound corporations. A leader must be able to distinguish these languages and be able to use both in establishing an ethical culture in their organization.<br />The second problem is inner disconnection. It is the confusion between “role-integrity” and “integral integrity”. CITATION Ver09 l 1033 (Leadership Spirituality, 2009) Role-integrity is basically being able to perform (comply) with the leader’s functional duties and responsibilities in the company. In business terms, and in most cases using the 1st language, these duties and responsibilities focus on profitability. As far as Enron CEO Kenneth Lay sees his leadership role, it is doing whatever it takes to win (be profitable). What a CEO must understand is “integral integrity”, which is “integrating his role to the bigger picture.” CITATION Ver09 l 1033 (Leadership Spirituality, 2009)<br />While the book does not tackle this directly, it complements this idea in some of its cases. A case in point is Texas Instruments CEO Rich Templeton whose company chose the higher road in making microchips that are lead-free even though it is not yet required by law. CITATION Por09 p 152-153 l 1033 (Porrini, et al., 2009 pp. 152-153) If he sees his leadership in light of “role-integrity” it is enough to maintain the use of lead. But he saw himself and his company in light of “integral integrity” where he understands the difference between what is legal and what is morally right.<br />A CEO-leader also sees his role in relation to the bigger picture in terms of human rights. In class, we discussed the importance of human rights as an ethical standard. Human rights are defined as “rights that every person possesses by virtue of being human and an image of God.” CITATION Gon091 l 1033 (Utility, Rights and Justice, 2009) The book recognizes the need for CEOs to recognize human rights as integral to building a culture of ethics in the company. CEO William V. Hickey of Sealed Air Corporation said, “We’ve evolved from a definition bounded by political rights and physical security to one where economic and social rights and culture are part of the mix. And no matter where you are in the world, the workplace is always a nexus where economy and society come together.” (Italics supplied) CITATION Por09 p 111 l 1033 (Porrini, et al., 2009 p. 111) In building a corporate culture of ethics, the CEO must be able to champion human rights inside and outside the company premises. As the world has seen a preponderance of multinational companies, it becomes inevitable that we will face human rights issues at multiple points in time and at different workplaces.<br />There are indeed some countries where respect of human rights is wanting. A case shared in the book exemplified how a company can be ethically sound in a country that has human rights issues. CEO William Hickey described a situation where each time a woman becomes pregnant, in that country’s law, she is effectively tendering her resignation. This is something that his company rejected. They continued to employ pregnant women in that country. CITATION Por09 p 115 l 1033 (Porrini, et al., 2009 p. 115) An ethically-centered company cannot separate itself from upholding human rights, even if the external environment is providing an opportunity to exploit.<br />This case also intersects with the topic of relationship of legality and morality. “It is safe to assume that what is illegal is also immoral, but not the other way around.” (Italics supplied) CITATION Gon092 l 1033 (Business Ethics - 1st Session, 2009) While it was legal for company to remove pregnant women from their labor force and replace them with others who can have fewer production constraints due to pregnancy, CEO Hickey chose the ‘higher road’ of what is morally right. He added that when faced with a dilemma, it is within their guidelines that they apply the stricter statute. “From time to time, two different ways of doing business come into conflict. When that happens we opt for what we call the ‘higher road’. So if our Code is stricter, we apply the Code.” CITATION Por09 p 113 l 1033 (Porrini, et al., 2009 p. 113) This can be applied by senior leaders to ensure that their companies are insulated from external pressures.<br />In our discussion on Superior Governance, the concept of ‘higher road’ plays a central role. There a 3 types of governance - public, corporate and sustainability governance. CITATION Gon093 l 1033 (Superior Governance, 2009) “Public governance relates to the evolving relationship between business & government…to growing public demands for large companies to be more transparent & accountable in their interactions with government bodies & officials”. CITATION Gon093 l 1033 (Superior Governance, 2009) When it became common practice in society to submit to bribery and corruption in running a business, CEOs and leaders have the moral obligation to choose the higher road of not succumbing to short term gains. When our nation’s leaders have shown blatantly how they can circumnavigate the law for personal gains in connivance with huge businesses, business leaders across the country are faced with a dilemma of either taking the higher moral ground and pay the price or joining the bandwagon of corruption as it is clear that high rollers are often protected and not prosecuted. “It is perhaps in the fight against corruption that the business community’s response has been weakest…This is the path which says—my competitors don’t pay their taxes so why should I.” CITATION del04 l 1033 (Business and Nation-Building, 2004) In building an ethical culture within a company, one should not limit the horizons to within the confines of the workplace. It must transcend the boundaries of the corporation. <br />Faced with the fragility of our economic system in light of the corporate scandals of recent history, this book is a must read for anyone who seeks ways to galvanize his organization and point it towards the right direction of doing what is right. As business leaders we have the unique opportunity and duty to influence the proliferation of ethical values in our companies and in the larger society. The best practices of CEOs that are presented in this book should complement most, if not, all of the business ethics topics that we have tackled in class.<br />In conclusion, I dare to say that when the values of integrity and honesty are fully inculcated in the company’s culture where we belong, and are therefore ingrained within the hearts and minds of the employees we serve, they can faceoff with the human face of corruption as the human face of ethics that our society desperately needs today.<br />12 November 2009<br />Bibliography BIBLIOGRAPHY Business and Nation-Building. del Rosario, Ramon V. 2004. Makati City : Ateneo Graduate School of Business, 2004.Business Ethics - 1st Session. Gonzalez, Dennis. 2009. Makati City : Ateneo Graduate School of Business Lecture, 2009.Leadership Spirituality. Verstraeten, Johan. 2009. Quezon City : Ateneo School of Government Lecture, 2009.Porrini, Patrizia, Hiris, Lorene and Poncini, Gina. 2009. Above the Board: How Ethical CEOs Create Honest Corporations. New York : McGraw Hill, 2009.Power And Ethics. Gonzalez, Dennis. 2009. Makati City : Ateneo Graduate School of Business Lecture, 2009.Superior Governance. Gonzalez, Dennis. 2009. Makati City : Ateneo Graduate School of Business Lecture, 2009.Utility, Rights and Justice. Gonzalez, Dennis. 2009. Makati City : Ateneo Graduate School of Business Lecture, 2009.<br />