The following articles are written by Don Knauss, CEO of Clorox; Chad Holliday, Chairman of DuPont; Charles Harrington, Chairman and CEO of Parsons Corporation; Tom Monahan, CEO of the Corporate Executive Board; and Robert Lane, Chairman of John Deere. The five leaders discuss the role that business ethics has in: relationships with customers; relationships with NGOs; organizational culture; employee engagement; and tone from the top.
Don Knauss, CEO of Clorox on:
The Role of Business Ethics in Relationships with Customers
When discussing the relationship between ethics and customers, you first have to ask yourself, “Can an organization really influence customers with the way that it conducts its business?” My answer to that question, having been in this business about 28 years, is yes.
Let me begin by making it clear that influence does not mean attempting to muscle a customer into behaving one way or another. Rather, influence comes from integrity and trust. Integrity, to me, is the foundation of trust, and trust is the grease of commerce.
At Clorox, we know that in order to build and maintain trust with our customers we have to first develop a strong, company-wide reputation for integrity. We accomplish that through clearly established, internal ethical principles. For example, all of our employees are required to take part in annual online training with ethics courses. They also participate in refresher courses throughout the year, covering various ethical
practices and, of course, all relevant laws.
We also establish strict ethical processes for our customer facing teams and their support folks, all with appropriate checks and balances. These methods give us a very transparent way of going to market.
We currently have a company-wide code of conduct to which all employees, directors, vendors and suppliers must adhere. And we also have a formal Supplier Code of Conduct that articulates our expectations with respect to human rights and labor, health and safety, the environment, business conduct and ethics. When retailers and suppliers know that an organization lives by a principled code of conduct—and the policies that result from that code—we are able to build a business relationship upon a foundation of trust.
But the line doesn’t stop at internal controls and ethics policies. In order to truly develop trust with their customers, companies must walk the walk. For example, any activity that we engage in with customers will be fair and defensible, no exceptions. This means we can approach our biggest as well as our smaller customers in the same manner. We let all of our potential and current customers know that everybody gets a fair chance; everything in the process will be transparent.
Likewise, to maintain a reputation of trust, ethical companies must take a principled stand against customers that behave in a less than ethical manner. That includes making the difficult decision of cutting off a large customer if that customer is attempting to exert influence on the company to act in a way that it can not fairly defend with other customers.
At the end of the day, when a company models that behavior inside and out, when they walk the walk, then they establish a solid foundation of trust. They solidify their reputation and cause business transactions and partnerships to happen much more quickly. Whatever a management team can do to engender that trust with customers, with suppliers, or with whatever constituency they’re dealing with—consistent with a set of values and principles that they just will not violate—is only to their long-term benefit.
Of course, the natural push back that many executives will receive when taking these types of stands with customers comes from the need for constant quarter by quarter growth. Certainly all organizations must balance the need to further top line growth while maintaining their ethical principles. It can be a tough balance. It is important to stick to one’s principles, to one’s code of conduct, while working toward delivering an outlier performance quarter after quarter.
When you come across a red flag from a customer, you just have to be principle-based, keep that long-term view and say, “I’ve got a long-term view of this business and I’m not going to worry about it in the context of the next quarter. We’re going to be doing the right things for the business in the long haul.”
This is the stand that Clorox has taken, and we are a 96-year old company. We take this stand because we want to be around for another 200 years, not the next two. Quite simply, companies without an imbedded foundation of principles and values will not survive.
If you model that behavior, if you lead from the front like that, I can tell you from my own experience that over time your business relationships improve, you win more deals and you gain the respect of all your constituencies.
Chad Holliday, Chairman of DuPont on:
The Role of Business Ethics in Relationships with NGOs
When we first began partnering with NGOs at DuPont, we created a series we called “The Oval Table Dialogues.” The name came from the company logo – an oval. The Dialogues involved 10 key leaders at DuPont, alongside 10 individuals from various NGOs. The individuals from DuPont would present key business strategies. Each of the NGOs would then give us three ideas to improve those strategies from the perspective of their organization. We would then spend a day and a half working with the groups, determining how to incorporate the ideas of the NGOs into our business plans to make those plans stronger for all of our stakeholders, including our shareholders.
The first time we held a dialogue, business leaders inside our company were skeptical of what would result. They soon found that great things came out of it. We learned very quickly that by engaging with NGOs, we really could develop better plans and strategies.
We also recognized that NGO engagement could assist us in introducing new technologies to the marketplace. DuPont is a science company. Biotechnology is an important science for DuPont. Biotechnology breaks down into three forms: human health, plant science and bio-based materials.
The plant health part came first for us, and the logic from a scientist’s standpoint is that we’ve been breeding plants forever—we put A and B together and take what comes out and see what we can learn from that. With biotechnology you can design the outcome much more precisely and not require quite so
much luck. So, from the scientist’s mind, biotechnology rather than traditional breeding is a much more controlled technique.
But for many people, it doesn’t come out that way. We learned we need multiple perspectives to develop new biotechnology sciences in the most ethical way. To accomplish that, we created a biotechnology advisory panel.
DuPont formed, in February 2000, an independent panel to guide our actions, help us consider and address important issues, and guide and challenge us in the development, testing and commercialization of new products based on biotechnology. The panel doesn’t just consist of scientists. We currently have a priest on the panel and we’ve had ethicists too. Those board members review everything we’re doing around biotech
and they issue an independent report on a regular basis which is posted on the DuPont website.
As CEO, I would join the advisory panel for roughly two thirds of their meetings. I would refrain from attending a portion of the meeting to prevent constricting conversations and sharing of perspectives. I still see former panel members from time to time and the new CEO is doing the same thing. We’ve also had our
entire biotech advisory panel meet with our board of directors.
We also take their advice into account with our daily operations. If we are approaching some new biotech opportunity, we will take into account where the advisory panel stands on the subject, including where their warnings and cautions are coming from.
There are so many things that we’ve learned from these advisory panels that it is hard to account. It’s not just from a scientific perspective. What these individuals bring to the discussion is the cultural perceptions and maybe the second and third quarter potential impacts of something that we might not have thought of, all while maintaining ethical relevance to our operations. Just to hear the discussion that is created from such an intelligent, diverse group prevents us from becoming too constricted inside our own shell and our own topics.
We have taken similar positions with our other scientific activities. In the realm of nanotechnology, we partnered with the Environmental Defense Fund (EDF). We wanted to create a safety framework around nanotechnology. We and the EDF, together over a long period of time, developed a pretty extensive framework – over 100 pages of very specific information – explaining how to evaluate a nano item. That framework is significantly stronger because we published it in cooperation with the EDF. For example, the EDF brought up an entirely different series of questions because their stakeholders are different.
Of course, just like any other component of business, companies need to partner with the right NGOs. I think the first advice is to pick the groups that are constructively trying to find creative solutions. There are some groups out there that are just “anti.” While you shouldn’t ignore these groups, those interested in collaborating to develop solutions are better for initial projects. There are a great number of NGOs in this category.
We’re going through some pretty stressful times in what some people call “the great recession,” and we’re not out of it yet. It’s more important than ever that company leadership reinforces the importance of ethics in a time like this. My experience tells me if you just go silent, people could misread that believing ethics are not quite as important right now. One of the best ways to reinforce this idea is by partnering with, and listening to, the right NGOs and sharing learnings with your broader organization.
Charles Harrington, Chairman and CEO of Parsons on:
The Role of Business Ethics in Organizational Culture
A major league baseball team is playing its last regular season game of the year: win this game and they advance to the play-offs; lose, and they watch the play-offs on TV. In the bottom of the 9th, one of its star players steps to the plate, the score tied, a man on first, no outs. The right thing for him to do is to lay down a sacrifice bunt to move the runner into scoring position. This player happens to have an incentive
clause in his contract, however, that would be triggered if he gets one more hit for the season, and that incentive clause would bring him a big bonus and a contract extension. The player lays down the sacrifice bunt, and his team goes on to win the game and advance to the post season.
After the game, a reporter who was aware of what was at stake for that star player in his last at-bat asked the team’s manager how he convinced the player “to do what was right.” The manager replied, “We try to create an atmosphere here where the question doesn’t even arise.”
I heard this true story from one of our executives, and I often use it when talking to our employees about the way we “play the game” at Parsons. Our strong commitment to our six Core Values – Safety, Quality, Integrity, Diversity, Innovation and Sustainability – governs everything we do at Parsons. Our Core Values are the very beliefs that form the culture of our organization, that make us who we are, that form the basis for all of our decisions. We strive hard to create an atmosphere where the question of deviating from those Core Values, from doing what is right, whether for perceived individual or corporate gain, never even gets raised.
Each of our Core Values has a goal, and for Integrity our goal is ZERO deviations from our Corporate Ethics Policy. We have performance metrics that we have developed to track composite leading and lagging indicators of our performance against this goal and to report to management, and to our Board of Directors, on our progress on a quarterly basis.
To achieve this goal requires constant communication. All new employees receive training in Parsons’ Ethics Policy, including watching a video from me discussing the importance of a commitment to ethics for our company, our employees, our customers and our suppliers. All employees are required to be re-trained in our Ethics Policy on a regular basis, and our employees participate in Ethics Challenges on our internal
website several times a year. Additionally, each of our quarterly Executive Committee meetings addresses an Ethics/Integrity Moment.
A company should seek constant improvement in the way it conducts business, and commitment to integrity is no exception. We are always looking for ways to improve our ethics program, both in terms of the message itself and the way we communicate that message. As an example, in the past Parsons issued periodic Ethics Bulletins to employees, highlighting particular ethics issues in each Bulletin, but that was a static communication. Over the past year, we have instituted Ethics Challenges on our internal website, describing a certain fact scenario in which our employees could well find themselves, and asking our employees to vote and comment on how the person in the Challenge should respond. We then compile the responses and publish them on our internal website, along with a sampling of the comments submitted and with an analysis from our Ethics Committee.
We’ve gone from a static communication to an interactive dialog, and we’ve had tremendous responses, both in terms of the number of people who participate and in the depth of the comments we’ve received. Most importantly, it has our employees talking and debating about ethics, and that’s really what any company hopes to achieve.
In the short term, a corporation’s commitment to integrity may cost it a project, or result in an individual employee, or the corporation, missing certain financial targets. Parsons has in the past walked away from potential projects or teaming partners when questionable ethics issues have surfaced, and we will continue to do so in the future. The end results of such short-term losses, however, are virtually always long-term gains: gains in reputation as a company that doesn’t cut ethical corners; gains in attracting employees who already have their own personal commitment to integrity and want to work for a company which is similarly committed; and gains in attracting the right kind of suppliers, subcontractors and teaming partners with
whom to work.
In my baseball example at the beginning of this article, the star player did “what was right,” laid down a sacrifice bunt, and the team won the game and went to the play-offs. But suppose, despite the bunt, the team had gone on to lose the game? In my mind, laying down the bunt, playing the game the right way, was still the right thing to do. And conducting our business with integrity in everything we do, playing the game “the right way” even if it means losing a potential project or customer or partner, is always the right way to play the game.
Tom Monahan, CEO of the Corporate Executive Board on:
The Role of Business Ethics in Employee Engagement
My focus on ethical management reminds me that I still own a box full of business cards with my name from a company that no longer exists.
My first job out of college was with Arthur Andersen. At the time, it was a single organization and I worked in a division that became Andersen Consulting, and is now Accenture. Arthur Andersen had one of the most ethical cultures I have seen; the best people, the best business systems, and a holistic commitment to performance ethics. Yet, it went from being one of the leading professional services organizations to only a Wikipedia entry in a matter of months, due to unethical behaviors in a reasonably small niche of the firm. The disappearance of my first employer due to ethical failures is a powerful lesson I bring to work everyday.
While this is a somber example of the potential downside from an ethics or compliance failure, I have the opportunity at CEB to see how much upside a manager and leader can create with a focus on this issue. One of CEB’s core strengths is a voracious appetite for quantifying the drivers of corporate performance. We ask ourselves: what do the best companies do to create inordinate value? We have gathered and analyzed millions of data points about employee perceptions and behavior and rigorously tied them to key drivers of corporate productivity. What we found is a strong link between ethical cultures and employee engagement. If an employee works for a company they consider having a strong ethical culture they work harder, stay longer, and are less likely to leave. Collectively, this data points to a 9% productivity boost from ethical leadership in the management ranks. That’s a stunning figure, and for me, maybe even more compelling than the business cards.
While there is a strong link, both ethical behaviors and employee engagement are at risk. What we see happening, across hundreds of thousands of employees at the world’s largest companies, is a perfect storm brewing composed of three different factors.
First, we see heightened employee cynicism about commitment of management to ethical principles and compliance standards, as management teams wrestle with critical issues elsewhere in the business.
Second, unhappy employees are unable to leave their current roles. In a normal economy, if an employee does not like their boss, they can leave. However, today unsatisfied employees are unable to move because of limited opportunities. This results in what we estimate to be about a 7 percent productivity shortfall in most companies as a result of low engagement levels.
Third, employee disengagement is particularly pronounced with the highest potential employees within an organization. These employees are three times as likely to leave as a normal employee once the economy improves. Most business plans I see are built around the commitment of those employees most likely to leave.
So with a huge 9% performance boost to be had, but a “perfect storm” making it difficult for managers to seize it, what should leaders be focused on?
First, ensure consistent messages and ethical behaviors at all levels. Companies claim they employ best practices by using their CEO to reinforce ethical principals in a video or town hall meeting. Companies also need their individual managers to reinforce and demonstrate the appropriate behaviors and values of the organization. Organizations need to make sure that every layer of leadership in the company communicates the same ethically grounded priorities and then lives up to them.
Second, help employees understand how their role contributes to company strategy One of the most important things for an employee to know is how his or her behaviors and actions makes a difference, and that his or her work is connected in some way to the strategic goals of the enterprise. CEOs have spent a lot of time over the last year thinking about survival in another day, week or quarter. That has clearly been the right strategy for this past year, but now it is time to lift up again, and reinforce employees’ connection to the enterprise.
Third, help employees re-forge personal networks. Having a personal network at work is a key support mechanism for ensuring ethical behaviors. These networks were certainly disrupted by the rounds of corporate downsizing this past year. And rebuilding them has become more difficult in a world where people are scattered across geographies, with work following the sun 24 hours a day. A lot of organizations are working to make sure their employees are forging connections that transcend where they are physically located.
At CEB, we serve – and learn from – the world’s best companies every day. These companies have taught us that ethical behavior can drive productivity and performance in a measurable way, and needs to be managed with the same intensity as the strategic moves that have helped companies survive the economic downturn.
From an employer perspective, these actions create a much more engaged work force, and increased productivity. If you need an additional reason to implement these ideas, you can also think about this: it’s no fun to have a box of business cards for positions and companies that don’t exist anymore.
Bob Lane, Chairman of John Deere on:
The Role of Business Ethics in Tone from the Top
Tone at the top, a much discussed term, is vital and necessary, but it is not sufficient for an ethical culture. For that, a strong tone needs to be reinforced, up and down the corporation, with defined processes, procedures and examples. The ethical fiber of a company does not rest solely in words or codes of conduct, but in the actual behavior observed by suppliers, dealers, customers, and employees. At John Deere this is summed up in a highly visible, frequently referenced shorthand known as “the how.”
Observers need jolting evidence of the tone at the top, often a resolute willingness on management’s part to miss revenue or earnings targets — or even lose key talent — in order to do things the right way. Typically, in a high performance culture like John Deere, under these conditions no stone is left unturned in finding alternative ways to get the job done properly. Thus, in the end, rigorous performance targets are met squarely in the right way.
Ironically, the unmistakable linking of words and deeds in all aspects of the business is one of the best ways to assure that ethical tone is matched with actions. At John Deere, for example, people came to realize that management was talking seriously about dramatically improving asset turnover, not an ethical issue per se. Skeptics reasonably thought that when a sale was potentially at risk, Deere would abandon its tough talk and revert to the standard industry practice of shipping an overabundance of product, even without firm evidence of retail activity. In the end, Deere’s actions did match its words, and the business improved dramatically.
In the same way, ethical talk requires the muscle of deeds, such as changing a supplier or avoiding business opportunities in certain countries when business cannot be conducted in the right way. In these cases, words are backed up with documented practices, processes, and procedures, all understood around the globe.
In a widely published internal interview on only his second day on the job Sam Allen, the new President and CEO of John Deere, was asked, “What are you going to change?” His response, very succinctly and wisely, was, “It’s too soon to tell what we’re going to change. But what we’re not going to change is ‘the how’ and the way we do business.”
A strong tone also means that company leadership is regularly engaged with the compliance function. At John Deere, Sam Allen, as CEO, meets one-on-one, every quarter, with the chief compliance officer and the chief internal control officer. They also meet separately with members of the Deere board. As a director, I am also privileged to observe similar strong practices at General Electric and Verizon Communications.
At John Deere and other premier companies, high performing ethical leaders – increasingly from all parts of the world – continue to emerge, trained in proper global processes and practices. As they blossom, we can be optimistic that their words of integrity will be unequivocally backed by their actions.
