As if corporate governance wasn’t already daunting, last year’s amendments to the Federal Sentencing Guidelines for Organizations made it more so. Current thinking is that complying with the law isn’t enough. Corporate governance professionals must help their organizations move beyond legal compliance to ethical behavior. They must be an active force ensuring that ethical behavior takes root in the organization and permeates it.

The Federal Sentencing Guidelines for Organizations (FSGO) were amended in November, 2004 to be more spe-cific regarding ethics. Developed by the U.S. Sentencing Commission in 1991 — almost a decade before the current climate evolved — the Sentencing Guidelines apply more broadly than Sarbanes-Oxley. They address not only public companies, but also private business, non-profit organiza-tions and unions.

The FSGO amendments require that board members, senior executives and “substantial authority personnel” must “pro-mote an organizational culture that encourages ethical con-duct and a commitment to compliance with the law.” This focus on ethics requires more than compliance.
And, although infusing an organization’s culture with ethics is no small task, the benefits are many — among them:

1. Improved mutual trust
2. Better morale
3. Less need for “policing,” and
4. A more collaborative, less authority-driven workforce

Ethics: Exceeding the Standards Set by Law

To accomplish this, organizations must distinguish between compliance and ethics. Codes of Compliance are rule- and law-based. Inflexible, they include descriptions of what constitutes violations and what disciplinary actions result. Codes of Ethics are based on values, aspirations and vision. Rather than focus on wrongdoing, they are open to the application of analysis, reason and decision-making.

Organizations may have separate Codes of Compliance and of Ethics or may blend the two but must be absolutely clear on what constitutes each and what the expected behaviors are for each. According to Insight 2000, a report of the Fellows Program of the Ethics Resource Center, “Ethics offi-cers and leaders naturally have assumptions about the scope, roles, structures and required investments of an orga-nizational initiative focused on ethical values. More times than not, these assumptions are not adequately differentiat-ed from those required for legal compliance.”

The ERC report lists possible pitfalls of not adequately differentiating compliance from ethics, among them:

1. Implementing compliance-oriented systems and structures that inhibit using values for organizational and individual decision-making.
2. Failing to recognize that ethics-based programs and compliance programs require different definitions for success.
3. Inaccurate communications about an organization’s focus to stakeholders, creating unfulfilled expectations.

The challenge for corporate governance professionals is to know the roadmap for achieving a Code of Ethics. Compliance is straightforward; ethics presents a wide field for choice. Ethics codes are based on organizational values and priorities, as well as vision, and must be fully fleshed out, explained and interpreted so that employees have a set of decision heuristics to act independently but in alignment with the organization and its values.

This is a difficult undertaking to accomplish without external help. In addition to issues of expertise and manpower is the simple one of objectivity: Most organizations need a fresh perspective to determine values and a new paradigm for driving ethical decision-making deep into the organizational culture. Leadership is the key to making this happen. However, leaders can get boxed in by their successes and their authority tends to isolate them. Consulting firms of various sizes and capabilities can help throughout the organ-ization from the Board to the plant worker. Training organ-izations can support implementation of these programs.

The Obligation of Leadership

Leaders must set the tone of an organization’s culture, ethi-cal or otherwise. While leadership of an organization is usually composed of people who are “good” people, being a “good” person is not enough. Not only must the leadership be mindful and aware of their values and intentions and be able to imbue these throughout the organization to mobilize all employees toward the vision, the leadership must be mindful of their roles as leaders.

Further, leaders should not be satisfied simply to communi-cate the importance of ethics but should be obligated to tele-graph and to model ethical behavior. This is not a task that can be done superficially; it takes personal time and involve-ment and must be sustained.

In order to be accountable in this way, leaders — including corporate secretaries and governance professionals — must be intentional about ethics. It’s no longer a case of shared assumptions or lip service. What are we talking about when we talk about ethics? How are they to be interpreted and applied in organizations?

Ethics and moral philosophy require study and research for understanding; however, a quick survey can reveal the extent to which ethics demands to be explored.

Values, Morals and Ethics

The underpinnings of ethics are values and morals. Use of these words is often politically loaded, but in and of themselves, they represent neutral concepts.
Values are the glue of any community including a business or corporation. Morals keep it functioning and orderly. There are different kinds of values, both moral (“don’t lie”) and non-moral (aesthetic, economic, educational).

We acquire values when we are children along with lan-guage and other socialized behaviors. We are largely unaware of them; they motivate our behavior and choices. Values are the personal, or individual, building blocks for morals. The actions resulting from value-based choices usually have an effect that intersects with someone else’s life or value-system; the common definition of what is accept-able for this playing out of personal values is “morality.”

As we grow into adulthood, values determine what is important in our lives. Usually we don’t consciously exam-ine, review or systematize our values until we experience a challenge which triggers a reaction – not a considered response, but a reaction. This is an important point that bears on decision-making when ethical dilemmas arise. According to Socrates (the Father of Ethics) and the ancient Greek philosophers, we need to be mindful about our values — what is driving us — so that when presented with an eth-ical dilemma, we can make a reasoned, intelligent and moral choice: We must do the right thing for the right reason.

Reactive behavior is unthinking behavior; we may own it, but it arises out of habitual, ingrained patterns, not out of fresh, sentient problem-solving. According to the ancients, the unquestioned following of rules — and, I might add, even the conscious following of rules (compliance) — does not equal a moral (or ethical) life.

In the corporate world, it is in the best interest of the organization to ensure its communal values are examined, evaluated and shared with stakeholders so that ethical decision-making is a conscious process: deliberate and aligned with stated corporate values and standards.

Further, moral conscience involves thinking of others, as in the Golden Rule: Do unto others as you would have others do unto you. At its core, moral conscience is about creating human connection as well as mutual trust. For both profit-making and non-profit organizations, trust is at the core of an ethical organization as well as a high-morale, highly productive organization with an esprit de corps.

Creating an Ethical Organizational Culture

To create an ethical organizational culture, leaders must go beyond the “vision thing” that has been so popular in man-agement jargon and must substantiate vision with well-con-sidered and examined values that are germane to its priori-ties, goals and success. It is a matter of not letting the external environment – the market, competitive landscape, available technology, laws and regulations – dominate lead-ers’ knowledge, intuition and experience, including what is right, what is balanced, what works, doesn’t work or could work, and – above all – what is principled. That is to say, leaders must not be reactive but centered.

When we talk about an organizational culture as opposed to an organization, we are talking about people: their develop-ment, preferences, skills, knowledge, values. An ethical cul-ture therefore is one where ethical behavior — based on common knowledge, values, and rules for decision-making
— is embedded, not only superficially communicated.

An organization based on trust — trust in the leadership and trust in each other — arrives at the best solutions and avoids wasting time on internal competition and politics. An ethical organization is not based on a command-and-control, top-down punitive model. Instead it is rooted in an organizational model of learning and shared decision-making, which is not only a strong model, but a flexible one.
An elite force like the U.S. Marines knows this. In the June 27 issue of Fortune magazine, which focused on decision-making, General Peter Pace of the U.S. Marine Corps and vice chairman of the Joint Chiefs of Staff, said, “On a bat-tlefield, you don’t have time to gather a lot of opinions . . . . What I have learned is that if you’re collaborative when you can be, it builds trust, so that when you have to decide right now, folks are more likely to trust your decision. . . .”

Embedding Ethics: From Code to Behavior

Once intentional ethical leadership is established, the chal-lenge is to mobilize the entire organization to act ethically. Mobilization calls for ethical behavior to become so ingrained throughout the organization that it becomes part of the day-to-day behavior of employees.

Unfortunately, many organizations approach developing an ethical code with dispatch rather than thoroughness, and they communicate it in the same way. Ethics codes are rolled out with announcements, posters, slogans, newsletters. Perhaps they are followed up with a discussion group or workshop. But it is not enough to effect behavioral change. Leaders must be comfortable talking about ethics and must be actively involved in participating in discussions about ethical behavior in the organization. The leadership must be clear about accountability, expectations and the importance of reporting unethical behavior or misconduct.

The ethics code and dialogs within the organization about ethics need to include the reasons particular values are rele-vant to that organization’s business; examples of ethical dilemmas and decisions with explanations of the decision-making process; industry case studies or best practices, or case studies from within the company. The goal is to make these standards accepted and practicable in every corner of the organization. Ethical standards that are truly integrated into the behavior of every employee will help prevent the kind of cynicism or alienation that destroys collaboration and the team mentality.

Workable ethical standards — along with mindful reinforce-ment on the part of the organization — means that everyone understands expectations and consequences down to the tactical, everyday level: How are people in your organiza-tion treated by each other, supervisors, managers, senior leaders? What are the rewards and punishments for behav-ior? Are the guidelines about reporting misconduct clear and enforced . . . and enforced impartially? Is there a struc-ture or system for discussion of questions that arise regard-ing dilemmas? Will ethical decisions make employees out-casts or team players? What does the organization expect of each individual regarding ethics? How is each individual, given their role in the organization, accountable?

Corporate governance professionals must think more widely about ethics and ethical organizations in order to give the best counsel and the best ideas to those they work with. They need to make alliances within and outside of their organizations to spark the changes needed not just to com-ply with the law but to go beyond what the law requires to sustain individual and corporate integrity.

Barbara Palmer is a corporate and marketing communications consultant and speechwriter with more than 20 years experience in the field. She is also an executive coach who provides one-on-one guidance to senior executives and managers.

Ms. Palmer draws on 10 years' experience at two of the country's largest public relations firms: Burson-Marsteller (NY) and, subsequently, Cohn & Wolfe (NY), where she was vice president, group manager, for business-to-business clients. She also draws on the success of her own company, Palmer Communications, where she has worked with a variety of clients for the last 14 years.
Ms. Palmer has been a judge for the public relations industry's New England Bell Ringer Award and has developed and taught business writing and speechwriting seminars for Women in Communications and New York University's School of Continuing Education. She is a member of the International Coaching Federation.

Reprinted from the Autumn 2005 Issue of the Society Newsletter

Palmer Coaching & Consulting • New York
All material on this Web site is owned by Palmer Coaching & Consulting ™
Any reproduction or use of its content is prohibited without permission of it's owner.
Not responsible for typographical errors.
Palmer Coaching & Consulting © 2008