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Ethics & Employees On this pages
* * * Working Paper Examines Possible Link Between Overconfident Executives and FraudExcerpts from a new Knowledge@Wharton article."Reprinted with permission from Knowledge@Wharton - the online research and business analysis journal of the Wharton School of the University of Pennsylvania." No one makes it to the top ranks of corporate management without a healthy amount of self-assurance. Confidence underlies decisive, strong leadership, but does overconfidence lead managers to cross the line and commit fraud? New Wharton research that combines results from the psychology literature and SEC fraud enforcement records is examining how top executives might be inclined to engage in fraudulent behavior because they are overconfident about their firm's ability to perform in the future. Wharton accounting professor Catherine M. Schrand and doctoral student Sarah L. C. Zechman are developing a paper titled, "Executive Overconfidence and the Slippery Slope to Fraud" that examines patterns in frauds to determine if some frauds evolve, not out of pure self-interest, but because executives are overly optimistic that they can turn their firms around before fraudulent behavior catches up with them. Schrand describes the path leading to fraud. An executive believes his firm is experiencing only a bad quarter or patch of bad luck. He also believes it is in the best interest of everyone involved -- management, employees, customers, creditors and shareholders -- to cover up the problem in the short term so that these constituents do not misinterpret the current poor performance as a sign of the future. In addition, he is convinced that down the road the company will make up for the current period of poor performance. It is the optimistic executive or overconfident executive who is more likely to have these beliefs. "He may stretch the rules just a bit or engage in what you might call a 'gray area' of earnings management. But say it turns out that he was wrong and things don't turn around as expected," Schrand continues. "Then he has to make up for the prior period. That requires continuing fraudulent behavior and he has to do even more in the current quarter." Keeping Up the Charade The authors explore the relationship between executive confidence and fraud across industry, firm and individual variables. They found fraud is more likely in industries that are complex and undergoing rapid growth, such as high-tech. Schrand notes that the most meaningful variable in linking fraud to specific industries is high stock-return volatility. As further evidence, the researchers examined firm and individual characteristics to gauge the effect of overconfidence on fraud. To observe trends, the study compared firms that had been identified by the SEC as experiencing fraud to a matching sample of firms of similar size and in the same industries that had not been sanctioned by the SEC. Premeditated vs. Accidental On the firm level, she says, the research focuses on looking at other decisions made by firms exhibiting fraud -- including dividend policy, capital structure and tax strategy -- that also are correlated with executive overconfidence. If overconfidence is the explanation for fraud, then firms at which fraud occurred should make other decisions that reflect overconfidence. Schrand notes as an example that theses firms also tend to pay lower dividends, or no dividends, compared to matching firms. "This finding is consistent with survey evidence about overconfident executives and dividend policy. The idea is that overconfident executives think they have something better to do with the money than pay it out in dividends," says Schrand. When it comes to looking at the individual characteristics of executives likely to commit fraud, the analysis is not that statistically compelling, Schrand cautions. The psychology literature identifies individual characteristics that are related to overconfidence -- such as commitment to a project -- and characteristics of the decision maker based on his experience, such as past successes, education or military service, and even fundamental traits, such as gender. The authors also looked into the role of corporate governance as a device to alter the relationship between overconfidence and fraud. They found no significant differences between the fraudulent firms and the matching sample on commonly studied governance features such as block ownership, board size and board composition. The paper says this result suggests executives at fraudulent firms were more overconfident than those at firms where fraud did not occur, and that better governance was not in place to counteract their tendency to commit fraud. Just because overconfidence might lead to bad decisions in particular circumstances, it should not be the only, or even primary, consideration when evaluating executives, Schrand says, adding that a growing body of literature indicates that confident and optimistic leaders might make what would be viewed as bad decisions in certain circumstances, but overall, they also have assets that any firm needs to succeed. "Given that the firm has to hire the whole person, you might actually want somebody who exhibits this bias. But, you should recognize that the overconfidence, which has its positive aspects, can also have a downside." Posted 3/7/08
* * * Ban Ki-Moon Attempts to Boost Ethical Standards Inside the UNAfter disclosing his own financial records, the United Nations' Secretary-General is encouraging senior officials to do so as well
Xinhua reported more than 90 senior UN officials have followed the lead of UN chief Ban Ki-moon to disclose their 2007 financial statements. Ban and UN Deputy Secretary-General Asha-Rose Migiro made their financial disclosure statements public in 2007. According to Xinhua, each official's statement must be reviewed by Pricewaterhouse Coopers, a firm hired by the UN to examine such documents, before a public summary is made available. At a senior officials retreat in August 2007, Ban emphasized his belief in public disclosure: “Because I believe in leadership from the top, I have made complete, public disclosure of my assets -- in a way that no Secretary-General has done before. I have been loud and clear about honesty: our UN will not tolerate corruption or abuse of power.” The Secretary General has dedicated a special section on the website to “Ethical Standards,” under his own self-named category. Here, one can view the disclosure statements of both Ban and Asha-Rose, as well as the newly added statements of senior officials. Public disclosure is not a requirement of the UN Financial Disclosure Program, according to the UN website, and is done so on a voluntary basis. The primary purpose of the program is to ensure that potential conflicts of interest arising from staff members' financial holdings, private affiliations or outside activities can be identified, and advice provided as to how best to manage any potential conflicts of interests in the best interests of the UN. Posted 2/4/08* * * Secrets of Leadership Success: Assuaging Executive PomposityAt a business leadership conference, sponsored in part by Wharton Executive Education, two speakers, Lee Hecht Harrison and Richard Greene, addressed the issue of how to create an “ethical culture” starting with executive leadership. Harrison redefines “ethics” in terms of “decent” acts. Greene emphasizes how effective public speaking can go a long way in earning respect. The following are excerpts from the summary of their presentations, posted by the Wharton Business School.Reprinted with permission from Knowledge@Wharton - the online research and business analysis journal of the Wharton School of the University of Pennsylvania., USA After realizing the need for recognizing the importance of promoting an ethical organizational culture, and adding it to the US Federal Sentencing Guidelines, Lee Hecht Harrison was appointed Worldwide Chief Ethics and Compliance Officer of Adecco, an international human resource management company. In this position, he redefined what it meant for a company to be ethical. What he concluded mirrors the words of former SEC Commissioner Cynthia Glassman, who said that while the government can mandate ethical compliance, “we cannot legislate ethical behavior.” For Harrison, even the word “ethics” itself seems too abstract; he replaces it with what he sees as a more intuitive, common-sense word: decency. “Our willingness to be decent at work cannot depend on whether business is up or whether we’re in a bad mood or whether it’s raining. Decencies don’t amount to anything unless we take the trouble to make them come alive through concrete acts in all kinds of weather,” Harrison said. For those at the top, this can mean such actions as being the first to volunteer for ethics training; honoring those with unglamorous jobs, like office cleaning; and listening to people at all levels of the organization. He also counseled executives to avoid the trap of “executive pomposity.” Being generous with praise and recognition will earn leaders what Harrison calls “psychic income.” At the end of the day, said Harrison, the words of poet Maya Angelou ring true: People will forget what you said, they will even forget what you did, but they will never forget what you made them feel.” Stirring up feelings is one skill Richard Greene, public speaking coach, believes is lacking among many individuals today. The first task of a speaker is to realize his or her purpose in speaking, wither it involves addressing several prospective customers across a boardroom table or a convention of thousands. One of the biggest pitfalls for speakers in a corporate communication setting is perceiving a speech or presentation as a performance. The best communicators have understood that public speaking is not a performance; it’s about making a connection with others, Greene said. Greene offered advice that can be summed up in four words: “it’s not about you.” To read the entire summary, see the posting on Wharton's website.Posted 8/27/07* * * Leading Corporate Integrity: Defining the Role of the Chief Ethics and Compliance Office A Report by Representatives of leading U.S. business ethics organizations that came together under the auspices of the Fellows Program of the Ethics Resource Center. This is the first cooperative study of its kind by these institutions: The Business Roundtable Institute for Corporate Ethics The Ethics and Compliance Officer Association (ECOA) The Open Compliance and Ethics Group (OCEG) The Society of Corporate Compliance & Ethics (SCCE) From the report: - A close look at ethics and compliance programs across companies suggests that
there is wide disagreement about the best way to situate a CECO. Conversations Key Findings: Today, many organizations are choosing to consolidate the critical responsibility for ethics and compliance programs under a chief ethics and compliance officer (CECO).But the specific roles and reporting lines for this relative newcomer among corporate management positions are not always clearly defined; many CECOs report feeling set up for failure due to insufficient authority or inadequate resources. This paper is intended to serve as the starting point for a dialogue within corporate management circles—particularly among CEOs, boards of directors and the CECOs themselves—about the proper placement, qualifications, and responsibilities for a leader of the corporate ethics and compliance function. This paper also provides resources and identifies additional steps for further examination of this critical management function. The Bottom Line: CECOs Add Value CECOs whose roles are clearly and properly defined and who are empowered to • Help provide shelter from severe sanctions in the event of legal/regulatory difficulty; The Cornerstone: A Clearly Defined Role To truly be a value-added function, the CECO must have a well-defined role and be endowed with adequate resources. This demands a balance between tailoring the job to an organization’s unique characteristics and providing the CECO with the basic authority and tools that should be universal for all who hold such positions. At minimum, a CECO should be: The CECO also must have the financial and human resources necessary to comprehensively promote standards, educate the workforce, and respond to potential violations in a timely manner. Assuring Access and Independence: Reporting Relationships & A CECO’s line of reporting is perhaps the single biggest influence on his or her credibility and authority within the organization. Ideally, the CECO will have: • Employment decided and terminated only at the direction of the board of directors; The CECO position should be augmented by the board’s appointment of one independent director or member of the audit committee, knowledgeable about business ethics and compliance, with accountability for ethics and compliance. Responsibilities: Being a Full Member of the Executive Team A CECO should be a full member of executive leadership, expected to: • Oversee assessment of organizational risk for misconduct and noncompliance; * * * Taking A Step Back – How 48 Top Executive’s See Business’ Role in Society “Never has it been more important to know what is on the minds of corporate leaders. Companies are being driven by short-term demands while the challenges of a rapidly changing world require them to address long-term issues. In this climate, the role of business is being redefined..,” So begins Step Up: A Call for Business Leadership in Society, a January 2007 report by the Boston College Center for Corporate Citizenship (BCCC) based on the interviews of 48 top executives—including 26 CEOs—representing 27 major multinational companies including IBM, Citigroup, GE, Nestle, and Verizon. EthicsWorld has featured research showing the importance of leadership in building and managing ethical companies (see Moral Management). However, BCCC’s report reveals a surprising level of ambiguity in the minds of corporate executives on broad ethical issues. The report highlights areas where further discussion, innovation, and clarification are needed. The following are some of the reports key findings: How Executives Define Business’ Role in Society ”Each executive interviewed chose the definition they said best describes how business relates to society: 27% In pursuing private profit, companies should take care to protect the environment, uphold the rights of workers, and be a good neighbor to communities. 25% A company should lead with its heart and nurture its soul as it makes money. It should inspire other companies to aim high. It should do more than simply avoid doing harm; it should consciously seek to do good. 23% Other 15% Unprincipled capitalism ultimately inflicts damage on all its stakeholders. The good company leads by demonstrating the moral principles of capitalism, and by showing the connection between those principles and financial success. 6% The private search for profit advances the public good. An executive's duty is to create wealth for investors. Society is best served when a company does well. 4% Private enterprise best serves the public good when it is subject to public intervention (e.g. taxation, publicspending, regulation). It is government's role to correct market failures. Business should not decide matters of public policy." Dynamics Driving Change The executives identified four major dynamics that are driving the change in the business-society relationship: globalization, corporate governance, a new social contract, and the role of government. Limits on Corporate Responses The CEOs identified 7 factors which they believe most limit current corporate responses to CSR: 1. Making Values Meaningful - While there was much discussion about companies “living there values,” many CEOs were hesitant to go into detail about how these values are implemented, managed both on a day-to-day basis and in times of ethical crises. The report highlights confusion over how to build values-based organizations – it points out an stalemate between the recognition that values cannot always be codified and the reality that without rules and means of measurement, they are difficult to administer in corporate cultures that stress efficiency and productivity.2. Rules Based Enterprise – Many of the interviewees believe business is becoming too regulated, hindering efficiency. 3. Limitations of Corporate Responsibility - Reflecting the above resistance to regulation – many executives believe CSR should be a voluntary initiative. The current structure of many companies narrows corporate social responsibility: “Major companies have various offices and officers to deal with that relationship [business and society] , from the general counsel, to the community affairs office, to lobbyists, and so on. Corporate responsibility is only a small part of this, and may not even be referred to at all when confronting major aspects of the business-society relationship such as corporate taxation, tort reform, and investments. For the most part, it offers little practical guidance about wrestling with the negative externalities of efficiency and competitiveness (e.g. the consequences for workforce consolidation), even though companies frequently deal with the consequences of this (e.g. severance packages, placements), and they are an important element of how companies are perceived." 4. Company Resources Alone are Never Enough – to effectively tackle many issues, even when business' work together. 5. Influence of Ownership - The report notes that many of the executives talking in terms of values-based companies are mostly in charge of private firms or partnerships. As articulated by Unocal Chairman and CEO Chuck Williamson: “On the one hand, you’ve got Wall Street squeezing you harder and harder for shorter and shorter term performance. On the other hand, you have a broader constituent base that wants more than financial results. … Most CEOs will tell you, ‘This is damn hard work.’” 6. The Media and Others - Executives said that the black-and-white way that the media and others, such as academics, cover the business-society relationship limits their flexibility in dealing with social issues. For instance, academic ecnomists often treat corporate attempts to consider environmental or social concerns as a waste of money while the media often demonizes companies for their impact on larger society. 7. Leadership - “Part of what we see today is executives who want to address societal issues because they are important to their companies and business as a whole, yet hesitant to take it too far because of the reaction that may come from investors, analysts, board members, or the media. As a result, more often than statements about leadership, what one hears from executives is a desire to achieve what they can while keeping a low profile.” What Needs To Be Tackled The report lists four themes that must be tackled in order to clarify confusion over the business-society relationship: For the full report, including a list of executives interviewed and quotes in each of the above sections, visit BCCC's website. Posted 2/15/07 * * * Business Leadership's Responsibility to Employee Health In a new report - Working Towards Wellness: Accelerating the Prevention of Chronic Disease - developed in conjunction with the World Economic Forum’s Working Towards Wellness initiative to increase business engagement in preventing chronic diseases - PriceWaterhouseCoopers (PWC), a professional services firm, describes how and why the business world should help prevent chronic diseases by implementing workplace wellness programs. "With the commitment of business leaders, workplace wellness strategies and collaboration of public-private partnerships," it argues, "the epidemic of chronic disease can be managed effectively. In doing so, employers can enhance the productivity of the workforce, reduce the growing burden of healthcare costs, make the workplace more attractive and build a better and more healthy global community.” The following summarizes key sections of the report: The Economic Costs of Chronic Disease and The Business Case for PreventionAccording to PWC, chronic disease is the leading cause of death and disability worldwide and caused approximately 60% of deaths in 2005. Furthermore, only 3% of all government health expenditure was directed at prevention and public health in 2004 in the member countries of the Organization for Economic Cooperation and Development (OECD) – a number which many businesses and policymakers acknowledge is insufficient. Because of this and because most of the active workforce (approx. 54% of the global population) spend the majority of the their time at work (the nature of which, the report notes, is becoming more sedentary and unhealthy) businesses have an enormous opportunity to use the workplace to promote long-term behavioural changes that will benefit not only employees and communities – but also their bottom lines. PWC reports that there are several reasons businesses implement wellness programs:
Standards for Implementing Wellness Programs PWC argues that preventing chronic diseases requires a strategy that begins with standards for structuring and measuring success. These are:
The process for implementing these standards is depicted below:
To access the full report visit PWC's website. Posted 2/7/07 * * * Leadership Qualities and Management Competencies for Research developed in the UK and based upon a broad range of experiences at such major multinational corporations as IBM, Shell, Cargill and Unilever, highlights pragmatic approaches to training executives for managing the challenges of corporate social responsibility – both at headquarters and abroad. The research has been pursued by Director of Research and Development Andrew Wilson, Patricia Hind on Ashridge's faculty, and Prof. Gilbert Lenssen of the European Academy of Business and Society (EABS) and published by Ashridge Business School in the UK in its July 2006 report to EABS, ‘Leadership Qualities and Management Competencies for Corporate Responsibility.’ It is of value to both corporations and to business schools that are now increasing their focus on CSR. The report argues that in order for a company to be truly responsible, its management must learn to reflexively integrate social and environmental considerations into their everyday business decision-making processes. While organizational culture plays a large role in facilitating ethical considerations, the authors believe companies can also encourage socially responsible decision making by ensuring their leaders and managers possess a certain set of ‘competencies,’ which can be taught and developed. They argue that there are five ‘reflexive abilities’ which responsible leaders must possess in order to effectively integrate social and environmental considerations into their management: 1. systemic thinking 2. embracing diversity and managing risk 3. balancing global and local perspectives 4. meaningful dialogue and developing a new language and 5. emotional awareness. In the following excerpts from the report, the authors present case studies outlining the way in which several of the organizations studied are training their employees in these skills. Finally, they offer suggestions for business schools on developing responsible leaders. Case Studies in Developing Responsible Leaders
Three Lessons for Business Schools 1. First, drawing from the direct experience of the companies participating in this research, it is clear that management development for corporate responsibility needs to address fundamental questions of how an individual views the world – how he or she ascribes value to certain types of management and corporate behaviour. Developing a person’s knowledge and skills will inform their world view and values to a certain extent. However, the reflexive abilities identified through this research describe the more fundamental features of an individual’s character and personality. Giving people the opportunity to question, explore and make meaning of the values and assumptions that inform their decision-making process requires a carefully structured process of analysis and reflection – something that is not necessarily compatible with much of the traditional content of management development programmes in business schools. 2. Second, the experience of businesses outlined above suggests that this process cannot necessarily be done in the traditional classroom environment. There is a strong need for greater use of experiential learning techniques – exposing people directly to the situation and giving them the opportunity to reflect and experiment with potential ways of dealing with the experience. 3. Third, it is vitally important that a traditional European business education should avoid what some describe as “cultural imperialism” – inadvertently promoting the social, political and economic norms and values of an Anglo-American business viewpoint. As we reported in Section Four, interviewees argued strongly that responsible leadership requires an appreciation of culture diversity. This view was extended by some to question the use of business models that focus exclusively on maximizing shareholder returns to the exclusion of other stakeholders. For more case studies and the full report, see Ashbridge’s website. Posted 1/11/07 * * * India’s Infosys: A Case Study for Attaining Both Ethical Excellence and Business Success in a Developing Country To download this article as .pdf Infosys Opens NASDAQ, Co-Founder Moves Up to Chief Mentor Post
Infosys’s stresses that its operations are driven by key values that it calls C-LIFE:
Infosys stresses that at the core of its corporate governance practice is the Board, which oversees how the management serves and protects the long-term interests of all the stakeholders of the company. It states: “We believe that an active, well-informed and independent Board is necessary to ensure the highest standards of corporate governance. Majority of the Board, 9 out of 16, are independent members. Further, we have compensation, nomination, investor grievance and audit committees, which are comprised of independent directors.” Murthy is the chairman of the governing body of the Indian Institute of Information Technology, Bangalore and the Indian Institute of Management, Ahmedabad. He was the Chairman of the Committee on Corporate Governance appointed by the Securities and Exchange Board of India (SEBI) in 2003. He is a member of the Board of Overseers of the University of Pennsylvania's Wharton School; Cornell University Board of Trustees; Singapore Management University Board of Trustees; INSEAD's Board of Directors and the Asian Institute of Management's Board of Governors. He is also a member of the Advisory Boards and Councils of the William F. Achtmeyer Center for Global Leadership at the Tuck School of Business, the Corporate Governance initiative at the Harvard Business School, and the Yale University President's Council on International Activities. * * * Stewardship Ethics – A Model for Reform in Corporate America“Profit with Honor – The New Stage of Market Capitalism” In his new book, “Profit with Honor: The New Stage of Market Capitalism,” Daniel Yankelovich, chairman of Viewpoint Learning of Public Agenda, seeks to explain and provide solutions to the current crises of corporate scandals and mistrust in American business. He examines the social and historical context in which these scandals are taking place and which influenced them. Drawing from history, corporate case studies, and his research experience in the fields of public opinion and social values, Yankelovich argues that American society has abandoned its traditional belief in “enlightened self interest” of “doing well by doing good” and has instead adopted a narrow, legalistic view of right and wrong (“If I didn’t break the law, I didn’t do anything wrong”). According to Yankelovich laws and regulations can only go so far in curbing abuse. He suggests that the performance pressures on business people, combined with the powerful effect of group-think within institutions, ensures that corporate America continues to find ways to avoid and to manipulate even the most draconian of regulations. He offers a normative solution to the current crisis: a model of stewardship ethics, which needs to work in tandem with regulations, and which he believes can benefit and strengthen not only communities and corporate stakeholders, but also the corporations and individuals working in them. Innovative business leaders can advance market capitalism to its next stage of evolution by encouraging business norms that concurrently stress the legitimacy of profit making as well as, and as much as, the importance of the guardianship roles that companies give to employees, customers, and the larger society. Yankelovich begins by describing how a set of normative and economic trends, namely deregulation, the linking of executive compensation to stock performance, and the introduction of “win for myself” values, have led to the string of corporate scandals that started in 2000 with Enron’s bankruptcy. These trends created the conditions for what he terms a “perfect storm,” the results of which are illustrated by stories of corporate scandal in the media and by mounting mistrust in and cynicism of business. According to Yankelovich, the current period of mistrust is not unique. He points out that there have been several episodes of low confidence in American business. Following each episode, he writes, the business community worked hard to regain public trust only to betray it once more. Each time this happens, Yankelovich argues, it becomes harder and harder for corporate American to regain the legitimacy it once enjoyed, a phenomenon he refers to as the “screwed again affect.” As a result, we are now in the midst of a record high of cynicism towards the social value and ethical potential of the capitalist system. What led to this high? Yankelovich attributes the current corporate moral crisis to “seven deadly norms” currently functioning within American corporate culture, many of which are out-growths of larger societal values, such as individualism and laissez-faire doctrine. These are: 1. The equating of wrongdoing exclusively with illegality. In order to weaken the stronghold that these norms exert on corporate thinking and practice, Yankelovich argues that business leaders, namely top management and Board Directors, whom he believes have the greatest ability to drive the impetus for change, must aggressively pursue stewardship ethics in every decision they make, all-the-while ensuring that their employees do the same. In promoting stewardship ethics as a new model for business ethics, Yankelovich is keen to emphasize its differences from the Corporate Social Responsibility (CSR) movement:
According to Yankelovich, stewardship ethics reflect the widely-accepted idea that more is expected of those of those with substantial resources and economic power: in every business decision, companies and the individuals that manage them must view themselves as “guardians” - protecting and balancing a diverse array of interests for the long-term. Central to stewardship ethics are the concepts of selectivity and caring – that is, choosing specific stakeholders to care for in business decisions and aligning the companies interests with theirs while at the same time taking into consideration changing societal and industry-specific conditions. Equally important in Yankelovich’s vision is the idea of “enlightened” self-interest, which resists the short-term, stock market driven incentives that have led many business into scandal, and instead opts for long-term success. To accomplish this he makes several suggestions, including extending the holding period before a CEO can sell his or her stock or linking executive compensation to variables such as return on equity, cost control, and revenue and profit growth, that reflect the company’s actual performance, rather than its stock price. Long-term self-interest, Yankelovich writes, relates to trust, most importantly from employees and consumers, which, when earned, translates into enormous long-term profitability. Particularly in a democracy, where so many interactions hinge on good status, trust, and more broadly reputation, can constitute a company’s most valuable asset. At the end of “Profit with Honor” Yankelovich offers solutions for several vital tactical issues involved in implementing stewardship ethics, such as dealing with the issue of disappointing Wall Street expectations; balancing the interests of other stakeholders with those of shareholders; staving off “win-at-all costs” norms; and, reconciling profitability with stewardship ethics. * * *
This is the title of landmark research undertaken several years ago. As the Enron trial is taking place, as corporate ethics are more in the headlines than ever, and as the new National Business Ethics Survey by the Ethics Resource Center highlights the crucial role of corporate culture on perceptions of workplace ethics, EthicsWorld believes that these findings are of particular importance and relevance in today’s corporate environment.
A reputation for ethical leadership rests upon two essential pillars: perceptions of you as both a moral person and a moral manager.The executive as a moral person is characterized in terms of individual traits such as honesty and integrity. As moral manager, the CEO is thought of as the Chief Ethics Officer of the organization, creating a strong ethics message that gets employees' attention and influences their thoughts and behaviors. Both are necessary. To be perceived as an ethical leader, it is not enough to just be an ethical person. An executive ethical leader must also find ways to focus the organization's attention on ethics and values and to infuse the organization with principles that will guide the actions of all employees. Moral Manager Conclusion * * * When Is The Top Executive’s Personal Integrity a Board Issue? The Fort Worth Star-Telegram newspaper in Texas has been investigating the credential of David Edmondson, Chief Executive Officer of the Radioshak Corporation and found that he not only faced drunken-driving charges, but that he claimed academic credentials that he never had. On February 16, 2006 the Star-Telegram reported that Edmondson admitted to the allegations and that the Board of Directors has launched an investigation using outside counsel. U.S. Boards of Directors have increasingly felt bound to investigate personal ethics issues of top managers when these have become the subject of high-profile rumor. A former CEO of Boeing was asked to resign when rumors spread of an alleged affair with an employee. The new RadioShack case falls into the same category in an era when there is mounting pressure on Boards to ensure that the corporate code of conduct applies to the CEO and that he can serve as an outstanding ethical role model for the company. Research shows that the “tone at the top” has a major influence on a corporation’s culture. * * * The Star-Telegram had previously uncovered inaccuracies in the executive's résumé, which said he held a Bachelor of Science degree, and in his corporate biography, which said he earned degrees in theology and psychology. The college Edmondson attended has no record of his graduation and never offered psychology degrees. "The contents of my resume and the company's website were clearly incorrect," Edmondson said in his statement. "It is my belief that I received a THG diploma, not a BS degree as I asserted. I clearly misstated my academic record, and the responsibility for these misstatements is mine alone. I understand that I cannot now document the ThG diploma." A Th.G. degree is awarded for completing a three-year program in theology. The Star-Telegram began looking into Edmondson's credentials after learning that the executive, who started two churches before making the transition to a full-time business career, is scheduled to go to court in April to fight his third drunken-driving charge. Edmondson was arrested in Southlake in January 2005 on suspicion of driving while intoxicated. The last time Edmondson faced a DWI charge, for a July 2000 arrest in Fort Worth, the offense was reduced to obstruction of a highway and Edmondson received deferred adjudication probation. Edmondson also faced a DWI charge in Dallas County in 1988, before he was employed by RadioShack. He was acquitted in 1990. Back to Top A Model Ethical Business LeaderAaron Feuerstein Receives Leadership in Ethics Award From ERC FellowsOn January 26, 2006 the Fellows of the Ethics Resource Center awarded the 2005 Stanley C. Pace Leadership in Ethics Award at a dinner in Washington DC. Mr. Feuerstein, the former owner and CEO of the Malden Mills company in Lawrence, Massachusetts, lamented that “doing the right thing” is not as natural and as immediate a reaction to ethical problems in business as it should be. He asserted that “outsourcing and offshoring” are trends that go against the grain of “doing the right thing” when it comes to honoring the dignity of corporate employees. Mr. Feuerstein said that the governing principle that employers should have relative to their employees is the biblical notion “to love thy neighbor as thyself.” He said this should be the basis of corporate social responsibility. He said that he always sought to be guided by the core mission statement of his company, which mandated that Malden Mills should be a “caring and ethical corporation that benefits all of its stakeholders – its employees, its community, and its shareholders.” Mr. Feuerstein, 86, has been awarded a host of honorary degrees and many honors for his ethical leadership in business. At the award ceremony the Fellows of the ERC replayed an interview that Mr. Feuerstein gave to the US prime time television program “60 Minutes” on the CBS network 14 years ago, which underscored the extraordinary lengths to which Mr. Feuerstein went to assist his company’s employees when the major Malden Mills plant was destroyed in a fire. Interviewer Morley Safer asked Mr. Feuterstein why he did not just take the $300 million in insurance money, rather than spending a vast sum to keep paying the wages of employees and while rebuilding the plant. He simply replied, “well it was the right thing to do.” The ERC Fellows are corporate chief ethics officers and distinguished business ethics professors. Carol Marshall, Chair of the Fellows Program said, "Mr. Feuerstein is being recognized for his extraordinary efforts to support his firm's employees. His commitment to his employees and to the community of Lawrence is a rare and outstanding example of ethical leadership." It was recalled that immediately after the massive fire the company’s employees all came together and Mr. Feuerstein first assured them that they all would be paid full wages for at least 30 days. He continued to pay the workers. In some respects, as one listened to him and saw the old CBS television segment, it became clear that the bond that the owner of Malden Mills had forged over a lifetime with his employees went far beyond a focus on the maximization of profit for shareholders. He built a deep sense of trust and of “family” which held the company in good shape in difficult times. Mr. Feuerstein was nominated for the Stanley Pace award by ERC Fellow Professor Paul Fiorelli, Director of the Williams College of Business Center of Business Ethics and Social Responsibility, who noted, “Aaron Feuerstein embodies the best of corporate leaders who are willing to risk their own finances for the benefit of other stakeholders. He and his wife Louise continue to demonstrate outstanding support for ethics leadership.”
* * * When the company is in trouble, what are the critical actions the new CEO must take to clean up the ethics mess? The BW article highlights actions taken by CEO John Swainson in the course of the last 12 months as he took the helm of ailing Computer Associates International Inc. and rapidly moved ahead with radical changes. The BW article noted: "Swainson's journey at Computer Associates is a case study of how one chief executive is struggling to pull off a disaster-recovery project. No turnaround is easy, but patching up an outfit that has been beset by scandal is one of the most challenging situations an exec will face. While few will ever have to deal with such an extreme case, the hurdles Swainson faces at the $3.5 billion company can provide leadership lessons for any manager. * * * Why Ethical Leaders Are Different
In a May 2005 report, the author pointed out that many reforms have been seen in recent times, but their value is questionable if “a company does not have ethical leaders who are insistent on establishing within their companies an environment of trust, accountability, and transparency.” Excerpts from Mr. Berenbeim’s Essay: Ethical Leaders Don’t Hide From Debate. As an example of ethical leadership of the highest order, consider the case of Jawaharlal Nehru. In 1937, Nehru had just been elected to a second consecutive term as President of the Indian National Parliament…Nehru understood that a leader is most ethical—and effective—when his or her power is limited both by institutional arrangements and the criticism that results from harsh public scrutiny. If the Congress Party and the Indian press lacked these resources, he believed that it was necessary for him to supply the discipline that these countervailing forces ordinarily would have imposed. An ethical leader understands that open and contentious debate is essential to making the best possible decisions. And openly debated decisions result in better outcomes. Some years ago, a research study focused on the behavior of members of investment clubs, small and somewhat informal gatherings of private individual investors, in the United States. The researchers found that those groups in which the members enjoyed one another’s company, reached consensus quickly, and were unfailingly polite and civil, had a significantly poorer performance record than the clubs whose investment choices were the result of contentious debate. Although encouraging debate is essential, ethical leadership must balance the need for robust discussion with the requirement of commitment to a common purpose. Where such a consensus is lacking there is a danger of polarization which will cause people to avoid the risk of winding up on the wrong side and in so doing limit their comments to information that everyone already has. Ethical Leaders Are Active Participants. The second point to be derived from the Nehru incident is that leaders need to be active participants in the debate over alternatives. In some circles, it has become a fashionable corporate model for the CEO to say to the senior executives, “You people thrash it out, reach a consensus, and send me your recommendation.” Such a decision-making process has serious flaws. The most robust internal processes are of no avail if the leader is exempt from them. Good leaders don’t just subject themselves to the need to test their ideas—they welcome the opportunity and have a zest for intellectual combat. They realize that there is more to leadership than giving orders. Ethical leaders understand that their views and decisions are in large measure determined by their contact with the people they lead. Institutional Sustainability Comes First. The third key principle of ethical leadership well understood by Nehru entails an understanding of limits— not those that are imposed by institutional arrangements, the need for public approval, or even self-discipline—but rather the limits of human mortality. The final task of ethical leadership is to put in place the requirements for institutional sustainability that survives the loss of any one person. Perhaps the best test of leadership is the state of the enterprise 20 years after the leader has left. Are decisions made in an orderly way? Is the leadership accountable? Is the transfer of power completed without serious disruption? Has the founding vision survived but also been able to accommodate itself to changing economic, social, and political realities? * * *
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Now for the first time, the United Nations is making public the financial disclosure statements of those at the Under-Secretary-General and Assistant-Secretary-General level, or the United Nations’ most senior officials. 
