Ethical Business Leadership: EBL in Action
When Ethical Standards are Compromised: What Do We Do Now?

By: David H. Blake, Director, BGS Center for Ethical Business Leadership; Professor Emeritus, Strategic Management, The Paul Merage School of Business, University of California, Irvine


In the last issue of BGS International Exchange, The Center for Ethical Business Leadership reported on a panel discussion with three experts on what company leadership should do to preempt or prevent ethical lapses or missteps during the normal course of business. The panelists were Joan C. Amble, retired Executive Vice President, American Express; Kathleen Edmond, Chief Ethics Officer, Best Buy; and Jose R. Rodriguez, Regional Professional Practice Partner, KPMG LLP and Chairman, KPMG Foundation. While the previous article stressed prevention (always a good place to start), this article presents the ideas and wisdom of the panelists on what should be done after unethical behavior happens and is uncovered.

There is a unique context to each ethical misstep, and thus any response has to take into account:

1) The nature and type of ethical transgression (for a brief discussion of the types of ethical transgressions, see the the EBL website)
2) The impact and consequences for various stakeholders;
3) The corporation's real, as opposed to reputed, value set;
4) The corporate culture;
5) The business's context and its exposure; and
6) The strength and availability of effective leadership dispersed throughout the company.

While each situation requires a specifically tailored response, there is one universal commonality when a company's actions or employees violate ethical standards. No matter how, where, or when it occurs, leadership needs to be prepared to respond and to lead. Our panelists were unanimous in saying that when things go wrong ethical business leadership is the responsibility of many and not just those in the upper regions of the hierarchy. As was emphasized in the previous article, when it comes to matters of ethics, good leadership should exist throughout the company in order to deal with the problem quickly and effectively.

The first section below addresses the question of what to do in the immediate aftermath of the emergence of an ethical problem. The second part discusses the longer-term leadership strategies and remedies that should be implemented.

Early Responder Actions When Bad Things Happen

The panelists agreed that immediately after ethical transgressions surface, it is imperative that leadership in the affected organization addresses the issue quickly and sensitively. Delays, while investigations are conducted and detailed plans drawn up, will contribute to suspicions that the company is insensitive to the harm done and possibly has something to hide. A rapid response, even in small and tentative steps, will demonstrate an acknowledgement that there is a serious and unacceptable problem, a commitment to taking action, and a posture of an authentic, human response, not that of a disembodied bureaucracy. It is the equivalent of saying, "We hear you, and we are with you, for this behavior is not acceptable." When ethical lapses occur, companies must respond rapidly and purposefully in a human and humane way. However, they should not over-react or scare people.

This requires an almost instant assessment of the situation – what is the problem, who are those most impacted, who are the other stakeholders, what must or can be done to care for the aggrieved - while simultaneously putting an immediate end to the offending behavior. A rapid response may prevent an escalation of complexity and anger.

A corollary to immediacy of action is that initial leadership should be assumed by and delegated to those closest, both geographically and functionally, to the location of the problem. As Joan Amble suggested, they know best the facts, the situation, and the context. Local or functional stakeholder groups will probably be more familiar with these employees, have greater confidence in their understanding of the impacts of the breech, and presumably have a greater degree of comfort with and trust in these close-at-hand corporate officials. Yes, it is important for the higher ups to show concern and become personally involved, but building upon local connections will more quickly take advantage of the personal networks that can lead to a calming of the situation while strengthening needed collaboration. Depending upon the nature and seriousness of the issue, in dealing with ethical missteps, local and functional leadership should be expected to play "a" and often "the" leading role, especially early on. This requires that ethical awareness and leadership skills will already have become part of the development strategy and skills for these people.

From the start, the tone established by company representatives (leadership) should be open, empathetic, transparent, reasoned, calm but not empty of concern, and sharply focused on the facts, causes, consequences, and remediation possibilities for the misstep. Bureaucratic talk or legalese will be taken as attempts to obfuscate and may appear condescending to affected stakeholders. An honest "I don't know; we will look into that; and I will get back to you," goes a long way in building trust and establishing expectations of genuine concern. Of course, there must always be meaningful follow up and follow through.

Many ethical transgressions, especially those that raise the specter of legal or regulatory proceedings, require an extensive investigation of the facts as well as technical and expert advice on what went wrong and what can be done to remediate the situation and prevent such events in the future. These more long-term actions will provide the knowledge, analyses, and options that management and the board will consider in responding to the larger ethical, business, and political issues the company may face. The necessity for further research and investigation, however, should never be positioned or seen as a tactic for delay or an excuse to play down the seriousness of the situation. To those impacted by the ethical failure, the problem is serious and it is now. It should be so treated by leadership.

Longer-term Response Strategies

After the all-important initial response to the revelation of ethical missteps, leadership is needed to develop and implement longer-term actions not only for the resolution of the immediate issue but also for making the company and its personnel more ethically alert and savvy.

First, the immediate issue must be resolved permanently especially as it affects the stakeholders and company practice. Second, leadership has to take quick actions to ensure that personal accountability for addressing various parts of the issue is assigned, understood, and pursued rigorously. All three panelists stressed that there must be visible ownership of the related issues across the company. It is also useful to identify a specific point person whose job it is to manage and coordinate the internal and external efforts of the company. Such responsibility needs to be supported by the leadership of many others in the company dealing with more specific issues and relationships.

Ethical transgressions always require the development of a strategic communication plan that incorporates careful listening. This begins and continues with the on-site person noted above, but most likely it will also involve a more comprehensive, company-wide approach because of the interests of many quite different stakeholders - regulators, media, investors, politicians, class action attorneys, and numerous others. Though communications will be targeted to specific groups, the company should seek clarity and consistency and avoid adding unnecessary complexity. It should also know when to stop talking, a point made forcefully by Kathleen Edmond.

A company's own employees are likely to be upset and angered by the ethical transgressions of colleagues as most employees take pride in their work and want to feel good about the positive impact of their company. Ethical misbehavior by some or just one harms their morale and raises questions about the morality and trustworthiness of colleagues and thus the effectiveness of the company and its leadership. Consequently, leadership at all levels throughout the company has to understand the disappointment of their colleagues and rebuild morale, not as cheerleaders, but as thoughtful and concerned doers/leaders/teachers eager to make the company even better. A company's best ambassadors are usually their employees, or they can be the most severe and credible critics. Their feelings and needs cannot be neglected in the aftermath of ethical misdeeds.

Ethical breeches are messy, embarrassing, and highly visible to many of the company's stakeholders. Companies want to resolve the situation and move on as fast as possible, and thus hire internal and external experts and advisors to study the situation, identify the causes, and recommend some "fixes" that will remedy the situation. Too often, our panel warned, the resulting reports and recommendations have too broad a scope and are over-engineered adding complexity where clarity is needed.
Panelists agreed that simple, declarative, and focused actions and policies are usually more effective than overly-complex procedures. The panelists felt strongly that straight-forward company values and their clear linkage to objectives and thus to behavior are more effective in guiding actions when employees are faced with ethical issues. Supportive training and other mechanisms are valuable, but detailed rule books can obfuscate the basic values that should drive the company and the judgment and actions of its employees.

Each ethical breech provides an opportunity to instruct and learn how to respond to such situations. It becomes a teaching moment to be taken advantage of. Companies are often in a rush to move forward without taking the time to reverse engineer the experience to learn what went wrong and why and how to prevent a similar situation from happening again. As Jose Rodriguez said, given the normal press of business, it makes sense to task someone(s) formally with the job of incorporating what has been studied and learned into the education of managers and all employees, especially about:

1) How to prevent or respond to ethical dilemmas, temptations, or transgressions;
2) How to involve others in addressing ethical dilemmas; and
3) How best to communicate with stakeholders when ethical problems occur.

Potential ethical issues exist everywhere in the corporation; consequently every employee should be sensitive to ethical matters and how to avoid, intervene, stop, or otherwise prevent ethical lapses.

There is much to learn from the panel's discussion about how to handle ethical failures. There is, however, a critical point that needs to be emphasized in conclusion. Ethical issues can occur anywhere in a corporation or other organization at a time and place that is difficult to predict or control. Further, the consequences of erroneous or ethically corrupt choices can be devastating to a company with severe repercussions for itself and many of its stakeholders.

One implication of the always present nature of ethical challenges is that ethical leadership has to be prepared to recognize the potential for problems and spring into action whenever and wherever there is the threat of ethical missteps either to prevent such from occurring or to quickly correct the situation or limit the damage. This means that leadership – ethical business leadership – should be trained and prepared to take the correct action whenever called for.

In corporations and other organizations, ethics is everybody's business. Ethical leadership has to be everybody's responsibility. Neither can be delegated.