Ethical codes are not enough

Business Horizons, March-April, 1990 by Michael R. Hyman, Robert Skipper, Richard Tansey

Ethical Codes Are Not Enough

Many companies have adopted codes or standards of ethical behavior. Some of these codes are very specific. Unfortunately, well-intentioned companies may actually hinder the development of management's moral character by too much attention to rules and too little attention to questions. In particular, no rule can answer a modern version of Glaucon's challenge: "If I can get away with it and profit by it, why worry about whether it is ethical?" This paper suggests a supplement to ethics training for managers: an ethics checklist.

Steelcase, America's largest maker of office furniture, showed a profit in 1987 of $120 million from sales of $1.6 billion. It offers for wages a base pay of $8 or $9 per hour. Yet Steelcase is not unionized, and it flaunts a low annual rate of turnover among its workers - as low as 3 percent.

How does Steelcase do it? Robot workers? Zombies? No. A climate of cooperation between and among workers and management prevails at Steelcase. It gains the loyalty of its workers by showing a rare flexibility in how it allots pay, hours, and benefits. The interests of the workers are tied to those of the company through profit-sharing bonuses; incentives, being a large part of the wages, keep productivity high. Workers with erratic lifestyles may select eccentric schedules. Thus workers, particularly working mothers, are absent less often. By being able to choose between eight medical plans, three dental plans, and a variety of other options, workers have an enormous say in how they are compensated for their work.

But look at Kaiser Cement. After tough bargaining in 1984, the management at the Cushenberry, California plant wrangled some 260 major concessions from labor. Management claimed this as a great success. A mere three months and 4,000 grievances later, management found itself with a growing heap of sabotaged equipment and a sullen labor force that refused to work overtime.

Whereas harmony reigns at Steelcase, a climate of distrust and resistance prevailed at Kaiser. The interests of labor and management at Kaiser did not coincide. An "us versus them" attitude tore the company apart. In A Great Place to Work, Robert Levering (1988), speaking generally about the "trust reservoir" of companies, says, "The erosion of trust can be seen as the root of various other pathologies - such as higher levels of personal stress and lower productivity." Clearly, trust at Kaiser eroded.

A climate does not appear suddenly. It comprises countless events, attitudes, policies, and beliefs. Every decision, no matter how trivial, forms a part of the prevailing climate. According to Levering, "[trust is] the product of what has happened within the workplace over time. In this regard, trust in workplace relationships is not different from trust in personal relationships. Certain acts seem to add to the quantity of trust we feel toward another person, while other acts reduce it." Thus, no single act will transform a Kaiser-climate into a Steelcase-climate overnight, but a single act could be a symbolic turning of the tide. Every day, each manager at Steelcase either maintains the cooperative climate or works to destroy it. Every decision of every manager at Kaiser either justifies labor's mistrust of management or acts to allay it.

A company is born when a little girl sells lemonade in her parent's front yard, or when investors fund a new biotechnical firm, or when a factory begins rolling out Model Ts. The basic features are always the same: a company is a climate created when free agents consent to mutually beneficial exchanges that harm no one.

A company is not just a charter, nor is it just a group of people, nor is it the sum of capital assets, nor is it any earning power. A front cannot be a company, nor can a crime ring be, nor a scam. Stripped of all trappings, a company is a moral climate created for a worthy purpose.

Many companies have ethical codes, some of which are quite extensive. Some of the best are those of Boeing, GTE, Hewlett-Packard, Johnson & Johnson, and the Norton Company. But ethical codes are usually either too vague or too detailed for practical use. Codes formed of generalizations, according to Donald G. Jones (1982), "give people little or no guidance in their day-to-day behavior. Going to the other extreme may be even more dangerous, however. Setting out detailed rules in an attempt to cover all conceivable situations creates . . . a tendency to substitute rules for judgment. The hidden danger is the temptation to use the absence of a direct rule as a reason for plunging ahead even when one's conscience says `no.'"

GLAUCON AND THE MODERN COMPANY

So exactly what are the hallmarks of good companies? How can a "moral climate" be distinguished from any other climate? From the inside, one can tell good companies by the way they are bound together by mutual trust and cooperation. From the outside, one can spot a good company by the way its actions and advertisements seem to say "we will be around forever." Acting as if one will be around forever is a sign that one is acting ethically.