A matter of ethics: in organizations where honesty and integrity rule, it is easy for employees to resist the many temptations today's business world offers

Internal Auditor, Feb, 2003 by Dennis Blank

FOR COMPANIES THAT HAVE HISTORI-cally adhered to a strong code of ethics, their image has been somewhat tarnished by the fallout from the financial scandals involving Enron Corp., Global Crossing, and others. Although the well-publicized events are limited to public companies, the fallout is far-reaching. "It has hurt the entire business community," says Gene Bastedo, vice president, internal audit, for FedEx Corp., the package delivery service based in Memphis, Tenn. "The man on the street thinks the majority of people in business are crooks. Even for all the positive things business does, I don't blame people for feeling that way. To some degree, it is shocking and embarrassing."

However, for FedEx and many other companies, honesty and ethics remain the cornerstone of how they have done business from day one. Companies such as Valero Energy, Dell Computer Corp., Pitney Bowes Inc., Southwest Airlines, Darden Restaurants Inc., Microchip Technology, National Geographic Society, and Tellabs continue to reinforce the importance of the integrity message to employees, boards of directors, and top executives. But, lately, they have been doing it more often.

GETTING OUT THE MESSAGE

For many companies, integrity messages by e-mail, fax, and in person are commonplace. In addition, some companies, such as FedEx, require their executives to sign off on code-of-ethics statements, and directors must give assurances in writing that they have no conflicts of interest. "Our missions -- especially integrity -- are emphasized over and over through many mediums of communication," Bastedo explains.

FedEx stresses to its employees that it will not tolerate impropriety of any kind. "We have a very diligent board of directors that has never been afraid to challenge and bring up questions," Bastedo says.

Additionally, the company moves quickly when there is wrongdoing. When any type of illegal activity is reported, internal security officials conduct a thorough investigation. Recently, two employees were caught embezzling with the help of outsiders. They were fired and turned over to the authorities for prosecution. "Magnitude is not the issue," Bastedo explains. "It doesn't make any difference if it is a thousand or a millions dollars, our company will not tolerate anything that is done unethically or inappropriately."

Pitney Bowes, a leading office machine manufacturer based in Stamford, Conn., has a similar philosophy when it comes to ethics. "The company's trust and integrity are an important brand set of the company," says Michael J. Critelli, chairman and chief executive officer (CEO). "I will go a very long way in not compromising on that value."

Critelli emphasizes that ethics is constantly reinforced through videos and voice mail, and he personally responds to employees' e-mail within a couple of weeks. Because the company's offices and facilities are spread throughout many communities, Critelli holds at least 15 town hall meetings with employees every year. Senior management goes out of its way to mix with employees and respond to their questions.

"We have avoided a lot of Enron-type problems," Critelli explains. '1 have a very strict policy. Anyone who wants to sell stock has to clear it through me, and I have not sold any since 1980. We don't have the type of climate that lends itself to get-rich-quick lifestyles." He adds that the company also has a very strict policy about avoiding loans and financial dealings with directors.

SETTING THE TONE

The executives agree that for ethical standards to be carried out, company leaders must first establish how they want business conducted. Setting the tone has to start at the top, they say. So it is with Southwest Airlines, whose founder and board chairman, Herb Kelleher, established the way he wanted to do business, according to Gary Kelly, CEO of the nation's discount carrier that now employs over 33,000 people.

"[Ethical conduct] is manifested in the way you deal with customers, with vendors, buyers, and ultimately the employees," Kelly explains. "If you don't have honesty and integrity, you won't be able to develop effective relationships with any of those stakeholders." At the same time, Southwest takes a more casual approach to instilling the integrity factor. "We don't have reams and reams of manuals and a lot of formal rules and regulations," Kelly says. "We treat each other with common sense--that people would know how to be honest."

One former company audit executive says that even with a strong ethics policy, it is not possible to eliminate corruption totally. "I know that fully eradicating any sort of misbehavior is unfeasible and utopist," says Giovanni C. Grossi, formerly director of quality and control systems for IBM in Italy. "There will always be someone stupid or greedy enough to try to follow shortcuts."

Even so, Grossi maintains that the public and employees should understand that misconduct is contrary to the high ethics of the company and that senior executives will take whatever steps are necessary to prevent problems. "What must not be tolerated--because it's the most masochistic and destructive way of managing an organization--is managing by winking," he says. "Do it once, and your credibility is lost forever."