PSU Magazine Spring 2002

eeJ a code of ethics for your workplace? Enron's 64-page booklet is for sale on eBay. And it's not, as one would-be comedian jokeJ, blank inside. But judging from the fact that the eBay sellers are asking $9.99, Enron'· code of ethics-including a four-page memo initialed by CEO Kenneth Lay-isn't worth much more than the paper it was printed on. Why is that? How does a giant– once the seventh largest corporation in the United States-violate its own carefully crafted ethics to such a degree that its name becomes a syn– onym for sleaze? And could the same thing happen where you work? "It's easy to claim to be ethical until we're faced with a real situation," says Steve Brenner, professor of business administration. "Under significant pressure, our real values come out." For instance, he says, if someone offers you $10 million to do something that might be legal but unethical, it's likely you'll at least take a look at it. Something similar may have happened at Enron. Early during the inquiry into what went wrong, investi– gators found that the company paid bonuses between $1 million and $10.6 million to its top 10 executives as a reward for Enron's stock price reaching the company's goal. What's wrong with rewarding exec– utives for reaching a goal? Investiga– tors found that the promise of the hefty bonuses occurred at the same time corporate officials were improp– erly inflating the company's stated profits, and thus stock prices were soaring. In other words, it appears that Enron offered very large bonuses, and officials found a way to earn them. Think Enron's an anomaly? Con– sider the whole dot-com flame-out. A typical scenario might go some– thing like this. A dot-com entrepre– neur "goes public"-that is, sells shares of the company to the general public. Investors eagerly spill $10 million into the company's coffers and the dot-com exec hands out 70 percent of the stock-keeping 30 percent for himself. ILLUSTRATION RY STEPI JEN SCI IIUlAACI 1/ART\'ILLE For the next year, the dot-com chief talks up his company, and the price of the stock soars as more and more people want a piece of the action. If the price of the stock dou– bles, the 30 percent of the stock the CEO kept is now worth $6 million. Say the chief sells half for a cool $3 million. He' set, so the incentive to make good business decisions is, says Brenner, "greatly reduced." Pretty soon the company is toast. But unethical individuals are only one aspect of business ethics. "We tend to think of ethics in terms of good people and bad people, says Kristi Yuthas, assistant professor of business administration. "But the work environment has a big influence on what problems surface and how they are handled." For instance, say your company pol– icy requires you to report your hours. But you get bonuses for completing projects ahead of schedule. If you decide to work through the weekend on your own time to finish a project ahead of schedule, should you report the hours worked? "It doesn't matter how ethical the individual is," says Yuthas, "the company is putting them in an awk– ward position." In other words, you're told to do one thing but rewarded for another. (;] ut isn't dog-eat-dog just par for the corporate America course? Caveat emptor and all that? "Our whole system is based on ethi– cal expectations, says Brenner. "We expect honest financial reports. We expect managers to act in the interest of the corporation, not themselves. We expect managers won't risk our jobs. As consumers, we expect safe products." Problems arise when those things don't happen. Take the case of a certain national baby food company cited by Brenner. The company bought apple juice concentrate from a supplier who sold it for far less than any other supplier-less even than the co t of actually producing real juice concentrate. Employees questioned this too– gooc.l-to-be-true price, but a supervisor ordered them to ignore their doubts. It turned out the supplier was selling flavored sugar water, not apple juice concentrate at all. The company had ignored its ethical responsibility to investigate. "Money can't be the only thing you seek," says Brenner. "You must have and live up to standards that are unassailable." And chances are, whether you're a one-person shop or 100,000-employee mega-corporation, you have an ethics program-whether you know it or not. In fact, says Brenner, a company may have a strong ethics program that isn't formalized at all. Still, it's generally smarter to have it in writing. o how do you develop an ethics program tailored to your company? Yuthas offers a simple formula. Take into account the needs of all stakeholders-employ– ees, shareholders, consumers, and society-and determine your business goals; create policies and processes to reach those goals; allocate resources to those goals; make sure rewards are consistent with those policies and processes; and hold yourself account– able by faithfully reporting the results of your efforts internally and externally. For instance, if diversity is a value a company is trying to promote, simply adding a diversity bullet point to its code of ethics won't cut it. The com– pany must establish policies and processes to achieve greater diversity in the work force, provide resources for hiring, give rewards based on the poli– cies and processes, and holc.l itself accountable-perhaps with a publicly distributed annual report on diversity to determine how well efforts are working. In addition to such attention at the company level, Brenner also sees room for improvement in the big picture. First, he says, schools of bu iness, both SPRING 2002 PSU MAGAZINE 13