June 20, 2010

Big business: Losing the fight
to do right

Harmful corporate action reflects rot at the core of a company's culture, and change must come from the top.

By DAN BOXER and PETER PITEGOFF

(Continued from page 1)

ABOUT THE AUTHORS

Dan Boxer, adjunct professor of governance and former chief administrative officer for Fairchild Semiconductor, and Peter Pitegoff, dean of the University of Maine School of Law, are co-chairs of the law school’s Governance & Ethics Symposium Series.

In each of the recent cases, PR teams trained in "crisis management" were rolled out to handle the situation. Discoveries of corporate malfeasance were treated as public relations issues to be "managed." There was no immediate and unconditional acceptance of responsibility, termination of top officials or board resignations.

Perhaps most telling, there was no commitment to change the way the business is overseen and no action to ensure an ethical, moral and risk-conscious culture going forward.

Senior managers and the boards that oversee them need to ensure a culture that emphasizes "doing the right thing." That means "setting the tone at the top." An ethical culture that goes beyond strict legal compliance must be as important to a business as strategic reviews. The tone must be enforced, communicated and reinforced, in a forceful and unequivocal manner. Zero tolerance for action or inaction that could harm others must be imbedded in the corporate culture.

Employees should be encouraged to question and report potentially unsafe, unethical or inappropriate conduct before it is too late. Ethical behavior should be part of job tenure and performance reviews. Hotlines and internal whistle-blowing should be facilitated, and there can be no tolerance for retaliation against those who report concerns.

Boards of directors must send a clear message to the work force that, although they have a duty to deliver profit to shareholders, real long-term gain for shareholders occurs only if the interests of all stakeholders are considered.

BP, in its zeal to maximize profitability and production, downplayed serious operational red flags and ignored the potential consequences of failure for other stakeholders. As a result, shareholders saw the value of their stock plummet.

Goldman, Toyota and the others also did their shareholders a huge disservice, by allowing a culture that downplayed risk, tolerated ethical lapses and lacked moral oversight.

Those involved in the governance of all organizations owe it to their stakeholders to be part of an ongoing dialogue on ethics and social responsibility.

They need the perspective and knowledge to effectively promote a culture that demands a higher level of conduct and a serious commitment to socially responsible, long-term and sustainable behavior.

The UMaine law school, through its Governance and Ethics Symposium Series and its growing presence in the governance arena, will continue to provide a forum for these discussions.An ethical culture that goes beyond strict legal compliance must be as important to a business as strategic reviews. The tone must be enforced, communicated and reinforced, in a forceful and unequivocal manner.

 

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