ETHICS, EXPECTATIONS, AND BOARD DYNAMICS Dr. Bradley R. Agle George W. Romney Endowed Professor Marriott School of Management Fellow, Wheatley Institution Brigham Young University BECOMING A POSITIVE DEVIANT: ETHICS IN THE BOARDROOM
ETHICS, EXPECTATIONS, AND BOARD DYNAMICS
Dr. Bradley R. Agle
George W. Romney Endowed Professor
Marriott School of Management
Fellow, Wheatley Institution
Brigham Young University
BECOMING A POSITIVE DEVIANT: ETHICS IN THE BOARDROOM
Name the Company?First Clue
• This company inflated its financial statements by way of complex “straw deals”
Name the Company?Second Clue
This company made large financial donations to politicians who could influence regulations affecting its industry
Name the Company?Third Clue
• This company’s accounting firm, Arthur Andersen, served both consultancy and auditor roles, and paid a steep price for its role in the scandal (although it resigned the account years before the scandal unfolded)
Name the Company?Fourth Clue
This company was forced into bankruptcy, decimating the retirement funds of trusting investors and costing taxpayers billions of dollars
Name the Company?Fifth Clue
• All of the events referred to in the earlier clues occurred at this company during the 1980’s
Ethical Corporate LeadershipPersonal Behavior
Corporate
Leadership
Ethical
Leadership
Cynicism
Bad
News
Confusion/
Lack of Recognition
Active
Inactive
Positive Negative
1991 U.S. Sentencing Guidelines Seven Steps of Due Diligence
• Develop Compliance Standards & Procedures• Give One Executive Overall Responsibility• Ensure That Executives are Trustworthy• Communicate Standards & Procedures• Create Steps to Ensure Compliance• Enforce Standards Consistently• Modify Program Appropriately
Corporate Leadership
2004 Amended U.S. Sentencing Guidelines
• Requirements are Enhanced with greater Rigor and Detail
• As a Fundamental Proposition, organizations must promote an organizational culture that promotes ethical conduct and commitment to compliance with the law
• Requires Boards and Executives to assume the oversight and management of compliance and ethics programs
• This presumes active leadership in defining the content and operation of the program
2004 Amended U.S. Sentencing Guidelines – Minimum Requirements
• Organizations must:• Identify areas of risk where criminal violations
may occur• Train high-level officials as well as employees
in relevant legal standards and obligations• Give compliance and ethics officers sufficient
authority and resources to carry out their responsibilities
Areas of Influence in Creating an Ethical Organizational Culture
• 1) Formal statements of organizational philosophy, charters, creeds, materials used for recruitment and selection, socialization
• 2) Design of physical spaces, facades, buildings• 3) Deliberate role-modeling, teaching, and
coaching by leaders• 4) Explicit reward and status system, promotion
criteria
Areas of Influence in Creating an Ethical Organizational Culture
• 5) Stories, legends, myths, and parables about key people and events
• 6) What leaders pay attention to, measure, and control
• 7) Leader reactions to critical incidents and organizational crises
• 8) How the organization is designed and structured• 9) Organizational systems and procedures• 10) Criteria used for recruitment, selection,
promotion, leveling off, retirement, and firing
Ethical Role Modeling
• What makes one an ethical role model?
• Findings from my research with Drs. Trevino and Weaver at the Ethics Resource Center…
Personal Behavior
Ethical Role Models
What they are not (or at least not necessarily):
1 Perfect
2 Distant
3 Successful
Four Dimensions of Ethical Role Models
Interpersonal BehaviorsEthical Action and Expectations of SelfFairness with OthersArticulation of Ethical Standards
Interpersonal Behaviors
• Care, Concern, Compassion
• Support and Take Responsibility for Others
• Values and Maintains Relationships
• Hardworking and Helpful
• Accentuates the Positive
• Accepts others’ failures
Ethical Action and Expectations of Self
Honesty, Integrity, TrustworthinessHumilityHolds self to high ethical standardConsistently ethical in public and private lifeSelf-sacrificialAccepts responsibility for, and open about, own
ethical failings
Fairness with others
• Distributes resources equitably
• Open to and solicitous of input
• Respects other equally – never condescending, even in disagreements
• Offers explanations of decisions
Articulating Ethical StandardsArticulating Ethical Standards
Communicates high ethical standardsCommunicates high ethical standards Holds others ethically accountableHolds others ethically accountable Puts ethics above personal/company interestsPuts ethics above personal/company interests Uncompromising, consistent ethical valuesUncompromising, consistent ethical values Takes long-term multiple stakeholder Takes long-term multiple stakeholder
perspectiveperspective
Warning:Bathsheba Syndrome
Top Leaders:
• Have Privileged Access
• Can Lose Strategic Focus
• Can Come to Believe that the Rules Don’t Apply to Them
• Oftentimes Have a Well-Earned, but Inflated Belief in Their Ability to Control Events
The Importance of Leadership
• “Never underestimate the power of a small group of people to change the world – indeed, nothing else ever has” Margaret Mead
Business Ethics in 2011:Where will the Leadership
Come From?
Comments and Questions