Establishing a Strong Ethical Culture for a Firm

One of the most important things the founders of an entrepreneurial venture can do is establish a strong ethical culture for their firms. The data regarding business ethics are both encouraging and discouraging. The most recent ver- sion of the National Business Ethics Survey was published in 2013. This survey is the only longitudinal study that tracks the experiences of employees within organizations regarding business ethics. According to the survey, 41 percent of the 6,420 employees surveyed reported that they had observed misconduct or unethical behavior in the past year. Of the employees who observed miscon- duct, 63 percent reported their observation to a supervisor or another authority in their firm.1 The 10 most common types of misconduct or unethical behavior observed by the employees surveyed are shown in Table 7.1.

While the percentage of employees who have observed misconduct or un- ethical behavior (41 percent) is discouraging, it’s encouraging that 63 percent of employees reported the behavior. Support, trust, and transparency also make a difference. Employees who reported that their supervisor conducts his or her personal life in an ethical manner reported ethical misconduct at a rate of 74 percent, compared to a 51 percent reporting rate for employees who are less confident about their direct supervisor’s personal ethical conduct. Similarly, a total of 72 percent of employees who said they received positive feedback from their supervisor for their ethical conduct reported ethical misconduct when ob- served compared to only 51 percent that did not receive similar support.2 Both of these comparisons indicate that an employee’s supervisor makes a major difference in regard to whether an employee reports ethical misconduct or not.

In analyzing the results of its survey, the Ethics Resource Center concluded that the most important thing an organization can do to combat ethical miscon- duct is to establish a strong ethical culture.3 But strong ethical cultures don’t emerge by themselves. It takes entrepreneurs who make ethics a priority and organizational policies and procedures that encourage ethical behavior (and punish unethical behavior) to make it happen. The following are specific steps that an entrepreneurial organization can take to build a strong ethical culture.

1. Lead by example

Leading by example is the most important thing that any entrepreneur, man- ager, or supervisor can do to build a strong ethical culture in their organization. In strong ethical cultures, entrepreneurs, managers, and supervisors:

■ Communicate ethics as a priority

■ Set a good example of ethical conduct

■ Keep commitments

■ Provide information about what is going on

■ Support following organizational standards4

Employees also have responsibilities. The most important things that employees can do to support a strong ethical culture in an organization are to:

■ Consider ethics in making decisions

■ Talk about ethics in the work (they) do

■ Set a good example of ethical conduct

■ Support following organizational standards5

In companies where these attributes are present, a stronger ethical culture exists. This reality demonstrates the important role that everyone involved with a start-up plays in developing a strong ethical culture for their firm.

2. Establish a code of conduct

A code of conduct (or code of ethics) is a formal statement of an organiza- tion’s values on certain ethical and social issues.6 The advantage of having a code of conduct is that it provides specific guidance to entrepreneurs, man- agers, and employees regarding expectations of them in terms of ethical be- havior. Consider what Google has done in this area. The company’s informal corporate motto is “Don’t be evil,” but it also has a formal code of conduct, which explicitly states what is and isn’t permissible in the organization. The table of contents for Google’s code of conduct is shown in Table 7.2. It il- lustrates the ethical issues that Google thinks can be bolstered and better explained to employees via a written document to which they are required to adhere. A copy of Google’s full code of conduct is available at http://investor.

Table 7.2    table of contents of google’s code of conduct

  1. serve our users
    1. Integrity
    1. Usefulness
    1. Privacy, Security and Freedom of expression
    1. Responsiveness
    1. Take Action
  1. respect each other
    1. equal Opportunity employment
    1. Positive environment
    1. Drugs and Alcohol
    1. Safe Workplace
    1. Dog Policy
  1. avoid conflicts of interest
    1. Personal Investments
    1. Outside employment, Advisory Roles, Board Seats and Starting Your Own Business
    1. Business Opportunities Found Through Work
    1. Inventions
    1. Friends and Relatives; Co-Worker Relationships
    1. Accepting Gifts, entertainment and Other Business Courtesies
    1. Use of Google Products and Services
  1. Preserve confidentiality
    1. Confidential Information
    1. Google Partners
    1. Competitors/Former employees
    1. Outside Communications and Research
  1. Protect google’s assets
    1. Intellectual Property
    1. Company equipment
    1. The network
    1. Physical Security
    1. Use of Google’s equipment and Facilities
    1. employee Data
  1. ensure Financial integrity and responsibility
    1. Spending Google’s Money
    1. Signing a Contract
    1. Recording Transactions
    1. Reporting Financial or Accounting Irregularities
    1. Hiring Suppliers
    1. Retaining Records
  1. obey the law
    1. Trade Controls
    1. Competition Laws
    1. Insider Trading Laws
    1. Anti-Bribery Laws
  1. conclusion

Source: Google website, (accessed June 20,2014). Google Code of Conduct © Google Inc.; used with permission.

In practice, some codes of conduct are very specific, like Google’s. Other codes of conduct set out more general principles about an organization’s be- liefs on issues such as product quality, respect for customers and employees, and social responsibility. In all cases though, codes of conduct are intended to influence people to behave in ways that are consistent with a firm’s ethical orientation.

3. Implement an ethics training Program

Firms also use ethics training programs to promote ethical behavior. Ethics training programs teach business ethics to help employees deal with ethical dilemmas and improve their overall ethical conduct. An ethical dilemma is a situation that involves doing something that is beneficial to oneself or the orga- nization, but may be unethical. Most employees confront ethical dilemmas at some point during their careers.

Ethics training programs can be provided by outside vendors or can be devel- oped in-house. For example, one organization, Character Training International (CTI), provides ethics training programs for both large organizations and smaller entrepreneurial firms. The company offers a variety of ethics-related training services, including ethics training videos/DVD programs, ethics online courses, train-the-trainer curriculum, and consulting services. A distinctive attribute of CTI is its focus on the moral and ethical roots of workplace behavior. In work- shops, participants talk about the reasons behind ethical dilemmas and are pro- vided practical, helpful information about how to prevent problems and how to deal appropriately with the ethical problems and temptations that do arise. The hope is that this training will significantly cut down on employee misconduct and fraud and will increase morale.7

In summary, ethical cultures are built through both strong ethical lead- ership and administrative tools that reinforce and govern ethical behavior in organizations. Building an ethical culture motivates employees to behave ethically and responsibly from the inside out, rather than relying strictly on laws that motivate behavior from the outside in.8 There are many potential payoffs to organizations that act and behave in an ethical manner. A sample of the potential payoffs appears in Figure 7.1.

The strength of a firm’s ethical culture and fortitude is put to the test when it faces a crisis or makes a mistake and has to determine how to respond. Fitbit provides an example of this, as described in the nearby “What Went Wrong?” feature. In early 2014 Fitbit, the maker of wearable devices that measure data such as number of steps walked, quality of sleep, and other personal metrics, was forced to recall its newest product, the Fitbit Force. A number of users reported skin irritations from wearing the device (the Fitbit Force is worn on a user’s wrist). Observers vary regarding whether Fitbit reacted quickly enough, and whether the episode tells us that Fitbit has a strong or weak ethical cul- ture. After reading the case, you will be ready to decide for yourself.

Source: Barringer Bruce R, Ireland R Duane (2015), Entrepreneurship: successfully launching new ventures, Pearson; 5th edition.

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