What's Behind Business' Sudden Fervor For Ethics

What a glorious summer of scandal this has been. First came the Byzantine saga of Bank of Credit & Commerce International, whose clientele included some of the most prestigious names in terrorism, drug-dealing, and political corruption. Then came the tale of Japanese investment houses that funneled illegal paybacks to cover the investment losses of corporate clients. And finally, the revelation that Salomon Brothers Inc. cornered the market for Treasury securities.

With all the greed, hubris, and corruption now being showcased worldwide, perhaps it's heartening that a growing number of U. S. corporations are embracing in-house ethics programs. In fact, the Center for Business Ethics at Bentley College in Waltham, Mass., recently found that 45% of the 1,000 largest U. S. companies now have ethics programs or workshops, up from 35% five years ago. Is some kind of reformist fervor taking hold of Corporate America?

GUIDELINE NUDGE. Well, not exactly. While many of these programs are doubtless sincere attempts to deter wrongdoing, companies now have a hefty incentive to quickly start an ethics program. Aside from the obvious public-relations value in maintaining a commitment to ethics, companies have a wary eye on new U. S. sentencing guidelines that will take effect on Nov. 1. The guidelines would double the median fines for companies found guilty of crimes such as fraud.

However, companies with tough ethics policies will receive much more lenient treatment as long as they cooperate with prosecutors and their policies meet the guidelines' standards. For instance, a fine of $1 million to $2 million could be knocked down to as low as $50,000 for a company with a comprehensive program including a code of conduct, an ombudsman, a hotline, and mandatory training seminars for executives. Explains Judge William W. Wilkins Jr., chairman of the U. S. Sentencing Commission: "Even the best efforts to prevent crime may not be successful in every case. But we have to reward the corporation that was trying to be a good corporate citizen."

Not surprisingly, then, business ethics programs are all the rage. Such programs were widely instituted in the defense industry after the procurement scandals of the mid-1980s. But other companies have recently been trying to raise the ethical consciousness of their employees as well. The likes of Alcoa, Pacific Bell, Pitney Bowes, and Hershey Foods are drafting new codes, running managers through ethics seminars, hiring ombudsmen, and setting up hotlines for whistle-blowers (table).

Of course, the ethics movement couldn't be more timely. Given the looming threat of layoffs and enormous pressure to turn a profit these days, managers are sometimes understandably tempted to engage in a bit of dodgy behavior. "People are so desperate to keep their jobs that they act inappropriately," says Michael Josephson, who heads the Joseph & Edna Josephson Institute of Ethics in Marina Del Rey, Calif.

Still, companies are loath to admit that they have started their programs in anticipation of the new rules. Last year, Hershey Foods Corp. put managers through half-day ethics-awareness sessions in which participants used actual case studies. Eleanor S. Gathany, who heads the program, says the idea grew out of Hershey's overall corporate philosophy, not the new rules. "I've seen articles about the sentencing guidelines, but they are not an impetus at all," she says.

As one would suspect, ethics programs often are prompted by the very scandals they're meant to prevent. Consider the case of Nynex Corp., the White Plains (N. Y.)-based Baby Bell. Last year, itwas revealed that employees from a purchasing unit had attended parties hosted by outside vendors and call girls. No laws were broken, but Nynex fired two employees and disciplined seven others.

The Federal Communications Commission had earlier charged the company with overbilling its telephone units for supplies and services, thereby pushing up rates. Nynex ultimately settled the charges by paying $1.4 million to the U. S. Treasury and by offering a onetime $35.5 million reduction of its interstate charges to the telephone companies. "It was clear we needed to get back into focus," says Graydon R. Wood, Nynex' vice-president for ethics and business conduct.

LITTLE EVIDENCE. A year ago August, Nynex launched a full-blown ethics program. The effort includes a written code of conduct and a formal training program. Nynex has put more than 1,500 managers through a full-day seminar dealing with conduct in matters of money, law, and how to treat workers. The company has also provided its 94,000 employees with a whistle-blowers' hotline.

Of course, there is always a risk that an individual employee will break the rules. General Electric Co. has had an ombudsman and an extensive, largely successful, ethics program for years. But that didn't prevent GE from being charged by the Justice Dept. with fraud when one of its employees allegedly teamed up with an Israeli general and overcharged the U. S. government more than $30 million for jet engines and service between 1985 and 1988. "If you have a couple of bad apples intent on violating the policies for their own benefit, they may get away with it for a while," concedes a GE spokesman.

In fact, sometimes top management even leads the way. Salomon's shame owes much to the score-at-any-cost culture fostered by former Chairman John H. Gutfreund. Or consider the recent embarrassing episode at Procter & Gamble. Chairman Edwin L. Artzt conceded that P&G made an error in judgment in asking for a police investigation that led to a search through the records of 803,000 telephone users to track down the source of a news leak.

Ethics programs can arguably help keep honest employees on the straight and narrow. Pacific Bell now fields 1,200 calls a year on a hotline it began in 1989. But an ethics program is only the beginning. The moral tone of corporate conduct has to be set at the top. Otherwise, wrongdoing will continue to plague business, and the belated demand for ethics consultants will only grow.


NIAGARA MOHAWK POWER Held full-day ethics workshop for all senior managers, including the chairman

PITNEY BOWES Instituted ombudsman, ethics statement for employees, conduct-guide booklet, training seminars for top officers

NYNEX Instituted ethics officer, new code of conduct, training seminars for top and middle-level executives, hotline

PACIFIC BELL Established office of business conduct and standards, ethics advisory council, training seminars, whistle-blowers' hotline

HERSHEY FOODS Offered ethics-awareness training for senior and middle-level managers