A Strong Sense of Ethics is Vital for CEOs to Lead a Successful Business

Heightened levels of public attention and analysis come with the territory for CEOs. This high-profile visibility makes it even more important for leaders to have a strong sense of ethics, and to be accountable when mistakes are made.

Though integrity and values have always been important in business, other aspects have evolved. Take this story by Strategy+Business. Per-Ola Karlsson, DeAnne Aguirre and Kristin Rivera reported on trends that have shifted in the past 15 years, including:

• Public awareness and suspicion of “corporate misbehavior.”
• Governance and regulations becoming “more proactive and more punitive” in some countries.
• Increased digital communication, which “has exposed companies and the executives who oversee them to more risk than ever before.”
• The constant news cycle, which “publicizes and amplifies negative information in real time.”

“Add it all up, and you get greater scrutiny of CEO behavior, a greater desire for swift justice and action, and a smaller margin of error for all parties involved,” the authors write. “But there’s good news for CEOs, their leadership teams, and their boards. Organizations can protect themselves by making sure that their controls and compliance programs are truly world-class, and — even more important — that their corporate culture sends and reinforces clear, well-understood messages about ethical conduct.”

Here’s a look at some of the ethical challenges for executives and ways to approach them.

Integrity

This is the primary key for CEOs to properly lead an ethical business. All the leadership skills in the world won’t mean much without it. As Blake Beattie puts it in a story for The CEO Magazine, “Integrity is a shining light in a world of empty promises.” He suggests four things to consistently demonstrate it:

• “Never make a promise you can’t keep.”
• “Always under promise and over deliver (and not the other way around. Your team and customers will appreciate it).”
• “Be honest — with yourself and others around you.”
• “Be on time — it shows that you value someone else’s time.”

Perception

The news isn’t great for how the public views corporations and business leaders. As Karlsson, Aguirre and Rivera reported, the recession in 2007-2008 contributed to the overall decline in public confidence.

“Corporations and executives received government bailouts, while seeming to suffer little in the aftermath,” the authors explained. “Although many companies paid large fines and settlements, few were charged criminally, even in instances where unethical and illegal activity was widespread and well documented.”

Skepticism can reveal itself in surveys about credibility. As the authors point out, a Gallup poll in 2016 showed that 18 percent of those surveyed expressed confidence in big business. And the 2017 Edelman Trust Barometer reported 37 percent of people found CEOs to be credible, which was an all-time low.

A bright spot here is that things may be looking up: The 2018 Gallup poll showed a small increase (21 percent), and the 2018 Edelman survey showed a bit of a bounce as well (44 percent).

Accountability

Executives accept a massive amount of responsibility in leading a business. When troubles emerge — from run-of-the-mill mistakes to full-blown scandals — leaders have to accept fault, deal with blame, manage the fallout and determine and communicate ways to avoid those same missteps in the future. The Strategy+Business story details the manner in which CEOs have been held accountable, and how it has changed significantly in the past few decades.

“In the late 20th century, even the most serious, large-scale, and widely publicized cases of corporate misbehavior rarely led to dismissal of the CEO,” the authors wrote. “Criminal prosecutions of corporate officers were extremely rare. Financial penalties tended to be modest, ranging from the tens of millions to the low hundreds of millions of dollars, and media attention was often limited to the business press. Today, the chief executive of a company caught up in a major scandal is often dismissed quickly. And it is not uncommon to see multiple criminal indictments of corporate officers. The financial penalties that companies face have rocketed — in some recent cases, into the tens of billions of dollars. And media attention, from online outlets, cable television channels, and the relentless glare of social media, is omnipresent.”

Setting the example

The importance of ethics starts at the top, and executives must be the example for the rest of the company. The business leader who cuts corners, manipulates numbers, bends the truth or makes other dubious decisions will only foster that same kind of behavior in others. David Schmidt wrote about setting the proper tone in a story for CIO.com. Among the observations:

• Commitment: “Even the very best ethics and compliance programs can be negated by a leader who communicates cynicism or lack of support for ethical conduct.”
• Messaging: “Ethics is communicated through words, but words are compelling only when they are supported by action. The actions that matter most are those from the people at the top.”
• Motivation: “More than anyone else, the CEO has the ability to promote an ethic of aspiration, not just an ethic of compliance. Companies that are able to promote a positive link between ethics and excellence enjoy a competitive advantage as well as an enviable reputation.”

Make it official

A business’ emphasis on ethics can include a formal statement that makes its policies clear. Granted, the importance of this may not be fully recognized by all employees, and some may casually assume their behavior is appropriate without giving the policies much thought. It can be beneficial to have employees read and acknowledge their understanding of the policies, and also refer back to it when necessary. Paula Fernandes wrote about this in a story for Business News Daily.

“This should be a living, breathing, foundational document that helps center your staff and guide them as they navigate ethical gray areas,” she wrote. “The values communicated in this document must be modeled from the highest level of the organization on down, understood by employees at all levels, reinforced through regular training and other company events, and revisited and revised as the company grows or changes.”

The process should be a continuing one. Dori Meinert also emphasizes the importance of ongoing training in a story for the Society for Human Resource Management.

“Ask managers to raise ethics questions in meetings,” Meinert advises. “Encourage top executives to speak to it, as well. Managers can’t monitor employees’ every move, but they can help them recognize the right thing to do when company priorities clash.”

Effects on clients

Businesses that operate with a clear sense of ethics have a great chance to build deep connections with clients. And as they become loyal to the business, they may spread the word to others. On the other hand, businesses that lack accountability, show shoddy business practices and fall short in ethical matters will naturally drive customers away. Brian Hill includes this in a story for the Houston Chronicle.

“A company’s reputation for ethical behavior can help it create a more positive image in the marketplace, which can bring in new customers through word-of-mouth referrals,” Hill notes. “Conversely, a reputation for unethical dealings hurts the company’s chances to obtain new customers, particularly in this age of social networking when dissatisfied customers can quickly disseminate information about the negative experience they had.”

Responsibility for all

Though business leaders may put all the proper things in place to establish an ethical work environment, employees must do their part as well. Laying the groundwork provides the right direction, and it’s up to employees to follow that guidance. As Hill writes, “Employees have a responsibility to be ethical from the moment they have their first job interview.”

“They must be honest about their capabilities and experience,” he says. “Ethical employees are perceived as team players rather than as individuals just out for themselves. They develop positive relationships with coworkers. Their supervisors trust them with confidential information and they are often given more autonomy as a result. Employees who are caught in lies by their supervisors damage their chances of advancement within the organization and may risk being fired.”

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