UPDATE: Creating and Sustaining an Ethical Workplace Culture

The formula I offered for creating and sustaining an ethical workplace culture in 2003 is still valid today. Indeed, virtuous values, actions and behavioral standards/codes can be the basis for an approach to help drive ethical organizational behavior.

Click here to read the original article, “Creating and Sustaining an Ethical Workplace Culture.”

Got Ethics?Since this framework was offered, two relevant topics, “Positive Ethics” and “Positive Deviance” have gained credibility and would be valuable as additional areas to consider when striving to create and sustain an ethical workplace culture. Positive business ethics is the study of what is virtuous and laudable in commercial enterprise. (Note, however, the behavioral ethics literature is preoccupied with studying the drivers and outcomes of unethical behavior and examining negatively deviant action.) Positive deviance, in the context of business ethics, is behavior that falls outside of behavioral standards and norms in the direction of virtuousness. It is extraordinary virtuous behavior.[1][2]

It would be refreshing and valuable for the field of business ethics if more attention were given to Positive Ethics while ways to create and sustain positively deviant ethical behavior are targeted. An aspirational goal is for organizations to display positively deviant ethical behavior that is in alignment with each of the six values covered in my previous article.[3] Figure 1 provides an example of how the virtuous value of “self-control” could be viewed across an ethical behavior deviance continuum.

Figure 1: Self Control: An Ethical Behavior Deviance Continuum

Kerns Figure1 Self Control


With positive ethics and positive deviance in mind, I encourage you to add two items to “The Ethical Behavior Enhancement Checklist” from my previous article (see table below):

  • Examples of extraordinary/positively deviant ethical behaviors are indexed for each virtuous value espoused.
  • We regularly recognize positively deviant ethical behavior across each virtuous value espoused.

While the formula for creating and sustaining an ethical workplace culture previously offered remains a valuable framework, it can be updated to include positive ethics and positive deviance. I encourage you to consider what positively deviant ethical behavior across a set of virtuous values would look like in your organization. Once you have focused on ethical behavior through this positive lens, I recommend that you find practical ways to create and sustain a workplace culture that includes recognizing positively deviant ethical behavior. In short, update your approach with positivity.

Figure 2: The Ethical Behavior Enhancement Checklist

Instructions: For each statement below, on a scale of 1 to 10 (0 being lowest, 10 being highest) rate to what extent the statement is true and/or to what extent you currently practice this behavior. Please be candid since this checklist is self-directed and is intended to help you increase the presence of proactive ethical organizational behavior in your enterprise.


Kerns Ethical Behavior Checklist Updated

*added in update

For more on this topic, click here to read the original article, “Creating and Sustaining an Ethical Workplace Culture.”

[1]Stansbury, J.M. and S. Sonnenshein, “Positive Business Ethics: Grounding and Elaborating a Theory of Good Works,” in The Oxford Handbook of Positive Organizational Scholarship by Kim S. Cameron and Gretchen M. Spreitzer, New York: Oxford University Press, 2012. 340-353.

[2]Kerns, C.D., “Promoting and Managing Positivity: A Coaching Approach.” Business Renaissance Quarterly 3, no. 6 (2011).

[3]Kerns, C.D., “Creating and Sustaining an Ethical Workplace Culture: The Values, Attitude, Behavior Chain,” Graziadio Business Review 6, no. 3 (2003). http://gbr.pepperdine.edu/2010/08/Creating-and-Sustaining-an-Ethical-Workplace-Culture/

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More Than Money

Mark Albion spent nearly 20 years as a student and professor at Harvard University and its Business School. A seven-time social entrepreneur, he left Harvard to develop a community of service-minded MBAs, co-founding Net Impact in 1993. He has made over 600 visits to speak at business schools, covering over 135 different schools on five continents, for which Business Week dubbed him “the savior of B-school souls.”

GBR readers may find these additional audio and video interviews from the Graziadio School of Business and Management and Pepperdine University interesting.




Mark Albion, PhD










Mark Albion is the author of the New York Times’ bestseller Making a Life, Making a Living (2000), Finding Work That Matters (3 CDs; 2002), True to Yourself: Leading a Values-Based Business (2006).

His latest book, More Than Money: Questions Every MBA Needs to Answer, has been electronically distributed to up to 54,500 MBAs at 75 business schools, including 9 of the top 10 and 17 of the top 20 U.S. Business schools. It is accompanied by the 3-minute animated movie, “The Good Life Parable: An MBA Meets a Fisherman,” produced with Free Range Studios. For more on Dr. Albion, visit his website: www.makingalife.com.

Audio Files

Full Interview [powerpress http://gsbm-med.pepperdine.edu/gbr/audio/albion/albioninterview.mp3] or read transcript
The Right Time to Give Back [powerpress http://gsbm-med.pepperdine.edu/gbr/audio/albion/giveback.mp3]
Non-Profits Vs. For-Profit Social Enterprises? [powerpress http://gsbm-med.pepperdine.edu/gbr/audio/albion/nonprofit.mp3]
Developing and Sustaining a Values-Based
Business		 [powerpress http://gsbm-med.pepperdine.edu/gbr/audio/albion/values.mp3]
Giving Back in a Down Economy [powerpress http://gsbm-med.pepperdine.edu/gbr/audio/albion/givingback.mp3]
The Cost of Money: 5 Take-Aways on
Making a Life		 [powerpress http://gsbm-med.pepperdine.edu/gbr/audio/5takeaways.mp3]

Note: If the file does not download automatically, right click on the download icon and click “Save Target As…”

Questions for Dr. Albion:

  1. The common theme throughout your books is in a sense, the name of your latest book—it’s about “more than money.” As someone who has spent their life in the world of business, how have you reconciled the two?
  2. Some might say that it’s easy for you, with your extensive business background, your PhD, your Harvard Business School credentials, to now turn around and decide to give back to the community. Is there a right time in your career to turn the focus from money to giving back?
  3. What are some of the social enterprises you founded? What lessons did you learn?
  4. What is the better business model for giving back—for-profit social enterprises or traditional non-profits?
  5. Tell us more about Net Impact, and how you use “business to improve the world.”
  6. You are also very involved in the Social Venture Network, which is committed to “building a just and sustainable world through business.” How do the two groups differ? Essentially, why would a social entrepreneur get involved with one over the other?
  7. What for you constitutes a values-based business? Should every entrepreneur be a social entrepreneur?
  8. What can business managers, owners, entrepreneurs, do to incorporate a values-based approach to their work? What are the questions they need to ask themselves? The actions they need to take?
  9. Much has been said about Generation Y and their community-mindedness. In the 15 years since you founded Net Impact, have you seen a generational shift towards giving back?
  10. The other thing you hear about Generation Y is how much they like to switch jobs. As these new graduates enter the workforce, how can organizations use service and community incentives to help retain them as longer-term employees?
  11. With the current economic conditions, money is the big issue looming over so many people. How has this affected your message?
  12. What advice do you have for current and recently graduated MBA students? What are your top 5 take-aways?

*Editor’s Note: This interview was held on November 4, 2008.

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Moral Markets by Paul J. Zak, (Ed.)

Moral Markets: The Critical Role of Values in the Economy

By Paul J. Zak (Ed.)
Princeton University Press, 2008

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5 stars: Stop what you're doing and read this book!Moral Markets is a collection of essays based on the premise that markets are driven by virtuosity, an ambitious argument in today’s climate of market distrust. The authors’ goal is to raise the awareness of market stakeholders, a category that includes almost everyone, that markets are “good” today, and have been throughout time. By no means is this an “airport” book on management; the reader is challenged to engage in a profound study of human behavior and values.

Moral Markets is edited by Paul Zak of Claremont Graduate University, who is known for his work in neuroeconomics, a transdisciplinary study of how decision making, risk, and trust produce good economic outcomes. The book is organized into five parts: Philosophical Foundations of Values; Nonhuman Origins of Values; The Evolution of Values in Society; Values and the Law; and Values and the Economy.

We are reminded early on that “moral markets” that is, economies where exchange is fair, good, truthful, efficient, and productive are really communities of individuals whose practice of personal responsibility has proven to yield the best possible outcome for society at large. The takeaway is that for the individual, the good life translates to the good life of the community, and it is fueled by individual achievement through the maximization of talents. The authors affirm that moral markets are not only the place where society participates in good exchange, but they also serve as a means for individuals to derive purpose from their life endeavors. They write, “Meaningful human activity is that which intends the good rather than stumbling over it on the way to merely competitive or selfish goals, and the predictable outcome of such behavior is not the mysterious result of an invisible hand but of our own good intentions, amply rewarded.”

Economies ebb and flow because of traditional business cycles. These same economies can shutter and collapse when the morality of their markets is compromised this phenomenon is more evident today than it has been in decades. The future of the economy does not hinge on a dose of public policy or even an infusion of morality. Instead, as Moral Markets asserts, we need to reevaluate the entire spectrum of values and virtues, from the core of the individual to the soul of the society. Moral Markets provides the serious student of business, government, and society with the necessary intellectual tools to reengineer their knowledge and practice of virtue, and perhaps enlighten them on why and how “goodness” ultimately serves society.

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A Class with Drucker by William A. Cohen

A Class with Drucker: The Lost Lessons of the World’s Greatest Management Teacher

By William A. Cohen
AMACOM, 2007

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While A Class with Drucker is an easy read, it is the time spent away from the text, digesting the nuggets of knowledge and leadership, when the nutrition value of the meal is realized.

The book provides examples from real life encounters between author William Cohen and renowned management consultant and professor Peter Drucker, allowing his wisdom, thoughts, and insight to illustrate timeless management and leadership issues. The anecdotal stories used throughout the book are appropriate and timely as we move into the age of the global knowledge worker.

Reading this book is like being a fly on the wall during a Drucker lecture or a casual conversation between friends. Drucker, who some have titled the father of modern management, illustrates leadership not by citing well-known companies but rather by focusing on companies where management have built their products and reputation on trust, commitment, and long-term success. These values allow management and labor to not only coexist but to prosper in a global economy, where the first response to higher labor costs is often to outsource and gain a “strategic advantage.”

In a world full of skeptics, Drucker knows that to hold others accountable, you must be willing to hold yourself accountable. Without that ethical and value-driven construct, day-to-day managerial decisions are made without true leadership.

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Aligning Business with a Value Statement

With over 600 employees, Dacor has established itself as one of the few successful high-end kitchen appliance manufacturers in the United States with annual sales of over $200 million. Dacor is a family-owned business founded in 1965 by Stan and Florence Joseph. Their son, Michael Joseph is now CEO; his son, Stephen Joseph, is director of interactive and direct marketing. Stephen graduated from Pepperdine University’s Seaver College with a BA in business. Michael’s son-in-law Mauricio Roca has completed the two-year management program at Dacor, and his responsibilities have increased to director of business development; he is currently pursuing his MBA at Pepperdine.

In 1997, Dacor CEO Michael Joseph and his wife felt the growing need to place God as a priority in their lives and embarked on a journey to become part of a religious community. Soon after, Michael decided to bring his renewed faith to Dacor in the form of a company value statement.

Not long after the statement was introduced, Tony Zavala joined the company as vice president of human resources. Tony created an eight-hour training course on the meaning of the Dacor Company’s Value statement which every Dacor Associate is required to attend, thus, evolving the value statement into a values system. Six years and several promotions later, Tony is Dacor’s executive vice president and chief operating officer. Tony is a graduate of the Graziadio School’s Presidential and Key Executive MBA program.

Dacor grew from a struggling mom-and-pop business to sales of $200 million in 35 years. What were some of the strategic moves to your success?





Joseph, and Stephen Joseph.





MJ: There have been several strategic moves we have made which have allowed us to survive and prosper in a very difficult business, but from day one we’ve been a product-driven company. We’ve always known that we must continually develop innovative and high quality products in order to grow in the high end segment.

One of our big steps was getting into the gas cooktop segment. We developed a six-burner gas cooktop that was well received in the LA market-so boom!-we jumped from $6 million up to $14 million in two years time.

Next, we developed the first 30-inch convection wall oven because we had enough money to invest in tooling, and that took us up to $25 million. Then sales hit a plateau for a couple of years while we adapted to our new challenges and prepared for future growth. Our sales have increased sharply since 1993 and we’ve done awfully well. Our sales growth has compounded annually at over 25 percent for the 35 years that I’ve been with the company.

Growth is just a habit we’ve gotten into. It’s the culture of the company, still driven by great products, but now we have very capable people in all areas of the company.

SJ: I think some consumer trends helped out too. We’ve always been an upscale, high-end appliance manufacturer and the market for high-end products grew with us. So maybe part of it was being in the right place at the right time. Blessings from God, too, that’s a factor.

Blessings or sound business decisions?

MJ: They certainly are blessings. Getting up to $100 million took some time and some 25 years. But since the introduction of the value statement we’ve doubled that. So, to the more secular-minded, my message is that acknowledging God in the workplace certainly hasn’t hurt our business. And, of course, I think it has made a wonderful difference.

What has been the impact of the value statement on Dacor?

MJ: Employees know they are going to be treated fairly, and I think that helps create an environment where people feel safe. I think that can be measured in our low turnover.

MR: For the most part, I believe there are always strong similarities between any family’s values at home and the Dacor ones. Moreover, God is within all of us at anytime, right? Well, at Dacor all we are trying to do is to bring our faith and those family values to our workplace, where we spend a great deal of our lives. This has a great impact on every aspect of our business activities and our personal lives.

SJ: In meetings, our value system comes up regularly-when there’s an ethical dilemma, it’s referred to, or someone might even say, “That’s not in line with our values.”

MJ: We have it on our business cards, our newsletters, in all our showrooms, and our offices as a reminder that this is how one should behave, and if we have a bad day, we have a good moral compass to get us back on track.

The nice thing is that the value system isn’t mine anymore; it’s now owned by the Dacor associates. That is a sign of success.

SJ: There’s one part of the value system that I really like because it helps to cover all the bases: the “celebrating our lives” part of it. I think that really helps people feel like they’re not just here to work hard, but also to enjoy life.

I think it makes them feel good that their CEO wants them to live good lives-and not just here at work. We are 600 people, but if you add all the families, our suppliers, and our customers, we affect a whole lot more people than that. So it helps us affect them all positively.

MJ: A big part of our marketing initiative is to bring dealer groups in from all over to spend two or three days with us. One of the consistent comments we get back is that there just seems to be a different attitude at our plants in the way people approach their work.

MR: You have to take the plant tour or visit our headquarters in order to experience the impact of such a powerful message. Dacor is an extension of our homes and all our stakeholders are part of our family. If we are constantly trying to honor God in all we do, how would you think we are doing? We are one of the industry leaders with a very strong reputation in high quality, innovation, design, and performance. We are also well known for our strong ethical standards.

SJ: It also helps to attract new talent. A lot of our executives came to us because they read our value statement, like Tony Zavala.

Tony, how did you find out about Dacor?

TZ: It was a friend of mine who showed me a job posting for Dacor. The posting talked about this company with these special values that was looking for an HR executive.

My friend urged me to look into Dacor, but I was happy with my job. He ripped out the ad and left it on my desk. I ignored it. About a week later I had a discussion with my boss that irritated me and I got mad. I said, “Okay, fine.”

I called and spoke with Dacor’s then HR Director, Chris Fesmire, now director of community relations. After a brief conversation he advised me to visit their website. I said I would, but after I calmed down, I forgot about it.

Four days later Chris called me and asked if I wanted to pursue the job. We had only spoken superficially-I hadn’t sent in a resume. I said, “No,” so he asked me to do him a favor and take a look at the website. I finally went to their values web page thinking I would see different financial indicators. What I saw was Dacor’s Company Value statement. I looked at the header and thought I’d gone into a religious organization’s website. I said to myself, “This must be a for-profit organization that simply does not take those values seriously. Everybody gives lip service to a lot of things, but this is not real.” I kind of just set it aside.

A few days later Chris called and asked me to send him a resume. I sent it and then I began the interviewing process.

Mike asked me why I was interested in Dacor and if it was because of the Value Statement. I told him he had a major challenge in front of him, that I was interested in learning how to run a successful business and at the same time practice these values.

MJ: Tony came on board and showed us the way we could implement the Value Statement in the company to take it to the next level.

What do you mean by “the next level”?

MJ: Tony developed an eight-hour “Values” curriculum that every employee must go through. We have 26 nationalities and all major religions represented at Dacor and words can mean different things to different people. We go through the training and ask them what the values mean to them, and then at the end, we say, “This is what the values mean at Dacor.” For example, respecting others doesn’t mean that you shouldn’t report coworkers for doing bad things. There’s a story behind each one of the six phrases, about how it evolved and what it means.

SJ: It’s a great place to work when you have an environment where people respect each other and help each other and are led by values. One thing about my dad, he’s always had this desire to make sure that one’s full life is taken into consideration.

How do you take care of the “full life”?

MJ: We have a very good benefits program, we pay people well, we share 10 percent of the profits of the company with employees, and we have an Employee Stock Ownership Plan (ESOP).

TZ: The employees contribute roughly two percent of the cost of their benefits. We are now going on our twelfth year with no increase in their contribution.

MJ: We also have some things that maybe other people don’t have but should. We have a 24-hour hotline where people can call a psychologist-around 15 percent of the company will call over the course of a year. It’s recognition that they’re more than just the employees that come and work here eight hours a day; they are also mothers and fathers and people with challenges outside of Dacor.

How did your values system come into play when there was a slump after 9/11?

TZ: After 9/11 the demand had gone down somewhat so we cut back on overtime. Most of us tend to live a little above our means, so our employees needed the overtime. I had my HR people and my salaried administration people run comparisons.

There was no real reason to say we needed to make a salary adjustment other than in my mind it was the right thing to do.

I brought it to the executive team and I told them about the 30 people who have been here 20 or more years, another 50 who have been here for 15 or more years. We have very, very low turnover. The productivity that our associates give us is about two to two-and-a-half times that of our competitors. “They are the company,” I said, “and they are hurting and we are successful financially, so we should do something.”

Mike asked what I wanted to do and I told him I wanted to raise the hourly pay for everyone by one dollar. It was a big chunk of money. It took him about 45 seconds, and he said go ahead and do it.

Our CFO said that we really needed to analyze this-that’s his job, to raise the issues for analysis-but Mike’s response was, “It is the right thing to do, and so we’re done with the analysis. Do it.”

It had a huge, positive impact on the associates. They were so amazed they asked me to explain why we were doing it. Everything just got better on that one action alone. And I think most organizations today would not do that.

What happens when employees fail to live up to the value system?

MJ: With 600-plus people we have a large cross-cut of the population here, and we have some of the same issues as a lot of other businesses. We have people who do things they shouldn’t be doing from time to time, and we have managers who do things they shouldn’t be doing. I like to think that’s an exception, and that they don’t get away with it for very long because this is a climate where that’s not acceptable. That’s what I’m hoping.

Having our value system sets the bar really high, and as humans it’s fairly impossible to live up to it all the time. So, it’s a journey we are trying to achieve.

We’re all divinely created, and I believe you should treat people appropriately. But say there’s a case when somebody is not doing good work, not performing at an acceptable level in the company. I think we err on the side of giving them every benefit of the doubt.

Employees who are not performing are required to begin a performance improvement program where they are given 90 days during which they are coached and given updates about how they are doing. At the end of the 90 days they are clearly aware of whether they are going to make it or not, and it really provides a soft landing for people.

I’m embarrassed by the executive who is known for saying, “You’re fired” on his TV program. I haven’t said, “You’re fired,” in 35 years. That’s not the right way to treat people.

Do your values limit your growth?

MR: Not at all. When we live our values we grow as individuals, as a team, and we obviously continue to evolve as a company. That also means that we are constantly looking for new opportunities to fulfill our end user’s needs and wants. Ever since the values were implemented, the company has grown rapidly in terms of revenues and number of employees, but also in terms of product offerings, incorporating dishwashers, a full refrigeration line, and expanding into wine and coffee products.

SJ: One of my favorite things my dad says is that we’re only going to grow as big as our values will let us. So, I think a lot of those CEOs are maybe challenged because they need to grow so quickly or they need to make certain figures and it conflicts with their values. Here we make the values number one.

MJ: The twist to that is that there is absolutely nothing limiting to our growth in these values. There’s no reason why we can’t go to a half-a-billion or a billion dollars because of these values. In fact, we’ll probably get there faster because we’ve properly implemented our value system-particularly in the good work and the respect.

There’s not been anything but positive impact, and I give a lot of credit to our values as well as to a good business strategy. We have selected the right market niche to be in. Certainly as a niche manufacturer you don’t want to go up against GE and Whirlpool and the mass-middle-priced product market, and so we focused on the remodeling industry and that’s done nothing but grow over the years.

SJ: Part of the success is also the relationships we built with our dealers, keeping them profitable was always one of our main intentions-not to compete against them but to drive customers to their showrooms and to protect them with prices that would earn them a good profit.

MJ: We introduced an MSP or minimum sale price several years ago. There are a lot of people copying that now, but we were the first ones out there saying, “We don’t want you to sell this item below this price.” Because dealers need a minimum profit to survive, we don’t sell to some big retailers because of the way they discount products and provide little customer training or service.

So for Dacor, relationships are important?

MJ: They are core to our business. We probably bring in over a thousand dealers a year to visit the company. We update them on our product lines and we entertain them. We put them up in a nice hotel and reaffirm those relationships so they can go back to their dealership and say to a customer, “I was just cooking on this product at the factory, and it works great.”

Has the values statement made you better leaders?

MR: As we try to “walk the talk” every day, we constantly challenge ourselves to be better human beings. We understand that we have the responsibility to provide our associates with the right tangible and intangible tools to do good work and also celebrate their lives. We have learned from Mike and Tony that in our company the CEO is our value statement.

MJ: The first obligation of the leader is to set proper standards of behavior and to be consistent; people will pay attention to that and will react very positively-the vast majority will.

I’m really pleased with the people I’ve drawn around me now. I have some very qualified leaders in the company, which makes my job a lot easier. I can be more of the cheerleader. I say my primary job is providing the right environment for our associates to do their best work. I have a good idea every so often, but it’s not totally dependent on me to run this company anymore. When we were smaller, my brother and I were responsible for all the decisions, and now some big decisions are being made without me.

One of my favorite stories is when I was starting on this journey to greater enlightenment; I read an article about Bible studies going on in plants. I went to our HR director and said, “You know if people would like to do a Bible study on their own I’d be okay with that.”

He said, “I guess you don’t know we’ve had a Bible study in English and Spanish for over five years.”

So, you know who’s leading the parade and who’s catching up sometimes. I think a leader needs to keep that in mind, too.

TZ: At the level of CEOs, COOs, and presidents, you have to have a high level of integrity and tell the truth. I have two simple rules I tell all my direct reports: Tell me the truth and don’t cause me to have to take any action to lay off people.

I think another key element is to be straightforward and constructive in your communication.

Be the motivating force for always making things better. What you are actually doing is leading by example-walking the walk and not just talking out of both sides of your mouth.

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Creating and Sustaining an Ethical Workplace Culture

Values drive behavior and therefore need to be consciously stated, but they also need to be affirmed by actions.

Ethics is about behavior. In the face of dilemma, it is about doing the right thing. Ethical managerial leaders and their people take the “right” and “good” path when they come to the ethical choice points.

The purpose of this article is to steer your thinking and action toward creating and sustaining an ethical workplace culture. Managerial leaders and their people are invited to explore how values, actions, and behavioral standards can help steer organizational behavior.

Values Drive Behavior

A well-used axiom in organizational behavior thought asserts that values ultimately drive our behavior. In a nutshell, values exert influence over our attitudes, and attitudes influence our behavior. Values are integral to attitude formation and to how we respond to people and situations. Extensive literature exists dealing with how values relate to effective managerial leadership. A review of this body of work leaves us with the clear picture that values are a key component of effective managerial leadership.

There seems to be a subset of virtuous values that align with ethical behavior. In his book, Authentic Happiness,[1] Martin Seligman has reviewed these core virtuous values that influence ethical behavior and appear to have universal appeal. My adaptation of these values as they apply to ethics follows:

  • Wisdom and Knowledge: The capacity to take information and convert it to something useful. Wisdom comes from capitalizing on one’s experience to interpret information in a knowledgeable manner to produce wise decisions. A prerequisite to doing the right thing when facing an ethical dilemma is knowing what to do, knowing the difference between right and wrong.
  • Self Control: The ability to avoid unethical temptations. The capacity to take the ethical path requires a commitment to the value of acting with temperance. Ethical people say “no” to individual gain if it is inconsistent with institutional benefit and goodwill.
  • Justice and Fair Guidance: The fair treatment of people. Justice is served when individuals perceive that they receive a fair return for the energy and effort expended. For example, a leader’s commitment to justice is tested continually with the allocation of organizational resources. Are certain individuals and groups given special treatment without regard to objective criteria by which to judge fairness? Ethical leaders value and embrace fair advice and guidance.
  • Transcendence: The recognition that there is something beyond oneself more permanent and powerful than the individual. Without this value, one may tend toward self-absorption. Leaders who are motivated predominately by self-interest and the exercise of personal power have restricted effectiveness and authenticity.
  • Love and Kindness: The expression through words and deeds of love and kindness. Researchers have documented that there appear to be different types of “love.” In an organizational context, love refers to an intense positive reaction to another co-worker, group and/or situation. An organization “with heart” allows for the expression of love, compassion and kindness among and between people, the goodwill which can be drawn upon when one faces ethical challenges.
  • Courage and Integrity: The courage to act ethically and with integrity. These values involve discerning right from wrong and acting accordingly. They impel one to consistently do what is right without concern for personal consequences, even when it is not easy.

In practice, these six categories of virtuous values are intertwined. For example, the capacity to administer resources fairly and offer fair guidance to stakeholders along the way is supported by courage and integrity. Difficult decisions surrounding the allocation of limited resources leave some individuals and groups with less than they would prefer. The redeeming grace is the perception that such decisions are made with fairness and integrity. Unpopular decisions are easier to accept when they are perceived to be derived fairly and with integrity.

Driving ethical behavior with values and attitudes requires that there be alignment among values, attitudes, and behavior. Examples of this alignment between each of the virtuous values, associated attitudes, and behavior are offered in Table 1.

Table 1: Values —> Attitude —> Ethical Behavior Chain

Value Attitude Ethical Behavior
Wisdom and Knowledge Experience promotes wisdom that helps convert information to knowledge. Using knowledge to solve problems ethically and to do what is right.
Self-Control Self-control means effectively managing reactions to challenging situations and temptations. Putting personal motivations aside and acting with objectivity by doing what is right.
Justice Acting justly and fairly is a long-term driver of ethical behavior; remember the “Golden Rule.” Establishing just and mutually agreed upon criteria and administering them fairly to all people.
Transcendence The belief in a power and source outside oneself reduces self-serving actions and increases humility. Putting institutional and/or stakeholder interests above self interests. Identifying a personal purpose that is aligned with organizational mission.
Love and Kindness Treating people with kindness helps increase the reservoir of positive affection and love. Recognizing and encouraging others for their contributions.
Courage and Integrity Ethics requires the courage to do the right things consistently without regard to personal consequences. Making unpopular decisions based on fair consideration of the facts.

Putting Virtuous Values into Practice

“What can managerial leaders do on a proactive basis to encourage ethical behavior? At least five practices help leaders steer their organizations toward ethical conduct.

First, any gap between knowledge about what to do and actual actions needs to be closed. If you know what is the right thing to do, just do it. Unfortunately, too often “white collar” criminals will tell us that they knew what was right, yet they failed to do it. John Maxwell, in his recent book “There’s No Such Thing as Business Ethics,”[2] explains various reasons for ethical transgressions, including that people just rationalize their choices with relativism. While the reasons for the transgressor’s actions are varied and complex, the simple truth is that they failed to “do the right thing” in spite of their knowledge. They did not act with wisdom.

Second, managerial leaders must be very deliberate about who joins their organization. Many organizational leaders believe that selecting people for their values is as important as selecting for skill sets. Jim Collins, in his compelling book Good to Great: Why Some Companies Make the Leap . . . and Others Don’t,[3] underscores how long-term success depends on putting the right people in place. Larry Bossidy, as CEO of Allied Signal, made people selection a top priority and considered it a key task of top management. Selecting people who share your virtuous values is critical to building an ethical culture and long-term business success.

Third, new personnel need to be socialized into the organization so as to advance virtuous values. As an executive, I regularly attended new employee orientations to espouse the organization’s values. As a way of promoting and influencing ethical behavior, it is very powerful for new employees to hear managerial leaders espouse core virtuous values and to see those values affirmed through the actions of others in the organization.

Fourth, accountability and follow-up are critical in putting virtuous values into practice. Systems and procedures can remind people of commitments and help connect words or promises with deeds. In organizations with behavioral integrity, words and deeds count. When virtuous values are driving behavior, the alignment of words and deeds serves to advance the creation of an ethical work culture.

Finally, managerial leaders can positively impact the practice of ethical behavior by fairly allocating organizational resources and linking them appropriately. All managerial leaders have five key resources to manage: people, money, capital assets, information, and time. Allocation of these resources and the process managers use to accomplish such distribution can create perceptions of equity and fairness, or inequity and unfairness. Managerial leaders who value justice and fairness are more likely to deal the cards fairly — thereby modeling ethical behavior — than are those who do not.

Behavioral Standards and Codes of Conduct: The Safety Net

Ideally, managerial leaders and their people will act ethically as a result of their internalized virtuous core values. I like to think of this as ethics from the “inside out.” Relying solely on this “inside out” approach, however, is simply naïve in many circumstances.

Established behavioral standards and written codes of ethical conduct can help bolster virtuous values and promote ethical organizational behavior. Behavioral standards usually incorporate specific guidelines for acting within specific functional workplace areas. For example, a sales department may clearly outline criteria for expense reimbursements.

Codes of ethical conduct have received varying degrees of attention over the past three decades. They can be categorized into three types:

Type 1: Inspirational-Idealistic codes of conduct specify global themes such as “Be honest,” “Show integrity in all matters,” “Practice wise decision making,” etc. Such themes are not anchored to specific behavior or situations.

Type 2: Regulatory codes of conduct proscribe clearly delineated conduct. This type of code is designed to help as a jurisprudential tool when disputes occur. It is more of a “do and don’t” approach.

Type 3: Educational/Learning-Oriented codes of conduct offer principles to guide decision making and behavioral reactions into likely situations. This approach is compatible with building a learning organizational culture. For example, the principle and value of fairness might be applied to allocating a bonus pool. Managerial leaders responsible for this process could be engaged in scenarios wherein they would be asked to take “fair action” in making these allocations. Such learning experiences can serve to enlighten and inform so as to foster ethical decision making.

Behavioral standards and codes of ethical conduct can help steer ethical behavior by offering a cue or written rule to remind personnel of the right thing to do–an “outside in” process for ethical behavior management. These standards and codes trigger peoples’ internalized values, thus gaining strength through firm yet fairly administered consequences.

The Ethical Behavior Formula

Taken together, virtuous values, actions, and behavioral standards/codes can produce a “formula,” such as that illustrated below, that may increase the likelihood of ethical organizational behavior:

Virtuous Values + Aligned Action + Behavioral Sandards/Codes –> Increased Ethical Behavior

Consider adapting the six virtuous values and aligning them with key managerial leadership actions such as selection, employee orientation/socialization, and allocation of resources. Behavioral standards and/or codes of ethical conduct can be added as appropriate. Acting on these three formula components may serve to increase the display of ethical organizational behavior.

Three Good Reasons to Apply the Formula

There are at least three good reasons to practice ethical behavior in your organization. These reasons may motivate you to adapt the “formula” into your managerial leadership practice repertoire.

  • First, it is the right thing to do. Employees and external stakeholders alike want and deserve to be treated ethically. Taken to the extreme, a culture allowing unethical behavior can breed all manner of damaging and even criminal activity.
  • Second, it makes economic sense. A mounting body of evidence shows that an emphasis on the softer sides of business, including ethics, positively influences the harder traditional bottom line. By listening to employees, effectively recognizing their work, and practicing good ethical behavior, managers have given a boost to such hard measures as operating earnings, ROI, and stock price.[4]
  • Third, in line with a growing trend to look beyond shareholder value to a broader stakeholder perspective, organizational ethical behavior becomes the socially responsible thing to do. Just think for a moment about the impact of Enron’s, Tyco’s and World Com’s unethical behavior on their respective communities, workforces, and other stakeholders.

A Way to Apply the Formula

To pull the virtuous values, proactive actions, and behavioral standards and ideas together, I offer you a checklist. The Ethical Behavior Enhancement Checklist is intended to help you promote and practice ethical organizational behavior.

The Ethical Behavior Enhancement Checklist

Instructions: For each statement below, on a scale of 1 to 10 (0 being lowest, 10 being highest) rate to what extent the statement is true and/or to what extent you currently practice this behavior. Please be candid since this checklist is self-directed and is intended to help you increase the presence of proactive ethical organizational behavior in your enterprise.

1. A set of virtuous values is clearly espoused. (0 – 10)
2. Espoused values are routinely affirmed by my actions. (0 – 10)
3. People in my organization would say that I talk and act in an ethical manner. (0 – 10)
4. People are selected based upon their alignment with our virtuous values. (0 – 10)
5. New organizational members are oriented to our virtuous values. (0 – 10)
6. Systems and processes that hold people accountable for their words and actions are in place. (0 – 10)
7. Decisions regarding resource allocation are made fairly. (0 – 10)
8. People perceive resources to be distributed fairly. (0 – 10)
9. As appropriate, behavioral standards and/or codes of conduct are specified. (0 – 10)

10.

 The economic and people impacts of ethical behavior are measured. (0 – 10)

In reviewing your responses to the checklist, you are encouraged to identify the areas of greatest opportunity for improvement and begin a program of change in these areas. Ideally, responses in the range of 8 – 10 would be most desirable. Additional targets for continual growth and improvement can be identified as circumstances warrant.

With this checklist in your hands, I challenge you to start measuring, tracking, and enhancing your organization’s practice of ethical behavior. Remember, at the most basic level, ethics is about behavior. Doing the right thing is enhanced by espousing a set of virtuous values, aligning your actions with those values, and specifying in key areas those behavioral standards that will encourage others to steer their behavior in an ethical direction.

For another look at ethical leadership by current business leaders, see “Dialogue with Four Executives.”

[1] Martin Seligman, Authentic Happiness (New York: Free Press, 2002).

[2] John Maxwell, There’s No Such Thing as Business Ethics (Boston: Warner Books, Inc., 2003).

[3] James Collins, Good to Great: Why Some Companies Make the Leap…and Others Don’t (New York: Free Press, 2001).

[4] See, for example, Jeffrey Pfeffer, “Business and the Spirit: Management Practices That Sustain Values,” Handbook of Workplace Spirituality and Organizational Performance, eds. R. A. Giacolone and C. L. Jurkiewicz (New York: M. E. Sharpe Press, 2003):29-45; and David Ulrich and Norman Smallwood, Why the Bottom Line Isn’t! How to Build Value Through People and Organization (New Jersey: John Wiley & Sons, Inc., 2003).

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Dialogue With Four Executives

Rather than our usual format of an interview with a single leading businessperson, the “Conversation” feature of this issue of GBR reports some of the insights of four of the participants at Pepperdine University’s Graziadio School of Business and Management’s 4th Annual Executive Learning Forum: Dan Burnham, former Chairman and CEO, Raytheon, Inc., Nancy McGaw, Aspen Institute Initiative for Social Progress in Business, Mila Baker, Director of Organizational Effectiveness, Pfizer, Inc., and Blair Shepard, CEO, Duke Corporate Education.

The Forum focused on “The Challenge of Developing Ethical Leaders.” Appreciation is expressed to all participants and to their organizations.

The Challenge of Developing Ethical Leaders

Ethics, values, leadership and trust are issues of immense timely importance to executives attempting to recover from a substantial downturn in the national and global economies. The challenge of promoting and maintaining ethical leadership has become a ubiquitous issue for executives and academics in a variety of fields.

Within the recent past, we have read or seen disappointing reports of Olympic judging caught up in controversy. Award wining journalists have been fired for fabricating credentials, sources, and stories. Politicians have been brought before the bar of justice or tried by the court of public opinion. Church leaders have been discovered to be covering up crimes committed by their subordinates. And, of course, corporate America and Wall Street are feeling the sting of accusations that go to the heart of investor and public trust.

This article features four leaders from the ranks of senior business executives, academic thought leaders, and human resource development specialists who detail their perspectives and approaches to the current epidemic of unethical behavior in corporations.

Daniel Burnham, Raytheon’s former chairman and CEO, puts the recent emphasis on ethics in dramatic context:

“Business integrity is not an oxymoron; it’s what smart companies insist upon to sustain their cultures — and to guide the individuals they select for leadership positions…

“Corporate scandals have been a big contributor to the climate of investor anger and mistrust. Since 9/11, unethical behavior is perceived as unpatriotic. When people feel that our country is under attack from terrorists, when fire fighters and police officers are asked to lay their lives on the line, when we send our young men and women in harm’s way abroad, we need to ask ourselves, ‘What are we asking them to fight for?’ Cast in this light, shady, greedy, unethical behavior seems even more shabby and intolerable.”

The Role of the CEO

Senior management sets a tone; managers serve as role models for their values and priorities—good or bad. At Raytheon, managers are encouraged to benchmark what companies they admire are doing – to look beyond the walls and structures of their own company and industry. They try to document how the company has handled similar problems in the past and to address challenging situations in a consistent manner. Burnham describes a serious challenge:

“Of course, the real test of ethical leadership comes when an organization is being investigated by the SEC – (or is accused in contentious litigation of wrongdoing by former employees or other companies). When such things happen, the CEO and his or her team have an opportunity to demonstrate their true values. They should communicate as openly as possible without violating laws or regulations. If they tell the truth, assume responsibility, and continue to speak up for the values they believe in, they and the firm enhance their reputations for integrity.”

Burnham further suggests:

“With thousands of employees, the CEO can’t personally review the behavior of every employee. Nevertheless, CEOs do set the tone and establish expectations and standards. Ralph Larsen, the former chairman and CEO of Johnson & Johnson, said that his company’s famous credo really boiled down to one core thought: ‘personal responsibility through the ranks.’ “

Tools and Initiatives for Organizations

A firm whose CEO demonstrates strong ethical values and commitment has a head start in creating an ethical organization. Yet, as Dan Burnham has pointed out, the CEO can’t review the day-to-day decisions and behavior of each employee. Consequently, successful firms will translate the desire for ethicality into concrete and pervasive institutional policies and practices.

Burnham emphasized the importance of making integrity a part of the assessment system and described a similar system at Raytheon.

“Good companies have defined leadership competencies — standards by which talent is hired, retained, recognized, rewarded, and promoted. If you take a standard ’4-blocker’ — with results running across one axis and leadership behaviors running up and down the other axis — Tom and Tina Tiger might wind up squarely in the block for ‘strong results’ and ‘deficient leadership behaviors.’… Any member of my leadership team will tell you that the block they look in for new leaders is ‘strong results’ and ‘great behaviors’ — that’s the leadership block.”

Boards of Directors

Corporate governance has frequently failed to meet acceptable standards of stewardship. During the past two years, various groups within the National Association of Corporate Directors have challenged their members to better meet their responsibility of representing society and shareholder interests by emphasizing high standards of conduct. At one of these meetings, Burnham described how Raytheon had recently completed a thorough review of their board policies and recommended that other firms consider the following policies:

  • “Have fewer board meetings, but give opportunity for lots of interaction.
  • Focus on large questions without ignoring details.
  • Conduct frequent reviews of the strategic landscape.
  • Have no former [Raytheon] CEOs on the Board…
  • Insist that a substantial portion of the Board is independent (non-executive).
  • Name a ‘lead’ director.”

As Burnham concluded:

“Integrity must be felt and lived. But these values don’t substitute for strategies that stretch managers, for risks that are managed and become rewards, for disciplined and predictable execution. Good governance cannot fix a lousy business; however, bad governance can ruin a great business.”

Balancing Demands

Managers may have an intellectual understanding that they need to balance the pressures for the short term and the long, between personal and professional demands or between the need for profitability versus socially responsible behavior. However, when only one of these “trade offs” is measured or rewarded, others are likely to be overlooked or forgotten.

Nancy McGaw, associate director for a key policy program at the Aspen Institute – the Initiative for Social Innovation through Business (Aspen ISIB) – reports:

“Our organization came into being because of the perception that more balance in corporate life was required. Aspen ISIB initiated a series of small conferences to learn from experts in leadership development programs around the world.”

The Challenge for Business

McGaw reviewed the seminars and interviews conducted by Aspen ISIB. She suggests:

“For too long it has been customary to solve problems using economic and other technical tools to the exclusion of other values. Many business activities require judgment of a ‘different sort.’

“For example, how should a project’s financing be structured in a disadvantaged area that needs the jobs and tax revenues that will be generated even though the project is going to disrupt communities and ecosystems? How can one decide how much tax avoidance is enough, and what crosses the ethical line?”

McGaw recounted that the dean of a leading business school had recently explained how his school had built its MBA curriculum around the core query: ‘What Does Every MBA Need to Know?’ McGaw argues:

“No one would dispute the need to equip MBAs [or managers] with the technical skills required to do their jobs well, but I wonder if someone shouldn’t also be building curriculum/business practices around the theme of ‘What Every MBA/Manager Needs to Ask.’ “

Aspen ISIB has moved beyond inquiring what managers need to know and is beginning to explore what leaders need to ask. The current consensus in MBA or executive education programs around the country has implications for business.

McGaw reports:

“The consensus seems to focus on four questions that every program design should consider:

  • “What is the purpose of the enterprise?
  • “Is it possible to articulate that purpose in a way that engages the hearts as well as the minds of employees?
  • “How should we measure success?
  • “What is it that we do as a business when we are at our best that allows us to say that our life has meaning?”

Change Management

The Chinese symbol for change contains symbols for both danger and opportunity. The widespread public concern about ethics in business suggests danger if the voice of the public is not heard. However, such concern also contains a positive opportunity for change that can improve the quality of management practice and the quality of life in general.

Mila Baker, director of Worldwide Organizational Effectiveness at Pfizer, reports:

“Pfizer has attempted to create an understanding of the importance of ethical behavior by incorporating ethics in all its change management initiatives. The company builds ethical awareness, skills, and knowledge among all employees by encouraging dialogue and conversation about ethical dilemmas.

“Management leaders also institutionalize stories about those in the firm who have dealt successfully with an issue of integrity, and [the policy is to] try to make that person a ‘hero.’ Of course, managers also stress through training and performance assessment the degree to which a leader models the values he or she is attempting to instill.”

Blair Shepherd, CEO of Duke Corporate Education–recently named the world’s leading company in executive education [1] –comments:

“Firms that know what kinds of developmental needs their people have and are committed to providing developmental opportunities to those people are obviously ahead of companies that simply assume that ‘the fit will survive’ —without asking, ‘fit for what?’… Integrity is a more important developmental need than the ability to understand foreign exchange or transfer pricing.”

A Propitious Moment

We are at a propitious moment. We have seen how quickly perceptions change and how great the impact of disclosures about malfeasance has been. The widespread public concern about ethics in business suggests danger if the voice of the public is not heard. However, such concern also contains a positive opportunity for change that can improve the quality of management practice and the quality of life in general.

Management education, both corporate and academic, must seize this opportunity to take a key role in contributing to a restoration of confidence in business leadership’s ability to lead with honesty, integrity and consideration for all stakeholders. There exists a customer mandate to begin producing balanced leaders to fill a void in the market place.

The major insights, practices, and strategies suggested here by leaders such as those cited should stimulate continued thinking, contemplation, debate, and most importantly — thoughtful action. The issues raised in this article are summed up in the following six commissions for business educators and business managers—from CEOs and “through the ranks”:

  1. Balanced executive leadership must embrace complexity, diversity, and social responsibility.
  2. Each business must establish a pervasive culture of corporate responsibility ranging from the highest executive levels throughout the organization.
  3. Executives must choose to incorporate values and responsibility in succession management rather than emphasize performance at all costs.
  4. Boards of directors must act as facilitators and enforcers of responsible corporate governance.
  5. Managers must consistently work to achieve balance between the pursuit of improved performance and profitability along with the institution and practice of ethical codes of conduct.
  6. Mid-level managers must be cultivated and chosen for their ability to accept the responsibility for implementing the corporate mission, vision, and values.

For some practical ideas on how to create an ethical business culture, see “Creating and Sustaining an Ethical Workplace Culture” by Charles Kerns in this issue of GBR.

[1] Financial Times, May 19, 2003.

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