By AMY ZIPKIN
Archer Daniels Midland pleaded guilty to a price-fixing conspiracy that cost consumers millions of dollars a year in higher prices for soft drinks and detergents. It agreed to pay a $100 million fine. Royal Dutch/Shell scrapped plans for sinking a North Sea oil rig that environmentalists contended was contaminated. Later, Shell was accused of colluding with the Nigerian government in the oppression of the Ogoni people and failing to speak out against the execution of one of their leaders.
And now, Bridgestone/Firestone and the Ford Motor Company are apologizing to American consumers for a pattern of deadly tire failures, while blaming each other for the debacle.
Almost every year, it seems, some scandal envelops a Fortune 500 company and causes a new spasm of public distrust of big corporations. This year’s occurrence probably should not be surprising; in the competitive marketplace, the temptation to cut ethical corners can be hard to resist.
Lately, however, corporate America seems to be doing more than just paying lip service to standards of management behavior. For all the controversy surrounding the Firestone/Ford tire recall, and the questions it raises about the potential for corporate wrongdoing, a growing number of big companies are enacting strict ethical guidelines and backing them up with internal mechanisms to enforce them. While some consider the changes little more than window dressing, there is no doubt that change is afoot.
The corporate title of ethics officer, for example, almost unknown a decade ago, has become almost as familiar as chief information officer. The Ethics Officer Association, a trade group in Belmont, Mass., says membership has soared to 706 today from 12 in 1992.
Moreover, the job description of ethics officers has expanded from ombudsman to policy maker, corporate governance experts say. “Instead of being a corporate policeman, ethics officers are becoming corporate coaches for ethical decision making,” said Martin Taylor, vice president for corporate services at the Institute for Global Ethics in Camden, Me.
And ethical matters are now debated at much higher levels. A 1999 Conference Board study of 124 companies in 22 countries found that directors are now much more involved in the creation of ethical standards. While only 21 percent of the policies in existence in 1987 showed board involvement, participation had increased to 41 percent in 1991 and now is up to 78 percent of the cases.
Critics say, however, that the rush by corporations to portray themselves as exemplary citizens often leads nowhere. A strongly written ethics policy “will be acknowledged as positive simply by its being there,” said Barbara Ley Toffler, a management consultant who has written about ethics.
Skeptics also say the ethics movement has a dark side: intrusion into the private lives of employees. In their zeal to discourage workplace misbehavior — from using company e-mail for personal purposes to sexual harassment — some companies are snooping on employee’s e-mail and telephone use and even installing video cameras.
“When American workers go to work they lose almost all of their personal privacy,” said Charles J. Sykes, a research fellow at the Hoover Institution in Palo Alto, Calif.
Nobody doubts that companies are motivated to join the ethics crusade partly to polish their image. But the commitment goes deeper than that for a very practical reason, corporate governance experts say: taking a strong ethical stand helps shield senior officers from legal troubles.
First came the publication in 1991 of the Justice Department’s sentencing guidelines, which in effect promised more lenient treatment for convicted corporate executives if their companies had established good-citizenship ethics programs. Then in 1995, the Delaware Court of Chancery warned that corporate directors could be held personally liable for subordinates’ wrongdoing if they had failed to establish programs to ensure compliance with the law.
In addition to legal considerations, public opinion is prodding corporations to be more vigilant about their social and environmental responsibilities. “There’s a feeling corporations are more powerful and larger all the time, using the power for their own narrow selfish concerns,” said Daniel Yankelovich, the chairman of DYG Inc., a market research firm. “For the last 15 years, business has had a respite from mistrust and suspicion because there’s a great deal of growth in the economy, but that’s beginning to change. There’s a yellow light flashing.” An increasing number of companies are conducting so-called social audits of their policies and practices. In these studies, they try to identify ethical lapses committed in the past and set directives for avoiding similar missteps in the future.
In response to criticisms of its actions in Nigeria and elsewhere, for example, Shell has issued “The Shell Report.” The paper opens with a pledge by its chairman, Mark Moody-Stuart, to pursue a business strategy “that generates profits while contributing to the well-being of the planet and its people.” The report, which Shell has posted on the Internet, identifies initiatives that it is taking to prevent wrongdoing by employees. For example, it said enforcement of its policy against bribe-taking had resulted in four dismissals and one resignation, though it did not provide details.
And Shell says it has hired the accounting and consulting firms KPMG and PricewaterhouseCoopers to verify the steps it is taking to ensure the health and safety of its workers and to protect the environment, like cleaning up oil spills.
“There was no book on this. We had to invent it for ourselves and looked at business principles line by line, clause by clause,” said Mark Wade, a founding member of the task force that developed the company’s environmental and social policies and issued the report.
Mattel Inc., the toy maker, embarked on a social audit three years ago that it named the Mattel Independent Monitoring Council. An advisory panel, made up entirely of company outsiders, including Murray Weidenbaum, the former chairman of the Council of Economic Advisers, spent a year creating 200 workplace standards, including the length of breaks and the number of restrooms for workers at its plants.
Mattel said it especially wanted to make sure none of its overseas plants were exploiting workers. While the company said that it found none that were, it did uncover accounting infractions and air-quality abuses at some factories and made sure the local managers corrected them. The panel detailed those incidents in its report.
Elsewhere, companies are requiring employees to take ethics classes. Lockheed Martin, for example, has created a newspaper called Ethics Daily that runs articles based on ethical problems people at the company have faced, then uses those accounts as grist for its training programs. When employee feedback showed more than half the employees surveyed did not report misconduct that they had observed because they feared retaliation, management used the information to create a program on trust.
The Boeing Company requires its rank and file to undergo at least one hour of ethical training a year, and senior managers five hours. Participants must decide the best way to respond to a moral problem, like an outside vendor’s offer of free baseball tickets. (The correct answer, even in late October: refuse them.)
“The perception of favoritism is bad in the company,” said Gale C. Andrews, Boeing’s vice president of ethics and business conduct. “It’s important to have a conversation about why employees can’t go.”
At the McMurray Publishing Company in Phoenix, all 75 employees attend a mandatory meeting every other Monday on workplace ethics. Recently, they discussed their views on how to handle a vendor who had mistakenly delivered real rather than simulated wood and who was requesting an additional $200 to meet the cost. Some said the company should pay the extra money in accordance with its stated principle to “do the right thing,” while others argued that it should refuse, to live up to its dictum to “make a reasonable profit.” After a split vote, the conversation turned to the topic of resolving conflicting values.
Nonprofit advocacy groups, meantime, are leaning on corporations to make ethics a higher boardroom priority. The Coalition for Environmentally Responsible Economies in Boston, whose members include environmental, public-interest, labor and religious organizations, spent 18 months developing guidelines and spun off a separate group called the Global Reporting Initiative. Forty-eight companies volunteered to respond to the guidelines, and 21 — including Bristol-Myers Squibb, Ford, General Motors, Procter & Gamble and Shell — were selected to analyze and refine them.
The United Nations started a campaign to instill ethical values in the global marketplace. In July, it completed a nine-point Global Compact for protecting the environment, abolishing child labor and supporting free-trade unions, and invited corporations to support it. So far, 44 have.
There is even a movement afoot to make corporations’ ethical behavior subject to the same disclosure rules as their financial dealings. The Corporate Sunshine Working Group, made up of social investors, environmentalists and labor unions, is pressing the Securities and Exchange Commission to require companies to release more information about their social and environmental practices to the public.
The two-year-old group says it has held low-level talks with the S.E.C., though so far the discussions have been mostly exploratory. Some experts doubt they will go much beyond that. After all, said Lynn S. Paine, an ethics professor at Harvard Business School, “it took 300 years to develop financial standards.”
Even so, ethical standards may be the wave of the future, if only because the right thing to do can also be the profitable thing to do. A 1999 DePaul University study found that companies that publicly proclaimed their commitment to ethical principles did better financially than companies that did not.
“Companies believe social and environmental groups are still outside the mainstream and are looked upon as tree-hugging radicals or aging hippies, but it’s a myth,” said Curtis C. Verschoor, the accounting professor who wrote the study. “Companies are slow to realize that good ethics is good business.”