Chief Ethics Officer

Your company’s code of conduct is good, but not good enough. A true leader is on his best behavior for the sake of the bottom line.

photography by Freudenthal Verhagen

The phrase “business ethics” was always good for a laugh or two—an oxymoron on par with “jumbo shrimp.” After scandals at Enron, WorldCom, HealthSouth, and others, no one’s laughing anymore. Headlines on the business pages—if not the front page—are a persistent reminder that cheaters get caught. But has every company gotten the message? Maybe not, because the Business Round Table has set up an “ethics institute” at the Darden School of Business at the University of Virginia. A number of Dallas companies might want to sign up. Affiliated Computer Services Inc. and Michaels Stores Inc. have confirmed that the SEC is investigating their practices of backdating options.

North Texas C-Suite residents, consultants, and professors say there has been increased attention to corporate ethics and debate over what it actually means. Dr. William Carl III, longtime pastor of First Presbyterian Church in Dallas and now president of the Pittsburgh Theological Seminary agrees with those who say, “There is no such thing as business ethics; there is just ethics.”

But this is business, so one of the first questions a CEO might ask is, “Does ethics pay?” That is, does it make business sense? The Business Roundtable also sponsored a paper titled with this very question. The answer was Yes, if only to protect a company against the penalties of unethical behavior. (Those penalties can be very real. In late July, Boeing forked over $615 million “Settling Ethics Inquiry,” according to the headline in The New York Times, after being charged with illegally acquiring trade secrets from competitors and offering a job to a government contracting officer.)

THE TAKEAWAY 
1. Codes of conduct are good to have.

2. A culture of integrity is even better.

3. Scandals are expensive. 

The North Texas CEOs and companies we talked to insisted that ethical behavior makes business sense. “I believe that when we do right, we do well,” says James D. Shelton, Chairman and CEO of Triad Hospitals, Inc. Comply with regulations, ranging from environmental protection to sex discrimination to financial transparency, and you’re less likely to get sued. Compliance means “reduced losses, regulatory fines, turnover costs, insurance costs, and more,” according to TXU CEO John Wilder, but he cautions against justifying a focus on ethics with traditional risk measurements. “It’s the savings from scandals one’s ethics program prevents that are hard to calculate and that really pay off,” he says.

Most companies have some sort of code of conduct making clear what kind of behavior is expected. Triad’s code has an introduction by Shelton, and every employee is required to read and sign it. “Our success in establishing a culture of integrity and high standards begins with personal accountability, and I think it starts at the top,” he says, adding, “I see myself as the Chief Ethics Officer.”

TXU’s Wilder points out they, too, had a code of conduct, “years before anyone had heard of Enron and WorldCom.” He goes on to say, “It’s imperative that we not only do things right but that we do the right things,” and he puts ethical behavior in the greater context of how a company relates to its various communities. Wilder says ethics means much more in a corporate setting than risk management, that it goes to a “cultural benefit” which “speaks to a company’s character.”

These CEOs say ethical behavior must be part of corporate culture. Shelton writes that Triad wants a “culture of integrity and high standards,” and that such an environment begins “with personal accountability.” All the CEOs we talked to said that defining “integrity” or “ethics” is part of the CEO’s job.

“Ethical behavior should be a priority for every business today,” says Joel Allison, president and CEO of the Baylor Health Care System. Allison points out that Baylor has 16 hospitals and 16,000 employees and that health care requires employees to exercise a high degree of integrity and good judgment under stressful circumstances. Even if you have a 20-page code, as Baylor does, what exactly is ethics? It’s “honorable behavior,” says Allison. “It’s a commitment to be fair to each other. It’s about dignity and respect. When you come down to it, it’s doing the right thing.”

The “right thing” is a phrase used a lot. Clearly, when the CEO of RadioShack was caught earlier this year falsifying his résumé—then saying he was unaware of the errors—that’s the wrong thing. And it tells you something about corporate culture when a RadioShack board member attacked the Fort Worth Star-Telegram for its inquiry. (The board member was also chairman of the company’s corporate governance committee.)

For Irwin Gordon, former CEO of Gruma, the company which owned Dallas-based Mission Foods and Azteca Milling LLP, ethical considerations framed a decision to trigger the largest voluntary food recall in U.S. history when biotech corn was discovered in the company’s products in the fall of 2000. “You never regret taking the high ground,” he says. “Protecting the food supply, our customers, and the public was our clear priority.” He chose to do the right thing despite uncertainty about what had happened, the cause, or the current state of scientific testing, not to mention the huge cost of a recall.

Southwest Airlines has long been known as a company with a unique culture, and its approach to overarching ethics is no different. The airline has no long code of conduct like you’d expect at a company of such a size. “We have very few rules and just a few guidelines,” says president Colleen Barrett, but the topic comes up frequently in executive speeches. “We believe that the way a company behaves on the inside will find its way to the outside,” Barrett says. Vice president of public affairs Linda Rutherford says in an e-mail that ethics “isn’t something to be complied with; it’s ingrained in how we do business.”

Not everyone, however, is eager to talk about ethics in a corporate setting. Roger Staubach has always declined when asked to speak about ethics and integrity. A colleague told us that Roger says you don’t talk about ethics, you live it, and that their values statement, which begins with “integrity,” defines their standards of behavior.

This is one of the disputes about ethics. Should CEOs talk about the topic? CEOs Allison, Wilder, and Shelton say Yes, and author-expert Bruce Hamm agrees, “Communicating the correct message is vital to achieving success when dealing with corporate values or ethics.”

On the other hand, Bob Bunting, Chairman of the American Institute of CPAs Board of Directors, says, “Values and ethics are dangerous for anyone to talk about.”

John Wilder says the only thing that matters is what you do. “Talk is cheap. Actions count,” he says. The other CEOs and C-Suite officers we consulted agreed.

“In the final analysis, ethics is an expression of your core values. In other words, it exposes who you really are and what you really believe,” says Dr. Carl, noting that a little prayer never hurts.

Merrie Spaeth is one of the pre-eminent crisis management strategists in the world. After serving as President Ronald Reagan’s director of media relations at the White House, she founded Dallas-based Spaeth Communications in 1987. (Full disclosure: Past and present clients have included Triad Hospitals, TXU, and Baylor Health Care System.) In addition to her  duties as president, Merrie is a lecturer at Southern Methodist University’s Cox School of Business.

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