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“Walk the Talk”: How to Lead an Ethical Organization

“Walk the Talk”: How to Lead an Ethical Organization
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We’re now ready to look at ethical leadership and your responsibilities as a leader. And basically, your responsibilities fall into three categories. First of all, it’s important to establish standards, second to communicate those standards to people who work in the company and to educate them, and finally, to enforce the standards including enforcing them by example, walking the talk. So, let’s start first of all with establishing the standards. And research by Professor Lynn Payne at Harvard, has concluded that companies generally have two strategies for establishing ethical standards. And these reflect two of our pillars that we’ve talked about in the course. First of all, there’s a compliance strategy which is very much focused on the law pillar.
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The goal of a compliance strategy is to prevent legal liability by complying with the law and compliance strategies tend to be lawyer driven. And as we mentioned earlier in the course, given the huge increase in regulation, there’s been much greater attention paid to compliance especially in some industries, like the financial services industry, and companies are hiring a huge number of compliance professionals. The other strategy is an integrity strategy. Here, the goal is to encourage responsible conduct through chosen standards. For example, one of the standards is the global business standards index, and these tend to be management driven. They tend to relate more to the strategy and ethics pillars. So, those are the two fundamental strategies.
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Now, later research has concluded that actually a large number of companies combined these strategies, although even when the strategies are combined in today’s regulatory environment, the compliance strategy I think still plays a fairly substantial and perhaps dominant role. Now, when you are considering your strategies, I think it’s very important to use the intersection between the law and strategy pillars that we’ve discussed in the course. In the course, we’ve brought together the risk management focus of law with a value creation focus of strategy. And so, for example, when we looked at customers, one of the stakeholders, and the product liability risks, one of the conclusions for value creation was that you could develop products that meet customer needs.
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You could develop safe products that meet customer needs and avoid liability. Or when you talk about your employee stakeholders and you’re concerned about the legal risk of wrongful discharge lawsuits, one of the solutions there is really an ethical standard to emphasize honesty in all communications with employees and about employees. Another employee risk was discrimination and we looked a little bit at sexual harassment. And one of the solutions there for moving beyond risk management to value creation was removing barriers that prevent employees from focusing on customer needs. When you remove barriers, then you begin a standard of ethical conduct to remove the abuse of power which is the cause of sexual harassment.
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And then finally, when we looked at the government as a stakeholder, the risk there was government regulation. We emphasized, in that module, using an interest-based strategy that benefits both your company and stakeholders. So, one of the advantages of linking law and strategy is that, in some cases, it produces a result that is very ethical and is baked into the operation of the business. In other words, the ethical standard is not viewed as a code of conduct written by somebody up in a mountain that’s forced on you. It becomes a part of your everyday business decision-making. Let’s take a look at an example of a company faced with an ethical dilemma.
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A number of years ago, there were several people murdered in the Chicago area. These are the victims, over a very short time period, a 12-year-old girl, 27-year-old postal worker, his brother and sister-in-law, 27-year-old mother who is recovering from the birth of a son, 35-year-old United Airlines flight attendant, and a 31-year-old office worker. These people died from cyanide poisoning. Somebody had placed cyanide in bottles of Tylenol. The crime was never solved. Johnson & Johnson, the manufacturer of Tylenol, saw its market share collapse. Before this episode, the market share was 35 percent which was 15 percent of J&J’s profits. So, this was a huge loss for the company.
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And the company considered recalling the product and they considered 150 other alternatives over a four-day period. And they met with the FBI who is advising them on the case. The FBI said, “Don’t recall but some of the other alternatives might make sense.” So, this was the ethical dilemma faced by Johnson & Johnson, and they had a clear standard in
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the form of their credo: “We believe our first responsibility is to the doctors, nurses, and patients, to mothers and fathers and all others who use our products and services.” So, after debating this huge number of alternatives, they went back to their credo and ask, what’s the right thing to do here? And the decision was to recall 31 million bottles nationally and a loss of $100 million. This is 1982 dollars. And they also began to work on new packaging for the product. And by November, they had announced a triple-sealed packaging. And by 1984, they had regained almost their entire market share. So, there was a happy ending here both economically and ethically.
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So, what we’ve looked at in this module is, first of all, the decision-making process that should apply across the board no matter where you are in a company and whether you’re starting your own business or the CEO of a major company. And we’ve looked at a menu of ethical tests that you can use and then, we’ve looked at your approach as an ethical leader establishing standards like the J&J Credo, educating people, and then, like J&J walking the talk and enforcing the standards. So, that pretty much wraps up our course. Remember, we started with the three pillars of decision-making that’s well-grounded in philosophy and traditional research; strategy, law, and ethics.
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And, we then looked at in a business setting how these three pillars overlap, and when they overlap, they create a sweet spot in the middle called the zone of competitive advantage. We also looked at the challenge in business. The challenges that the pillar of law is separated from the strategy pillar because law has a risk management focus, often the emphasis on law is - well we can’t do this or we shouldn’t do that. Strategy has a value creation focus. How can we create value for our stakeholders and especially for our shareholders? And what I’d like to do in closing is to ask you to watch this video and see if you can meet this challenge.
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So, watch the video and then we will wrap up the course. And, what this video illustrates is a huge danger. You can ask, why is it that so many people watch this video are unable to see the gorilla? And the reason is that they become so focused on the specific task, which is counting the number of passes, that they miss the big gorilla in the middle of the room. Well, many unsuccessful businesses have fallen into the same trap.
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They focused on the passes, which would be value creation, which would be the economics of business, and they fail to see the big picture which is looking at the other two important pillars, law and ethics, and then trying to bring them together in a way that provides competitive advantage. I hope this course is giving you the tools to create this overlap and I wish you the best success both in your future career endeavors and in your business activities.
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Making Successful Decisions through the Strategy, Law & Ethics Model

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