TABLE 11-5 Questions to Ask for Discovery and Assessment Processes . Does the company have a written code of conduct? . Have individuals from high-level positions in the organization been assigned overall responsibility to oversee compliance with standards and procedures? . What are the processes or other means by which ethics are integrated into any or all manufacturing, marketing, distribution, electronic commerce, and general corporate strategy decisions? . Is there a review process whereby legal, ethical, and business practice considerations are presented, reviewed, or otherwise considered by the board of directors? . What steps has the company taken to communicate its standards, procedures, and policies to all employees through training programs or publications that describe company expectations? . Has the organization taken reasonable steps to achieve compliance by utilizing, monitoring, and auditing systems designed to detect misconduct and by providing a reporting system whereby employees can report without fear of retribution? . Is adherence to, and implementation of, the code of ethics one of the standards by which the corporate culture can be linked directly to performance measures? . Has the organization used due care not to delegate substantial responsibility to individuals that it knows do not have the ability to implement organization-wide risk-reduction processes? . Have the standards been sufficiently enforced through appropriate methods, such as discipline of employees who violated ethical policies? Source: Based on Lynn Brewer, Robert Chandler, and O.C. Ferrell (2006), Managing Risks for Corporate integrity (Mason, OH: Thomson), 76-84.Answer Yes or No to Each of the Following Questions* Yes No Has the founder or top management of the company left an ethical legacy to the organization? Yes No Does the company have methods for detecting ethical concerns both within the organization and outside it? Yes No Is there a shared value system and understanding of what constitutes appropriate behavior within the organization? Yes No Are stories and myths embedded in daily conversations about appropriate ethical conduct? Yes No Are codes of ethics or ethical policies communicated to employees? Yes No Are there ethical rules or procedures in training manuals or other company publications? Yes No Are penalties for ethical transgressions publicly discussed? Yes No Are there rewards for good ethical decisions even if they don't always result in a profit? Yes No Does the company recognize the importance of creating a culture concerned about people and their investment in the business? Yes No Does the company have a value system of fair play and honesty toward customers? Yes No Do employees treat each other with respect, honesty, and fairness? Yes No Do employees spend their time working in a cohesive way on what is valued by the organization? Yes No Are there ethically based beliefs and values about how to succeed in the company? Yes No Are there heroes or stars in the organization who communicate a common understanding about which positive ethical values are important? Yes No Are there day-to-day rituals or behavior patterns that create direction and prevent confusion or mixed signals on ethics matters? Yes No Is the firm more focused on the long run than on the short run? Yes No Do the dress, speech, and physical aspects of the work setting contribute to a sense of consistency about what is right? Yes No Are emotional outbursts about role conflict and ambiguity rare? Yes No Has discrimination and/or sexual harassment been eliminated? Yes No Is there an absence of open hostility and severe conflict? Yes No Do people act on the job in a way consistent with what they say is ethical? Yes No Is the firm more externally focused on customers, the environment, and the welfare of society than on its own profits? Yes No Is there open communication between superiors and subordinates about ethical dilemmas? Yes No Have employees ever received advice on how to improve ethical behavior or been disciplined for committing unethical acts? Add up the number of "Yes" answers. The greater the number of "Yes" answers, the less likely ethical conflict is in your organization. may believe their firm's organizational culture encourages respect for peers and subor- dinates. On the basis of the rewards or sanctions associated with various behaviors, the firm's employees may believe the company encourages competition among organizational members. A competitive orientation may result in a less ethical corporate culture.287 In addition, if your company is involved in responsible (sustainable) consumption, operating with a minimal negative impact on the environment, pricing can be around 58 percent higher than those that do not.28 As consumer trust for businesses increases, they develop loyalty and gain a competitive advantage over other firms. Ethical leadership is a foundational requirement for impacting the long-term mar ket valuation of the firm. There is a positive association between the ethical commitment of employees and a firm's valuation on the stock market.29 A firm's reputation for corpo rate social responsibility also impacts investor decisions. Corporate social responsibility is negatively related to ethical risks in the long term, and investors view risk as a factor when determining whether to invest in the firm.30 The ethical reputation of the company can therefore assure them about the short- and long-term sustainability of the company. Finally, as demonstrated in Chapter 4, the Federal Sentencing Guidelines for Organizations mandates that public firms have ethics programs in place to detect organizational mis- conduct. Those companies that demonstrate they have strong ethics programs are more likely to see their fines reduced if misconduct occurs." Through the creation of favorable relationships with employees, customers, investors, and regulators, ethical leaders create significant competitive advantages and value for their companies. ETHICAL LEADERSHIP AND ORGANIZATIONAL CULTURE Organizational culture emerges whether or not there is effective leadership. The ethical dimension is dependent on how the company's leaders influence the culture. In organi- zations where leaders are tolerant or indifferent toward misconduct, a culture will likely develop in which employees cut corners and/or take excessive risks to advance their careers. On the other hand, ethical leaders recognize that organizational culture will directly impact employee conduct and make a greater effort to promote a culture of eth- ics and compliance. Leaders help set the tone for such a culture through shared values, attitudes, and ethical practices. For example, PharmaLogics Recruiting CEO, Megan Driscoll, raised her employees' salaries from $37,500 to $50,000, meaning that with com- missions they could make $70,000. The salary increase has lowered employee turnover and increased sales and profitability. By demonstrating her willingness to make a significant investment in employees, Driscoll has set the tone for a caring corporate culture that values employee contributions. 32 Ethical leaders generally adopt one of two approaches to leader- ship: a compliance-based approach or an integrity-based approach. These approaches are similar to the compliance orientation and values orientation discussed in Chapter 8. Lead- ers who adopt a compliance-based approach emphasize obedience to rules and regulations and set processes in place to ensure compliance. Such an approach deters illegal conduct and stresses a culture of avoidance. Corporate annual reports may give clues as to the type of approach a company chooses to adopt. If those in charge of ethics are called compliance officers or risk managers, then it is highly likely the firm is more compliance-based. Also, if those in charge of the ethics and compliance program are mostly accountants and legal professionals, the firm tends to be more compliance-based. Some see this as achieving the 100% bare minimum to avoid getting in trouble with the law. An integrity-based approach views ethics as an opportunity to implement core values. Leaders who adopt an integrity-based approach take responsibility for the firm's ethical culture and hold employees accountable for practicing ethical behaviors and core prac- ices, 3 Integrity-based approaches usually have chief officers, human resource managers,ance program. This 288 and board member committees involved with the ethics and compliance p type of approach not only empowers employees but helps them integrate ethical values and principles established by the firm. Finally, it helps the firm understand where questionable practices are occurring and where possible new ethical issues are arising. Remember, busi- ness is not static; it is dynamic. While it might seem that an integrity-based approach is preferable, many ethical leaders use a combination of the two approaches. Without compli ance to laws and basic rules and regulations the company and industry have set, an organi- zation will not survive in the long term. Another way to classify leader types includes the following categories: the unethical leader, the apathetic leader, and the ethical leader. Each of these types influences the devel- opment of an organizational culture, whether positive or negative. While we use this classi- fication typology, the reality is that each leader type falls on a continuum or line and not a box. We use this classification to analyze the most desirable type of leader. The unethical leader is usually egocentric and often does whatever it takes to achieve personal and organizational objectives. This leader looks at laws as minimum guidelines and searches for loopholes. If the laws go against the company, then the leader attempts to find a way to bypass the law. Unethical leaders perceive ethics codes, compliance reg. ulations, and industry standards as optional. The justification used for breaking laws or rules is usually that doing so serves a greater good and the risk of getting caught is low. An example of an unethical leader is Scott Marcello. He was fired from KPMG after being brought in to clean up the audit division. Instead, he damaged the company reputation even more when he leaked confidential information, which resulted in his termination and that of four other partners.34 Highly visible cases of misconduct can damage both the repu- tation of the individuals involved and their possibilities for future employment. Another type of unethical leader is known as a psychopathic leader, or corporate psy- chopath. We discussed this briefly in Chapter 6. Research suggests that 1 percent of the population could qualify as a corporate psychopath. These leaders are characterized as having superficial charm, no conscience, grandiose self-worth, little or no empathy, and enjoyment in flouting the rules. Companies with such leaders usually experience increases in the following problems: heightened level of conflict, lower employee commitment, higher organizational constraints, heavier workloads, poor levels of training, lower job sat- isfaction, and an increase in employee absenteeism. Research suggests these leaders are disproportionately at higher levels within an organization, possibly because their tenden- cies are to be in a position of control.3 Apathetic leaders are not necessarily unethical, but they care little for ethics within the company.3 They often view ethics as relative and optional in a business context. Apathetic leaders often display no passion for the firm or the mission of the organization. 37 Employ ees do not see the sacrifices in them that other managers or leaders display. 38 One possible an example of this leader type might be Tony Hayward, former BP CEO. As the oil spill in the Gulf of Mexico leaked over 172 million gallons of oil into the ocean, Mr. Hayward attended a yacht race and allegedly directed employees to downplay the disaster to keep stock prices afloat. At the same time, he complained, "I'd like my life back."39 He later resigned, and BP to : pled guilty to 11 counts of manslaughter and agreed to pay a fine of $18.7 billion. Later, BP per fired Hayward, and he became Chairman of Genel Energy, which he co-founded as an off blo in the summer of 2017.40 and gas producer in Iraq-Kurdistan. Hayward stepped down from the struggling company are Ethical leaders include ethics at every operational level and stage of the decision making process." There will always be ethical lapses in any organization, but ethical leaders address issues as soon as they appear. Oftentimes ethical leaders try to create participative organizational cultures to which employees are encouraged to provide input. Ethical leaders The cal she