7 signs of an ethical breakdown in an organization

Based on examples from companies such as

General Electric , Merrill Lynch , AT&T , Arthur Andersen , and United Health , he has published ``Seven Signs When an Organization Is Ethically Collapsed' ' and is a professor emeritus of business ethics at Arizona State University. Marianne Jennings explains.

Seven Signs of Ethical Collapse - Markkula Center for Applied Ethics

◆1: Pressure to maintain numbers
All of the companies that have suffered ethical breakdowns have achieved extremely high profit margins. Jennings pointed out that in these companies, employees are often instructed to achieve high sales targets during the morning meeting at the start of the week, and that this ``pressure to maintain numbers'' can lead to a breakdown in ethics.

Instead, Jennings says it's important to focus on long-term, realistic goals. For example, a supermarket located in the path of a typhoon may see a large number of customers rush in just before the typhoon arrives, causing a sudden increase in sales. It seems that these stores need to make their employees understand that it is impossible to achieve similar numbers at the same time the following year.

It is problematic to send messages such as ``we must achieve high numbers at all costs,'' and it is also a no-no to set up slogans or goals that emphasize short-term profits.

◆2: Fear and silence
'For front-line employees, the line between right and wrong is very clear, but something happens to people as they move up through management and into higher positions,' Jennings said. The challenge is to get information about ethical violations to the front lines of action, but in many cases fear and silence seem to hinder those efforts.

While companies with best practices, ethics hotlines, and anonymous online reporting systems are 'technically beautiful,' these technologies can lead to fear in employees, Jennings said. When an internal accusation occurs and someone is fired, fear within the organization intensifies, and employees seem to feel that they should remain silent. It is clear that such a cycle is not desirable.

How to avoid fear and silence is by encouraging open dialogue within your organization, allowing anonymous reporting while responding quickly and following up, and reviewing issues with the board when they are reported. The idea is to impose appropriate punishment on those who commit misconduct and reward whistleblowers.

◆3: Young and big CEOs
It seems that CEOs of companies that suffer from ethical collapse are often more than a generation older than their direct reports. Inexperienced subordinates tend to lack the motivation to ask questions of older superiors.

It is important to create practices within the organization that help young, inexperienced employees, rather than having a good older CEO cause problems. ``In order to maintain an organization's ethical standards, it is important to make daily efforts and strengthen them.'' 'If you don't have that, everyone will believe that they're being ethical no matter what they're doing, and you can easily have an ethical breakdown,' Jennings said. Ta.

Specifically, organizations that are willing to say, 'Wait a minute, is this really what we should be doing?' are on the right track.

◆4: Weakening of the board of directors
A weak board is one in which many members are inexperienced or too young to have experienced the full business cycle. Weak boards appear to lead to ethically questionable contracts, such as related-party transactions and large donations to executives' favorite charities.

In order to avoid these problems, the management team needs to have 'a good heart and a strong backbone.' Jennings said that the ``10-year limit'', ``retirement age'', and ``nomination by shareholders'' for the board of directors are ``unworkable.'' In order to prevent boards from becoming weakened, they need to be aware of industry accounting standards and create an environment in which executives provide face-to-face advice to employees rather than micromanagement .

◆5: Conflict of interest
A 2003 study by the U.S. Securities and Exchange Commission (SEC) found that 47% of companies buy or sell internal products and services, 39% make loans to managers, and 35% have their directors legally We found that 21% of respondents had bought, sold, or invested in companies owned by insiders.

It is almost impossible to find a board member who does not have any ties to the company. Also, in many ways, an executive's knowledge and past experience can be an advantage for a company. However, Jennings notes that it is important to disclose past relationships and activities and assess whether existing directors are free from potential problems and can still function as managers of the organization. doing.

◆6: Innovation not found in other companies
It seems that many companies that go bankrupt believe that they are on top of the competition because they are innovative. Therefore, even if he incurs a huge loss, he seems to lament, ``If I hadn't had that expense, I could have made a profit!'' This solution is very simple and just requires managers to understand the history and economic cycles of their business.

'The fundamentals of business and accounting never change,' Jennings said. 'Innovators often think they are outside the business cycle, but history tells us otherwise.' I'm talking.

◆7: A good deed in one field will be a bad deed in another.
Many companies treat corporate cultures that are considerate of diversity, safety, volunteerism, the environment, etc. as ``ethically superior'' even if they are otherwise inappropriate.

A solution to the balancing act between good and bad is to rethink common notions about social responsibility and business, and to rethink corporate activities, perceptions, and realities. Businesses need to rely on virtue ethics and simplicity: truth, honesty, fairness and egalitarianism, Jennings said.

Mr. Jennings summarizes the importance of leadership and example in order to avoid ethical breakdown in organizations, saying, ``Culture is born from the collective actions and reactions of leaders. 'It depends on your personality,' he says, emphasizing the importance of leadership.

in Note, Posted by logu_ii