Summary on the following reading about business ethics:
In today's cutthroat, corporate world of downsizing, mega mergers, and hostile takeovers, business and ethics often seem at odds. Companies have always had to pay attention to the bottom line. But in order to boost profits and capital, many businesses have gone public and that means they must satisfy Wall Street investors as well as customers.
The pressure to succeed is intense and the prevailing win at all costs attitude often blurs the line between doing what is right and doing whatever it takes to make money.
In many places, the corporate culture of the '90s has created mistrust between employers and employees, companies and communities, and businesses and consumers. In this program, we'll examine the current state of business ethics as we look at what moral obligations companies have to the people who work for them, the communities that support them, and the shareholders who invest in them.
This is Today's Life Choices: Challenges For Our Times.
This is an historical moment.
It focuses the attention of the president of the United States.
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They've gotten poorer and poorer.
It is about helping people who are dying.
Being a Palestinian is a responsibility.
Racism still endures. The xenophobia still endures.
In the United States, work means more than making a living. What we do to earn a paycheck defines our sense of self and carves our place in society. Americans place a great deal of importance in their work and they take enormous pride in what they accomplish. Perhaps that's why we expect so much from our jobs and our employers.
After World War II, the employment picture in the United States changed dramatically. Opportunities were everywhere as America rebounded from the Great Depression. By the '50s, many Americans began to expect an employment contract for life as long as they worked hard and played by the rules. But that unwritten contract evaporated in the '70s as the economy turned sour, foreign competition increased, and companies began laying off longtime employees.
In the '80s, downsizing became the corporate buzz word. Trust, loyalty, honesty, and commitment no longer bound employer to employee and vice-versa.
Margaret Blair is a senior fellow of economic studies at the Brookings Institute, and the author of, Ownershipand Control: Rethinking Corporate Governance for the 21st Century.
It's clear that the times have changed and our employers have, for the most part, lost any sense to whatever extent we did have it, a sense that they owed their employees jobs for life. Some of our largest corporations used to be seen as havens for someone. Once you got passed sort of the first two years of probation with the company, you had a job for life. That doesn't exist anywhere in our economy anymore.
Companies and workers alike know today's standard of expectations is far different from the one in place just a few years ago. But just what obligations do employers have to employees?
David Collins served as a member of the executive committee of Johnson & Johnson for over 25 years.
The employee is owed a fair wage, a quality workspace, education, training, adequate tools of the trade, whatever that trade is, whether it be manual labor or intellectual labor. The employee is owed honesty, the employee is owed truthfulness, fairness, all of these are really elemental aspects of the relationship.
When some of the biggest and most successful corporations in the United States began laying off people in the '70s, most Americans looked upon these acts as unfortunate, but necessary.
But in the '90s, many of the companies who are firing people en masse are also enjoying record profits. And their CEOs are reaping exorbitant salaries, while those they lay off are struggling to make ends meet. Perhaps that's one reason American workers are often distrustful of the companies for whom they work.
Kate Ludeman, president of the Work Ethic Group in Austin, Texas, works as a consultant to several large corporations in the United States.
Most CEOs, most company executives, will say that our people are our most important resource, and our customers are the heart and soul of our companies. Well we all know this isn't true in lots of companies. Many, many companies belong in a Dilbert cartoon, where people live to defeat the company's processes and systems, where their creativity and their innovativeness is turned to defeat the real business goals of the company.
As companies have grown and merged into mega corporations, business has taken on an impersonal flavor. Oftentimes, employees have never met the big boss, the person who signs their paychecks, or makes the decisions that impact their lives. And the person in charge is often estranged from his or her workers, not knowing their names, their backgrounds, or their concerns. Employees sense no spirit of teamwork or importance. They know they're just a cog in the wheel that can easily be replaced.
Employees are often viewed as a liability, not an asset.
Historically, companies have invested more in their factories than in their people. So that we have well oiled, well run, well manicured factories and physical assets, and people operating without bare bones equipment that they need, and certainly without some of the training and stimulation they need to unleash their real potential.
Increasingly, companies are understanding as we move from an industrial society to an information society that their people are their resource. A new term has developed called intellectual capital, which is really the human talent that is available in a company.
Several practices have stretched the distance between employers and employees, but some think the skyrocketing salaries of chief executive officers is the primary culprit behind employees' disillusionment.
Consultant and compensation expert, Graef Crystal, compiled a study for US News that found that the average CEO's compensation package of salary, bonuses, and stock grants was over $4 million in 1995, up 16% from 1994.
We find out what everyone else pays and we make judgments. on what we see. But nowhere do we ever turn around and say, well, should it be that way? I mean should the CEO make so much more than the truck driver? The question never even comes up.
What we need are systems that restore this sort of sense that we're all in this together. And then I think people wouldn't resent the people at the top getting very rich. In fact, they'd be getting rich too, and they would be delighted to work for somebody who was doing that well. So part of it is it isn't so much that they're overpaid, it's the sense that we have gotten ourselves in a situation where what makes them rich makes the rest of us poor. And that we're resentful about. We'd like to reorganize in such a way so that when they get rich, we all feel like we're getting richer too.
But what has irked Americans even more is that many CEOs are reaping huge rewards for slashing work forces, while profits remain at all time highs. Employees sense those at the top care only about themselves and their bosses, the shareholders.
I think what people really resent is when somebody, a CEO comes in and gets very rich. Not because they have built something, but because they've taken it apart. Because they've laid people off. And it was that sense that we're not in this together that your interests is in tearing me down and vice-versa that is so divisive and that's so problematic.
What has raised the stakes in this fast-paced ruthless business game is the emergence of Wall Street and investors.
Companies have gone public and now those investors, shareholders, want to see a quick return on their investments. What's good for the stockholder may not necessarily be good for the worker. Profit is the only value of consequence.
Ironically, many American workers have unwittingly played a part in shifting the owner's attention to stockholders by investing in mutual funds and using credit cards. But as Graef Crystal points out, companies pay most of their attention to shareholders who own a major stake in the business.
If the people who represent the shareholders, that is, the boards, were out there seriously representing the interests of the shareholders and were pushing back against the CEOs, where we had a real arm's length negotiation going on and a lot of sparks flying, then the system probably would work well. But the crazy thing is that the shareholders are not doing much of anything to represent their own interests.
Many large corporations today are owned by big, institutionalized shareholders, who often own as much as 60% or 70% of a company. And that's who CEOs feel obligated to please.
And if making that large shareholder happy means laying off workers, or moving a company to find cheaper labor, or greater tax incentives, the CEO will do it. But one business owner recently bucked the trend by focusing his attention and concerns on his employees and his community in times of trouble.
Aaron Feurerstein, owner of Malden Mills, a textile mill in Lawrence, Massachusetts, watched his decades old family business go up in flames during a devastating fire in the winter of 1995.
He could have closed his business, or fled south, or overseas, where labor was non-unionized and cheap, like many of his competitors had done over the last four decades. But Feurerstein a deeply religious man who had been through tough times before, never considered any other option but to stay put and rebuild.
It was the right thing to do. Unthinkable to take 3,000 people and throw them into the street. And equally unthinkable to take the city of Lawrence and the city of Methuen, both had suffered so terribly during the 20th century as the textile magnates picked up and left running for cheap labor elsewhere. And I wasn't about to condemn them to economic oblivion as a result of closing up our mills. I felt that we had a duty to stay and I did.
The fire at Malden Mills resulted in over $300 million in losses, but Feurerstein promised to continue employee benefits while the plant was being rebuilt.
Whatever I did, I did without consideration of the consequences.
When you have an ethical principle by which you want to abide, you just do it, and that's it. In reflection though, I think in the long run, when you do the ethical thing in business, you are improving the profitability of the shareholder in the long-term. Maybe not in the short-term, but surely in the long-term.
Feurerstein's actions after the fire brought him a bundle of publicity, accolades, awards, and requests for speaking engagements. But as most who know him like to point out, his decision was not at all surprising.
Donald Ryan had only worked at Malden Mills for a little over a year when the fire leveled the plant, but he knew of Feurerstein's reputation, and that alone inspired trust and loyalty.
Because that one thing that he did for all of us when a fire happened doesn't make him a great man. It's one step that made him a great man, all the things that he's done for his people, all the things that he just does in general. Each thing, one of those steps, it makes him to where everybody sees him now, we've been seeing that for a while in all that he's done. That one thing just didn't do it. It's what he's all been doing.
Malden Mills employed about 3,100 workers before the fire. Almost a year later, more than 400 had not been called back to work, but Feurerstein established a displacement center that helped employees gain education, training, and new job skills, so they could find employment elsewhere.
Dave Marchand, who was a production supervisor in the apparel division at Malden Mills before the fire, took advantage of that benefit. Even though he's looking for another job, he wants to go back to Malden Mills to work for Feurerstein.
His commitment from day one has been, his number one priority has been the people. And he stated that and he's maintained that. And he's a man of his word, who has kept his promise.
Over the last two decades, Americans have almost resigned themselves to the fact that when times get tough and blue collar wages get too high, businesses will pick up and move to greener pastures. Feurerstein could have easily left Lawrence, Massachusetts, but he didn't abandon his hometown in the '80s when union laborers cost much more than his competitors were paying to workers overseas, and a fire certainly wasn't going to chase him away.
Lawrence Mayor Mary Claire Kennedy understands how Feurerstein's decision to stay put solidified her community.
It was the night of the fire, we were all so devastated in the terrible effect it would have on employment and the economy in the Merrimack Valley and in Lawrence. But as it turns out, there's always a silver lining. But the Malden Mills fire has had a very positive impact on the city of Lawrence and on the region. Aaron Feurerstein's decision to rebuild and how he demonstrated corporate responsibility has made Lawrence and Methuen, really a national showcase for what corporate responsibility is all about and what a good corporate citizen is.
Although Feurerstein has few critics, some skeptics claim his decision to maintain benefits while rebuilding his plant was made easier by the fact that his business was family owned and operated, he didn't have to justify the bottom line to Wall Street or corporate investors.
There is a very unholy alliance between Wall Street operators and the modern day CEO, in which they explain to the CEO that if he'll cut a lot of people and throw a lot of people out of work, the marketplace will think, well, this company is going to be very profitable now, they have far less burden than before, and the price of the stock goes up. And they give these CEOs stock options at a very favorable point. And then when they manage to fire people, the stock goes up in value, and the CEO, as well as they, clean up in profits while the workers unfortunately, were thrown out.
Many Americans feel a deep sense of betrayal by their employers. Anti-business rhetoric is strong as workers who feel they gave concessions in the '80s now refuse to go quietly as CEOs collect their seven figure salaries, company perks, and golden parachutes. Those who study society claim what happens in business influences social behavior.
They claim the lack of ethics in business has paved the way for a declining standard in the way we treat others both in and out of the office. In other words, if we see an employer cutting corners, cheating to get ahead, treating workers unfairly and rewarding those who pay more attention to the bottom line than to the golden rule, we'll begin to accept that behavior as appropriate and act accordingly. Some say greed in business has encouraged the rampant materialism we see in our efforts to keep up with the Joneses. But as David Collins says, we expect and want businesses to make money.
If you look at all of the players in our country today, all of the players in our society today, there is only one player who creates wealth, and that's business. And the measure of the wealth they create, the way you keep score as to how good a job they're doing, is how much profit they make.
Government does not create wealth. The nonprofits do not create wealth. Academia does not create wealth. There's only one institution in our country that creates wealth and that's business. And if they don't do that job, then our standard of living plummets.
And the American system of capitalism and free enterprise encourages ambition and competitiveness, yet somewhere along the way those traits, which we often admire, can began to blind individuals as to what's right and what's wrong. Greed, both personal and corporate, can color every decision.
If a corporation thinks its sole mission is to generate profits for its owner and stockholders, then it becomes easier to justify questionable practices.
It's not that there's an immorality, I think it's just amorality. It's not to say these people are evil. I don't even think of it in that term. They're just programmed in their bodies and souls to get what they can.
Many companies are learning the hard way that it pays to be a good corporate citizen. When business fails to regulate itself, and the public begins to clamor for change, the government often steps in with legislation. And governmental agencies can levy heavy fines, which can put a severe financial drain on a company. And when government tries to regulate ethics, the result is often costly and ineffective.
The whole concept of business ethics is a concept of complying with norms established by authorities. be they society or others. Establishing those norms and then complying with those norms that's what ethics is all about. It's complying with reasonable norms established by others. So what business has to do and why it's so hard is it has to make a profit, no question about it.
Customers are also fighting back by filing lawsuits when they feel companies have misled them. Legal judgments can cost businesses billions of dollars. And covering up indiscretions usually causes more damage than the original misdeed. As some companies have recently discovered, public opinion can quickly turn against them when violations of human rights and fair labor practices are exposed.
Being a socially responsible corporate citizen may actually cost less in the long run.
I think a corporation must have values that are equally as important as the value of profit. That is, profit in the short run. The values that you have which are not for the short-term, will ultimately bring it in the long-term. And here's a value will bring it in in the long-term as well.
Some observers think the tide is slowly beginning to turn as people are questioning the avarices of greed and the consequences of ignoring common values in business decisions. Kate Ludeman thinks many corporations now recognize the important part that employees play in a company's success. And many businesses realize that their CEO must be a leader whose vision, wisdom, and integrity will inspire others.
The leaders that we're seeing more and more in American companies care about their employees. They see that their employees are their intellectual capital. This is the talent pool that their business success depends on in the future. These CEOs and executives also see that their businesses are part of an integrated web that connects them, makes them global citizens, connects them with mother earth and creates a level of ecological responsibility that we haven't seen in the past in business leaders.
For their part, employees have accepted that the rules of employment have changed. And most don't anticipate or even want lifetime employment. Americans expect to move, change jobs, and even be fired at some point in their careers. The question of company loyalty is now a two edged sword.
Many employees now have a what have you done for me lately attitude and protect their own self-interests before those of their companies.
Margaret Blair thinks the new unwritten contract between workers and management should focus on commitment to learning, rather than guaranteed employment.
We need to think of every job that every person has as a chance for them to learn new skills. As a chance not only for them to do the job that they're being paid for their, but as a chance to learn new skills that will enable them to do the next job. And if every job is seen as a way to gain experience that is then valuable on the next job, then each person will then-- the idea that they'll be laid off isn't quite so threatening. Because they're at each point in time, accumulating skills and they understand that they're accumulating skills that should be valuable on the outside.
When people assume responsibility for their own careers and their own advancement, they often pour more passion, more creativity, more enthusiasm into their jobs. Companies can foster that spirit by providing a stimulating work environment that will pay dividends for both parties.
Employees have a responsibility first to be mindful of their careers. So they have a personal responsibility to continue to grow their skills. Companies have a responsibility to provide opportunities for employees and employees must take the initiative to assure themselves that they continue to grow and prepare for greater opportunities in their companies.
But many think wage structures have to be reworked, where people are paid based on their skills, ability, and value to the company. And some suggest that sharing the wealth with all employees will encourage workers' motivation and interest.
Americans, I think, being more pragmatic, when they look at their plate at the end of the year, if you will, and they see a piece of pie that's the same as, or bigger than the piece they had last year', they're probably not going to look to their left or their right and see what size pie their neighbor got. You know, I got more pie than I had last year. I'm happy. But if their pie shrinks, that's the first thing they'll do is look to the left of their right.
Many companies are now installing profit sharing plans, which seem to be working.
What it means is that the employees are now sharing the risk along with the shareholders. They're also sharing in the potential gains.
If the employee gets laid off, he gets to take that equity stake with him. So it softens the blow if they are laid off. It also makes it very clear on both sides that what portion of that employee's compensation represents in a sense, their social opportunity cost. That's what they're worth somewhere else. And it makes it clear to the employee that over and above the $30,000 is really at risk. It's at risk and it depends on how well that enterprise, as a whole, does. That gives that employee enormous incentive to focus on making that enterprise do well.
As more and more companies realize that business ethics is not an oxymoron, they are focusing their attention on setting new standards of behavior in four critical areas.
First, companies are promising employees opportunities to expand their skills, their creativity, and more importantly, their marketability. An employer can no longer tender an offer of a job for life, but he can prepare an employee for a lifetime of employment.
Second, businesses now must devise pay scales that are equitable and fair, and find ways to share the wealth with their most valuable resource, their employees.
Third, companies must practice and preach good business ethics and devise mission statements that instill strong ethical behavior in all employees, from management to labor. They must allow employees the freedom to report unethical conduct without fear of repercussions.
Lastly, corporations must recognize their obligations to their community and become active, responsible citizens. Aaron Feurerstein says anything less is unacceptable.
Over and above the responsibility that the corporation has to its people, it has a responsibility, absolutely, to the community in which the plant exists. And that responsibility to the community is very, very important. It gives the worker the feeling of confidence that the rug's not going to be pulled from under him. It gives the community a feeling of confidence that the mill isn't going to run out and they're going to lose their economic value. And we have loyalty to the community, the community has loyalty to us. And again, in the short-term, maybe it's not smart. In the long-term, I am positive that that's the best way to go.
American businesses have long enjoyed the freedom to compete and reap successes unparalleled anywhere in the world. Today's corporations are challenged to recognize their roles as solid corporate citizens and leaders of ethical practices. Companies must choose to accept that responsibility or our society will pay a tremendous price.