VALUES JUDGMENT

The old joke that business ethics is an oxymoron raises few snickers these days. The number of companies with codes of ethics ballooned in the last decade, jumping 13% to 73% since 1994, according to the Ethics Resource Center, which helped design some of the first corporate ethics offices in the 1980s. Today, most business schools require students to enroll in ethics courses as part of their MBA training.

Professor William Cockrum, center in photo above, has been teaching the enormously popular “Ethical Considerations in Business” course at the prestigious Anderson School at UCLA for the last 11 years. The class, though not a requirement, is packed every semester. “Wild Bill,” as he’s known by his students, has become somewhat of a legend for his Harvard Business School-type case-study courses in ethics and in finance. He is a popular teacher not only at the school--where he has been voted outstanding teacher five of the last 10 years--but also nationally. He was named the top entrepreneurship teacher in the U.S. last year in a BusinessWeek survey of MBA students.

One day last week, Cockrum, sporting a Snoopy tie and easy smile, assembled three current and former MBA students for a discussion about business ethics. In addition to Cockrum, joining the session were:

* Eleanor Brewer, 51, left, vice president of St. Joseph Health System, a nationwide hospital operator based in Orange with 15,000 employees. She graduated from the school’s executive MBA program in 1986.

* Rebecca Morris, right foreground, president and founder of California Capital Alliance, which helps raise funds for private equity firms to reinvest in under-capitalized California companies. A former Pete Wilson administration staff member, she is enrolled in the school’s fully-employed MBA program and will graduate in 1999.

* Amir Mirza, 26, second from left, a full-time MBA student originally from Bombay, who worked for Procter & Gamble in India as a financial analyst and for a Middle Eastern investment fund in Bahrain before enrolling in 1996. Over the summer he worked for an investment bank on Wall Street. He will graduate in June.

Both Morris and Mirza are enrolled in Cockrum’s ethics course.

Also sitting in was Times staff writer Annette Haddad, second from right.

*

Times: I came upon an interesting survey that was recently released by the Ethics Officers Assn. that found nearly half of workers engaged in unethical and/or illegal acts in the past year. According to the survey of 1,324 workers nationwide, 48% said they had engaged in one or more unethical actions, the most common being cutting corners on quality, covering up incidents, abusing or lying about sick days and deceiving customers.

If workers’ personal values are so easily compromised, how can we expect companies to do the right thing, because after all, they are made up of these very same people?

Morris: If executive management wants to impart high ethical standards . . . it starts at the point of hiring. You have to hire people who have values that are in sync with your own ethical standards. You can’t expect to change people. You can get people to follow high-profile rules, but when it comes to changing their basic nature, it’s really difficult.

Cockrum: It’s assumed that it’s clear what’s right or wrong. If that were true, then there would not be courts, judges. . . . But I suspect it’s not clear what is right or wrong, and so an organization has to define and--from the top, not some other source--what are the parameters, what’s right and what’s wrong. Once that’s done, it has to be implemented from the beginning, which is the hiring, through performance evaluation, ombudsmen, training programs--throughout. Otherwise it’s not a program, it’s a set of words that have no behavioral meaning.

Mirza: We had a discussion a couple of times [in class] that there is a written code of ethics and an unwritten code of ethics which the organization follows. To have an effective code of ethics across the organization, it’s very important to get senior management walking the walk, and trying to initiate a culture within the organization where individual values are more highly attuned to the corporate values.

Cockrum: So the issue of the implementation of some set of values in an organization is a study in the responsibility of the leadership. It’s not a study of anything else. And that’s what we’re training here--leaders of organizations.

Brewer: Talking about systems . . . there’s a hiring and selection system, but then there’s an orientation and a skills-building process that [employees] go through. Through that process they observe how others act. It doesn’t matter what people say, it’s how they act. And then there’s a performance appraisal system--what gets rewarded and what doesn’t get rewarded.

It also happens that employees will pay you back your just desserts. If they feel like you are doing them in, they will call in sick, whether they’re sick or not, or you make them sick. So [the employer] can cause a lot of this stuff. Even if you pick the right people, you can ruin the right people if you’re not careful, or the right people will leave you.

Cockrum: If you look at employee data, three-quarters of employees are unhappy in their current jobs. Why are they unhappy? They’re unhappy because the people at the top of the organization didn’t create an environment, and they’re not put to good use. It’s the bosses’ fault.

For the the last four years, Cockrum has posed five ethical questions for his students to answer and then discuss. (See sidebar.) The questions were taken from a survey first conducted by Harvard Business School in 1961 and again in 1976.

Question 1 asks: An executive earning $40,000 a year has been padding his expense account by about $1,500 a year. Is this acceptable? Since 1961, 80% or more of the respondents have consistently replied that it is unacceptable, regardless of the circumstances.

Question 2 asks what you would do when doing business in a foreign country where extraordinary payments are used to lubricate the decision-making process. Over time, those polled became more amenable to making bribes where it is “ethical” in the moral climate of the country.

Times: So padding your expense account seems to be an absolute no-no, but paying a bribe is OK. Why?

Morris: When you’re padding your expense account, you’re charging for services that were never rendered. I’m not saying that I would pay the bribe, but I see it as slightly different. It’s almost like you’re paying a real estate agent to find a house for you. In some ways you’re paying this person to go secure this deal for you. It’s different.

Mirza: I think it’s fair to rationalize it that way. But this question leads us to more culturally sensitive issues, because where I come from--India, and I think I can say this for most of Far East Asia--is that whether you like it or not, that’s the way of doing business there. The larger question is: How much of your personal values can you apply to a business setting? If you don’t bribe, you run the risk of losing business, losing employees, losing shareholder value. There are a lot more stakeholders here whose interests have to be considered . . . rather than a selfish, individual viewpoint.

Brewer: I think very few people will be in the position of [making] the bribe. But a lot of people are in the position of padding their expense account. And they can more easily see that as being wrong. When you write in your own handwriting something that you know is absolutely wrong, it feels real close.

Cockrum: It’s more a question about the local practice versus your own personal moral code. What Amir talks about we see in class quite often because we now have more than 20% of our students who are from foreign countries. And we can go right around the classroom and talk about how . . . it’s the way of expected business.

[The United States in 1977 enacted the Foreign Corrupt Practices Act, a law that requires Americans abroad to do business without bribing foreign officials.]

Morris: You can relieve yourself of a lot of feelings of being unethical by disclosing things. If it’s open that you’re paying this bribe--I don’t even want to call it a bribe--that you’re paying this fee to get services, I think that’s a lot different. As long as the person on the other end knows that you’re working for a fee and what you’re motives are, I think that changes things.

Times: Have the values of business students changed?

Cockrum: Just one person’s opinion, but I would say there is as much morality now as when I was in school. If there is a difference, it was the time between the ‘70s and ‘80s when anything went, up until the [‘87] market crashed. The Milken years, for want of a better term.

Mirza: I think people today are a lot more conscious of ethical issues. Whether they choose to accept them or not, at least they are made aware of issues. Ten years ago, ethics were not even part of the syllabus. Today, they are required in most business schools, or if they are electives they are heavily attended electives like at Anderson. Just the issues you see coming up in the workplace--sexual harassment, political correctness--are terms in our vocabulary that didn’t exist 10 years before. I think I’m part of that generation growing up with a high general awareness of these terms. There is a difference cross-culturally, but I think the U.S. very much is at the forefront of being more morally aware.

Morris: It seems to me the biggest difference that I notice is that now society is holding companies and individuals more responsible for their behavior, whereas before it was just generating profit for your company.

Just look at the change since Anita Hill came out in the area of sexual harassment. I remember when I was 18 working at a health spa, my manager pushed me against a locker trying to kiss me. I pushed him away. But I never thought that this was wrong, that I am going to avail myself of my legal rights. Whereas now if something like that happens, this is wrong, it’s sexual harassment.

Mirza: I worked in a service-oriented business on Wall Street this summer, where everything depends on the people. And if you can take care of your people, that’s the biggest asset in your business today. That’s why I think it’s all getting so much more important. Because people are becoming so much more critical to the way business is being run. If you want high morale and you want the best people coming in, that’s something you have to guarantee. It’s no longer an option. It’s a prerequisite.

Cockrum: To perhaps state the obvious but to reinforce what he says: If you take the inputs of labor and capital, money is plentiful and all the equipment . . . whose costs have dropped so much, the biggest single cost far and far away is human input. And their skill level is commensurate. You have to nurture it and care for it.

Times: Is this corporate responsiveness to the human element, to the employee? Does it have something to do with . . .

Cockrum: Self-interest.

Brewer: Remember the huge layoffs we were experiencing not too many years ago? The ethics weren’t in place when that movement started happening, and they actually had to be legislated. You could dump thousands of people without letting them know that they were going to be dumped. You could have known for a year or months in advance and never have told them anything. That’s an ethical issue.

Cockrum: We’re studying that, what’s the impact on stakeholders, on communities, suppliers, as well as employees.

Times: So corporations wouldn’t have acted ethically if these things hadn’t been legislated?

Brewer: It’s hard not to act in self-interest. It’s very difficult. You have to have a strong ethical base yourself.

Cockrum: It’s not just corporate, but I think it’s true of all organizations. Even not-for-profit organizations operate out of self-interest. Government does, educational facilities . . .

Brewer: . . . Individual people do.

Morris: I think people who are employed and sit and pontificate on these ethical issues, sometimes they forget that, thank God, that we have all these companies that want to do business and provide jobs in California. A lot do want to move to other areas where the regulations are not so stiff. We have to be really conscious about trying to strike that balance.

Cockrum: . . . It’s not the company, because the companies are people. At the top of the people are leaders, and it is the leaders who dictate what is going to be the culture in that organization. So it is very much a subject of leadership and not very much a subject of companies.

Morris: You wonder how many of these companies would be instituting sexual harassment policies if they weren’t afraid of being sued. I wonder, pre-Ralph Nader, what the corporate world was like. I really don’t have a sense of it. I have a hard time believing that a lot of these companies would come out with all these socially responsible programs of their own volition.

But I think if you expect your employees to act in a certain way, it’s very important that you communicate what exactly is expected of them. Like Professor Cockrum says, there is a lot of gray area, and sometimes you just don’t know. When I was working in government, I would have never known that I couldn’t go to lunch and have someone else pay. I wouldn’t have known unless someone told me all these little rules. I think it’s important that employees do have something codified.

Brewer: But it’s not the rule, it’s the concept that you have to discuss with your employees. It’s not just lunch, it’s anything that gives the concept of you being influenced on your decision.

Mirza: I think that corporations should set broad parameters, their particular way of thinking, across the organization. You can’t micro-manage people. It gets into a question of how far you are impinging on the individual’s rights and how much you as an organization are trying to direct them to a more noble purpose. I guess if you set the parameters and you have your systems in place, people can normally be directed toward a better standard of ethics.

Cockrum: You can never think of all the creativity a human being can insert into behavior to create a circumstance that requires judgment. That’s why rules don’t work, concepts do.

Mirza: Coming back to self-interest being the prime motivator: I think over the last few sessions of the class and during my summer experience, I’ve learned that self-interest and ethics are not necessarily opposing ideas. And that’s not how I initially viewed it when I came to business school. Over the summer, the vice chairman of a bank spoke to us, and he said: ‘If you make a mistake, take a risk, lose a client, that’s OK. But if you have an ethical lapse, you’re losing the reputation of the firm, and that’s not OK.’ It just tells you that priorities of companies have changed. It’s nice to see more of a meshing of ethics with business goals.

Brewer: And that’s what the vice chairman said to you?

Mirza: Yes. We were really impressed. You know, Wall Street from the ‘80s, from what Professor Cockrum said, was a very different place. This is Wall Street of the ‘90s, where reputation is everything.

So when you make your norms clear, the values have to go down to the lowest level of the organization.

Brewer: That was interesting that they made it OK to make an error, to take a risk, and said that out loud.

Mirza: Businesses are getting more entrepreneurial within themselves. If you don’t take risks, it might be hard to survive in such a competitive setting. As long as you’re doing the right thing, by yourself, your clients, your company. That’s most important.

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Ethics 101

Take the business ethics challenge.

Below are five questions that UCLA professor William Cockrum asks his students to answer and then discuss as part of his course, “Ethical Considerations in Business,” at the Anderson School at UCLA. The questions were devised by Harvard Business School in 1961, but the dilemmas remain.

Unlike the typical business classes such as marketing and finance, there is no right or wrong, no mathematical formulas to master. On the first day of his course this semester, Cockrum told his students: “This is not a class where I teach you morals. I assume you have a set of morals already.” Instead, his objective is to let students apply their own morals to the case studies.

Case 1: An executive earning $40,000 a year has been padding his expense account by about $1,500 a year. Is this acceptable?

a) It is acceptable if other executives in the company do the same thing.

b) It is acceptable if the executive’s superior knows about it and says nothing.

c) Is is unacceptable, regardless of the circumstances.

Case 2: Imagine that you are president of a company in a highly competitive industry. You learn that a competitor has made an important scientific discovery that will give him an advantage that will substantially reduce, but not eliminate, the profit of your company for about one year. If there were some hope of hiring one of the competitor’s employees who knew the details of the discovery, would you try to hire him?

a) Probably would hire him.

b) Probably would not hire him.

Case 3: The minister of a foreign nation where extraordinary payments to lubricate the decision-making machinery are common asks you, the company marketing director, for a $200,000 consulting fee. In return, he promises special assistance in obtaining a $100-million contract that should produce at least a $5-million profit for your company. What should you do?

a) Pay the fee, feeling it was ethical in the moral climate of a foreign nation.

b) Pay the fee, feeling it was unethical but necessary to help ensure the sale.

c) Refuse to pay, even if the sale is thereby lost.

Case 4: At a board meeting of High Fly Insurance, a new board member learns that HFI is the “officially approved” insurer of the Private Pilots Benevolent Assn., which contains 20,000 members. Upon joining the PPBA, members automatically subscribe to HFI’s accident insurance for a premium in the standard dues assessment. In return, HFA pays the PPBA a fee tied to the volume of business PPBA members generate and gets use of the PPBA mailing list, which it uses to sell aircraft liability policies (its major source of revenue). The PPBA’s president sits on HFI’s board and the two companies are in the same office building. What would you do about this situation?

a) Would do nothing.

b) Would privately and delicately raise the issue with the chairman of the board.

c) Would express opposition in a directors meeting, but would go along with whatever position the board chose to take.

d) Would express vigorous opposition and resign if corrective action was not taken.

Case 5: In your previous job before you came back to business school, were there industry and/or company practices that you considered unethical?

a) Yes, many.

b) Yes, a few.

c) No.