Institutionalizing Ethics

CEOs do not have to confront ethical questions in a vacuum. Instead they can institutionalize the process of ethical decision making by ensuring that each moral decision builds upon preceding decisions. Ways of institutionalizing ethical policy include corporate codes of conduct, ethics committees, ombudsman offices, judicial boards, ethics training programs, and social audits.

One survey found that more than 90 percent of the companies that have tried to institutionalize ethics have created codes of ethics that require and prohibit specific practices. Although no more than 11 percent of these companies actually display their codes in offices and factories most of them will dismiss, demote or reprimand employees who intentionally violate those codes.

In Europe companies are looking more closely at their approach to ethics. While the strongest trend is in the United States, the United Kingdom (UK) companies are also recognizing the need for ethical codes. Rare codes of ethics are becoming increasingly common. According to one report, almost a third of leading British companies have a written code – up from 18 percent in 1987. Many others are considering developing an ethics code. In Spain, subsequent to charges of corrupt dealings with the government, Blanco Biblao Vizeaya recently published the country’s first explicit code of conduct; Fiat is doing the same in Italy. Although the French remain skeptical concerning the usefulness of written codes, which they tend to regard as an Anglo-Saxon gimmick, they have become more reflective about their practices.

Even though another survey reports that codes have a limited effect in deterring the misbehavior of intentional wrong doers, many companies feel that codes of ethics notify employees that business decisions should take account of ethical as well as economic considerations. More importantly, the study concludes codes of conduct remind employees that the company is fully committed to stating its standards and is asking its work force to incorporate them into their daily activities.

Many companies trying to institutionalize ethical policy have created specific organizations to enforce that policy. Of these companies, more than 40 percent have also set up programs to teach their employees how to confront moral problems in business. Some 18 percent have set up ethics committees; 3 percent have appointed an ombudsman (an officer to investigate decisions from an ethical point of view) and 3 percent have judicial boards that rule on ethical questions. Ethics training programs very often include discussion programs and workshops in which employees thrash out hypothetical moral problems. Participating companies report that the give-and-take of these programs helps to sensitize employees to ethical issues, broaden and deepen employee awareness of code directives, and underscore the commitment of the company to its ethical principles.

Institutionalizing Ethics at Johnson & Johnson:

A well known company that has become famous for its institutionalization of ethics is Johnson & Johnson. In its beginnings, when it specialized in baby powder and bandage products. Johnson & Johnson was a highly centralized organization. Now it is both highly diversified operating more than 160 businesses in over 50 countries, and highly decentralized. The process of decentralization started under a son of one of the company’s three founders, General Robert Wood Johnson, who took over in 1932. Today each business has a president or managing director who reports to a company group chairperson but who generally manages his or her particular company with a fair amount of independence. Because Johnson & Johnson’s decentralized structure depends so heavily on individual autonomy and decision making, the company established a “Credo” in 1943, not only to ensure its essential dedication to product quality, but also to encourage personal commitment to the goals of a loosely structured organization. Former Chairman James Burke believes that the Credo is a unifying factor among employees.

During the Tylenol crisis, when seven people died after taking Extra-Strength Tylenol capsules that had been tampered with Johnson & Johnson relied on the credo to eventually reintroduce the product during the crisis, the credo represents 100 years of accumulated public trust.–