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Whatever Happened to Business Ethics?

By Bill Michels, CPSM

For Management Today

No question, Gibson makes some beautiful guitars. B.B. King plays one; the Les Paul model is legendary. So in the search for the most elegant woods in the world to embellish its products, the pressure on Gibson’s buyers must have been great to look the other way when presented with ebony cut from trees in Madagascar – where exotic woods are protected by local law. The U.S. Justice Department, however, did not play along with Gibson, and recently won a $700,000 settlement from the guitar maker to end a criminal enforcement investigation by the U.S. Fish and Wildlife Service. Gibson surrendered $347,000 of Madagascar ebony and agreed to contribute $50,000 to the National Fish and Wildlife Foundation for forest protection.

Gibson’s case underscores the difficult ethical choices that face businesses every day. We like to think that ethical lapses always harm the company, but it’s not always that clear cut. A maintenance manager enjoys a nice golf outing for buying thousands of dollars of overpriced cleaning supplies. We understand that. But who is the victim when the manager gets a competitive price on the cleaning supplies by writing the check to the side business that she owns?

These are not hypothetical examples. Several years ago a supply manager at Apple was charged with conspiracy and accepting kickbacks because he allegedly shared production forecasts, competitors’ bids and other sensitive information to favored suppliers for iPhone and iPod accessories. According to news reports, police found shoeboxes stuffed with $150,000 cash in the suspect’s house, and Apple claimed he had accepted $1 million or more in bribes. Again, the twist here is that the alleged bribes to the buyer allowed unethical suppliers to underbid competitors and give Apple lower prices. In other words, in the short term it looked like it was good business.

The pressures of competition often do not support good ethics. In a recent poll of financial services professionals by the law firm Labaton Sucharow LLP, one in four responded that they had firsthand knowledge of wrongdoing in the workplace. Only slight fewer – 24 percent -- said they may need to engage in unethical or illegal conduct in order to be successful. That’s shocking in an industry that depends on trust, but perhaps not so surprising considering the growing number of financial industry scandals that have made global headlines.

News of ethical scandals is clearly poisoning public opinion. According to a Gallup Poll, Americans' confidence in U.S. banks is now at a record-low 21 percent, while 62 percent believe corruption is widespread in the business world. In another survey, the Transparency International Global Corruption Barometer, 72 percent of Americans said that corruption has increased here over the last three years.

These are discouraging reports, but ethical behavior is still important to your long-term success, even if it’s painful in the short term. Apple, for instance, resisted the temptation to look the other way and take advantage of the situation it encountered. By coming down hard on the alleged offender, Apple signaled to its employees and the world that its reputation for fair bidding practices was more important than a short-term cost-saving. That certainly makes business sense in the long run, because strategic supplier relationships depend on trust, and in a business as competitive as Apple's those relationships are critical to success.

Companies of any size can take a lesson from these examples by embracing clear ethical principles and standards in the way they manage procurement and other business-to-business relationships. The organization I work for, the Institute for Supply Management (ISM) espouses a set of standards that is a good model – not just for supply managers – but anyone throughout the organization. It’s based on three simple principles:

·         Integrity in your decisions and actions

·         Value for your employer

·         Loyalty to your profession

From these principles ISM derived a set of standards (find them at www.ism.ws) that address impropriety, conflicts of interest, confidential information, responsibilities to suppliers and your employer and sustainable and socially responsible business practices. They are general statements, because in many ways, that’s the best way to approach ethics. You can proscribe detailed policies to cover lunches with suppliers and business gifts. Most companies do. However, a survey by CAPS Research, (a joint venture between ISM and the W.B. Carey School of Business at Arizona State University), found that many policies do not specify the dollar amounts for those things, or require employees to report gifts. In other words, it’s not the details of compliance but the culture of the company that determines ethical behavior.

Inc. Magazine published a great example from Levi Strauss & Co., that says nothing about the value of gifts from suppliers, but speaks strongly about honesty, fairness, respect for others and compassion. The last line about integrity, however, is the one that puts the pressure on by saying, “We will live up to LS & CO's ethical principles, even when confronted by personal, professional and social risks, as well as economic pressures.” Owners and executives in privately held companies might especially take heed to that statement, because in those organizations the actual culture is more likely shaped by the behaviors of one or two leaders rather than any written statement. Their example will be much more powerful than any policy.

The fact is, we live in world where every business decision we make might be scrutinized, not just by government regulators, but non-governmental watchdog groups, media and our own employees, suppliers and customers. The pressures they can bring to bear are tremendous over the long run, and companies that have a strong, ethical culture are much more likely to benefit from that than those that don’t.

For an example, look no further than the Gibson Guitar website. Its Tak Matsumoto Doublecut Custom Ebony guitar is now made with “cellulose fiber and phenolic resin, (that) offers the look, feel and tone of ebony in a totally sustainable package.” Lesson learned at Gibson.

Bill Michels is president of ADR North America, a consulting firm specializing in global supply chain management.

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