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Creating Cultures of Responsible Conduct

Today’s medtech executives are challenged to create, implement, and sustain ethical corporate frameworks.

BUSINESS PLANNING & TECHNOLOGY DEVELOPMENT

Sidebars:
Companies that develop, produce, and distribute medical technology operate in a complex and challenging environment. By its nature, their work focuses on human well-being. Thus, it is not surprising that the industry is heavily regulated. Indeed, industry executives must devote a significant proportion of their time to helping their organizations navigate a maze of legal and regulatory requirements that constantly grows in scope and intricacy.

At the same time, these leaders face the rising public expectation that all for-profit firms will conduct their affairs in an ethically responsible manner. At one level, this expectation is a reaction to the business scandals of 2001 and 2002 that involved companies such as Enron and WorldCom. But it also is part of a broader trend—namely, a concern about corporate conduct and influence that has been growing since the 1960s.

Photo by JUPITER IMAGES
Medical device firms are far from immune to the rising tide of public scrutiny. In recent years, many leading industry players have found themselves at the heart of investigations involving everything from suspicious sales practices to highly criticized product recall management (see sidebars).

In the wake of these and other corporate scandals, the message the public is sending companies is clear: legal compliance is important, but it's not enough. This message was reinforced by the revised Federal Sentencing Guidelines for Organizations, issued by the United States Sentencing Commission in November 2004. The modified guidelines call upon companies to develop cultures that encourage ethical conduct, not just adherence to laws and regulations.1

There is no one-size-fits-all approach for company leaders looking to create an organizational culture that promotes ethically responsible behavior. However, there are frameworks that can help executives think about how they should approach this undertaking. This article focuses on an approach that has proven useful for two decades.

In the late 1980s, a young professor at Harvard Business School, Kenneth Goodpaster, identified three tasks leaders must address to create companies with a robust sense of moral conscience.2 First, leaders must orient their firms toward a set of ethical values—including, for example, respect for others, trustworthiness, fairness, honesty, and integrity. Second, they must institutionalize those values within the organization. Third, leaders must sustain values over time, making them an enduring part of the firm's identity.

Orienting a Company to Values

In orienting a firm, company leaders seek to establish a direction for their organization by guiding its members toward a shared understanding of the firm's purpose and mission. They also guide them toward a shared vision of how the organization will fulfill this purpose. This includes identifying the values or moral ideals that will serve as the company's ethical touchstone.

Values statements assist with the task of orientation. They systematically lay out the core moral ideals the company aspires to honor while conducting its affairs. They publicly express the company's espoused values—that is to say, the moral criteria to which a company's leaders will hold themselves and all other employees accountable.

The formulation of a values statement is a first step in providing an ethical orientation for a firm. It is not uncommon for leaders to consult the ethics statements of competitors, industry participants, and other companies during the drafting process. These examples may highlight moral aspirations relevant to their firm and provide other useful insights. For example, in addition to values such as honesty and integrity, many medical device firms include wording in their statements that expresses a commitment to the improvement of patient care and human welfare.

Once executives have articulated their firm's foundational values, they then must identify how their company stands in relation to those values. This means performing a moral inventory of the company during which executives identify the values actually operating within a firm through surveys, questionnaires, and sounding sessions with employees and other stakeholders. This inventory enables leaders to ascertain the gap that exists between the company's espoused values and the dominant values at work within it. The magnitude and nature of this gap can help executives determine the kinds of policy and practice changes required to move the organization from its current state toward the desired state described within its values statement.

Institutionalizing Values

Values statements abound in today's business world. Still, many corporate observers remain skeptical of such documents—and for good reason.

In 2000, Enron issued a “vision and values statement” that proclaimed “we treat others as we would like to be treated ourselves.” It also emphasized the need for ethical integrity throughout the company. Of course, this statement rings utterly false in light of subsequent revelations concerning Enron's brash kill-and-eat culture and disclosures of lucrative self-dealing within its executive ranks. The disconnect between the firm's stated values and the values actually followed by some Enron executives invites cynicism not only about Enron's values statement, but also about the worth of such pronouncements generally.

Yet this disconnection is instructive. It highlights an important truth: without a conscious, concerted, and continuous effort to integrate moral ideals and aspirations into a company's operations, a values statement remains mere words.

Moving words into practice is the challenge addressed by the task of institutionalization, which is a multifaceted process. Central to this process is leadership action that clearly shows a commitment to the company's stated values. If leaders' acts and decisions fail to honor the values they publicly advocate, employees quickly learn to discount any ethics-speak emanating from the corner office.

Also important are efforts that help employees grasp the practical implications of the company's moral values. A code of conduct is an essential aid in this regard. It communicates the company's values and brings them closer to the ground floor of day-to-day operations. It articulates standards and guidelines that can help employees recognize and resolve ethical issues that fall within their purview. Codes of conduct also typically address matters of legal responsibility. For this reason alone, they are a must-have resource in heavily regulated industries such as medical devices.

Work on a code of conduct does not end once it has been drafted and distributed. The code should be reviewed and discussed at successive levels within the organization to ensure that all managers and employees understand how it applies to their work. A cascading review of this type helps build comprehension and can generate useful feedback. It can help pinpoint where a code's guidelines may be unclear and identify questions on which employees require additional guidance. Such information permits the code to be improved over time and enables the company's leadership to deliver support where it is needed most.

Leaders must also ensure that company values are embedded within the firm's systems and processes so that they truly become a part of how the organization performs its work. To do this, executives must engage in an operational audit—specifically, an assessment that enables them to determine the extent to which company practices reinforce or undermine the organization's moral ideals and aspirations. For example, if bonuses and promotions are handed out exclusively on the basis of whether executives hit their numbers, a values statement is unlikely to prevent a manager from cutting ethical corners to reach a financial target or an operational goal.

The ultimate test of any values statement is whether the company's employees follow it daily. Institutionalization is the process that brings a values statement to life, and decisive executive action, codes of conduct, and operational audits all play an important role in this process.

Sustaining Values across Generations

If a company is to sustain its moral values over time, it must impart them to successive generations of leaders. This requires the firm to take steps to create congruence between the organization's moral ideals and the moral ideals embraced by its future leaders. Absent such an alignment, the firm's new leaders will allow the firm's values to wind down over time, or will replace them outright with values more congenial to their viewpoints.

Sustaining values assumes clarity about orientation and effectiveness at institutionalization. But it also requires organizations to carefully address other activities as well—for example, management development and succession planning for executive positions.

Creative approaches to management development can promote greater alignment between the organization's values and the values of its employees. Some companies offer seminars designed to help managers better understand the relevance of its values statement to business decisions. These workshops may feature case studies drawn from the organization's history. Participants also bring to the session challenges they currently face.

Typically, the topics raised by participants vary widely, addressing such diverse issues as the ethics of gathering competitive intelligence, maintaining pay equity among employees working in different parts of a multinational enterprise, and the circumstances under which the organization has an obligation to disclose product defects to its customers. The challenges are discussed by the class, which then attempts to formulate a values-based resolution. Managers come away from such events with greater skill in applying the organization's values to operational and strategic decisions.

In addition, since senior leaders are in a unique position to influence an organization's values, it is particularly important that the selection criteria for these roles account for both traditional business qualifications—such as economic performance, intelligence, and leadership skills—and less typical ones—such as personal and professional integrity, and alignment of personal beliefs with the organization's value system. The organization's leaders must work with its board of directors to identify and explicate these atypical criteria, and to determine how key managers will be evaluated and tracked against them. Only by doing so can they hope to ensure that future leadership appointments will preserve, not erode, the firm's value system.

Conclusion

It is sometimes said that there is nothing as practical as a good idea. For leaders creating new organizations, Goodpaster's framework suggests a way forward, a pathway toward the creation of a culture that supports ethical conduct. For executives leading established organizations, it provides a useful reference point, one that can help them critically examine the actions they have taken already to address a leadership challenge that is both daunting and vital.


References

1. 2004 Federal Sentencing Guideline Manual (Washington, DC: United States Sentencing Commission, 2004); available from Internet: www.ussc.gov/2004guid/TABCON04.htm.

2. KE Goodpaster, “Ethical Imperatives and Corporate Leadership,” Ethics in Practice: Managing the Moral Corporation (Boston: Harvard Business School Press, 1989): 212–218.

T. Dean Maines is president of the SAIP Institute at the University of St. Thomas Opus College of Business (Minneapolis).

Copyright ©2008 MX
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