Jeff Kaplan and Steve Priest discuss timely and timeless ethics & compliance issues through Ethics Exchange.
Steve Priest: Jeff, the headlines have been so full of ethics related issues that it is hard to choose a single topic to choose from. We have competing plans to combat sexual harassment in the U.S. armed forces, individuals and companies in places like China (GlaxoSmithKline) and Indonesia (Chevron) are under the gun for corruption, a bank (JP Morgan Chase) in talks with the Federal Energy Regulatory Commission to settle charges of market manipulation, and a breach of security at the NSA. A common thread for all of them—at least to me—is about management. At Chevron a manager was convicted in addition to two employees, but I remain concerned about the employers. Are they examining where the managers were in these situations? Were they held accountable as well as the individuals involved? Should they be? I thought your Conflict of Interest Blog earlier this month made excellent points on these issues, and I wanted to press forward with you here.
Jeff Kaplan: It may be too soon to tell in the case of GSK, and both too soon and too secret to know in the NSA case, but I certainly agree that lack of managerial accountability is a weak spot in many E&C programs. Given what one sees – and doesn't see – at many companies, one would never know that the Sentencing Guidelines definition of an effective E&C program provides that companies need to impose “appropriate disciplinary measures” not only for engaging in criminal conduct but also “for failing to take reasonable steps to prevent or detect criminal conduct.”
Steve: When we talk to employees at all levels in assessments, one of the things that perturbs them the most is when they believe accountability is lacking in their organization. Usually they fume at great performers who get a pass. But occasionally—and this is highly instructive when it happens—they cite examples of where supervisors or managers “had to have known” what was going on—and maybe even approved of it—but they stay on while their subordinates get fired.
Jeff: Years ago Leona Helmsley – a fabulously wealthy real estate developer who ultimately went to jail for tax evasion - was alleged to have said, “We don't pay taxes. Only the little people pay taxes.” If a company sends a message that “Only the little people” need to follow its rules – including the rules requiring managers to be aware of what their subordinates are up to - then its E&C program is in dire peril.
Steve: Yes, but it is not all bad news. I had firsthand observation of getting accountability right this week. The leader of a big business unit in a Fortune 50 company terminated four or five people at the managerial level or above for failure to supervise, sending the wrong message, and not taking action when aware of potential legal violations by subordinates. As you can imagine, this sent a clear message throughout the organization. So clear, that when this unit invited its 100 top people to a two day meeting in the middle of July to discuss ethics and compliance, 95 showed up.
Jeff: That sort of thing doesn't happen nearly enough, and so I’m glad to hear about it. Sometimes managers intentionally apply double standards, but, as we learn from the important field of “behavioral ethics,” there’s a whole other dimension of “cognitive biases” that leads to the unwitting imposition of double standards. That’s why maintaining managerial accountability requires strong E&C medicine, of the sort your client took.
Steve: Jeff, I have to tell you I was impressed. I opened the event with a presentation on ethics, culture and leadership, and beforehand I worried that given the prior terminations it would be an atmosphere of fear and resentment. But it was not. It was a listen and learn climate, starting with the leaders who kicked off the meeting. Some leaders believe that if they hold other leaders or managers accountable that it will destroy the collegial culture that they rightly value. This experience confirmed what I have seen in other organizations—thoughtful, successful leaders do not want to be brought down by the repeated failures of others. Holding people accountable strengthens, not weakens, a culture built on principles.
Jeff: Sounds like good stuff, indeed, and I hope that in addition to following your client’s lead as appropriate companies will also take some of the other steps mentioned in the blog piece you so kindly plugged: “build the notion of supervisory accountability into their policies – e.g., in the managers’ duties section of a code of conduct; speak forcefully to the issue in E&C training and other communications for managers; train investigators on the notion of managerial accountability and address it in the forms they use so that they are required to determine in all inquiries if a manager’s being asleep at the switch led to the violation in question; publicize (in an appropriate way) that managers have in fact been disciplined for supervisory lapses; [and] have auditors take these requirements into account in their audits of investigative and disciplinary records.” All of this is strong medicine, but weak medicine won’t cure this particular disease.
Steve: What I especially appreciate about the steps you recommend is that while they are strong medicine in terms of impact, most don’t require a lot of extra, ongoing work. These are enhancements to existing communications, training and investigations processes that can go a long way toward strengthening a culture of accountability.