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The High Cost of Low Ethics.

"Good management -- that is, management with real thought behind it -- does not bother trying to make its way by trickery, for it knows that fundamental honesty Is the keystone of the arch of business. It knows that you will fail if you think more of matching competitors than of giving service, that you will fail if you put money or profits ahead of work, and that there is no reason why you should succeed if what you do does not benefit others."

Would you believe that the speaker was Harvey Firestone? Firestone Tire and Rubber Co., founded in 1900, was one of the first manufacturers of automobile tires. Over the next nearly 40 years, Harvey Firestone gained a reputation for valuing common sense, tightly controlling every aspect of his company and serving as its chief salesman, financier and production manager. At his death in 1938, his company had grown from a start-up in an infant industry to an established market force that had survived the Great Depression. Firestone continued to grow, merged with Tokyo-based Bridgestone in 1990 and today is the second largest tire manufacturer in the world.

How unfortunate that Firestone is now associated with defective tires, SUV rollovers, denial of any problems and possible non-disclosure -- even cover-up. Many people are now questioning the tires' safety and the company's integrity. Because of poor-quality product and management's controversial handling of the crisis, the great company that Harvey Firestone dreamed of and built -- and its 100-year-old reputation -- is now tarnished.

How did this happen? It seems that when Firestone's management first became aware of the tire tread separation, blow-outs and claims, they were more concerned with their financials than with safety, quality or potential ethical problems. But the financial impact they were contemplating then probably would look like the deductible to a major medical compared to what the tire recall and its ramifications will eventually cost them.

In the near term, Bridgestone said it will take a one-time charge of $350 million for the recall, and analysts predict a major sales slowdown this year. More importantly, however, the damage done to Firestone's reputation for denial and alleged cover-up when families were dying will be burned in the buying public's mind for years.

Contrast Firestone to Johnson & Johnson, the makers of Tylenol, which in 1982 dealt ethically with the problem of product tampering and became the model for ethical behavior and good crisis communications. When seven people died after taking cyanide-laced Tylenol, the company immediately alerted the nation through all media not to consume any Tylenol products. Moreover, it told consumers not to resume using the products until the extent of the tampering could be determined. Along with stopping production and advertising, Johnson & Johnson recalled all Tylenol capsules from the market, eventually recalling and destroying 31 million bottles with a retail value of more than $100 million. Johnson & Johnson stock declined in the weeks after the scare, but soon rebounded because of the company's proactive ethical behavior and proactive communications.

Why did Johnson & Johnson's behavior differ from Firestone's? Robert Wood Johnson, the company leader for 50 years, wrote a credo in the mid-1940s that outlined the corporation's beliefs and responsibilities (the entire credo can be found on its Web site, www.jnj.com). Executives overseeing the Tylenol recall were working with this credo, which kept at the forefront of their concerns the consumers and medical professionals using J&J products, its employees and their communities and J&J stockholders. Johnson was said to believe that if his company stayed true to these beliefs and responsibilities, his business would flourish in the long run. He felt his credo was not only moral, but profitable as well -- and he was right.

It appears that Firestone had no written ethical guidelines that should have pushed the company to take swift and ethical actions. Rather, top managers seemingly were hurt by the slow, quiet, consensus-building style of Japanese decision-making. Crises don't allow time for such cultural correctness, however. Despite any organization's best-laid plans, there will always be problems and/or accidents. How it responds is what defines the character of management and the organization as a whole.

What's interesting is how often corporate value statements or credos are conspicuous by their absence. In many businesses, it seems as though values and ethics are considered just flowery words about honesty and integrity. Or, perhaps many people believe that businesses simply run on the golden rule of "treat others as you would want to be treated." Unfortunately, many people think the golden rule is, "He who has the gold makes the rules."

Put It In Writing

If you don't have a written values and ethics statement that establishes in black and white the standards of behavior you want for your organization and what you will hold yourself accountable for, then your organization is just operating randomly, making up the rules along the way. Ethical behavior must be one of your fundamental business strategies, and one driven from the top.

At Manchester, we have vision, mission and corporate values statements. Our vision statement describes our purpose, creates a mental image of the future state of our organization and identifies growth opportunities. Our mission statement expresses our primary goal, and our corporate values statement lists and describes in detail the values and beliefs that we share as a firm. In general, corporate values and ethics statements should discuss your desired relationships with your customers and other stakeholders, your people, your community, profits, standards for management and general ethical values.

The most important value we describe in our statement is our reputation. An organization's reputation is something that's earned slowly over a long period, but, as Firestone's example shows, can be quickly lost. Too often, financial executives focus only on tangible assets, perhaps because they can be measured more easily. Consequently, employees do, too, because they follow their leaders and because, as the saying goes, what gets measured gets done. In many organizations, not enough attention is given to the intangible asset of reputation, which should be regarded as an organization's most valuable asset.

Another value we talk about is leadership. There is a difference between management and leadership; leaders do the right things, while managers last do things right. In all areas, but especially when it comes to ethics, the leader sets the tone and character for the entire organization.

We also describe what we mean by "highest ethics" -- dealing fairly with others, disclosing and avoiding conflicts of interest, keeping promises and encouraging associates to raise ethical issues. Ethics is about behavior; about making choices between right and wrong and understanding that these are black-and-white decisions -- there is no gray zone. Our corporate values and ethics statement says that we will forgo business, regardless of the opportunity, that would require violating our principles.

If you haven't addressed ethics yet, let me remind you that ethical problems usually don't occur because someone intentionally did something wrong. They happen because good people made mistakes, lacked appropriate training or didn't have enough information. These problems can be mitigated by making sure that training programs address ethical issues, establishing and discussing corporate values on a regular basis, and by demanding compliance and confidentiality when employees bring ethical issues to your attention.

This isn't something you can delegate to "staff." It's up to top managers to set the tone and character for the organization. As Harvey Firestone said, "If anything in the business is wrong, the fault is squarely with management. If the tires are not made right, if the workmen are unhappy, if the sales are not what they ought to be, the fault is not with the man who is actually doing the job, but with the men above him and the men above them, so that, finally, the fault is mine."

Mark Sheffert is chairman and CEO of Minneapolis-based Manchester Companies Inc. (www.manchestercompanies.com), which provides business recovery, financial and management advisory services, He can be reached at mark.sheffert@manchestercompanies.com. or 612.338.4722.
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Author:Sheffert, Mark W.
Publication:Financial Executive
Geographic Code:1USA
Date:Sep 1, 2001
Words:1335
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