Ethics pays and reputation is key
Companies with the strongest reputations perform better financially, as reflected in data from numerous studies of businesses by the Harvard Business School, The Economist Intelligence Unit and many others. Executives often intuitively understand that financial returns are impacted positively by a commitment to ethical values. Cultures focused on ethical behavior protect reputation and brand. A trusted brand gives the credibility to be effective in the marketplace. Reputations are fragile and in our hyper-fast world of social networks, they can be ruined overnight. The actions of an organization’s leaders and employees either builds or diminishes reputation, and an organization’s good name is difficult to resurrect after a serious misstep. It is the role of the CEO, the board and senior management to ensure a culture of ethics that protects reputation.
The renowned McKinsey & Company, in business nearly 90 years with 1,400 partners and 18,000 employees worldwide, provides a case study of what can happen when the actions of a few shake a firm’s reputation. McKinsey faced a crisis when a senior partner and then a former partner were criminally charged and convicted in securities related cases in the 2009 to 2011 time frame. As a result, McKinsey’s CEO, its board and employees expended great effort to restore the firm’s reputation. The New York Times article “In Scandal’s Wake, McKinsey Seeks Culture Shift” described McKinsey’s very public effort to elevate the firm’s focus of ethics as central to achieving this goal.
Dominic Barton, global managing director of McKinsey, took action to reestablish the firm’s standing and to prevent other ethics related problems. McKinsey had prided itself on a culture based on values and trust, which included putting the clients’ interests above the firm’s and keeping confidences. Barton decided that the honor-driven, values-based system was not enough to protect reputation after the criminal charges and convictions of the two men. McKinsey’s consultants and its “alumni” network of former partners, who often recommend the firm to clients, were extremely troubled by the reputational harm and knew it was hurting business.
Barton understood that the firm needed new, more explicit and more stringent rules. He told the Times that he wanted to retain the heritage of the values-driven, trust-based partnership culture, but he felt that they had to be modernized and strengthened through technology and behavioral techniques. In 2010, he championed a very stringent policy about stock trading, which went well beyond what other consulting firms required, prohibiting the firm’s employees and their household members from trading in the securities of any of the firm’s clients. Furthermore, computerized educational training on sensitive subjects like investing was required for all consultants. The Shareholders Council, effectively McKinsey’s board, supported Barton’s measures and approved the new investment policy. He implemented further changes such as making the firm’s disciplinary body very visible by allowing public disclosure of lapses in the firm’s values, when previously such issues were not disclosed. Furthermore, consultants were provided an electronic means for confidentially giving observations on behavior of senior partners, especially regarding ethics.
McKinsey’s major changes to training, personal investment, disciplinary actions and reporting systems put ethical values front and center within the firm in order to repair its reputation. An organization must be vigilant to protect its reputation and avoid the need for difficult repair. Moreover, as Barton demonstrated, values based ethical conduct must be in the DNA of the culture.
In Dan Ariely’s book, Predictably Irrational, he shares the results of a fascinating experiment conducted at MIT. Those students who were required to signed an MIT honor code statement (that didn’t even exist) before taking a test, did not cheat and 85% of those who didn’t sign the statement beforehand, did cheat. Those who were provided with a moral benchmark that encouraged honesty, were significantly more inclined to change their behaviors by thinking twice about their actions and whether they were ethical. A corporate strategy of driving home values to an organization and keeping these values in front of people, truly matters.
