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Published: May 23, 2005

 
 

The Value of Corporate Values

Moreover, companies are showing little patience for executives who place their businesses at risk by crossing the line from prudent to unethical behavior. A recent example was the prompt decision by Boeing’s board to oust CEO Harry Stonecipher over a sexual affair he was having with an employee. Mr. Stonecipher had been appointed to the top job 15 months earlier to help improve Boeing’s standing with the Pentagon, its largest customer, after a series of ethics breaches. The board did not specifically indicate what ethical rule Mr. Stonecipher had violated, but it was clear that in the current climate, any obvious ethical lapse would be an indiscretion that the company could not tolerate and that would affect the bottom line. (See “CEO Succession 2004: The World's Most Prominent Temp Workers,” by Chuck Lucier, Rob Schuyt, and Edward Tse, Spring 2005.)

As Pfizer CFO David Shedlarz says in CFO Thought Leaders: Advancing the Frontiers of Finance (strategy+business Books, 2005): “It is critically important to do right. It is not adequate to meet the letter of the law — the spirit and the intent are what have to be kept keenly in mind.”

For the purposes of this study, we defined values as “a corporation’s institutional standards of behavior.” Generally, companies follow the same “values cycle”: They articulate a set of corporate values and attempt to embed them in management practices, which they hope will reinforce behaviors that benefit the company and communities inside and outside the firm, and which in turn strengthen the institution’s values.

The fundamental findings were:

• Ethical behavior is a core component of company activities. Of the 89 percent of companies that have a written corporate values statement, 90 percent specify ethical conduct as a principle. Further, 81 percent believe their management practices encourage ethical behavior among staff. Ethics-related language in formal statements not only sets corporate expectations for employee behavior; it also serves as a shield companies are using in an increasingly complex and global legal and regulatory environment.

• Most companies believe values influence two important strategic areas — relationships and reputation — but do not see the direct link to growth. Of the companies that value commitment to customers, 80 percent believe their principles reinforce such dedication. Substantial majorities also categorize employee retention and recruitment and corporate reputation as both important to their business strategy and strongly affected by values. However, few think that these values directly affect earnings and revenue growth.

• Most companies are not measuring their “ROV.” In a business environment increasingly dominated by attention to definable returns on specific investments, most senior executives are surprisingly lax in attempting to quantify a return on values (ROV). Fewer than half say they have the ability to measure a direct link to revenue and earnings growth.

• Top performers consciously connect values and operations. Companies that report superior financial results emphasize such values as commitment to employees, drive to succeed, and adaptability far more than their peers. They are also more successful in linking values to the way they run their companies: A significantly greater number report that their management practices are effective in fostering values that influence growth, and executives at these companies are more likely to believe that social and environmental responsibility have a positive effect on financial performance.

• Values practices vary significantly by region. Asian and European companies are more likely than North American firms to emphasize values related to the corporation’s broader role in society, such as social and environmental responsibility. The manner in which companies reinforce values and align them with company strategies also varies by region.

• The CEO’s tone really matters. Eighty-five percent of the respondents say their companies rely on explicit CEO support to reinforce values, and 77 percent say such support is one of the “most effective” practices for reinforcing the company’s ability to act on its values. It is considered the most effective practice among respondents in all regions, industries, and company sizes. (See “Leaders Make Values Visible,” below.)

 
 
 
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Resources

  1. Mitchell Pacelle, Martin Fackler, and Andrew Morse, “For Citigroup, Scandal in Japan Shows Dangers of Global Sprawl,” Wall Street Journal, Dec. 22, 2004
  2. Anne M. Mulcahy, Keynote Address, Business for Social Responsibility annual conference, New York, N.Y., Nov. 11, 2004
  3. Daniel Yankelovich, “Making Trust a Competitive Asset: Breaking Out of Narrow Frameworks,” a report of the Special Meeting of Senior Executives on The Deeper Crisis of Trust, New York, N.Y., May 15–17, 2003; Click here.
  4. CFO Thought Leaders: Advancing the Frontiers of Finance, edited by Rob Norton (strategy+business Books, 2005)
  5. Lynn Sharp Paine, Value Shift: Why Companies Must Merge Social and Financial Imperatives to Achieve Superior Performance (McGraw-Hill, 2003)