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 / Summer 2003 / Issue 31(originally published by Booz & Company)


Lynn Sharp Paine: The Thought Leader Interview

PAINE: Four themes emerged in these conversations: risk management, organizational functioning, market positioning, and civic positioning. The risks they talked about were particularly associated with misconduct but are also associated with carelessness, neglect, and insensitivity. By focusing on the values that guide people’s behavior, these executives told me they hoped to minimize the incidence of malfeasance and its consequences. In the past decade, we’ve seen a significant number of multimillion-dollar, even multibillion-dollar, cases of corporate misconduct. In addition, there’s individual misconduct. In the United States, for instance, individual misconduct is said to cost companies some 6 percent of revenues annually. Between 1997 and 2000, retailers in the United States saw their losses from employee theft jump by 34 percent to an estimated $12.8 billion.

For some managers, the turn to values is less about preventing missteps and more about organizational performance. It is an attempt to build or rebuild a better-functioning company — a high-performance culture. A third cluster of themes is market-oriented. Managers here are working on shaping their company’s identity and reputation, building its brands, and earning the trust of customers, suppliers, and other business partners. Civic positioning is distinct from market positioning in that the key issue is elevating the standing of the company as a citizen of the community, which may or may not have a significant impact on its position in the marketplace. The primary goal is to win the support of civic constituencies such as governments, NGOs, and local community groups.

There is also a fifth theme: the better way. For these executives, it is just better for companies to be honest, fair, responsible citizens. If I were writing the book today, I’d probably add a sixth rationale, because I see more companies starting to take ethics seriously to satisfy their investors and to boost investor confidence. It’s really a post-Enron phenomenon.

S+B: When you were doing your research, did you encounter people who were addressing values in a way you considered superficial or ineffectual?

PAINE: I can think of two especially disappointing moments. I tell the story of receiving a phone call from a manager whose company was going to press with a new code of ethics. He asked me to provide an endorsement of the code, just a couple of words to say that ethics pays. And I thought, oh, I can’t do that — for all the reasons we’ve already discussed. Another anecdote I tell in the book is about a company that called me because their top management wanted help with implementing its values. They had generated their list of values. The CEO said, “Great, we want to roll these out, and we want to do it quickly, but we don’t want to interfere with anything people are working on.”

S+B: Because there’s this underlying fear that ethics doesn’t pay.

PAINE: Perhaps. But I think this is just another example of not having thought through what it really requires in terms of implementation. People are used to thinking of ethics as very personal. But you’ve got to think of whether the organization as a whole can behave responsibly, not just the individuals who make up the organization. You can have a group of very conscientious individuals, but if the organization isn’t structured to promote responsible behavior, and if the organization’s decision-support processes don’t account for ethical and social considerations, the group won’t act according to the best ideals of individuals.

S+B: That’s why it is so tough for large established corporations to change.

PAINE: Well, yes, it is very difficult to change, and many people in the field of corporate culture have documented that. But the point I want to emphasize is that companies cannot change their values without also changing the system and structure through which they operate. There’s a common idea that organizational structure and management systems are hard and neutral. Then, on top of that, you have something called culture, which is the values of the corporation, and they’re somehow independent from your structure. In fact, your culture is really a reflection of your systems and structures. It doesn’t exist separately. So, companies can’t change without actually addressing questions like, How do we pay people, whom do we hire, who gets ahead, what are our information systems, how do we measure performance?

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