Building the Ethical DNA

One of the most prominent topics of discussion amongst Compliance Officers is how to build an Ethical DNA within the organisation. How do companies like JnJ manage to build and sustain this DNA over the long-term? Is it through selecting the right people? Is it through extensive training and dissemination? Is it through stringent punishment for defaulters? Is it through appropriate leadership?

The answer includes all the above possibilities. But I believe there are three primary requirements for building an Ethical DNA without which all other efforts would be mere compliance exercises.

The first is a strong belief that is shared by the apex management team of the company that "being good is actually good for business". It may sound simple but let me tell you a lot of senior managers do not look at Ethics from this perspective, but from a pure compliance perspective. Let me give you an example to illustrate this. I was reviewing the third party manufacturing- related risks of a client and found that the employee safety standards at the 3P were below those prescribed by the company for in-house facilities. The senior business managers told me that enforcing the same standards on the 3P would nullify the cost advantage of the operation and make it unviable. I then took this up with the CEO of the company. What he told me was this (quote) "The 3P manufacturing strategy is key to our business success. At the same time our safety standards are not negotiable. We hire the best engineers in the country. It is their job to find cost-effective solutions that enable us to meet our safety standards and at the same time retain the 3P cost arbitrage" (unquote). What he was doing was using the Ethical dimension to drive new technology. It is similar to companies that are trying to carve a niche for themselves through "green' products. Or companies that provide flexible-working hours for its female employees so as not to lose good talent. Once senior management start looking at goodness as a business resources, the DNA gets a healthy organisational body to grow in.

The second is continuous culling of employees whose DNA do not match that of the firm. Nature has a wonderful way of ensuring that the strongest of the species survive. A tigress instinctively knows which of its cubs have a stronger chance of survival and focuses its resources on these. This may sound cruel to people uninitiated into the ways of nature, but for the species it ensures survival. I would apply the same principle to the survival of the species called the Ethical Employee. Employee evaluation and other HR practices need to be re-engineered to deliver this objective, and gradually over a period of time you start having an employee mass that shares a common vision on Ethics. This is a tough task, and may need talented and senior people to be asked to leave. However, firms that have built a strong Ethical DNA do this all the time.

The third is ethical training. I do not mean the standard training methods of workshops and other dissemination exercises. I believe 75% of ethical learning happens by observing what the superior does in a given situation. Employees watch these situations far more closely than the superiors realise. Let's look at a caselet. A Production Foreman goes to the Production Manager and tells him that a particular batch of product is marginally outside the quality parameters and could this be allowed to pass as it would help them meet their month targets. In this situation, the entire shop floor is watching what decision the Production Manager takes. If he says 'yes', it sends a message that the Code is flexible. If he says 'no' it sends a strong message that it is not malleable. There is no amount of class room training that can impart the learning of a single instance like this. Hence I strongly advocate that the Code training for line managers and supervisors be focussed sharply on what I call the "demonstrative effect" of their actions. One can easily realise how this third attribute is closely related to the second attribute of DNA articulated in the previous paragraph.

Building an ethical DNA is tough work. It means a DNA that covers a wide spectrum of behaviours - from lofty goals like not taking short-cuts in meeting business targets, to seemingly not so lofty goals like making payment to your canteen service provider on time. Most companies fall somewhere in the middle, because business targets are too critical to miss and the canteen contractor too small to bother about.