7 Keys to Ethical Leadership

The company calls them “stretch goals” and “necessary to the growth of the business”. Employees call them “unreasonable”, “unattainable”, and “unfair” but when they come to that fork in the road – doing the right thing for the client or meeting quotas to save their jobs – they take it[1]. The court systems have wavered between acceptance of Wells Fargo’s practices and dismay that anyone would even consider them.

Tellingly, Wells Fargo let go of about 5,300 employees, none of them at a senior level. Wells Fargo’s CEO, John Stumpf, is still employed[2] and the company’s former head of Community Banking, Carrie Tolstedt, elected to retire and was given a substantial reward for 30 years of services rendered.

While consumers were directly affected by Wells Fargo’s activities – both by paying unnecessary fees on products they did not purchase and having their credit ratings compromised – top management has not been held accountable, nor have they held themselves accountable, for this breach of fiduciary responsibility and consumer trust.

It is true that Mr. Stumpf was called before Congress to explain his company’s lack of ethical behavior and trustworthiness, but that hearing is unlikely to result in action against the company or the perpetrators. Congress has its own litany of ethical shortcomings, including a decades-long fealty to banking and investment businesses. For instance, how many bankers and investment managers went to jail for activities[3] that either led to or exacerbated the recession of 2008-2009?

The point is that we have plenty of regulations, standards, and guidance documents to require, indicate, or suggest what organizations, and their employees and contractors, should do, yet moral flexibility[4] continues to be a serious problem.

There are several corrective actions Wells Fargo, and other companies in a similar position, need to take immediately:

  1. Do away with unreasonable quotas. Drive out fear[5], in other words. Employees should never have to make Faustian bargains.
  2. Establish and maintain SMART[6] In other words, do not promise what you know is impossible (e.g., profits/dividends will never go down)
  3. Put the customer before every other stakeholder.
  4. Define culture (e.g., what is considered “ethical” behavior) at the top of the organization, primarily through top management actions.
  5. Clearly define responsibilities – and penalties for failure to accept responsibility – for every role in the organization, especially for senior management roles.
  6. There is no such thing as a “win/win/win” for everyone. Manage risks appropriately – develop and implement effective risk management practices and continually review them for effectiveness.
  7. Follow ISO’s seven quality management principles[7].

Many companies, most of them small organizations, are already doing these things without giving the matter much thought. They are often helmed by ethical leaders, though it is also more difficult to get away with “ethical lapses” in smaller firms. Because of the size and complexity of ultra-large corporations, the line between “ethical” and “unethical” is often blurrier and, therefore, more easily crossed over.

One solution is to prevent mega-mergers, but that’s not likely to happen soon (if ever). Potential record-breaking mergers can and should be subjected to much, much greater scrutiny and held to a higher standard than small-company mergers.

Companies can also manage themselves in accordance with accepted standards, such as ISO 9001:2015. What are some others?

FOOTNOTES

[1] Sincerest apologies to Lawrence P. “Yogi” Berra, whether or not he said what he said.

[2] As of September 27, 2016.

[3] Examples include selling subprime mortgages and subsequently foreclosing on subprime borrowers.

[4] From “Grosse Pointe Blank” (1997).

[5] One of W. Edwards Deming’s “14 Points” (https://www.deming.org/theman/theories/fourteenpoints).

[6] Specific, Measurable, Achievable, Relevant, and Time-limited objectives.

[7] Read the ISO document, “Quality Management Principles” (http://www.iso.org/iso/pub100080.pdf).

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Posted in Business ethics, Leadership, Quality management, Risk Management

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