An ethical resolution

OUT OF THE BOX

Stonyfield Farm, the world's largest producer of organic yogurt, is a classic example of pure profit leading to unadulterated success. The New Hampshire-based company uses only certified organic ingredients, and no matter what the pressure on margins, buys milk only from those farmers who pledge to not use growth hormones in cattle.

Instead of expensive multi-media campaigns, it supports socially relevant projects. Turns out, Stonyfield's do-good management style churns the bottomline well.

For the past 10 years, the company has consistently enjoyed a compound annual growth rate of 23 per cent. At a recent gathering at Columbia's School of Business, Gary Hirshberg, president and CEO of Stonyfield Farms, told students: "This whole notion of doing well by doing good is, in fact, a powerful business strategy."

It's a lesson CEOs need to take to heart in 2004. In fact, smart leaders will put ethics management right on top of their to-do list this year. The reason is that ethics is suddenly morphing from a public-relations necessity to a competitive advantage compulsion.

Smart companies are suddenly realising that if they implement ethics well "" and are seen to implement ethics well "" they have a unique holier-than-thou strategy for setting themselves apart from their peers.

What are the pioneers doing that is unique and fresh? That answer will become clearer by the end of January, when Paris will host the first ever pan-European meeting of managers who are responsible for ethics, business conduct and compliance in their organisation.

The goal: to articulate, share and codify the emerging best practices in ethics.

Some of the changes are easy to predict. Just as the Internet era spawned the title of the chief knowledge officer, the period of corporate malfeasance is adding a new box to the top tier of the organisation chart. The new designation on top-job sites: chief ethics officer.

Dell already has one, so do Bertelsmann and MCI of the former inglorious Worldcom fame. Unlike the ethics officers of past, this time, the designation comes with clout. The chief ethics officer has a direct reporting relationship to the CEO, and more importantly, a direct and frequent reporting relationship with the board of directors.

There are variations on the chief ethics officer theme. According to the Ethics Officer Association (EOA), a non-profit US organisation set up in 1992, EOA members have more than 100 different titles.

Of these, 35 per cent have "ethics" in the title and 37 per cent have "compliance" in their title. What is important is not the designation but the duty that goes with the job. While the role of an ethics officer was to educate and inform employees about the company's code of conduct, the new job description involves building ethics into the very DNA of the organisation. Chief ethics officers are organisation culture builders.

Another new trend: employees are no longer given a brochure listing the dos and don'ts. Instead, companies are exposing employees to ethical dilemmas and immersing them in situations where their sense of right and wrong is challenged. The training tools range from case studies, training videos, which dramatise ethical conflict situations, and live training sessions with role-plays.

Tyco's Guide to Ethical Conduct, which can be accessed at www.tyco.com, for example, doesn't just serve out homilies to employees. It highlights real life conflict situations that illustrate the complexity and responsibility of making the right choice.

One sample poser on fraud that Tyco's 270,000 employees have to wrestle with, reeks of former CEO Dennis Kozlowski's fuzzy values: "Jordan's client takes him out for dinner after he makes a sales presentation at the client's company. Jordan then expenses the same $ 65 dinner."

Ethics management in 2004 is, therefore, all about awakening the conscience rather than educating the conscious. Predicts C Lee Essrig, director of Global Initiatives at EOA: "This year, organisations will be matching ethics and compliance programmes with a thorough risk assessment. There will be a real commitment into building ethics into the corporate culture; it won't just be a code. And more and more organisations will seek to measure effectiveness of their ethics programme.''

The EOA is taking some bold steps in that direction. In what could be an exciting paradigm-shift, the association is exploring the feasibility of developing a global Business Conduct Management System (BCMS) standard through the International Organization for Standardization (ISO).

These would be a set of guidelines for corporate ethics much along the lines of ISO 9004 and ISO 14004 "" the two globally-renowned management system guideline standards for quality and environmental management, respectively.

The strategic implications are significant: like the ISO 9004 and 14004 certification, the ISO standard on ethics would set apart those companies who truly believe in and practice ethics, from those who merely advertise that they do so. Which is why, the sooner you hitch on to this bandwagon, the better it is.

For, according to the EOA, the standards might be ready as soon as in three years. As Stonyfield's Hirshberg would attest: if you want to do well by doing good, start in good time.