Recently, I was reading a story about Dennis Kozlowski, former CEO of TYCO who is serving a prison term for stealing from his former employer. Kozlowski had asked the parole board for mercy (early release), which was denied. While he is serving this sentence because of criminal acts, it raised again for me the importance of practicing ethics in business and in life.
At the time Kozlowski was brought to trial for his misdeeds, the media was filled with other examples of ethics/criminal violations. Remember Enron? They were the so-called ‘smartest guys in the room’-- Kenneth Lay, Jeffry Skilling, et al., who convinced employees and others to put their retirement and investment dollars in Enron stock. A lot of unethical folks went to prison, but the victims—the employees and the shareholders only got minimal restitution. The highly regarded audit company, Arthur Anderson, folded because they failed to catch the accounting games that led to the inflated stock prices and the ultimate failure of the company. Enron brought about the Sarbanes-Oxley legislation
How are ethics different from laws?
Laws are societal rules passed by governmental bodies (countries, states, cities, etc.) and generally enforced with various penalties—fines, prison time, community service, etc. Ethics are rules of conduct and approaches, adopted by and sometimes enforced by groups, associations, companies, etc. While ethics violations don’t carry the same penalties as laws, they often affect employment, licensure, reputations and association memberships.
Sometimes, laws and ethic overlap, but as has been often noted, adherence to ethics may require actions that meet higher standards of behavior and morality than just meeting legal requirements. Adherence to both law and ethics has been stated as meeting the ‘spirit of the law’ as well as the ‘letter of the law’. Companies often have rules that must be met, but these rules may allow individuals to cheat because the employees are on an honor system. For example, a company might set a per mile rate for using one’s own vehicle for company business. While the employee must not charge the company more per mile than the limit, he or she is allowed to report the number of miles traveled each month. Many employees report the exact number of miles traveled (following the letter and the spirit), while some may ‘fudge’ by adding miles not traveled (following the letter of the rule, but also committing a crime and not following the spirit of the rule). This same ethical situation is presented when hourly employees are on their honor to fill out time cards or time sheets on hours worked. The opportunity to falsify actual time is present and can be tempting.
Why do we make ethical mistakes?
In the examples above where trust is given to employees to be honest and forthright and they turn in false amount of business mileage or hours worked, we could conclude that the employee is at completely at fault. While these examples are both criminal and ethical challenges, there may be more to the situation than meets the eye. For example, do we know how is business conducted within the organization? Are there other examples of people ‘fudging’, cheating or being unethical? Do those in management exaggerate business expenses or flaunt their power or privileges? Do employees in general feel they are fairly or unfairly compensated with pay and benefits? Are employees asked to not report overtime worked? While examples of others being unethical does not mean that it’s acceptable, but we know from experience when leadership sets bad examples others will often follow their lead.