Restoring the Public’s Trust Means Following our Instincts

We know what we have to do.

Call it corporate accountability, business ethics, fair play, or simply doing the right thing. Most of us have an intrinsic sense that tells us what is right and what is wrong.

In Texas, when 13-year-old Robert Gann heard a mother’s screams in a parking lot after her baby had just been abducted, he knew he had to do something. Though he could not stop the abduction, he was able to punch out a window of the kidnapper’s car as it sped away. Then he rode to the police station to help develop an artist’s sketch of the woman who was driving the car. The sketch and the broken car window helped police identify the suspect, and the baby was returned unharmed.

The teenager, who had been meeting with his probation officer just before all of this happened, said, “It was the first time I ever rode in a cop car without going to jail.” Despite his troubled past, the boy still knew right from wrong. He acted instinctively to do what was right, and his actions helped nab a suspected criminal and return a baby to her mother.

Corporate executives also know right from wrong. While ethical lapses among business leaders are nothing new, they still represent the exception, not the rule. However, the recent epidemic of corporate scandals indicates that some of us have a serious problem balancing our moral instincts with the desire to make a profit.

Public opinion reflects the severity of the problem. In January, nearly 80% of those surveyed in a Business Week/Harris poll said that the CEOs of large companies put their own interests ahead of workers and shareholders. According to a survey released in June by U.S. Trust, an investment management and trust company, almost two-thirds of wealthy Americans do not trust the management of publicly traded corporations.

Fortunately, there are many things we can do to restore that trust. For one, we can improve and expand business ethics education. Ethics training can help people envision both the good and the bad consequences of their actions. It helps them determine appropriate responses to tough issues, and it creates positive peer pressure to do the right thing.

Unfortunately, so far business schools have failed to tackle ethics education in a practical way. Most schools have hired ethics instructors trained in the fields of philosophy and religion. Although these teachers are passionate and well meaning, they tend to stress moral absolutes and theoretical learning. Just how are we to discuss “deontology” or “utilitarianism” at tomorrow’s staff meeting?

Another problem is that companies have typically sought business graduates who have mastered the “harder” skills, such as finance, market research, and operations management. The “softer” skills, such as moral reasoning, have been deemed less useful. On the contrary, CEOs must master the soft as well as the hard skills to be truly effective as leaders of people and organizations.

It would be fairly simple for all of us to get practical about business ethics education. First, we can become students ourselves by reading some of the many fine books about corporate ethics. Second, we can develop our ethics muscle by talking to each other about it. Third, we can teach others the practical skills we master by volunteering to speak at schools, helping to shape the curricula of professional or trade associations to which we belong, or serving as a mentor to young people.

We can also probe harder when establishing new relationships, especially when hiring people. Let’s make sure that candidates possess more than just the technical skills needed to fulfill a role. Let’s interview for character as well.

Another way we can restore confidence is to raise the bar of expectations for all participants in our economic system.

Imagine a world where CEOs and other senior executives “walk the talk” when it comes to ethical leadership, where boards and their committees are engaged and objective, where analysts evaluate stocks fairly and independently, and where shareholders are more realistic about investment returns.

Then imagine a world where auditing firms view investors as their clients, where employees challenge suspect business practices, and where the media showcase positive behaviors, as well as continuing to expose negative ones.

While many of the new and proposed legal and regulatory reforms are steps in the right direction, they do not go far enough. Stiffer sentences should be dished out to white-collar criminals. The Financial Accounting Standards Board should do a better and faster job of clarifying how accounting practices, such as the expensing of stock options, should be handled. And share ownership should be more transparent, requiring institutional investors to disclose their proxy votes.

Of course, no law or regulation is a substitute for the personal commitment of honorable businesspeople to behave ethically. Without such commitment, we risk drowning our companies in a sea of rules. Free economies cannot advance if management’s discretion becomes too limited or formulaic.

Our task is to be explicit about the new expectations we all have for corporate accountability. Our standards should be well documented, well communicated, steadfast, and strong. Key decision makersu00e2u20ac”including elected officials, leaders of institutions such as the FASB and the Securities and Exchange Commission, and heads of professional and trade associationsu00e2u20ac”must play an active role in this effort.

Finally, there must be real consequences to go along with our standards. We should fire the dishonest employee or vendor. And we should reward those who routinely display ethical behavior.

Actions always speak louder than words. If we follow our instincts and let our inner moral compass guide our actions, then we will be able to regain the trust of investors and protect the interests of all of our constituencies. We know it’s the right thing to do. |BD|

Henry L. Meyer III is chairman and chief executive officer of KeyCorp, which was recently ranked by Prudential Financial as number one in corporate governance among 33 of the nation’s large-cap banks, based on the independence and accountability of its board and its external audit practices.