Professional Documents
Culture Documents
Access to this document was granted through an Emerald subscription provided by emerald-srm:277069 []
For Authors
If you would like to write for this, or any other Emerald publication, then please use our Emerald for Authors service
information about how to choose which publication to write for and submission guidelines are available for all. Please visit
www.emeraldinsight.com/authors for more information.
About Emerald www.emeraldinsight.com
Emerald is a global publisher linking research and practice to the benefit of society. The company manages a portfolio of
more than 290 journals and over 2,350 books and book series volumes, as well as providing an extensive range of online
products and additional customer resources and services.
Emerald is both COUNTER 4 and TRANSFER compliant. The organization is a partner of the Committee on Publication
Ethics (COPE) and also works with Portico and the LOCKSS initiative for digital archive preservation.
usiness managers often ask, “Is a business ethics program the same as a Sarah Enciso,
B
Downloaded by UNIVERSITY OF TOLEDO LIBRARIES At 02:43 28 November 2017 (PT)
compliance program?” When shown the differences between the two and the Carlson Milikin and
importance of each to large and complex organizations, those same managers James Scofield O’Rourke
are all based at the
frequently reply, “If we’re in compliance with the law, why do we need an ethics code?”
University of Notre Dame,
Good question.
Notre Dame, Indiana,
The purpose of this paper is to examine both the nature and the value of ethics programs USA.
and the codes which frequently accompany and animate them. It further explores the
benefits derived from effective communication of these programs, both internally and
externally to a wide range of stakeholders, as well as what can and often has gone wrong
when ethical values neither support nor guide business behavior.
Do ethical codes matter? Let’s look at the effect a program had on the success of one
company in the marketplace. On February 21, 2017, Tom Linebarger, Chairman and Chief
Executive Officer (CEO) of Cummins, a $19 billion global leader in diesel and
alternative-fuel engines headquartered in Columbus, Indiana, stepped forward to
announce the creation of an independent ethics and compliance organization led by a
corporate officer. “Acting in accordance with our Code of Business Conduct is the
responsibility of every employee at Cummins and the creation of this new ethics and
compliance organization does not change the primary accountability each of us has to live
Cummins’ values in every aspect of our work,” he said. (Linebarger, 2016)
The company’s ten-point Code has been in place for several decades, but the new
organizational commitment to compliance and code enforcement is striking in both its
breadth and depth. “Our company’s strong ethical reputation and business success”, said
Linebarger (2016), “have been built on doing what is right and doing what we say we will
do. That is why integrity is one of our company’s core values”.
He went on to underscore the importance of the document, saying, “Our Code of
Business Conduct forms the backbone of our commitment to ethical behavior. This
document serves as a values-based compass that guides me, our leaders and every
one of our employees in the decisions we make and the actions we take each day”.
(Linebarger, 2016)
A document distributed to all Cummins employees (and publicly accessible on the Internet)
emphasizes that “The 10 Ethical Principles that make up our Code explain how we should
conduct ourselves, how we should treat others and how we should do business”. That
same document also includes references to relevant policies, provides examples and
includes questions and answers to help clarify our expectations. “Perhaps most
importantly”, Linebarger (2016) says, “it points out where you can turn for help when you
have questions or concerns”.
DOI 10.1108/JBS-01-2017-0001 VOL. 38 NO. 6 2017, pp. 69-79, © Emerald Publishing Limited, ISSN 0275-6668 JOURNAL OF BUSINESS STRATEGY PAGE 69
The value of the Code of Business Conduct to Cummins, its employees, investors, business
partners and customers is made clear in regular statements from the company’s most
senior officials. Linebarger (2016), speaking directly to employees, said “We operate in a
complex and ever-changing world where new laws and regulations that impact us are
introduced almost every day. My leadership team and I want you to raise issues and ask
questions when something doesn’t seem quite right or when you don’t know what to do”.
His instructions are unmistakable, “At Cummins, you are empowered and expected to do
the right thing and to ask for help when the right thing is not so clear” (Linebarger, 2016).
In other large and complex organizations, the way forward has not been as clear, largely
because guidance and leadership have been absent. Recent examples are numerous,
including Volkswagen engineers devising software intended to defeat carbon emission
rules in the USA and the European Union (Ewing and Boudette, 2017) or retail bankers at
Wells Fargo, fraudulently opening multiple accounts for retail customers without their
knowledge or permission (Egan, 2016).
An ethical failure
Downloaded by UNIVERSITY OF TOLEDO LIBRARIES At 02:43 28 November 2017 (PT)
there’s this life-saving medicine that I needed, and I couldn’t afford it” (Koons and Langreth,
2015).
People with severe allergies depend on EpiPen and tend to purchase multiple extras,
although their EpiPen supplies will expire because of the limited shelf-life of epinephrine.
Insurance covers only a fraction of the expense, exposing those most at-risk to hefty
out-of-pocket outlays. The price increase of EpiPens cannot be attributed to inflation;
neither does it reflect increasing production costs (Carroll, 2016). The elevated pricing and
Downloaded by UNIVERSITY OF TOLEDO LIBRARIES At 02:43 28 November 2017 (PT)
the dependent patient consumers created an uproar and damaged Mylan’s reputation.
Codes of ethics
Corporate ethical codes have received increasing levels of attention in the past decade,
especially following the 2008 financial crisis and consumer fears of corporate scandals.
While concern for “justice” is hardly a new concept, J.C. Penney drafted the earliest
published ethics statement for use in his outlets, which he called “The Golden Rule Stores”.
Penney’s 1913 statement included seven points, summarized in its ending question: “Does
[every policy, method, and act] square with what is right and just?” (Kruger, 2017).
Fast-forward to the twenty-first century and consumers applaud any corporate ethical
statement that includes “major philosophical principles” as well as a set of values to guide
the firm’s actions (Murphy, 2005).
Mylan, in recognition of the importance consumers place on ethics, adopted a code that
opens with a letter from CEO Heather Bresch: “At Mylan, we are committed to setting new
standards in healthcare. Working together around the world to provide 7 billion people
access to high quality medicine, we innovate to satisfy unmet needs”. This statement
contradicts the accelerated EpiPen price increases, which cannot be explained by inflation
or increasing costs. In fact, the prices were fast-approaching prohibitive levels, the
opposite effect from providing “access to medicine”. Mylan’s ethics statement continues
with an explanation of its core values, including their value of service, which they define as
doing “[. . .] whatever it takes, work ‘round the clock, cross any river and spare no effort –
all to meet someone’s need” (Mylan, Code of Business Conduct and Ethics). Unfortunately,
Mylan appeared unwilling to place “someone’s need” above their own profitability.
The nation reacted strongly to the Mylan EpiPen scandal. A variety of factors stimulates
negative consumer reactions, including advertising strategy, environmental concerns,
foreign affairs, local concerns and business-to-business transactions. In the case of
EpiPen, people perceived Mylan as taking advantage of a vulnerable population (people
with severe allergies). They considered Mylan’s price fixing (artificially inflating prices) in
conjunction with the medical “lock-in” created by the need to continually replace EpiPen as
unethical and deeply shameful (Brunk, 2010).
Are ethics codes merely words? Clearly, not adhering to a code of ethics has serious
external ramifications. In the case of Mylan, the company lost respect and was forced to
change its business strategy. An unethical business environment has been linked to poor
employee performance and reported feelings of alienation from work. While implementing
and sustaining an ethical corporate culture may seem daunting, some companies have
received recognition for excellent, ethically commendable business strategies.
Expectancy theory
Downloaded by UNIVERSITY OF TOLEDO LIBRARIES At 02:43 28 November 2017 (PT)
Expectancy theory forms the basis of a two-part management model. The model would
have chief executives teach moral theory first. Then, the model encourages executives to
create an environment that rewards ethical actions. Three factors shape expectancy
theory: effort-performance expectancy (“E-P expectancy”), performance-outcome
expectancy (“instrumentality”) and valence.
Part 1: Teaching
At the most basic level, writing and presenting a code of ethics begins to create an ethical
business environment. After a code of ethics has been drafted and approved, the
statement should be shared with employees. Training sessions may be needed to teach
basic ethical principles. The most effective training programs encourage active
participation, as exemplified by Citibank’s board game The Work Ethic, which utilizes 100
case-based questions that describe issues relevant to the banking industry. Teams of
employees discuss the ethical dilemma, vote between four imperfect solutions, and then
receive scores based on their choices. “I hear and I forget; I see and I remember; I do and
I understand” Citibank stated in an explanation for the effectiveness of the game in
teaching moral theories (Fudge and Schlacter, 1999).
Effort-performance expectancy, which forms the heart of teaching ethics, is the individual’s
perception that his or her effort positively correlates with performance level. Employees
who believe that attempts to act ethically will result in ethical behavior have a high E-P
expectancy, whereas employees who feel that attempts to act ethically are futile have a
very low E-P expectancy.
deliverable, I will not receive recognition for my work”). Valence refers to the value placed
on a reward. When creating an ethical environment, employees must understand that if they
act ethically, they will receive a reward they value (Fudge and Schlacter, 1999).
Henry Schein understands the significance of recognizing employee actions, which
increases employee instrumentality. Henry Schein boasts one of the best fringe benefits
programs in the industry. Additionally, internal promotions are common and expected. For
example, Peter D. rose from a warehouse picker to Vice President (VP) of Infrastructure
Administration in his 33 years at the company. According to Rich Miranda, VP, Chief
Downloaded by UNIVERSITY OF TOLEDO LIBRARIES At 02:43 28 November 2017 (PT)
Administrative and Operations Officer for the Global Dental Business, “Managers are
always on the lookout for people looking for new opportunities [. . .] We want managers to
focus on internal promotion opportunities, so they know it and look for it”. Henry Schein
employees understand that good work will result in promotion and reward; thus, they have
a high degree of instrumentality (Henderson et al., 2014).
Henry Schein also ensures that the reward structure appeals to its employees. Sometimes,
this entails direct questioning. In one instance, a junior colleague expressed a desire to
work abroad. Within two weeks, she had been promoted to a new position in Australia.
While employees are expected to work hard, each Schein location is also expected to have
avenues for fun. Once a year, all offices participate in “Theme Day”, a day for team
members to dress up for work to reflect themes like “superhero”. Theme Day remains
optional, but most employees look forward to the team-building experience and show
enthusiasm and support for the concept (Henderson et al., 2014).
The last piece of expectancy theory is follow-through. Linking behavior to outcome will
reinforce ethical behavior as well as deter unethical decisions. In other words, performance
appraisals should reward ethically motivated actions, whereas dismissals should follow
ethics violations to underscore the company’s serious commitment to ethics.
Reinforcing cultural values relies on unique, company rituals and requires frequent
assessment. Henry Schein’s unique differentiators include “Theme Day”, in addition to a
company-specific “broken record”, a mantra repeated over and over to solidify company
beliefs (“Business” 2002). Henry Schein’s highly repeated phrase is “do well by doing
good”. To assess the reception of company culture, Henry Schein performs a cultural
assessment every two years. In 2006, the company recognized that management needed
a clearer understanding of the global reach of Schein culture. By 2012, 90 per cent of
employees were participating in the voluntary, 73-question survey. Following the survey,
each team was required to create actions plans intended to raise survey scores. Schein
relies on the survey to assess new acquisition partners, who are expected to develop the
company’s consensus and participatory model. If acquisitions cannot “live and breathe”
the Schein culture, the partnership will not last (Henderson et al., 2014).
Who is communicating?
Two types of companies communicate corporate ethics: proactive companies and reactive
companies (Schlegelmilch and Pollach, 2005). Proactive companies position themselves
as ethical and seek to differentiate their brand using corporate values. Reactive
companies, on the other hand, fail to engage in ethical discussions until corporate scandal
negatively affects their image.
Henry Schein acts proactively by engaging with their community. Their major platform,
“Henry Schein Cares”, works to expand access to care for at-risk populations across the
world. For example, their global donation program provides healthcare products and
supplies to community health clinics and non-governmental organizations (NGOs).
Bergman believes that the Henry Schein value “is our ability to quickly assemble life-saving
health care products and to expedite shipment to our NGO partners on the ground”. The
key component of Henry Schein charitable actions is their participation, beyond just writing
a check for the funding. In a partnership with the American Dental Association’s Give Kids
a Smile program, Schein worked to recruit a roster of supply partners to donate items.
Schein’s Back to School program pairs Schein employees with local children to provide
new clothes, backpacks and supplies. Finally, the Schein Holiday Cheer platform
purchases presents and gives them to children at a company party during the holidays
(Henderson et al., 2014).
Mylan, on the other hand, represents a reactive company. They continued to increase
Downloaded by UNIVERSITY OF TOLEDO LIBRARIES At 02:43 28 November 2017 (PT)
EpiPen prices until consumer backlash rose to a level where they were forced to release
statements regarding EpiPen affordability. Mylan insisted they would change the
coverage options and began work on a generic, half-price alternative.
Conclusion
Ethical cultures attract business partners and consumers alike, thus safeguarding
long-term performance success. In rewarding ethical actions, punishing transgressions
Downloaded by UNIVERSITY OF TOLEDO LIBRARIES At 02:43 28 November 2017 (PT)
and modeling appropriate company behaviors, management can migrate from ethical
words to ethical actions.
A sample code
An ethics code addresses universal issues, including legal compliance, workplace issues
(child labor, non-discrimination and harassment), environmental concerns, community
involvement and social media presence. A diversity of firm types can, therefore, adopt a
similar core ethics program. The rest of the code of ethics should address more
firm-specific issues, such as political contributions, code of dealing, financial statements
and responsible communication. Any additional issues reflect industry-specific concerns,
and for this reason, management must use discretion in deciding which standards to
emphasize (Chalmers, 2015). See below for sample sections of an ethical code, written for
a general business model:
Legal compliance
The firm will adhere to all applicable local, state and federal laws. In situations lacking
existing legal precedent, the firm will conduct business operations within the scope of the
ethics policy.
Workplace
To ensure consistent company performance, management will provide the workforce with
adequate incentives and opportunities for success. Management must commit to creating
an honest, trusting and fair environment for all employees.
Child labor
Child labor is never allowed. The International Labor Organization defines a child as
someone who is younger than 15 years of age and, therefore, ineligible for employment
(Chalmers, 2015).
Non-discrimination
Employment decisions, such as compensation, training, discipline and termination, will
depend on employee performance. Such decisions may not be made based on ethnicity,
race, class, religion, gender, age, sexual orientation and political opinion.
Environment
The firm will observe all laws, local, state and federal, concerning environmental regulation.
The firm will work with its partners and service providers to uphold ethical environmental
regulation. The firm will commit to minimizing its impact on the environment while
maintaining product quality.
Community
The firm will give back to the communities that it affects. The firm will encourage employees
to volunteer within the community during work hours without sacrificing wages.
Social media
Social media have the potential to build a strong brand name; however, the firm will carefully
Downloaded by UNIVERSITY OF TOLEDO LIBRARIES At 02:43 28 November 2017 (PT)
monitor employees’ social media activity. Employees will not release personal opinions on
behalf of the firm. Employees will not broadcast private details about the firm on social media
platforms. Employees will not attack or degrade other people on social media.
Political contributions
Direct or indirect contributions by the firm to any political candidate, party or organization
are strictly forbidden, even if local laws permit such contributions. Political contributions
must approve any political contributions for such contributions to be ethical.
Code of dealing
If the firm is a publicly traded entity, it must ensure equal treatment of all shareholders by
disclosing the same information at the same time. This ensures that people do not
preferential receive information that could significantly affect the price of firm shares.
The firm’s employees cannot:
Deal in shares when the employee has attained inside information.
Deal in shares during the period of 15 calendar days preceding any financial results
announcement by the firm (Chalmers, 2015).
Communicate inside information to third parties unless it falls within the employee’s job duties.
Recommend an individual or third party to deal in the firm’s shares based on the employee’s
inside information.
Any violation of this code of dealing can result in severe disciplinary action by the firm as
well as the indictment of criminal charges that will give rise to civil liability.
Carroll, A. (2016), “The EpiPen, a case study in health system dysfunction”, The New Health Care: The
New York Times, New York, NY, 23 August.
Egan, M. (2017), “5,300 wells fargo employees fired over 2 million phony accounts”, CNN Money,
available at: http://money.cnn.com/2016/09/08/investing/wells-fargo-created-phony-accounts-bank-
fees/September9,2016 (accessed 28 April).
Emanuel, E. and Gudbranson, E. (2016), Don’t Only Blame Mylan for $600 EpiPens., Fortune Insider,
University of Pennsylvania.
Ewing, J. and Boudette, N.E. (2017), “As VW pleads guilty in US over diesel scandal, trouble looms in
Europe”, The New York Times, 10 March, B-1.
Downloaded by UNIVERSITY OF TOLEDO LIBRARIES At 02:43 28 November 2017 (PT)
Fudge, R.S. and Schlacter, J.L. (1999), “Motivating employees to act ethically: an expectancy theory
approach”, Journal of Business Ethics, Vol. 18, pp. 295-304.
Henderson, R., Sesia, A., Eisenstat, R.A. and Sadun, R. (2014), “Henry Schein: doing well by doing
good?”, Harvard Business School450th ser. 1.714, Harvard Business School Publishing, Boston.
Koons, C. and Langreth, R. (2015), How Marketing Turned the PeiPen into a Billion-Dollar Business,
Bloomberg BusinessWeek, Bloomberg Business.
Kruger, D.D. (2017), “Becoming J. C. Penney”, J.C. Penney: The Man, the Store, and American
Agriculture, University of Oklahoma Press.
Linebarger, T. (2016), “A note from the chairman”, Cummins Code of Business Conduct, August.
Murphy, P.E. (2005), “Developing, communicating and promoting corporate ethics statement: a
longitudinal analysis”, Journal of Business Ethics, Vol. 62, pp. 183-189.
Schlegelmilch, B.B. and Pollach, I. (2005), “The perils and opportunities of communicating corporate
ethics”, Journal of Marketing Management, Vol. 21, pp. 267-290, doi: 10.1362/0267257053779154.
Further reading
Anonymous (2002), “Business: when something is rotten; corporate culture”, The Economist, Vol. 364,
pp. 53-55.
Anonymous (2016), “Henry Schein named one of world’s most ethical companies”, PRNewswire,
Cision, Chicago, 7 May.
Anonymous (2017), “Cummins creates new ethics organization”, Cummins Corporate Website, available
at: www.leegapower.com/cummins-creates-new-ethics-organization.htm (accessed 28 April 20170.
Mont, J. (2015), “10 people living the American dream”, TheStreet, 30 November.
For instructions on how to order reprints of this article, please visit our website:
www.emeraldgrouppublishing.com/licensing/reprints.htm
Or contact us for further details: permissions@emeraldinsight.com