Lessons From Enron — Ethical Conduct Begins @ The Top.

The recent scandals of such corporate giants as Enron and WorldCom clearly demonstrate that a firm’s leaders from the top-down directly and indirectly establish the ethical tone of their organizations. Organizational behaviorists including Rice’s Brent Smith argue that for employees to know what’s acceptable conduct within their organization they need only observe their supervisor’s behavior.

Leaders within all levels of an organization can have a profound effect on a company’s overall climate regarding ethics. As recent corporate scandals have shown, however, it is the top leadership whose actions directly and indirectly set the standard of behavior within their organizations.

According to Rice University behavioral scientist Brent Smith, this top-down approach to establishing a climate related to ethics begins with company leaders setting the example and is reinforced by consistent policies, practices, training and rewards throughout every level and within every function of the organization.

“Several factors influence members’ perceptions of an organization’s norms and expectations, but it is the organization’s leaders who play the primary role in creating climates regarding ethics,” says Smith, who heads Rice’s Center for Organizational Effectiveness Studies.

Smith and others argue that organizations whose leaders fail to set the standard for acceptable behavior risk outcomes like those experienced by Enron.

In an article published in the Journal of Business Ethics titled “Leaders, Values and Organizational Climate: Examining Leadership Strategies for Establishing an Organizational Climate Regarding Ethics,” Smith and co-authors Michael Grojean with the Aston Business School in Birmingham, England, Christian Resick at Florida International University and Marcus Dickson at Wayne State University recommend several tactics organizational leaders should use to implement desired climates regarding ethics.

Leaders, for example, have tremendous potential for inspiring members of their organizations to follow their vision and the values they have established. According to the authors, leader role models are the primary influence on individual ethical behavior, particularly among managers and supervisors. Leaders whose personal ethics and values do not support the organization’s values, for example, may signal other members of the organization that the company’s values are not important.

Smith and his co-authors also contend that in addition to role modeling, organizational leaders can convey the company’s climate regarding ethics through formal and informal policies, training, rewards and recognition. They cite surveys which show that 95% of all Fortune 500 firms have established codes of conduct, and many also offer ethics training to their employees.

“Coaching and mentoring around task-specific aspects of ethical conduct are important in reducing ambiguity among employees as to what constitutes appropriate behavior within the organization,” Smith says.

” Training top management teams also can foster more uniform understanding and consistent judgments among managers in the face of ethical challenges.”

Drawing on earlier studies involving personality traits, the authors suggest that leaders, particularly managers who interact directly with employees, should be aware of various personality traits that may help or hinder an individual’s ability to internalize the organization’s climate regarding ethics. For example, people who tend to have a more negative view of life are less likely to engage in pro-social activities, whereas individuals who are highly dutiful are more likely to engage in ethical behavior and help maintain ethical norms.

The authors also cite earlier management studies which show that leaders who encourage interpersonal competition among their subordinates risk increasing stress and group conflict, thereby weakening the bonds among those workers. Smith notes that such social integration has a powerful impact on ethical behavior in societies and organizations.

“Studies indicate that people are less likely to engage in unethical or anti-social behavior within an organization if its leaders foster a sense of attachment and trust among the organization’s members and support them for upholding standards of conduct,” Smith says.

In a similar way, leaders who serve in different capacities need to work in concert with one another by applying a consistent set of ethical standards.

“Ultimately, the core ethical values adopted by an organization are likely to be adopted by its members if they are consistently rewarded and encouraged to do so by leaders at every level,” Smith says.

An associate professor of management and psychology in Rice’s Jesse H. Jones Graduate School of Management, Smith is co-editor of Personality and Organizations . His research on personality issues in work organizations including the relationship between personality and organizational climate and culture appears in the Journal of Applied Psychology, Personnel Psychology, Human Performance and Leadership Quarterly. He has twice been the recipient of the Scholarly Achievement Award from the Academy of Management (HR Division) and recently received the Outstanding Publication in Organizational Behavior Award.

A graduate of the University of Tulsa where he received bachelor degrees in psychology and sociology, Smith earned his master’s and Ph.D. degrees in organizational psychology from the University of Maryland.

For more information at http://www.rice.edu