I read with great interest this week a study called “Actions Speak Louder Than Words,” which purports that companies need to take steps to make sure an ethics policy is something they are living, not just giving lip service to. This includes balancing self-interest with community interest and having company leaders serve as ethical role models.
The study was written by Valparaiso University (my alma mater) business professors Dr. Michael McCuddy (a former professor of mine), Dr. Karl Reichardt and Dr. David Schroeder.
The paper was recognized by the International Journal of Business and Economics has named the research the best ethics or business law paper in 2007 and offers empirical evidence that the presence of a written code of ethics and, more importantly, its effective implementation, does promote business success and a positive organizational reputation.
Dr. McCuddy and his colleagues surveyed thousands of accountants between 1994 and 2000 to determine the
short- and long-term impact of both written ethics codes and the effective implementation of ethical practices. In his analysis of the survey responses, Dr. McCuddy said the presence of a code of ethics and ethical effectiveness explained six to seven percent of the variance in organizational success.
Dr. McCuddy said, “Since the margin between success and failure can be quite slim, ethics could be the solution to having the margin fall in the company’s favor.”
Moreover, ethical effectiveness was deemed a more important factor in a company’s short- and long-term success and reputation than merely having a code of ethics. When a code of ethics and ethical effectiveness were significant predictors of short- and long-term success, Dr. McCuddy said the correlation for ethical effectiveness was 3 to 10 times larger than the correlation for code of ethics. The disparity in company reputation was even greater, with the correlation for ethical effectiveness 13 to 26 times greater than for code of ethics. “With respect to ethics explaining both short-term and long-term success, actions do speak louder than words,” Dr. McCuddy said.
Ethical effectiveness was measured by respondents rating how effective their employers were with respect to seven practices, including providing ethics training, conducting daily operations in a manner consistent with its ethical standards, consideration of ethical standards in making long-term decisions and rewarding ethical actions.
To make an ethics code more than window dressing, Dr. McCuddy said companies should take four actions:
1. They need to look inside themselves and balance self-interest with community interest.
2. Leaders throughout the organization have to become authentic role models to the rest of the workforce, putting into practice that balancing of self-interest and community interest.
3. Then companies must foster and reinforce an organizational culture that creates expectations of everyone doing what is fair, right and just, and
4. Make sure the organization’s rewards system is in alignment with its vales and ethics.
What are the actions of your organization “saying”?
