This year, I celebrated my 10th anniversary in the ethics business. As I passed this milestone, I reminisced about some of the early challenges I faced as a new vice president of business ethics and compliance for a multinational company based in Connecticut.
I had many successes leading the effort to build the firm's new compliance function. We published its first code of conduct, started a comprehensive online training program and set up an ethics hot-line, among other things. But, one thing that continues to haunt me is my failure to respond effectively to an ethical challenge just a few months on the job.
It all started when our vice president of purchasing stopped by my office and asked if I had a minute to discuss an ethics issue he was struggling with. I motioned to a chair and he took a seat. He then proceeded to explain the company was systematically slow paying its suppliers, in violation of agreed-upon 45-day payment terms. He thought this was both unethical and shortsighted because the practice was in violation of our contracts, it was causing serious harm to our reputation and it was placing a significant hardship on many of the smaller suppliers, some of whom had not been paid for six months. He further explained that some of the larger companies who supplied critical raw materials had put us on a cash-only basis.
I began to quietly look into what was going on. I started by talking with several people in our accounts payable department. What I saw and heard wasn't pretty. The colleagues I spoke with were very stressed out and were getting frequent, angry and sometimes vulgar phone calls from suppliers demanding to be paid. They had been given no instruction about how to handle such calls and were not sure what to say because they did not know why payments were not being made nor when checks would be cut.
My next stop was to see the company's treasurer. He confirmed that the slow payments were part of a deliberate business strategy to manage a severe cash flow problem. He said the company could not pay all the suppliers on time and also pay employee salaries and principal and interest on its debt. He also expressed genuine concern about whether the company was going to be able to avoid bankruptcy. He made the case that he was taking reasonable steps to make the best of a bad situation.
When I left the treasurer's office, I wasn't entirely convinced that we were doing the right thing. In fact, I believed that deliberately withholding payment from those who were in a weaker bargaining position (because we could get away with it) and continuing to purchase supplies on terms we never intended to honor was both unethical and illegal.
But at the time I did not know what steps to take to engage the company leadership in a serious discussion about more ethical alternatives. They all obviously knew what was going on and tacitly or expressly approved of it. So, I went back to the vice president of purchasing and discussed my findings, but told him that it was not my job to tell the CEO and others on the executive team how to run the company. I regret that I yielded to the prevailing winds in the organization and went along to get along instead of finding an effective way to help the company chart a more ethical course.
I now have a better idea of how I might do this because of the groundbreaking work Mary Gentile and others are doing in hundreds of business schools and businesses around the world to teach business executives a pragmatic approach to acting on their values. For more information regarding this approach, I recommend Gentile's book, "Giving Voice to Values."
Instead of describing her methodology here, let me outline what it might have looked like had I applied it in the situation described above.
First, I would have obtained more facts by diving into our books and speaking with the treasurer, the chief financial officer and their staff to really understand our firm's financial position. Then, rather than posing as the company's high priest of goodness and preaching that our current practices were unethical, I would have tried to engage my colleagues in answering a simple question: "If we wanted to take a more honorable approach in paying our debts, how would we do it?"
This might have led to an exploration of many alternatives like restructuring our debt, forgoing plant expansion or business development projects and bonus payments, making at least partial payments to our suppliers or contacting those owed money and re-negotiating terms with a defined payment schedule. At the very least, we could have worked together to draft a script for our poor accounts payable colleagues to help them respond honestly to irate suppliers who simply wanted to know when they were going to be paid.
After exploring these options, together we could have developed a plan and brought it to the rest of the executive leadership team-with the object of reaching a consensus on a path forward of which we could all be proud.
It's too late for me to know whether my efforts would have been successful. But it's not too late to take such actions the next time unethical business practices spring up at work.
Don't miss the chance to give voice to values the next time you're in a position to make a difference. When you know the right thing to do, find a way to get it done.
Jim Nortz served on the board of directors of the Ethics and Compliance Officers Association and is a member of the Rochester Area Business Ethics Foundation. The opinions expressed in this article are his alone and may not reflect those of the ECOA or the RABEF. For more information about the RABEF, go to www.rochesterbusinessethics.com. Nortz can be reached at firstname.lastname@example.org.
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