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Procedural justice is a key driver of business performance

By JIM NORTZ
Business Ethics - 1/7/2011

Many years ago, while serving as chief compliance officer for a company outside Rochester, I received a report of alleged misconduct involving several senior corporate officers, one of whom happened to be my boss. The allegations involved misallocation of company funds, falsified expense reports, epic alcohol consumption and a strip club.

As I began to formulate our investigation plan, the company's CEO, who was not implicated in the alleged scandal, came into my office and closed the door. He asked me, "If these allegations prove to be true, what would be the proper punishment for those involved?" In response I said we merely had an uncorroborated, anonymous call on our ethics hotline and were a long way from reaching any firm conclusions about what really happened, let alone deciding what actions might be taken against those accused of wrongdoing.

The CEO explained that he understood we would need to perform a careful investigation to determine what really happened, but he wanted to prepare for the worst. He wanted to think through what he might have to do if several key members of his senior management team were "guilty" as charged.

Early in an investigation, I am always reluctant to make what-if judgment calls because final recommendations are so fact-dependent and, as often as not, the allegations are groundless. Nevertheless, I gave my CEO a candid answer. I said that if we determined that senior corporate officers instructed subordinates to falsify expense reports to avoid scrutiny of a wild night on the town, we needed to treat them just like any other employee caught defrauding the company: They should be fired.

The CEO turned and stared out my office window in contemplation of what I had said. After a long pause he said, half to himself, "I'm not sure how I'm going to run this company without these guys."

Fortunately, it didn't come to that. Our investigation revealed conclusively that there had been no misallocation of company funds and no falsified expense reports; no one lost his job. But I have always admired this CEO's moral courage and commitment to procedural justice. He fully intended to treat senior managers the same as any other employee, regardless of the likely adverse impact on the company or his ability to keep his commitment to the board of directors to "make his numbers." Studies show that such a commitment to procedural justice is vital to business performance.

In a paper titled "Building Value-Based Cultures That Encourage Ethical Conduct and a Commitment to Compliance," Tom Tyler of New York University, John Dienhart of Seattle University and Terry Thomas of TRT Consulting set forth research results evidencing three benefits that companies derive from sound procedural justice practices.

The first benefit is that employees are more likely to follow rules if they view management as legitimate and managerial policies as moral. The second is that procedural justice is a powerful factor in employees' judgments that their management is legitimate and that management policies are moral. The third is that employees who believe their workplace is procedurally fair are more likely to go beyond their job descriptions to help their organizations.

Interestingly, the study found that the prime factor motivating employees to follow company policies was not risk associated with non-compliance but instead their assessment of whether the management team was worthy of respect.

These findings have several significant implications for business leaders who seek both high-performance teams and compliance with legal and ethical standards. First, reliance on traditional, policy-laden, command-and-control compliance programs is misplaced. Although policies and procedures are vital communication tools, it is far more important for managers to treat people with respect, be transparent in their decision-making and be fair in how they apply the rules to all employees, regardless of position in the company.

Second, managers must be acutely aware of how their behavior is being perceived by those they lead. People are incredibly sensitive to personal slights and perceived injustices. Employees may quietly endure a self-absorbed, thoughtless manager in order to keep their jobs, but at the same time they are likely to feel less inclined to follow company policies or "go the extra mile" to advance the company's interests.

Finally, the research findings regarding the importance of procedural justice provide insight into what managers can do to earn employees' trust and build high-performance teams. Specifically, Tyler and his co-authors advise that "managers can communicate that they are trustworthy by listening to their employees and, when implementing decisions, accounting for their actions by explaining how they have considered the employees, i.e., by acting using fair procedures."

The researchers hasten to add: "We are by no means advocating management's abdication of the responsibility to make decisions. We do, however, suggest that transparency in the process of decision-making will result in higher levels of employee buy-in and satisfaction."

Corporate leaders devote a significant portion of their time and attention to issues related to product quality, company finances, the competition, the market, suppliers, customer satisfaction, product development and other traditional indicators related to business performance. No business can expect to survive without a focus on such fundamental considerations.

However, as the Tyler study indicates, the most successful firms are likely to be led by people who also appreciate that companies are not machines. Instead, they are living, breathing, human organizations in which fairness and procedural justice are essential to acquiring the most valuable of all business assets-an ethical and engaged work force.

Jim Nortz is compliance director at Bausch & Lomb Inc. 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 Bausch & Lomb or the RABEF. For more information about the RABEF, visit www.rochesterbusinessethics.com. Nortz can be reached at (585) 260-8960 or james.a.nortz@bausch.com.

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