Ethical Guidelines for Undergraduates

Marianne M. Jennings, professor of business ethics at Arizona State University, discusses the underlying moral framework of ethical collapses in the history of business in the United States. She offers leaders succinct, practical advice on how to avoid ethical collapse by outlining seven signs that a firm is at risk. Her checks and balances can benefit publicly held and private companies, nonprofits and government agencies.

Jennings’s work is directed at an academic audience, but interested laypeople are welcome to attend. Her best-selling titles include Business Ethics: Case Studies and Selected Readings; Foundations of the Legal Environment of Business; and Business: Its Legal, Ethical and Global Environment. This book seems to be her attempt to offer ethical guidelines to a more general, less academic audience, and it mostly succeeds. 

Just because it’s legal doesn’t mean it’s ethical.Marianne M. Jennings

Jennings elegantly encapsulates seven symptoms every organization must avoid: excessive pressure to achieve financial goals; a culture that inspires employee fear and silence; the pairing of a young, obedient manager with an older, manipulative CEO; a weak board of directors; internal conflicts of interest among officers and directors; inflated confidence that an organization or a leader is special so the rules don’t apply; and the flawed moral logic that good deeds atone for evil ones.

She reminds readers that while pretty much every company exhibits one of these warning signs, that does not mean it will succumb to ethical breakdowns, but that it must be more vigilant immediately and straighten its crooked path.

Fast Solutions

Jennings asserts that companies that ignore unethical conduct share certain cultural traits and behaviors, such as manipulating their financial reports or postponing or poorly classifying expenses. Her solutions seem pretty basic, starting with teaching employees the difference between legal actions and ethical ones. The author also believes that firing one employee for an ethics violation scares everyone else into compliance for five years.

Fear and Silence

Jennings argues that employees need regular reminders and reassurances of their value. They also need anonymous channels they can use to share their concerns with company leaders. To encourage employees to voice their opinions, avoid firing dissenters, transferring them or blocking their promotions.

Deferential Sycophants

Jennings posits a sure recipe for disaster: giving an experienced, lauded CEO a deferential team of young, inexperienced managers. She recommends treating all CEOs as replaceable. Boards of directors, the author further maintains, should constantly question an iconic CEO. How often does corruption really spring from this situation? From Enron to Theranos, tales abound of charismatic CEOs and credulous boards.

Hard truth concealed over time, like a pregnancy, only becomes more obvious.Marianne M. Jennings

To strengthen a weak board, Jennings recommends empowering directors to gather information anonymously from employees, thus bypassing the “filter” of management communication. She offers the seemingly simpler solution of board members walking around the organization and observing the atmosphere and employee practices. Of course, any nefarious CEO would have mechanisms in place to make sure this never happens.

Conflicts of Interest

During the rise and fall of the US dot-com industry, a “culture of conflicts” enveloped failing technology companies. Jennings names Arthur Andersen and other accounting firms that struggled with conflicts between auditors and consultants who were serving the same dot-com clients.

To dispel a culture of conflicts, Jennings prescribes the commonsense practice of prohibiting employees from ever taking payments from customers, vendors and suppliers.

Overconfidence

Overconfidence, Jennings warns, undermines leadership and leads to ethical lapses. She points out that the MBA curricula of the 1980s and 1990s taught that the best way to increase shareholder value was by “managing earnings,” not worrying about costs, product quality or other aspects of day-to-day operations. She regards this as a major factor in why today’s CEO push limits and strain ethical boundaries.

Fraud is hardly fraud if you have convinced yourself that the rules of fraud don’t apply to you.Marianne M. Jennings

Companies, Jennings proposes – aligning here with Milton Friedman – should respond to a social issue or community need only if the action aligns with their corporate goals. She offers positive and negative examples. L.L.Bean properly investigated its supplier network to identify and cull “sweat shop” operators who violated their contractual agreements. Conversely, the author points, revelations of sweatshop operators in Nike’s supplier network embarrassed the brand.

Virtue

Jennings states an obvious but useful fact when she writes that the practice of posting and following “virtue standards” can simplify ethical issues by reducing reliance on detailed rules. Companies without virtue standards “see business as a zer0-sum game,” a wrong and risky perception, in the author’s view.

Grad School Insights

Though Jennings writes well and clearly, her perceptions and solutions seem perhaps more academic than boardroom bound. Some suggestions sound worthwhile on paper, but seem less likely to occur in the real world. Perhaps her advice is most targeted to prepare MBA students to encounter these problems in the real world with all its ongoing, added layer of moral complexity. That said, Jennings delivers her points quickly and concisely, and the business world would no doubt be a far better place if every CEO read and applied her advice. Students of ethics and of business ethics history, entrepreneurs considering starting a business, and those who are running start-ups will gain from Jennings’s basic ethics lessons. The moral high ground starts here.