Do These Questions Sound Familiar?
Is your company's compliance function in need of the latest technology andquality people with an adequate background in compliance?
As general counsel, is the size of your staff inadequate to serve the needs of your in-house clients and to stay sufficiently in touch with company plans to head off compliance or risk management failures?
Do you feel that you may be unable to head off a major compliance or risk management failure because budget constraints prevent you from hiring successful partners of good law firms with the necessary expertise?
Are your company's quality controls such that defective or unsafe products might find themselves in the hands of consumers?
Is your company jeopardizing its large investment in a foreign country because it is not taking care to build its reputation in that country?
The Integrity Of Business Is Under Attack As Never Before
All of the above questions raise issues of integrity. These issues are far more important to the corporations you serve than they were in the past - because every company is more vulnerable to attacks on its integrity. Contributing to that vulnerability is the atmosphere of doubt and suspicion about corporations that has become pervasive here in the U.S. and even more so in many foreign countries. The public is exposed to a constant flow of news stories about business corruption and compliance and risk management failures. The very legitimacy of the business system is being called into question.
Regulators and prosecutors, sensing an opportunity to gain public esteem and political advantage, build their reputations by going the enforcement route rather than using the regulatory process. They probe for vulnerabilities that businesses may have and proceed criminally or civilly without much or any notice to their targets - and the media seldom misses a chance to portray corporate officials doing a "perp walk." The plaintiffs' bar eagerly seizes on the opportunity to profit from the civil litigation that is generated. And, politicians seize the moment to advance proposals for greater regulation of business.
Global businesses have become increasingly vulnerable as many host countries, being confronted by corporate scandals, deteriorating economic climates, and growing public support for populist and nationalistic politicians, become more hostile to foreign businesses.
What Ben's Book Does
Shows How Business Can Be Protected By Integrity
To protect corporations from attack, the best approach is for their CEOs to arm them with the shield of integrity. Doing this is the focus of Ben Heineman's new book High Performance with High Integrity (Harvard Business Press; June 2008; $18/ hardcover). It is a book that you should read and, most importantly, your CEO and other senior members of management should also read. Although your directors cannot effectively manage an effort to embed a culture of integrity throughout a company, they too should read the book so that they understand the importance of selecting a CEO who fuses high performance with high integrity, of monitoring the CEO's continuing dedication to that goal and of providing a compensation structure that rewards achievements in pursuing that goal.
Ben, speaking with the authority of someone who served as GE's general counsel for 18 years and who, from that vantage point and his academic involvement, has become familiar with the policies of other companies, argues convincingly that following the model outlined in his book is the best way for companies to respond to the pressures brought about by the current atmosphere of doubt and suspicion.
But, to turn the rapidly mounting anti-corporate sentiment around, it is not sufficient for one company to practice integrity with the dedication of a GE. Many must follow in GE's footsteps.
Demonstrates Why Integrity Is A CEO's Responsibility, And Why The GC's Legitimate Needs Should Be Met
The greatest insights are those that seem most self evident when stated. The great merit of Ben's book is that it throws a spotlight on a key truth - that managing a company so as to avoid or mitigate a bet-the-company catastrophe flowing from a perceived compliance or risk management failure is not a staff function, but one that requires continuing CEO attention. It is not only a matter of how the company responds when a crisis occurs, but rather a complex and continuous process of creating a pervasive and well-publicized culture of integrity that will avoid or mitigate the crisis.
Ben's book puts responsibility for addressing the concerns of the GC reflected in the above questions squarely in the lap of the CEO because only the CEO is able to impose a pervasive culture of integrity on a corporation.
In his book, Ben makes clear that if the CEO fuses integrity with high performance, he or she reduces the exposure to personal and corporate disaster while restoring public confidence in business. Growing public disillusionment with corporations portends dire consequences for corporations large and small. Therefore, restoring public confidence in the integrity of corporate America must be at the top of every CEO's agenda - and he or she is the only person in a corporation who can make this happen.
A CEO's dedication to integrity encourages employees throughout the world to practice honesty, candor, fairness, reliability and trustworthiness - characteristics that are vital to achieving high performance and organizational integrity. It also assures the implementation of global ethical standards affecting the company and its employees that are essential to inspiring the kind of good citizenship that improves a corporation's relationships with host countries and their citizens.
Most importantly from the standpoint of corporate counsel, the responsibility for satisfying the concerns of the GC reflected in the questions posed above is placed where it belongs - with the CEO. The general counsel should no longer be a lone voice in the wilderness seeking support for his or her mission and battling with other senior managers for a piece of the budget pie. If CEOs are convinced that their general counsel needs additional help to carry out a mission of great importance, that help will be forthcoming.
Helps The CEO Understand Why The GC Needs "A Players"
Ben describes the importance of the partner-guardian role of the lawyers - as "partners" in the sense of forwarding the corporation's business objectives and as "guardians" who alert management to performance and integrity risks and help develop good citizenship policies that build public confidence. Because the lawyers are at the very heart of the CEO's central role in building integrity, he or she should support hiring the best possible lawyers (whom Ben calls "A Players"), including paying market prices to lure them from fine law firms.
Helps The CEO Appreciate That One Compliance Failure, Investigation Or Scandal Can Cost Much More Than Staffing With A Players
Staffing with A Players may have costs, but those costs fade into insignificance when a company, as so many do today, confronts a compliance or risk management failure that might have been avoided with the help of a skilled A Player.
The costs of a government investigation triggered by such a failure can be enormous. Executives come to view each other with distrust. The CEO and other leaders are distracted from running the business. They waste weeks of productive time pouring over information as it is developed and looking for ways to explain behavior that could be misinterpreted. They ponder the company's responses to ensure that they are complete and correct. The problems compound themselves when other regulators and private litigants in the U.S. and abroad get involved. And, if in addition to smoke there is also fire, the corporate consequences can range from significant to dire. Ben also points out that the individual consequences can range from humiliating to catastrophic. Other consequences growing out of an integrity lapse can have even longer term impact. Business relationships and corporate reputations can be destroyed. The market cap can nosedive. And if the damage is deep enough, all stakeholders are hurt.
On the positive side, good corporate citizenship creates affirmative benefits: inside the company, in the marketplace and in the broader society.
Shows How The CEO Can Embed A Culture of Integrity In A Company
The book talks about how a CEO can build a culture of integrity by requiring that the company forcefully and consistently articulate its code of conduct, guiding principles and policy standards - and support this effort by implementing a set of practices that tracks business disciplines, has real consequences and uses needed resources.
Unlike the generalities characteristic of many books on management, Ben's book also includes a recommended program for embedding integrity in a company, which details systems and processes (including financial rewards) that can be used to permeate a company with an integrity culture - with many of the specific proposals being drawn from Ben's GE experience.
Advises The CEO On How To Make Good Citizenship Pay Off
Ben's book points out how a results-oriented company can make good citizenship pay off. It argues that, like everything else that a company does, good works should be tested by a cost/benefit analysis - one that recognizes that while an intangible such as reputation cannot be assigned a precise dollar value, it nevertheless has real and enduring value. Some good citizenship efforts may also have a significant business payback to a company. Fighting corruption may level the competitive playing field, and going green may tie in with the profitable sale of a related line of products.
Ben's book suggests that some of the goals of good citizenship are too challenging to be accomplished by one company alone, but can be achieved by joining with other companies either acting together or by enlisting the support of governments, international institutions and NGOs. These strategies are illustrated by GE's support for Transparency International's efforts to curb international corruption (see page 19), by its support of CPR's efforts to expand the use of ADR worldwide (see page 22) and by its support of Pro Bono Partnership's legal services to organizations serving the poor (see page 23).
Suggests Ways To Increase Returns On Your Good Citizenship Investment
Some years ago, having heard that another company had established an outstanding pro bono program, I contacted the office of its general counsel to arrange an interview that would highlight its pro bono achievements. I subsequently received a call from a member of its PR department who in high dudgeon chastised me for even suggesting that their GC talk about its good works.
GE believes that its every action should benefit the company. It subjects even its good works to a cost/benefit analysis. While it recognizes that precise metrics cannot be applied to reputation, it knows that a good reputation is of great value. Contrary to the company I mentioned (which happens to be a major GE competitor), GE believes that the full reputational value of its good works cannot be realized unless the public is made aware of them. Both Ben's book and Brackett Denniston's interview (see page 17) mention the importance of GE's annual Citizenship Report in letting the public know of its good works.
Because GE is a model of good citizenship, its leadership attracts other companies to join in efforts to implement its policies, which contributes to attaining the good citizenship goals of those policies.
DuPont is an excellent example of how a company has built a well-deserved reputation as a leading corporate proponent of diversity. We believe that the attention that we and other publications have given to DuPont's contributions over the years (see page 43) has not only enhanced its reputation, but also has influenced other corporations to follow in its footsteps.
We are hopeful that our coverage of GE in this Special Section will produce a similar result.