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Measure (and Reward) Ethical Behavior

You measure employee performance and sales. But you're forgetting to measure what matters most to overall success: ethical behavior.

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As quality guru W. Edwards Deming reportedly said, "You can expect what you inspect." Or put slightly differently, in business, you get what you inspect, not what you expect.

When Jan Carlson, the former CEO of SAS Airlines, wanted to improve on-time performance, he ensured that managers would see up-to-the-minute on-time performance regularly on their computer monitors. Similarly, Ford Motor's quality improvements in the early 1980s began by plotting defect rates on charts that were visible to everyone in the factories. This precept about the importance of measurement is as true for ethical behavior as it is for quality, performance, or anything else.

Why It Works

Measures work for several reasons. First, they focus attention on what is being measured, making those dimensions of the work more salient and focal. Second, they signal the firm's priorities. Companies have numerous objectives--sales, profits, quality and defect rates, customer and employee retention, and so forth. Companies do not measure (or measure as frequently and precisely) everything they claim to value. Employees therefore use what gets measured as a signal of what the company actually cares about. Third, measures, once collected, often get used in performance evaluations and compensation settings, so the measures come to have real consequences for people's careers.

Business strategy and values are often not aligned with actual employee behavior. Some years ago, the balanced scorecard movement, promulgated by Harvard Business School professor Robert Kaplan and David Norton, recognized the importance of measurement for this alignment process, arguing that if leaders wanted their organizations to pay attention to aspects of performance beyond the short-term financial measures invariably collected--important objectives such as innovating for the future, for instance--they needed to include such measures in their management control system. For example, some companies measure the percentage of total sales accounted for by products or services less than one or two years old, as an indicator of the extent to which they are innovating in their business.

How to Do It

So how might companies assess ethical behavior to increase its likelihood? First, by figuring out what are the components of ethical behavior and then developing measures of each component. Fortunately, many companies have attempted the first task and we can bootstrap off these efforts.

Pharmaceutical manufacturers are as ethically challenged as any industry. According to one study, the companies in the industry paid some $19.8 billion in penalties in the past 20 years, with 75 percent of the penalties being paid in the five years between 2006-2010. Pfizer has been one of the worst offenders, but there is much to be learned from its 53-page "Blue Book" of business conduct. Pfizer and its competitors have thought deeply about the components of ethical conduct, even if they have not bothered to implement their insights.

First, no one can practice ethical conduct if they do not know the company's standards and applicable regulations. One way a company can measure that knowledge is by giving its employees tests to determine if they have the necessary information. Better yet, make learning fun by creating teams of employees to compete with each other in a game-show format to see which best knows the ethical values and standards.

Next, people need to feel empowered to ask questions and raise concerns if they observe problems. One of Deming's first principles was to drive fear out of the organization. Many employee surveys routinely include a "safe to say" question that asks to what extent people feel free to raise concerns and objections without fear of retaliation. So measure how safe people feel by a question of this sort, and maybe also include one that assesses how fearful they are. And it is not particularly expensive to appoint someone to be (as part of their other job roles) an ethics compliance ombudsman, someone that any employee can feel free to raise concerns with in a confidential manner.

Most importantly, assess what happens, and what your employees believe happens, when people violate ethical standards. One of the most troubling aspects of the ongoing financial shenanigans is that many of the worst offenders still have their jobs, or, at worst, left with barely a slap on the wrist and most of their money. You can readily measure your ethical culture by asking people questions such as what they believe it takes to get ahead in your company, how important they think ethical standards are, and what they believe about the ethical culture of your company.

Surveys are not that difficult. While it was once difficult and costly to design and execute surveys, companies such as Survey Monkey and Qualtrics make the design, implementation, and even analysis of surveys both easy and inexpensive--certainly much less expensive than litigation or regulatory problems.

Companies that are serious about their ethical culture define and then measure the components of such culture. Maybe if the big pharma companies spent less time on their handbooks and more time on measuring whether or not anyone takes them seriously, they would not be paying such massive fines.

IMAGE: AP (Mayer); Shutterstock (bell curve)
Last updated: Mar 26, 2013

JEFFREY PFEFFER is the Thomas D. Dee II Professor of Organizational Behavior at Stanford University's Graduate School of Business, and a regular contributor to The Company Ethicist, a new blog about business ethics and leadership, published by Convercent.
@CompanyEthicist




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