Trend Spotting: Company of Whistleblowers Ken Melrose April 15, 2007 Soon after the Enron implosion I was asked to be a cospeaker at a leadership and ethics conference put on by The H.E. Butt Foundation. The topic was the impact of culture on ethics – good or bad – in the organization. The other speaker just happened to be Sherron Watkins, the Enron whistleblower. She spoke first, making the case that in her company’s culture, almost everyone close to the situation was afraid to speak up. She was the one whistleblower.When it was my turn, I began by stating that Toro had 5,300 whistleblowers, equal to the company’s total employment, as a way of introducing the premise that certain cultures can foster a high standard of ethics throughout the entire organization.For as much as the CEO’s and CFO’s signed certifications provide some satisfaction that their company has complied (“to the best of their knowledge”) with all disclosure requirements, the brutal fact is that somewhere within the organization a deceptive or fraudulent activity may be lurking.Most corporations are simply too big and too complex for the folks at the top to have a handle on everything that’s going on. The truth is that even with myriad procedural checks and balances, as well as the documentation of all significant accounting processes, executives must rely on each of their employees to be ethical and to some extent to be watchdogs for their peers.Moreover, ethics is about much more than legality. One of our board members at Toro frequently talked about the three questions one should ask when wondering if it’s right or wrong: First, of course, is it legal? Then, is it honest? And third, will it stand the test as a headline in The Wall StreetJournal?When you consider all the pressures inside publicowned corporations or companies to make bottom-line numbers and meet analysts’ expectations, you can understand the rationalizations that draw employees, especially stock-optioned managers, into “gray” areas of right or wrong.As a personal note, I would add a fourth question, and that is, does it stand up to your intentional values, or that little voice in your principle-centeredness that keeps reminding you of what you know deep down is right.So, how to motivate every single employee to “do the right thing” all the time? How do you create an environment that encourages everyone to do the right thing, or to help others from doing something unethical? This is where the culture of the company plays a crucial role.Building a robust compliance infrastructure is good and necessary, but it’s simply not enough to really reduce the risk of unethical conduct. Organizations must focus on creating the right culture with attributes such as personal ownership, empowerment, trust and conflict competency. Principle-centered leadership – leaders doing what they say they will do, building trustworthiness in the organization and giving each individual a sense of value, ownership and accountability – are some of the key attributes of a culture that steer and even motivate employees to practice ethical behaviors.Ethics programs and initiatives also are important in the mindset and attention for proper conduct in the organization. Employees signing the company code of conduct, completing the compliance training programs, and having a hotline to report infractions in confidence all help influence ethical behavior. But more importantly, ethics is about the collective values and behaviors of all employees that lead to what motivates them. A strong culture unleashes this motivation to create a positive sense of conviction and purpose that will help drive ethical behavior.An environment of goal-oriented conflict, accountability, ownership and trust also creates a sense of safety for employees to bring forward concerns about questionable behaviors and practices by others, and to admit their own complicity for the same.Such a culture comes from honest concerns about how consistently leaders manage up and down the organization, and their visible and genuine embracing of the company’s values; moreover, emphasis on team behaviors and achievement, and giving up ego-driven individualism, will encourage employees to go directly to the source of misbehaviorwith constructive advice.Another aspect of culture is ownership that leads to accountability. We created an employee stock option plan (ESOP) at Toro in the 1980s, not to increase productivity, but to give all employees a feeling that this was their company, too. As a result, employees as a group became near 20percent owners of the company. We wanted them to take personal responsibility for the health of the company.There also are, of course, other ways besides ESOPs to engender loyalty, ownership and accountability throughout the organization. We changed our mission from “being the best lawnmower maker in the world” to “helping our customers preserve and beautify their outdoor landscapes.” This engaged everyone in the organization, and provided an emotional attachment to the company.It’s hard to argue against the claim that a good culture will help build an environment to minimize unethical behaviors. But this is not to say that ethical behaviors will happen in an organization via employee culture alone. Management has to work at it, too.A proactive management team must create and display a clear and impactful “tone at the top,” for example by making the “whistleblower hotline” effective and valuable, not just “window dressing.” In addition, they should make the management of ethics an important part of the business routine, such as the annual planning process, quarterly business reviews and continuous improvement initiatives. Executives must demonstrate their proactivity for good ethical standards, practices and conduct, so that employees have no doubt about management’s commitment to both the conduct and the culture.I sometimes wonder, after signing his or her certification, then putting it in the legal file, and finally crawling into bed at night, if the CEO stares at the darkened ceiling, fretting and unable to go to sleep, or instead drifts off with a smile and peace of mind. The outcropping of widespread trust in the organization, plus empowerment, accountability and ownership woven into the tapestry of its culture, can go a long way toward a “peace of mind” certification.