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Hot Topics: Navigating the Board’s Role in Establishing Corporate Culture

Copyright © 2010 Deloitte Development LLC. All rights reserved. Hot Topics—May 2010 • 1

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A strong and positive corporate culture is a critical element in an organization’s ability to succeed in today’s business environment. The foundation of corporate culture is the set of values that drive actions; therefore, the basic understanding of a culture should begin with its ethical foundation. But culture goes well beyond an organization’s ethics and compliance programs. For example, culture affects a company’s ability to attract and retain employees and customers. A well-defined and robust culture has quickly become an imperative for sustained business success.

The meaning and significance of corporate culture and the role of the board in establishing and managing it were discussed in a recent Dbriefs webcast titled “Corporate Culture: The Foundation Starts at the Top.” More than 2,000 financial executives and directors from a variety of industries participated in the session, which was moderated by Ray L. Lewis, managing partner of Deloitte’s U.S. Center for Corporate Governance. Speakers included Todd G. Hartman, associate general counsel and chief compliance officer at Best Buy, and Timothy T. Lupfer, director at Deloitte Consulting LLP.

During the webcast, corporate culture was defined as “the set of enduring and underlying beliefs and assumptions within the organization that influence how things actually get done.” While this concept may seem fairly straightforward, one of the most significant challenges for organizational leaders, as evidenced by the accompanying table, is thoroughly understanding their company’s unique culture and the various factors that influence it. Hartman said that this task becomes even more daunting when there are multiple global business locations, or when trying to ensure that the culture of the organization’s corporate office has relevance with its numerous retail outlets, as is the case at Best Buy.

Understanding and influencing corporate culture is one of the board’s core responsibilities. Hartman offered the following key actions that boards can take to influence culture:

• Accurately assess the existing culture and subcultures. Often, the biggest obstacle to success is an incomplete or overly optimistic view of the existing culture. Leaders must strive to understand the existing culture, for better or worse. This can be accomplished through the use of surveys and general observation.
• Take actions to reinforce or to modify the existing culture(s), including considerations for unintended consequences. Because of the visibility and symbolism of its actions, the board can significantly influence the way business is conducted in their organization. For example, in its oversight role, the board can collaborate with management to build and sustain the desired culture over time by clearly defining and communicating the organization’s values to both internal and external stakeholders.
• Emphasize leadership behavior and dialogue that rewards the open discussion of compliance and ethics issues. It is critical for the board to facilitate an environment of candid and honest communication across all levels of the organization, without fear of retaliation.

Lupfer elaborated on these suggestions by providing key questions that boards can consider in monitoring and assessing the organization’s ethical culture:

1. Do the members of the organization grasp that ethical behavior often leads to positive business results?
2. Are the principles for ethical conduct—not just the rules—well expressed and communicated, such as through a code of conduct?
3. Are there effective processes in place to support ethical behavior (e.g., a helpline)?
4. Do leaders reflect and embody the values of the organization? If the leaders’ actions are not consistent with the organization’s values, what are the consequences?

How do you currently assess your organization’s ethical culture?*
Very rigorously and deliberately 33%
We focus on a few specific items 27%
We only make general observations 17%
We don’t expend any energy on this area 7%
Don’t know/Not applicable 16%

The basic values of an organization comprise its ethical foundation—the bedrock of organizational culture. This is the best place to begin to understand the existing culture, and to develop actions to reinforce the desired culture. While culture can be a difficult concept to understand, let alone measure, it can make the difference between success and failure. Therefore, overseeing, assessing, and influencing culture should be strong priorities for the board.

The following resources regarding the role of management and the board in managing corporate culture are available on the Center for Corporate Governance Web site: Managing the Bad Apples and Protecting the Barrel and Questions That Boards Should Consider Asking Regarding Ethics and Compliance Programs.

As used in this document, “Deloitte” means Deloitte LLP and its subsidiaries. Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries.

Hot Topics articles are featured in each issue of Corporate Governance Monthly, a newsletter with the latest information for boards of directors and their committees from the Center for Corporate Governance website (www.corpgov.deloitte.com).

* Source: Deloitte Dbriefs webcast, “Corporate Culture: The Foundation Starts at the Top.” May 5, 2010. 2,026 participants.

Point of View
Business Ethics 2.0: Beyond Damage Control
May 14, 2010 – David W. Gill

Do we have an “ethics problem” in business today? I think so. Most people I hear think so. Businesses and their leaders are doing the wrong thing, not the right thing, too often.

Something is “wrong” when it brings harm (physical, financial, relational, environmental, and so on) in an irresponsible way. In business, something is right if it protects people from harm and empowers them by goods and services to create and live the lives they and God choose.

So when people are harmed by banking practices or insurance policies or pharmaceutical products or defective automobiles or unhealthy food—even if these things are legal, even if everybody else in the industry is doing it—these things are unethical. Whether these bad things happen because of greed and malice or because of irresponsibility and willful ignorance, they are wrong.

Reports of this kind of unethical business activity are a daily occurrence. We’ve got a serious problem.

Ironically, business ethics courses, publications, organizations, and company training programs have proliferated over the past thirty or so years. I wouldn’t be surprised if a graph of the growth of such ethics resources and emphases didn’t correlate pretty closely with a graph of the rise in number of business ethics scandals and crises.

Correlation is certainly not causation, but one lesson is clear: the way we are confronting and implementing business ethics is not getting rid of the problem.

Business Ethics 1.0: Damage Control

The basic problem is that business ethics is largely practiced as damage control. What sets the ethics agenda, what draws our energy and attention, are specific crises, dilemmas, or problem cases. The Exxon Valdez oil tanker runs aground. The Union Carbide chemical plant explodes in Bhopal, India. Google accepts government censorship as a condition of doing business in China. V-P Joe sexually harasses direct report Jane.

What are the facts in each case? What are the ethical values and principles at stake? How can Kant or Mill or Rawls help us reason our way to a conclusion about who is at fault and what to do with that culprit? It is not so much that we actually care about Alaskan shore birds or Indian peasants or Chinese students or Jane—what counts is that litigation, fines, or a big brand-tarnishing scandal is about to occur. Can we stop it and contain the damages?

This approach is too reactive, negative, and narrow to do much good. It does little to stop those problems from occurring in the first place—it only mops up the blood after the crash. And yet, how many business ethics courses endlessly focus on case discussions and analyses pointing toward a “decision” at the end? How many training programs focus on cases and multiple-choice options?

Health care provides an analogy to this practice. For many people, health care is little more than “disease control” or “injury control.” Until I get badly injured or deathly ill, I don’t care or think about health care. But this is a terribly shortsighted and ultimately self-defeating approach to health.

A much better approach to our health is to ask, “What is my ideal health—my health vision and goal?” I’d like to be able to dance with my wife, tramp around old cities and museums, eat and drink a range of good food, hike up moderate hills, play golf with my grandchildren, and have my clothes fit well when I’m in my eighties. And now that I’m clear on the vision, the question is, “What do I need to do to get there?” Or perhaps better stated: “What do I need to do to optimize my chances of getting there?”

The strategy then will lead us to identify the systems and processes that affect a person’s health: nutrition, resistance training, cardio training, stretching, rest, and stress management. Let’s be sure to think rigorously and holistically about what it takes to achieve that vision. Proactive, positive, and holistic.

Business Ethics 2.0: Mission, Vision, and Culture Control

Of course, companies (and MBA programs) must have effective, best practice problem troubleshooting, crisis management, and dilemma resolution processes in place. Damage happens even in the best of companies. We need to do this part of ethics better than ever.

But if that’s all we do, we are doomed to face an unending stream of problems. Business Ethics 2.0, however, will take proactive steps to clarify the mission and vision: Why have we formed this company? Why don’t we all just stay home and work on our own interests? What is the product or service that we work together to deliver at such an extraordinary level of excellence that our customers can’t wait to pay us for more? What is the positive change we make in the lives of our customers?

Then, having sharpened up the mission and vision, making sure that it self-consciously taps into the basic human drives to innovate and to help others, the next question becomes, “What kind of culture and corporate character do we need to create and nurture to best empower our company toward the achievement of its mission and vision?” And then, “What kind of action-guidelines shall we articulate so that we all do our work in the most effective, excellent way?”

To get its employees to own and espouse its ethical guidelines and core values, a company must mobilize its entire workforce, from top to bottom, to figure out those ethics and values which are in alignment with the mission and vision. Business Ethics 2.0 also involves ensuring that communication is constant, clear, and compelling, and that training is collaborative and practical.

Of course, even a super-fit physical specimen can get hit by a runaway bus or virus coming out of nowhere. There are no guarantees! And so too, a company could do everything 2.0 and still be brought down by a greedy rogue leader or a crash in the market. Ethically healthy 2.0 companies are not guaranteed business success or ethical immunity. It still takes a brilliant product, a timely market, and other factors to succeed. Great ethics and values will not save inept management.

But sound 2.0 ethics do increase and optimize a company’s chance of quickly recovering from (if not altogether avoiding) serious ethics problems, which allows it to focus on business process execution and excellence.

Mission- and culture-controlled ethics is the classical way to manage a company. It is Aristotle; it is the Decalogue; it is traditional communities and organizations everywhere, through all time. Companies must move past the abstraction and dry impracticality of modernity’s approach to ethics, as well as postmodernity’s chaotic and disconnected focus on dealing with first this problem, then that one. We need Business Ethics 2.0.

Copyright © 1974-2010 Cardus. All Rights Reserved.

Source: http://www.cardus.ca/comment/article/1992/

Poll: More Americans Say U.S. Morality Getting Worse

More Americans believe moral values in the United States are getting worse, according to a new Gallup Poll.

The Gallup’s annual poll on moral values found 76 percent of Americans said moral values in the country are getting worse, up five percent from last year. This year’s rise marked the second highest one-year increase in nine years. In 2004, 77 percent of Americans said moral values were getting worse, marking a 10 percentage rise from the previous year.

Opinions about moral values in the country tend to stay relatively stable between years.

The highest figure was in 2007 at 82 percent.

Respondents most often cited declining moral values/standards and disrespect of others (both at 15 percent) as ways they see moral values in the U.S. getting worse. The open-ended question also found popular responses to be: parents not instilling values in children (8 percent); dishonesty among government, business leaders (8 percent); and rising crime and violence (8 percent).

Others said the moral value decline can be seen in people moving away from religion, church and God (7 percent), the breakdown of family and unwed mothers (7 percent), and sex, promiscuity, and pornography (5 percent).

The hot-button issue of abortion and gay relations were each only cited by 3 percent of the respondents.

Overall, 45 percent of Americans said the state of moral values in the country is poor – three times more than those who said it is in excellent/good shape (15 percent). This figure has stayed relatively constant over the past four years, but is still among the worst Gallup has measured in the past nine years.

The Gallup results are based on telephone interviews with more than 1,029 national American adults from May 3 to 6, 2010.

Source: http://www.christianpost.com/article/20100517/pollmore-americans-say-us-morality-getting-worse/index.html

Re: Georgia prosecuting student who has been in U.S. illegally

Today’s San Diego Union-Tribune carried a story by Robbie Brown of The New York Times about Jessica Colotl, a 21 year-old college student and illegal Mexican immigrant whose recent illegal activities have landed her in the center of the recent illegal immigration firestorm.

Jessica was recently arrested for driving without a license and supplying the police with a false address which is a felony.

Colotl stated “I never thought that I’d be caught up in this messed-up stystem” and after posting a $2500.00 bail last Friday, she also stated “I was treated like a criminal, like a threat to the nation”.

Well, Jennifer, like it or not, I feel you are a threat to our nation. You are a threat to all the freedoms and benefits that come with being a certified legal U.S. resident. Those freedoms and benefits which have come at a price that many before me have paid.

I read that Colotl has been here in the U.S. since age 11. That’s at least ten years of receiving U.S. benefits illegally. In addition, she received in-state tuition which reduced her college tuition. This surely is a “Messed Up System” isn’t Jessica?

I can’t believe we live in a nation that would not deport you the very minute they found you residing as an illegal alien and taking advantage of benefits you do not deserve and neither have you paid for.

After protests by her fellow Latinos, sorority sisters and a letter from the University President, the Immigration and Customs Enforcement agency granted a one-year deferral on her deportation so she could finish college. This surely is a “Messed Up System” isn’t Jessica? Why should we allow you to finish college? Doesn’t anyone know the difference between right and wrong any more? What she’s doing is WRONG and illegal.

I would’ve sent you packing THAT day because not only was it the legal thing to do, it’s the right thing to do. Many have come to our shores before you and achieved legal citizenship the proper and legal way. Those people join with me in resenting the fact that you are here taking advantage of something you have no right to. And, asking for fellow Latinos or sorority sisters to say you are a good person and you deserve to be here is a testimony to your weak character. Just because you are a “nice girl” does not give you any right to be here. As for the president of the college, SHAME on him. He knows better than to allow you the benefit of in-state tuition let alone attend the college at all. You belong in a school located in you mother country.

Cornerstone Institute of Ethics supports the State of Arizona and its recent Immigration reform act. They are acting to secure our borders and freedoms against people like Jessica Colotl who are robbing our country of the freedoms and benefits of being an American.

Sorry Jessica, you are a criminal and a threat to our United States of America and you should be deported immediately.

Marty Leonard

President

Cornerstone Institute of Ethics

Warren Buffett’s Son Preaches Values As Wealth

NEW YORK (Reuters) – The son of billionaire investor Warren Buffett has an old-world spiritual message for today’s money-rich parents: teach your children values and do not give them everything they want.

Musician and now author Peter Buffett preaches the message in his new book “Life is What You Make it: Finding Your Own Path to Fulfillment”. Recently released in the United States, it describes how he wound up a “normal, happy” person instead of a spoiled child to one of the world’s richest people.

Buffett, 52, teaches the rewards of self-respect and pursuing one’s own passions and accomplishments rather than buying into society’s concepts of material wealth.

“I am my own person and I know what I have accomplished in my life,” he said. “This isn’t about wealth or fame or money or any of that stuff, it is actually about values and what you enjoy and finding something you love doing.”

People who are born with a silver spoon in their mouth can fall victim to what Buffett said his father has called a “silver dagger in your back,” which leads to a sense of entitlement and a lack of personal achievement.

“Entitlement is the worst thing ever and I see entitlement coming in many guises,” he said. “Anybody who acts like they deserve something ‘just because,’, is a disaster.”

But Buffett wasn’t always this wise. His own family gave him $90,000 in stock when he was 19, a small sum from such immense financial wealth. After studying at Stanford University, he moved to San Francisco and lived in a studio apartment with just enough room for his musical instruments.

“I was really searching,” he said, adding that he began his musical career by working for free writing music for a local television station.

“I was kind of lost, but trying to find myself. It was definitely this strange period where I didn’t really know where I was going,” he said.

LOOKING AT THE BIG PICTURE

As well his musical passions, the values taught to him growing up and a sense of a bigger picture in life stayed with him during those trying times, he said.

“I was not only not handed everything as a kid, I was shown that there are lots of other people out there with very different circumstances,” he said.

Although many people he encounters assume that his father wanted him to go into finance, he said his father accepted his choice to become a musician beginning with commercials then his own albums and composing for television shows and films.

“It was encouraged for a moment when I was open to the idea,” he said about pursuing finance. But he added that as he grew older, it became clear the financial world “was not speaking to my heart.”

Along with the book, Buffett has embarked on a “Concert & Conversation” tour in which he plays the piano, talks about his life and warns against consumerist culture and damaging the environment.

He said he eventually inherited more money after his mother died in 2004, but by then he had learned his lessons. Now he works on giving back to the world — another of his life philosophies — which includes through working for his father’s NoVo charitable foundation.

“Economic prosperity may come and go; that’s just how it is,” he writes in the book. “But values are the steady currency that earn us the all-important rewards.”

(editing by Bob Tourtellotte)

Source: http://news.yahoo.com/s/nm/20100510/lf_nm_life/us_books_buffett

While in Rhode Island last week, I had the opportunity to meet Jeff Massey, a Certified Financial Professional that strives to create big financial returns for his clients. Now most of you are wondering “what’s different about that”? The difference is that I found Massey to be highly concerned about representing himself and his professional clients in the most ethical manner possible.

Massey wanted everyone to know that he strives to uphold the ethical standards that many in his profession have given up on. Being a small businessman, Massey is “hands on” and directly involved in the financial wellbeing of his clients. There is a lot to be said for this type of relationship with your financial advisor rather than communicating with someone in a glass office tower that calls you once a year on your birthday.

Massey shared two articles about mutual fund fees which may be of interest to you. At least, they will be informative.

Click here to download the first article, and here to download the second article about mutual funds.

If you have questions about mutual funds, call Jeff Massey 800-417-2381 or visit his website at JeffreyMassey.com and tell him I sent you.

Survey: Consumers Prefer Socially Responsible Brands

The recession has affected not only consumer wallets, but also brand perception. According to a new survey by firms Landor Associates, Penn Schoen Berland and Burson-Marsteller, transparency and corporate responsibility have become far more important to consumers in a tough economy.

The survey measured consumer perceptions of corporate social responsibility practices and ranked companies that are the most responsible. It found that despite the recession, 75% of consumers believe social responsibility is important, and 55% of consumers said they would choose a product that supports a particular cause against similar products that don’t.

“[Corporate social responsibility] can be the olive branch between struggling industries and consumers in cases where consumers are experiencing the highest expectations and the biggest let downs,” said Scott Osman, global director of Landor’s citizenship branding practice, adding that the industries with brands that have performed poorly, are the ones in which responsibility is valued most.

One industry where perceptions have dropped significantly is healthcare. The survey attributes this decline to the congressional debate on the issue. “Apparel, an industry that a decade ago was viewed as one of the most irresponsible, is now perceived as better performing than other industries with regard to CSR practices. [Meanwhile] financial services and automotive are presently at the complete opposite end of the spectrum,” Osman said.

While 38% of respondents plan to spend the same or more on products or services from socially responsible companies, more than half of consumers are unsure about the meaning of CSR. And those who do know what the term means, define it as “giving back to the local community” (20%), and as “self-regulation and accountability” (19%).

Additionally, the survey found that 70% of consumers are willing to pay a premium for products from socially responsible companies. In fact, 28% are willing to pay at least $10 more. That means companies have an opportunity to differentiate themselves if they can communicate clearly how they give back to their employees, communities, and the environment, per the survey.

When asked to name the most surprising findings, Osman pointed to the fact that nearly 50% of 18-24 and 25-34 year olds are more likely to take a pay cut to work for a socially responsible company—a much higher percentage than any other age group. However, Osman added, “a year where there seems have been so much responsibility expressed, especially in light of the earthquake in Haiti, only 11% of Americans say they’ve heard corporate CSR communications.”

Source: Brandweek.com

Ford (F) Stock News – Ethics Pay
Tuesday, March 23, 2010

Ford Motor Co. (NYSE:F) stock has broken through the $14 barrier on vastly improving news concerning the company’s operations. One new award that has to make the company proud is the company has now made the list of the World’s Most Ethical Companies from Ethisphere Institute, a New York City think tank. The list has been made available for the last four years and it’s the first time Ford made it.

Ethisphere made it clear that ethics pay by pointing out that the companies that made its list have returned 53% to shareholders since 2005, crushing the S&P, which has only returned 4% for the same period. It make sense. Companies that can be trusted by employees, vendors, and customers tend to create stronger customer loyalty, which results in higher sales and profits.

Toyota, which made the list in 2009, suddenly accelerated off this year’s list due to its well-documented problems.

The good news at Ford is translating to great news for chief executive office Alan Mulally, who earned 17.9 million in 2009, which was a 6% increase from his 2008 compensation. It’s doubtful his paycheck is going to cause much of an uproar after the kind of year Ford has had for shareholders.

I mean, how could investors complain if they bought F on March 9, 2009? Holding from then until now has resulted in a 715% annual increase! That’s the type of return that should impress any investor. But does that astronomical return mean that the run is over for Ford stock? I think not.

Consider that Ford shares hit a five-year high last week after Moody’s Investors Services upgraded $65 billion of the company’s debt. Ford’s debt is still 5 grades below investment grade, but after two upgrades in two weeks from Moody’s, you’d have to forgive optimistic investors who are hoping that one day soon Ford Motor will once again achieve Moody’s highest investment grade. At that point, the debt is considered the “smallest degree of risk,” which means money is easier to borrow at the lowest terms.

Not only is the company improving from a financial standpoint, but the quality of Ford vehicles was recently recognized, which helps boost the company’s profile with the car-buying public. At a time when competitors like Chrysler, GM, and Toyota are struggling, getting the highest grades for consumer quality is bound to help. Many industry experts have praised Ford recently for their product pipeline as their vehicle lineup has taken off with customers.

If all of these good news signs still don’t move you to invest in Ford stock, consider this: the automobile sector is expected to be America’s fastest growing industry in the next five years, given the country’s recent economic woes which caused such a massive reduction in sales for the auto makers. Now the consumer is coming back, getting financed, and increasingly choosing Ford Motor Co. products. That’s the type of trend anyone would love to see before they make an investment. Ford is now North America’s largest vehicle supplier by volume and the overall market is growing at the fastest pace of any industry! The trend is your friend and the trend for Ford remains up.

Right now Ford shares are trading for just under $14 as the price action consolidates.

Look for much higher returns in the next three months as long as the company continues to execute its plan.

Source: TimesOfTheInternet.com

Cornerstone Institute of Ethics is making a significant push to go global in 2010.  We have been a regional company in the Southern California marketplace since inception of our ethics workbook “The 10”in 1996. 

     Now, with a single minded focus of Enhancing the Moral Character of People in Business, the Community and At Home, Cornerstone has set an aggressive schedule of 14 national and international trade conferences for ethics on its calendar.  Just click on “calendar” to review the locations and events we will be attending.

     The timing for the global push could not be better.  Now, more than ever, the need to review the standards for determination of moral character and behavior is greater than ever.  The number of politicians stepping down in light of character issues has not been greater in my lifetime that I can recall.  The number of fraudulent findings within the business arena is staggering and people are becoming less tolerant of corporate greed and excess at the expense of the employee and consumer.

     In the coming days, I will be sharing the thoughts and concerns of the workplaces and communities I work and live in as they relate to ethics and ethical behavior.  I truly believe we’ve reached a boiling point within the American society and the violators need to be exposed.  On the opposite side, organizations and individuals that demonstrate and hold to higher standards need to be recognized and commended for their actions as well.          

     If you have an organization or individual you would like to spotlight (both good and bad) feel free to email me.  Together, we can let the world know that unethical activity amounts to a short term gain with eventual collapse while holding to the higher standards and making the right choices at critical moments, creates a recipe for long term success.

Marty Leonard

Chief Executive Communicator

Cornerstone Institute of Ethics