Let’s say you happen to be staying at a hotel where your company’s biggest
competitor is holding its user conference.
The company’s vice president of business development drops its business plan
at the hotel bar.
There’s no law that says you can’t pick it up and read it.
But whether you read it, and more importantly whether you make copies and
distribute it among executives at your company, depends on how you think
that move will be perceived by your bosses.
That’s what’s meant by the tone at the top.
There’s no law either that says public companies have to have an ethics
czar, which is what HP did earlier
this month.
That move would be to CEO Mark Hurd’s credit, except that by having Jon
Hoak, his new ethics czar, report to the company’s top legal beagle, he’s
setting the wrong tone at the top.
Experts in corporate law and governance I spoke with this week agreed that
by having Hoak report to the general counsel, HP is in effect putting
legalities ahead of ethics.
And in so doing, HP is sending exactly the wrong kind of message about how
seriously it takes doing the right thing.
So what should it do differently?
For starters, it could have Hoak report directly to the CEO.
Better yet, governance experts say, the ethics chief should report to the
board of director’s compliance or audit committee.
That way, he or she can sidestep pressure from other executives to look the
other way if the company engages in iffy behavior in the interests of
expediency.
The point is that ethics can be terribly inconvenient in the short term.
Executives live by the short term because they are under pressure to deliver
shareholders on a quarter-by-quarter basis.
Directors, however, are not under that kind of pressure. They can’t be fired, and they can often afford to take a longer view.
And the longer view is important, because companies with good reputations
have an advantage with both customers and potential business partners.
Now, there’s no law that says companies have to set up this kind of
governance structure.
But maybe there should be.
Recent history tells us that this can be quite effective for
everyone involved.
Imagine if a company discovers that it’s been unintentionally overcharging a
customer.
In the past, that might have fallen under the category of “finder’s
keepers.”
Today, however, that sketchy kind of windfall falls under the aegis of
Sarbanes-Oxley (SOX), and public companies have the obligation to report their
inaccurate financial practices and give the money back.
For all the whining about SOX, compliance has been good for more than the
soul: it has helped companies become more effective in the long run because
they’ve had to exert more control over their financial reporting.
That transparency has led to better results.
You’d think that companies would have wanted those results on their own, but
getting there was always too expensive in the short term.
Sarbanes-Oxley gave them the push they needed to act in their long-term
self-interest, while protecting their shareholders and the credibility of
our public financial markets.
Let’s give companies credit on the ethics front: maybe they’d like to do the
right thing, if only they could afford it.
And let’s lend them a legal hand with that, too.
After all, a good law can be like a pitch pipe in helping set the right tone
at the top.
