Beyond compliance: Companies embrace ethical ways to work

Ever since the wave of corporate scandals in 2002 led to new ethics rules, American businesses have been scrambling to comply - not always enthusiastically. Complaints about the costs of implementing new accounting rules in the federal Sarbanes-Oxley Act are legion. And to some observers, efforts at compliance often look like lip service.

But some companies - publicly held and privately owned - have been setting the pace as good corporate citizens. Beyond simply focusing on the bottom line, they care about how they do business and how they affect the customers and communities they serve.

"Most companies today are probably oriented toward legal compliance - gotta obey the rules," says Marjorie Kelly, editor of Business Ethics magazine. "Then there are others who say, 'We need to adopt ethical values in the core of how we manage this company.' The best firms are doing that."

To spotlight innovative firms with high standards, the magazine last week announced its annual ethics awards, showcasing, among others, an electronics-industry giant and an employee-owned home builder.

Computer chipmaker Intel stood out for its ethics program and experience in corporate social responsibility (CSR). Intel was recognized for leadership in integrating values throughout the firm and encouraging social responsibility among its suppliers.

The California-based company has long emphasized values such as quality, discipline, and customer orientation, but as it grew to 90,000 employees in many countries, it encountered cultural challenges.

"You've heard of issues in China, Russia, and elsewhere that we define as corruption and they might define simply as 'the way we do business,' " says Dave Stangis, Intel's director for corporate responsibility. Intel wanted to deal on the same ethical basis everywhere, so it developed ethics training programs worldwide involving every employee.

"We have very high but simple ethical expectations," Mr. Stangis says. "Not only will you comply with the law, but everyone, including the board of directors and officers are not to do anything that can appear to be an ethical violation." Training emphasizing case studies and work situations is regularly updated and repeated.

Such efforts go beyond ethics officers and hotlines for reporting problems. What is really key, some business consultants say, is commitment of top management to creating the right company culture.

"You can set up all the hotlines you want, but it won't help if people feel threatened by reporting an infraction, if they fear it will hurt their career," says David Batstone, author of "Saving the Corporate Soul."

What's most needed in the United States is a change in mind-set, embracing the idea that "business is about more than making the most money you can," says editor Kelly. Firms that embrace CSR acknowledge that their responsibilities go beyond their shareholders to include all stakeholders, such as customers, employees, suppliers, and local communities.

Back in 1998, Intel got a strong nudge in that direction from one of its investors - the Presbyterian Church (USA). The church filed a shareholder resolution calling on Intel to assess the social and environmental policies of its suppliers. Aware that Nike, the Gap, and other firms had been stung by revelations of sweatshop labor, Intel officials sat down with the Presbyterians and got busy. After developing a code of conduct for itself, Intel initiated efforts across the technology sector - with Microsoft, Hewlett-Packard, IBM, and others - to produce an Electronic Industry Code of Conduct for environmental, health, human rights, and workforce standards.

Among the small firms contributing models for better ways to do business is South Mountain Co., which has designed and built homes on Martha's Vineyard, an island off Massachusetts, for 30 years. Last week, the firm won the Business Ethics Award for "workplace democracy."

Starting simply, founder John Abrams says, as a "community of people working together to do something they loved and do it well," the craftsmen evolved into a "green" company that uses profits from its high-end custom work to build affordable housing.

"I'm a strong believer in commitment to a place," says Mr. Abrams, once sole owner of the firm. His values were tested when long-term workers told him they wanted to stay their entire careers with his company, but needed a bigger stake than an hourly wage. He had various options, but took the giant leap to employee ownership: Anyone who works at the company for five years becomes a full owner regardless of his or her job.

"The level of commitment and degree of responsibility that people took changed dramatically," Abrams says. Employee turnover is zero. "What it's about is that the people who actually create the wealth share the wealth."

Abrams has helped other firms transition to employee ownership, and shares the story in "The Company We Keep: Reinventing Small Business for People, Community, and Place."

"There are thousands of employee- owned firms in the US - it's an experiment well under way though below the radar," Kelly says.

Other awards went to New Leaf Paper of San Francisco for environmental excellence, and Weaver Street Cooperative of Carrboro, N.C., for service to the local community.