Managing Business Conduct

E TH IC S A G lo b al L e a d er’s G uid e t o M an ag in g B usin ess C on d uct b y L yn n S . P ain e , R oh it D esh p an d é , a n d J o sh ua D . M arg o lis F R O M T H E S E P TE M BER 2 0 11 I S SU E M a n ag ers w ork in g o u ts id e t h eir h om e e n vir o n m en ts o ft e n fi nd t h at t h eir c o m pan ie s’ n orm s a re i n co n sis te n t w it h p ra ctic e s f o llo w ed b y o th er b u sin ess e s i n t h e a re a. I n r e sp on se , m an y f o llo w t h e t im e-h on ore d a d vic e g iv en i n t h e f o u rth c e n tu ry b y t h e b is h op o f M ila n t o A ugu stin e o f H ip po: W hen i n R om e, d o a s t h e R om an s d o.

B ut t h at’s a p erilo u s a p pro ach . C on sid er t h e o u tr a g e i n t h e U nit e d S ta te s w hen t h e m ed ia r e p orte d t h at B P o il r ig s i n t h e G ulf o f M ex ic o l a ck ed s a fe g u ard s r e q u ir e d o n s im ila r m ach in ery i n N orw ay a n d B ra zil— ev en t h ou gh t h e f a ile d e q u ip m en t i n t h e G ulf m et U .S . l e g al r e q u ir e m en ts . O r t h e w orld w id e o u tc ry o ver w ork in g c o n dit io n s a t F oxco n n i n C hin a a ft e r s o m e e m plo yees c o m mit t e d s u ic id e, a lt h ou gh t h e c o m pan y’s f a cto rie s w ere a rg u ab ly n o w ors e t h an t h ou sa n ds o f o th ers n earb y. O r c o n sid er t h e h ot w ate r t h at S ie m en s, L u ce n t, a n d D aim le rC hry sle r l a n ded i n a ft e r p ay in g b rib es a n d m ak in g v ario u s t y p es o f s id e p ay m en ts t h at w ere c o m mon i n t h e c o u ntr ie s w here t h e c o m pan ie s w ere o p era tin g.

T hese a n d o th er i n cid en ts s h ow t h at c o n fo rm an ce w it h l o ca l l a w a n d p ra ctic e d oes n ot g u ara n te e s ta k eh old er o r p u blic a p pro v al o f a c o rp ora tio n ’s b eh av io r. B ut d oes t h at m ean c o m pan ie s s h ou ld a u to m atic a lly d efa u lt t o t h eir h om e-c o u ntr y p ra ctic e s?

O ur r e se arc h s u ggests t h at t h e a n sw er i s n o. I n s u rv ey s o f m ore t h an 6 ,2 00 e m plo yees f r o m t h e t o p r a n ks t o t h e f r o n t l in es o f f o u r l e ad in g m ult in atio n als b ase d i n t h e U .S ., E uro p e, a n d J a p an , w e f o u n d a s tr o n g c o n se n su s o n b asic s ta n dard s o f c o n du ct t h at c o m pan ie s s h ou ld f o llo w w orld w id e. O ur fi ndin gs i n dic ate , f u rth er, t h at m eetin g t h ose s ta n dard s w ill r e q u ir e n ew a p pro ach es t o m an ag in g T h e C on d uct G ap S u rv e ys w e c o n d ucte d a t l e a d in g m ult in atio n al c o rp ora tio n s s h ow t h at e m plo ye es t e n d t o a g re e o n w hat c o m pan ie s s h ou ld d o, b ut m an y b elie ve t h eir e m plo ye rs d on’t f u lly l iv e u p t o t h ose b u sin ess c o n du ct. T he c o m plia n ce a n d e th ic s p ro gra m s o f m ost c o m pan ie s t o d ay f a ll s h ort o f a d d re ssin g m ult in atio n als ’ b asic r e sp on sib ilit ie s— su ch a s d ev elo p in g t h eir p eo p le o r d eliv erin g h ig h - q u alit y p ro d u cts — le t a lo n e s u ch v ex in g i s su es a s h ow t o s ta y c o m petit iv e i n m ark ets w here r iv als f o llo w d iff ere n t r u le s. I n ste ad o f i n te n sif y in g t h eir f o cu s o n c o m plia n ce , c o m pan ie s m ust b rin g t o t h e m an ag em en t o f b u sin ess c o n du ct t h e s a m e p erfo rm an ce t o ols a n d c o n ce p ts t h at t h ey u se t o m an ag e q u alit y , i n nov atio n , a n d fi nan cia l r e su lt s . L ead ers n eed a n a p pro ach t h at i s g u id ed b y g lo bal s ta n dard s, i n fo rm ed b y s y ste m atic d ata , g ro u nded i n t h e b u sin ess c o n te x t, a n d f o cu se d o n p osit iv e g o als .

T his n eed i s p artic u la rly a cu te r ig h t n ow . D esp it e t h e w id esp re ad a d op tio n o f e th ic s p ro gra m s b y c o m pan ie s a ro u nd t h e w orld i n r e ce n t d eca d es, f a ilu re s o f c o rp ora te r e sp on sib ilit y a re a ll t o o f r e q u en t a n d p u blic t r u st i n b u sin ess r e m ain s d is tr e ssin gly l o w . A t t h e s a m e t im e, e x p ecta tio n s c o n tin ue t o r is e . T he U K c re ate d a n ew a n tib rib ery l a w t h at t o ok e ff ect J u ly 1 , 2 011, a n d b ro ad en s t h e r a n ge o f c o m pan ie s— both d om estic a n d f o re ig n — th at c a n b e p ro se cu te d i n t h e U K f o r b rib ery o r f o r f a ilu re t o p re v en t b rib ery b y a n a ss o cia te d p ers o n o r e n tit y , r e g ard le ss o f w here t h e o ff en din g a ct t o ok p la ce .

I n t h is a rtic le , w e o ff er g u id elin es f o r n av ig atin g t h e i n cre asin gly r u gged e th ic a l t e rra in t h at m ult in atio n als f a ce e v ery d ay.

I d en tif y Y o u r C on d uct G ap s G overn m en t o ffi cia ls a n d m em bers o f t h e p u blic a re n ’t t h e o n ly o n es c a llin g f o r b ett e r b u sin ess c o n du ct. E m plo yees, t o o, s e e a n eed f o r i m pro vem en t i n c o rp ora te b eh av io r. S u rv ey s w e c o n du cte d i n 2 006 a n d 2 007 a t s o m e o f t h e w orld ’s l e ad in g g lo bal c o rp ora tio n s r e v eal t h at w hile t h ere i s a s tr o n g c o n se n su s o n t h e s ta n dard s t h at s h ou ld b e m et, m an y e m plo yees f e el t h at t h eir c o m pan ie s d on ’t f u lly l iv e u p t o t h ose s ta n dard s. ( S ee t h e e x h ib it “ T he C on du ct G ap .” ) T he s u rv ey s, w hose fi ndin gs h av e b een s u pp orte d b y a c o m pan io n s tu dy o f g lo bal e x ecu tiv es t h at h as 8 80 r e sp on den ts t o d ate , s h ow t h at e m plo yees f r o m e v ery l e v el i n t h ose o rg an iz a tio n s s tr o n gly s u pport a d h ere n ce t o t h e 6 2 s ta n dard s i n t h e G lo bal B usin ess S ta n dard s s ta n d ard s; w e a ls o f o u n d g re a te r c o n se n su s a m on g e m plo ye es o n w hat c o m pan ie s s h ou ld d o a s c o m pare d w it h w hat t h eir o w n c o m pan ie s a ctu ally d o.

C lic k h ere f o r a l a rg e r i m age o f t h e g ra p hic . C od ex , w hic h w e d ev elo p ed s o m e y ears a g o o n t h e b asis o f l e ad in g c o d es o f c o rp ora te c o n du ct.

T hese s ta n dard s, d esc rib ed i n o u r 2 005 H BR a rtic le “ U p t o C od e, ” c o ver a ll o f a c o m pan y’s r e sp on sib ilit ie s, f r o m r e sp ectin g e m plo yees’ d ig n it y t o r e fr a in in g f r o m b rib ery t o c re atin g i n nov ativ e p ro d u cts a n d t e ch n olo gie s.

D esp it e w id e d iff ere n ce s i n c u lt u ra l o rig in s a n d b u sin ess e n vir o n m en ts , t h e e m plo yees, w hen a sk ed t h e e x te n t t o w hic h t h ey t h ou gh t c o m pan ie s s h ou ld a d h ere t o e ach o f t h e s ta n dard s, r e sp on ded w it h a n a v era g e v alu e o f 6 .4 4 o n a s c a le o f 1 t o 7 . E ven o n i t e m s t h at w e t h ou gh t w ou ld b e c o n tr o vers ia l— su ch a s r e sp ectin g d ig n it y a n d h u m an r ig h ts — w e f o u nd s tr o n g s u pport. T hese s u rv ey s b ols te r o u r e arlie r r e se arc h , i n w hic h w e h yp oth esiz e d a n e m erg in g c o n se n su s o n w id ely a cce p te d s ta n dard s o f c o n du ct f o r g lo bal c o m pan ie s, a n d t h ey b elie t h e a ss u m ptio n t h at r e la tiv is m s h ou ld g u id e c ro ss- b ord er b u sin ess p ra ctic e s.

B ut t h e g ap b etw een “ sh ou ld ” a n d “ d o” w as t r o u blin g: T he a v era g e s c o re o n a d h ere n ce t o t h e s ta n dard s w as j u st 5 .6 8 o n t h e s a m e s e v en -p oin t s c a le . M ore o ver, w e f o u n d a g re ate r r a n ge o f r e sp on se s o n t h e a ctu als t h an o n t h e s h ou ld s, w hic h m ean s e m plo yee p erc e p tio n s o f w hat t h eir c o m pan ie s d o a re m ore v arie d t h an t h eir p erc e p tio n s o f w hat t h e c o m pan ie s s h ou ld d o. A lt h ou gh e v ery c o m pan y w ill h av e a d iff ere n t p ro fi le o f g ap s b etw een i t s c o n du ct a n d w hat e m plo yees f e el t h at c o n du ct s h ou ld b e, w e o bse rv ed t h re e p att e rn s t h at w e s u sp ect a re w id esp re ad .

T he a lt it u de e ff ect. T hose a t t h e t o p o f t h e c o rp ora te h ie ra rc h y g en era lly h av e a m ore p osit iv e v ie w o f t h eir c o m pan ie s’ c o n du ct. F o r t h e b u lk o f t h e s ta n dard s, r e sp on den ts w ho i d en tifi ed t h em se lv es a s c o rp ora te o r d iv is io n -le v el e x ecu tiv es r e p orte d s m alle r g ap s b etw een “ sh ou ld ” a n d “ d o” t h an t h ose w ho i d en tifi ed t h em se lv es a s m id d le m an ag em en t, j u nio r m an ag em en t, o r n on m an ag em en t e m plo yees. T he a lt it u de e ff ect w as m ost p ro n ou nce d f o r e m plo yee-r e la te d i s su es, b u t i t w as a ls o s tr o n gly i n e v id en ce f o r b asic s ta n dard s o f b u sin ess i n te g rit y s u ch a s f a ir d ealin g a n d p ro m is e k eep in g a n d f o r b asic s ta n dard s o f h u m an w elf a re s u ch a s p ro te ctin g h ealt h a n d s a fe ty . W heth er t h e r o sie r v ie w f r o m t h e t o p i n dic ate s t h at e x ecu tiv es a re b ett e r i n fo rm ed o r t h at t h ey a re m ere ly o u t o f t o u ch , t h e d is c re p an cy b etw een t h eir a ss e ssm en ts a n d t h ose o ff ere d b y o th er e m plo yees i s c a u se f o r s o m e c o n ce rn . A t t h e v ery l e ast, i t i n dic ate s t h at e x ecu tiv es n eed t o r e ly o n m ore t h an t h eir o w n v ie w s t o a sse ss t h eir c o m pan ie s’ e th ic a l p erfo rm an ce .

B asic s m att e r. W e f o u nd t h at g ap s f o r s ta n dard s o f b u sin ess i n te g rit y w ere a m on g t h e w id est. A lt h ou gh e n vir o n m en ta l i s su es e m erg ed , s o m ew hat p re d ic ta b ly , w it h w id e g ap s, w e a ls o f o u n d l a rg er-t h an -a v era g e g ap s f o r f a ir d ealin g, p ro m is e k eep in g, a n d c o n fl ic t- o f- in te re st d is c lo su re . T hese fi ndin gs a re a r e m in der t h at b u sin ess l e ad ers m ust r e m ain v ig ila n t a b ou t b asic b u sin ess i n te g rit y e v en a s t h ey s tr iv e t o m eet e m erg in g s ta n dard s o f c o rp ora te c it iz e n sh ip c o n ce rn in g t h e e n vir o n m en t, h u m an r ig h ts , a n d s u pp lie r p ra ctic e s.

E m plo y ees a re a n e arly -a le rt s y ste m . G ap s r e la tin g t o f a ir c o m pen sa tio n , r e sp on siv en ess t o e m plo yees’ c o n ce rn s, c o m munic atio n w it h e m plo yees, a n d d ev elo p in g e m plo yees’ s k ills t o p ped t h e l is t. I n t h e n ex t t ie r, n ot f a r b elo w , w ere g ap s r e la tin g t o f r e e a ss o cia tio n , e m plo yee d ig n it y , e q u al e m plo ym en t o p portu nit y , a n d e m plo ym en t d is lo catio n s. E m plo yees m ay w ell b e m ost s e n sit iv e t o p ra ctic e s t h at a ff ect t h em , b u t t h at s h ou ld n’t p ro v id e m uch s o la ce t o e x ecu tiv es. A l a rg e b od y o f r e se arc h h as c o n sis te n tly s h ow n t h at e m plo yees w ho f e el m is tr e ate d e x act a c o st f r o m t h e c o m pan y, a n d m an y c o m pan ie s e sp ou se t h e i m porta n ce o f t r e atin g e m plo yees t h e w ay t h ey w an t e m plo yees t o t r e at c u sto m ers . T he s iz a b le g ap s w e f o u nd o n e m plo yee s ta n dard s m ay b e a n e arly w arn in g o f b re w in g t r o u ble .

D eve lo p D ata -D riv e n T o ols W it h g o vern m en ts , t h e p u blic , a n d e m plo yees e x p re ssin g a d esir e t o s e e b ett e r c o rp ora te b eh av io r, h ow c a n c o m pan ie s t a k e m easu ra b le s te p s t o i m pro ve t h eir c o n du ct?

W hile m an y e x ecu tiv es s a y t h at t h eir c o m pan ie s a d h ere t o t h e h ig h est e th ic a l s ta n dard s, v ery f e w h av e d ata t o a sse ss t h e s tr in gen cy o f t h ose s ta n dard s o r e v en a w ay t o d ete rm in e w hat s ta n dard s t h eir c o m pan ie s a ctu ally f o llo w . I n ste ad t h ey t y p ic a lly p oin t w it h p rid e t o t h e c o m pan y’s w rit t e n c o d e, t h e e x ce lle n t p eo p le t h e c o m pan y h ir e s, o r h ow s o m e p artic u la r m is d eed w as h an dle d . S u ch u nsu bsta n tia te d c la im s w ou ld b e u nacc e p ta b le i n a n y o th er a sp ect o f b u sin ess. A n e x ecu tiv e w ho c la im ed t h at h is c o m pan y’s s a le s w ere a m on g t h e b est i n t h e i n du str y b u t w hose o n ly e v id en ce w as t h e c o m pan y’s w rit t e n s a le s p la n , i t s g re at s a le sp eo p le , o r l a st w eek ’s b ig s a le w ou ld q u ic k ly b e s h ow n t h e d oor a n d p erh ap s e v en s u ed f o r f r a u d o r n eg lig en ce . T he l a ck o f d ata a n d r ig o r i n a sse ssin g a n d m an ag in g b u sin ess c o n du ct i s t o le ra te d b eca u se m an y a ssu m e t h at e th ic s a n d c o n du ct a re “ so ft ” t o p ic s n ot a m en ab le t o m easu re m en t o r e v alu atio n .

T o b e s u re , m an y c o m pan ie s d o t r a ck t h e u se o f t h eir h otlin es a n d c o lle ct d ata o n a lle g ed c o d e-o f- c o n du ct v io la tio n s. A nd s o m e c o m pan ie s d o s u rv ey e m plo yees o n t h eir p erc e p tio n s o f c o m pan y v alu es o r a d h ere n ce t o e sp ou se d s ta n dard s. W hat i s l a rg ely l a ck in g, h ow ev er, i s a s y ste m atic a p pro ach t o a sse ssin g c o m pan y p erfo rm an ce o n t h e s ta n dard s o f c o n du ct t h at a re e x p ecte d o f l e ad in g c o m pan ie s t o d ay.

T o a d d re ss t h is p ro ble m a n d h elp l e ad ers m ore a cc u ra te ly g au ge t h eir c o m pan ie s’ e th ic a l p erfo rm an ce , w e d ev elo p ed a n a ss e ssm en t t o ol b ase d o n t h e G lo bal B usin ess S ta n dard s C od ex t o s u rv ey t h e f o u r g lo bal c o m pan ie s. C om pare d w it h m ore -c o m mon a ss e ssm en t t o ols , t h is o n e h as s e v era l i m porta n t f e atu re s. F ir s t, i t i s b ase d o n o bje ctiv e r a th er t h an s u bje ctiv e s ta n dard s ( t h ose t h at t h e c o m pan y h as c h ose n ) t h at w e h av e f o u nd t o b e w id ely a cc e p te d b y d iv ers e b u sin ess, g o vern m en t, a n d m ult is e cto r g ro u ps. S eco n d, i t g en era te s d ata f r o m t h ro u gh ou t t h e c o m pan y— up a n d d ow n t h e h ie ra rc h y a n d a cro ss m ult ip le u nit s — an d c o vers m ult ip le d im en sio n s o f p erfo rm an ce .

T hir d , i t f o cu se s n ot j u st o n n eg ativ e s ta n dard s a n d t h e p re v ale n ce o f m is c o n du ct b u t o n p osit iv e s ta n dard s a n d t h e c o m pan y’s p erfo rm an ce a g ain st a ffi rm ativ e b en ch m ark s.

T he c o d ex a sse ssm en t t o ol a llo w s b u sin ess l e ad ers t o c o n str u ct a n o rg an iz a tio n -w id e p ic tu re o f t h e c o m pan y’s e th ic a l s tr e n gth s, w eak n ess e s, a n d p erfo rm an ce . A dm it t e d ly , i t c a p tu re s p erc e p tio n s a n d b elie fs r a th er t h an a ctu al b eh av io r, a n d p erc e p tio n s c a n b e m is ta k en . ( A n i n dep en den t t h ir d -p arty a sse ssm en t w ou ld b e u se fu l a d d it io n al i n pu t.) B ut p erc e p tio n s f r o m a b ro ad a n d d iv ers e g ro u p o f e m plo yees a re a u se fu l fi rs t a p pro x im atio n o f a ctu al c o n du ct— an d p erc e p tio n s a re c ru cia l i n a n d o f t h em se lv es, b eca u se t h ey d riv e a tt it u des a n d o p in io n s w it h in t h e c o m pan y. T hey a re a ls o u se fu l f o r h elp in g m an ag ers t a k e t h re e n ece ss a ry s te p s: i d en tif y in g i s su es t h at n eed f u rth er i n qu ir y , p in poin tin g p ote n tia l r is k s t o t h e c o m pan y a n d i t s r e p u ta tio n , a n d fi ndin g a re as o f s tr e n gth a n d o p portu nit ie s f o r l e arn in g. G o B eyo n d C om plia n ce -a s-U su al T h e G lo b al B usin ess S ta n d ard s P ro je ct I n r e sp on se t o a l a ck o f c le a r, c o m pre h en siv e g u id elin es f o r t h e c o n d uct o f g lo b al c o m pan ie s, w e s e t o u t i n 2 0 04 t o c re a te a b usin ess-e th ic s i n d ex t h at c o m pan ie s c o u ld u se t o b en ch m ark t h eir b eh avio r o ve r t im e.

A s a fi rs t s te p , w e s y ste m atic a lly a n aly ze d a s e le ct g ro u p o f c o d es o f c o rp ora te c o n d uct. D is til lin g p re ce p ts f r o m 2 3 s o u rc e s, i n clu d in g 1 4 o f t h e w orld ’s l a rg e st c o m pan ie s a n d i n stit u tio n s— am on g t h em t h e U nit e d N atio n s, t h e O EC D , t h e G lo b al R ep ortin g I n it ia tiv e , a n d t h e C au x R ou n d T a b le — we c re a te d t h e G lo b al B usin ess S ta n d ard s C od ex, a c o m pil a tio n o f w id ely e n d ors e d s ta n d ard s.

W e t h en c o n d ucte d m ult il a n gu age fi eld s u rv e ys t o d ete rm in e t h e e xte n t t o w hic h b usin essp eo p le a ro u n d t h e w orld b elie ve t h at c o m pan ie s s h ou ld — an d d o— ad here t o t h ese s ta n d ard s. T w o d ata s e ts e m erg e d f r o m t h is w ork , w hic h d re w o n r e sp on d en ts f r o m s o m e 2 3 c o u n tr ie s a n d r e g io n s: fi n d in gs f r o m 8 80 e xe cu tiv e s i n H arv a rd B usin ess S ch ool’s A dva n ce d M an age m en t P ro gra m ( 2 0 06 t o t h e p re se n t), a n d s u rv e y r e su lt s f r o m m ore t h an 6 ,2 0 0 e m plo ye es o f f o u r l e a d in g g lo b al c o m pan ie s ( 2 0 06 a n d 2 0 07). G o B eyo n d C om plia n ce -a s-U su al O ver t h e p ast t w o d eca d es, m an y e x ecu tiv es h av e a p poin te d c h ie f c o m plia n ce o ffi ce rs a n d e sta b lis h ed p ro gra m s t o f o ste r a d h ere n ce t o t h eir c o m pan ie s’ c o d es o f c o n du ct. A t y p ic a l c o m plia n ce p ro gra m c o m pris e s b est- p ra ctic e e le m en ts — fr o m a d efi ned s e t o f c o n du ct s ta n dard s a n d p olic ie s t o a n i m ple m en ta tio n a n d o vers ig h t s tr u ctu re t h at g o es a ll t h e w ay u p t o t h e b oard o f d ir e cto rs , o ft e n v ia t h e b oard ’s a u dit c o m mit t e e o r a c o m plia n ce c o m m it t e e.

C om pan ie s t h at f o llo w s u ch p ro gra m s c o m munic ate t h eir s ta n dard s t o e m plo yees, a p poin t o m bu dsp eo p le , s e t u p a n on ym ou s h otlin es, a n d i n sta ll m on it o rin g a n d a u dit in g p ro ce sse s t o f e rre t o u t c o d e v io la tio n s a n d r is k s.

T hey a re q u ic k t o r e sp on d t o v io la tio n s b y g o in g a ft e r t h e c a u se s a n d t h e o ff en ders .

T hese p ro gra m s a re p re d ic ate d o n a w ell- f u nctio n in g l e g al s y ste m , a n d t h eir a p p ro ach t o i n fl uen cin g b eh av io r r e lie s h eav ily o n t h e l a w yer’s t o ol k it o f r u le s a n d p en alt ie s. V io la tio n s a re p re su m ed t o o rig in ate w it h i n div id u als a ctin g a g ain st o th erw is e p re v ailin g n orm s, s o t h e i d ea i s t o d ete ct a n d d ete r b re ach es b y f o ste rin g t r a n sp are n cy a n d s tr e n gth en in g d is in ce n tiv es.

T he a p para tu s i s f o cu se d o n a ctiv it ie s i n sid e t h e o rg an iz a tio n a n d i s l a rg ely i n diff ere n t t o t h e e co n om ic a n d s o cie ta l c o n te x t i n w hic h t h e o rg an iz a tio n o p era te s. M ore o ver, i t i s m uch t h e s a m e w hate v er t h e b u sin ess a n d w hate v er t h e c o n te n t o f t h e c o d e. B ut t h is a p pro ach s e em s m ark ed ly o u t o f s te p w it h o th er a re as o f b u sin ess p ra ctic e . O ur r e se arc h s u ggests t h e n eed f o r r ic h er t o ols a n d a m ore c o n te x tu al a p p ro ach t o i m pro v in g e th ic a l p erfo rm an ce . W hen w e d elv ed m ore d eep ly i n to t h e g ap s b etw een “ sh ou ld ” a n d ” d o,” w e f o u n d t h at a sp ects o f t h e b ro ad er c o n te x t i n w hic h r e sp on den ts w ere w ork in g r e la te d t o t h e s iz e o f t h e g ap s t h ey r e p orte d . I n p artic u la r, w e f o u n d t h at e m plo yees i n t h e e m erg in g m ark ets o f C hin a, I n dia , B ra zil, a n d S o u th east A sia r e p orte d l a rg er g ap s t h an t h ose i n t h e U nit e d S ta te s, t h e U K, W este rn E uro p e, a n d J a p an . M ore g en era lly , t h ose i n l o w -in co m e c o u ntr ie s r e p orte d l a rg er g ap s t h an t h ose i n m id d le - a n d h ig h -in co m e o n es. T he d is c re p an cy b etw een e m erg in g a n d d ev elo p ed m ark ets w as i n e v id en ce a cro ss a w id e r a n ge o f a re as— fr o m c o m petit iv e p ra ctic e s a n d e m plo yee d ev elo p m en t t o c o m munit y r e la tio n s a n d a n tic o rr u ptio n e ff orts . I n o n ly o n e a re a— pro v id in g c u sto m ers w it h a cc u ra te i n fo rm atio n a b ou t p ro d u cts a n d s e rv ic e s— did d ev elo p ed -m ark et r e sp on den ts r e p ort s ig n ifi ca n tly l a rg er g ap s t h an e m erg in g-m ark et r e sp on den ts .

G ap s a sso cia te d w it h b ro ad c o n te x tu al f a cto rs s u ch a s t h e e co n om ic a n d l e g al e n vir o n m en ts a re d iffi cu lt t o a d d re ss w it h a c o m plia n ce p ro gra m f o cu se d o n d ete ctin g a n d d ete rrin g i n div id u al v io la to rs . F o r s u ch f a cto rs , l o w a d h ere n ce t o t h e c o d ex s ta n dard s m ay h av e m ore t o d o w it h t h e e n vir o n m en t i n w hic h p eo p le a re w ork in g t h an w it h d efi cie n cie s i n t h e c h ara cte r o r m otiv atio n o f p artic u la r i n div id u als , s o r e p la cin g o n e s e t o f e m plo yees w it h a n oth er i s u nlik ely t o m ak e m uch o f a d iff ere n ce . W hat’s n eed ed i s a m ult if a ce te d r e sp on se t h at t a k es a cc o u nt o f h ow l e g al o r e co n om ic d iff ere n ce s s h ap e b eh av io r a n d s u pport ( o r d is c o u ra g e) a d h ere n ce t o t h e s ta n dard s i n q u estio n .

C on sid er t h e l a rg e g ap s f o r w ork p la ce h ealt h a n d s a fe ty t h at w e f o u nd i n s o m e r e g io n s. A s m an y c o m pan ie s h av e l e arn ed , a n e ff ectiv e p ro gra m f o r i m pro v in g w ork p la ce s a fe ty m ay i n clu de i n vestm en t i n e q u ip m en t a n d i n fr a str u ctu re , r e d esig n o f f a cilit ie s, c h an ges i n w ork p ro ce sse s, e d u catio n a n d t r a in in g o f e m plo yees, a n d m od ifi catio n o f p erfo rm an ce m easu re s. E ngag em en t w it h e x te rn al p artie s— to e sta b lis h s ta n dard s, i m pro ve e n fo rc e m en t p ra ctic e s, a n d f o cu s p u blic a tt e n tio n o n s a fe ty — m ay a ls o b e r e q u ir e d . N on e o f t h ese e le m en ts i s i n clu ded i n t h e t y p ic a l c o m plia n ce t o ol k it .

S im ila rly , e ff orts t o c o m bat b rib ery i n a n e n vir o n m en t w here c o rr u ptio n i s w id esp re ad m ust b e m ult if a ce te d . I n str u ctin g e m plo yees t o “ ju st s a y n o” a n d p u nis h in g v io la to rs m ay w ork , b u t i t c a rrie s a r is k t o t h e b u sin ess a n d m ay d riv e c o rr u ptio n f u rth er u nderg ro u nd. A m ore p ro m is in g a p pro ach r e co gn iz e s t h at t h e b est p ro te ctio n a g ain st c o rr u ptio n i s a s u perio r p ro d u ct t h at a d d s v alu e f o r t h e c u sto m er a n d i s n ot r e ad ily a v aila b le e ls e w here . E xce lle n t s a le s a n d m ark etin g s k ills a re a ls o i m porta n t, b eca u se w it h ou t t h em s a le s p ers o n nel a re m uch m ore d ep en den t o n s u pply in g p ers o n al f a v o rs , g if t s , a n d e n te rta in m en t. A s i n t h e c a se o f w ork p la ce s a fe ty , c h an ges i n i n te rn al p ro ce sse s m ay b e r e q u ir e d — fo r e x am ple , a p pro v als f o r c e rta in m ark etin g e x p en se s— an d i t m ay b e e sse n tia l t o e n gag e w it h e x te rn al p artie s s u ch a s s ta n dard s e tt e rs , r e g u la to ry o ffi cia ls , a n d a n tic o rr u ptio n g ro u ps.

T he u su al c o m plia n ce t o ol k it i s u se fu l f o r r e in fo rc in g c e rta in s ta n dard s i n c e rta in o p era tin g e n vir o n m en ts , b u t a s t h ese e x am ple s s h ow , b u sin ess l e ad ers w ill n eed a m uch m ore e x te n siv e s e t o f t o ols t o i m pro ve p erfo rm an ce i n m an y o f t h e g ap a re as i d en tifi ed b y o u r r e se arc h . I t i s n ot e n ou gh t o e sta b lis h c o d es o f c o n du ct, o vers ig h t s tr u ctu re s, r e p ortin g p ro ce sse s, a n d d is c ip lin ary s y ste m s.

M an ag ers a ls o n eed t o e x am in e c o re a sp ects o f t h e b u sin ess a n d t h e o p era tin g e n vir o n m en t a n d c ra ft a p erfo rm an ce -im pro vem en t p la n t h at i s t a ilo re d t o t h ose s p ecifi cs u sin g t h e f u ll r a n ge o f m an ag em en t t o ols a t t h eir d is p osa l— fr o m p ro d u ct, p ro ce ss, a n d p la n t d esig n t o e m plo yee t r a in in g, d ev elo p m en t, a n d m otiv atio n ; m ark etin g s tr a te g y; e x te rn al r e la tio n s; a n d c o m munit y e n gag em en t.

L ead ers m ust c h an ge t h e c o n te x t w it h in w hic h p eo p le a re w ork in g. T o d o s o , t h ey w ill n eed t o g o w ell b ey o n d t h e a ctiv it ie s p erfo rm ed b y t h e t y p ic a l c o m plia n ce a n d e th ic s f u n ctio n .

R evis e Y o u r M en ta l M od el M an y e x ecu tiv es w ho a re s e rio u s a b ou t b u sin ess c o n du ct v ie w t h e c h alle n ge w it h t h e l e g alis tic m en ta lit y t h at i n fo rm s m ost c o m plia n ce p ro gra m s. T his m en ta lit y i s c h ara cte riz e d b y b in ary c ate g o rie s— eth ic a l v ers u s u neth ic a l, c o m plia n t v ers u s n on co m plia n t, l e g al v ers u s i lle g al— th at l e av e l it t le r o om f o r d eg re es o f p erfo rm an ce o r g ra d u al i m pro vem en t. I t f o cu se s o n s ta n dard s r e q u ir in g o r p ro h ib it in g a ctio n s t h at c a n b e r e ad ily s p ecifi ed i n a d van ce , s u ch a s r u le s a g ain st b rib ery , i n sid er t r a d in g, o r c o llu sio n a m on g c o m petit o rs . E xecu tiv es i n t h is c a m p s o m etim es p rid e t h em se lv es o n h av in g z e ro t o le ra n ce f o r u neth ic a l b eh av io r o r f o r i n sis tin g t h at e th ic s a re n on n eg o tia b le ; c o m plia n ce m ust b e i m med ia te , a n d i t m ust b e c o m ple te .

A lt h ou gh c o m plia n ce t h in kin g a n d z e ro t o le ra n ce h av e t h eir p la ce , o u r r e se arc h u n ders c o re s t h e n eed f o r b u sin ess l e ad ers t o s e e a p ro fi le o f c o rp ora te c o n du ct t h at i s b ro a d , d yn am ic , a n d a ffi rm ativ e. B y b ro a d , w e m ean i n clu din g n ot j u st “ T hou s h alt n ot… ” b u t a ls o t h e s ta n dard s t h at h av e t r a d it io n ally b een c a lle d “ im perfe ct d u tie s.” U nlik e l e g alis tic s ta n dard s t h at r e q u ir e s p ecifi c a cts o r o m is sio n s, i m perfe ct d u tie s a llo w f o r a s ig n ifi ca n t d eg re e o f f r e ed om i n h ow t h ey m ay b e s a tis fi ed .

C on sid er, f o r e x am ple , t h e c o d ex s ta n dard s o n r e sp ectin g e m plo yee d ig n it y a n d o n f a ir t r e atm en t o f m in orit y s h are h old ers . T he a ctio n s r e q u ir e d t o m eet t h ose s ta n dard s c a n not b e e asily s ta te d i n g en eric , a u dit a b le t e rm s. A f u ll t h ir d o f t h e c o d ex s ta n dard s a re o f t h is i n defi nit e t y p e. ( O ne-t h ir d a re d efi nit e , a n d o n e-t h ir d a re o f a m ix ed c h ara cte r.) W e f o u nd t h at i n g en era l, g ap s a re l a rg er f o r i n defi nit e t h an f o r d efi nit e s ta n dard s. I n deed , a m on g t h e l a rg est g ap s r e v eale d i n o u r m ult in atio n al s u rv ey s, a b ou t h alf w ere a sso cia te d w it h s ta n dard s t h at a re i n defi nit e o r m ix ed i n n atu re — fo r e x am ple , p ro v id in g e m plo yees w it h f a ir c o m pen sa tio n , p ro te ctin g t h e e n vir o n m en t, h elp in g e m plo yees d ev elo p s k ills a n d k n ow le d ge, a n d, a m on g e m erg in g-m ark et r e sp on den ts , c o op era tin g w it h o th ers t o e lim in ate b rib ery a n d c o rr u ptio n . A c o m pan y s tu ck i n a c o m plia n ce m in d-s e t m ay b e p atr o llin g v io la tio n s e ff ectiv ely w hile m is sin g o u t o n c ru cia l o p portu nit ie s t o u pgra d e i t s p erfo rm an ce i n t h ese e th ic a l a re as.

B y d yn am ic , w e m ean c a p tu rin g h ow p erfo rm an ce s h if t s o ver t im e. A s m acro eco n om ic a n d i n du str y c o n dit io n s c h an ge, t h e p re ssu re s a n d o p portu nit ie s t h at s h ap e i n div id u al a n d c o m pan y c o n du ct a ls o c h an ge. P erio d ic a sse ssm en ts o f h ow t h e c o m pan y i s p erfo rm in g o n t h e c o d ex s ta n dard s a re c ru cia l f o r s p ott in g e m erg in g r is k s a n d o p p ortu nit ie s.

B y a ffi rm ativ e, w e m ean t r e atin g e th ic s a s g o als t o s tr iv e f o r r a th er t h an j u st l a p se s t o a v o id . B usin ess l e ad ers w ill n eed t o t h in k i n t e rm s o f c o n tin uou s i m pro vem en t a s t h ey s e ek t o c re ate t h e c o n dit io n s a n d i n stit u tio n s n ece ssa ry t o s u pp ort a d h ere n ce t o t h e w hole r a n ge o f c o d ex s ta n dard s a cro ss d iff erin g o p era tin g c o n te x ts .

A b ro ad , d yn am ic , a n d a ffi rm ativ e a p p ro ach t o m an ag in g b u sin ess c o n du ct r e p re se n ts a n ew w ay o f l o okin g a t c o rp ora te e th ic s. F o r c o m pan ie s t o f o ste r t h is n ew w ay, a c o rp ora te -c o n du ct d ash board m ay p ro ve e sse n tia l. U sin g d ata g ath ere d w it h t h e c o d ex a ss e ssm en t t o ol, m an ag ers c a n p ro v id e a s n ap sh ot o f t h e c o m pan y’s p erfo rm an ce o n k ey i n dic ato rs t o m ak e c o n du ct i s su es a cro ss t h e o rg an iz a tio n v is ib le t o b u sin ess l e ad ers . T he d ata c a n b e a g g re g ate d i n v ario u s w ay s. F o r i n sta n ce , t h ey c a n b e o rg an iz e d t o s h ow t h e e x te n t t o w hic h e m plo yees s u pp ort t h e “ sh ou ld ” c o n se n su s o r h ow e m plo yees r a te t h e c o m pan y’s p erfo rm an ce o n e th ic a l p rin cip le s o r r e sp on sib ilit ie s t o s ta k eh old ers . T he d ash board c a n a ls o c o n vey t h e l a rg est g ap s a s s e en b y e m plo yees a cro ss t h e c o m pan y a n d w it h in d iff ere n t b u sin ess u nit s , r e g io n s, f u nctio n s, a n d h ie ra rc h ic a l l e v els . D ep en din g o n h ow t h e d ata a re a n aly ze d , i t c a n a llo w f o r m ore -g ra n ula r c o m paris o n s o f g ap s f o r p artic u la r s ta n dard s— or t o p ic a re as— acro ss v ario u s g eo gra p h ie s a n d b u sin ess u nit s . F o r i n sta n ce , r e su lt s f o r t h e c lu ste r o f s ta n dard s r e la tin g t o t h e e n vir o n m en t c a n b e a g g re g ate d , a n d a n i n dic ato r f o r e n vir o n m en ta l i s su es i n d iff ere n t r e g io n s c a n b e i n clu ded i n t h e d ash board .   A c o d ex d ash board i s o n ly t h e b eg in nin g o f a c o n vers a tio n . T o u nders ta n d w hat a cco u nts f o r t h e fi ndin gs t h at i t c a p tu re s, m an ag ers a n d d ir e cto rs w ill n eed t o l o ok b en eath t h e s u rfa ce a n d t o i n te rp re t t h e i n dic ato rs w it h c a re a n d j u dgm en t i n l ig h t o f o th er f a cts a n d d ata . S till, a c o d ex d ash board c a n h elp e x ecu tiv es s h if t f r o m w hat t h ey s e n se t o w hat s y ste m atic d ata r e v eal a n d f r o m a c o m plia n ce -o rie n te d r e v ie w o f h otlin e u sa g e, i n vestig atio n s, a n d d is c ip lin ary a ctio n s t o a m ore h olis tic e x am in atio n o f t h e c o m pan y’s o vera ll p erfo rm an ce o n c rit ic a l s ta n dard s. I n ste ad o f d eb atin g w heth er a s p ik e i n r e p orte d c a se s i s g o od ( b eca u se i t s h ow s t h at e m plo yees a re n ot a fr a id t o u se t h e r e p ortin g s y ste m ) o r b ad ( b eca u se m is c o n du ct i s , i n f a ct, e sc a la tin g), b u sin ess h ead s a n d b oard m em bers c a n f o cu s o n w here t h e t h re ats a n d o p portu nit ie s m ay l ie a n d h ow t h e c o m pan y c a n a ch ie v e i t s c o n du ct g o als .

W it h a n e n ric h ed t o ol k it a n d n ew w ay s o f t h in kin g, b u sin ess l e ad ers c a n , w e h op e, i m pro ve t h eir c o m pan ie s’ a b ilit y t o p erfo rm t o t h e s ta n dard s i n cre asin gly e x p ecte d o f m ult in atio n als t h e w orld o ver. W e t h in k t h at d oin g s o i s c ru cia l f o r m ain ta in in g t h e p u blic ’s t r u st i n b u sin ess a n d t h e f r e e- m ark et s y ste m .

A v e rs io n o f t h is a rtic le a p peare d in t h e S ep te m ber 2 0 11 is su e o f H arv a rd B usin ess R evie w . L y n n S . P ain e is t h e J o h n G . M cLe an P ro fe sso r o f B usin ess A dm in is tr a tio n a t H arv a rd B usin ess S ch ool. S h e is a c o au th or o f C apit a li s m a t R is k : R eth in kin g t h e R ole o f B usin ess ( H arv a rd B usin ess R evie w P re ss, 2 0 11) . R oh it D esh p an d é is t h e S eb astia n S . K re sg e P ro fe sso r o f M ark e tin g, a n d J o sh ua D . M arg o lis J o sh ua D . M arg o lis is a p ro fe sso r o f b usin ess a d m in is tr a tio n a n d t h e f a cu lt y c h air o f t h e C hris te n se n C en te r f o r T e ach in g a n d L e arn in g a t H arv a rd B usin ess S ch ool.

R ela te d T o p ic s: O RG AN IZ A TIO N AL C U LT U RE | I N TE R N ATIO N AL B U SIN ESS | M ULT IN ATIO N AL T h is a rtic le i s a b ou t E TH IC S  F O LLO W T H IS T O PIC C om men ts L e ave a C om men t P O ST 0 C O M MEN TS P O STIN G G UID ELIN ES W e h op e t h e c o n ve rs a tio n s t h at t a ke p la ce o n H BR .o rg w il l b e e n erg etic , c o n str u ctiv e , a n d t h ough t- p ro vo kin g. T o c o m men t, r e ad ers m ust s ig n in o r r e g is te r . A nd t o e n su re t h e q ualit y o f t h e d is c u ssio n , o ur m od era tin g t e am w il l r e vie w a ll c o m men ts a n d m ay e d it t h em f o r c la rit y , l e n gth , a n d r e le va n ce . C om men ts t h at a re o ve rly p ro m otio n al, m ean -s p ir it e d , o r o ff- to p ic m ay b e d ele te d p er t h e m od era to rs ' ju d gm en t. A ll p ostin gs b eco m e t h e p ro p erty o f H arv a rd B usin ess P u b lis h in g.  J O IN T H E C O N VER SA TIO N