By: David Gebler
July 2004 — Recent statements by Enron’s former CEO Kenneth Lay highlight in stark terms the role leaders need to play in integrity based organizations.
In July 2004, as charges were finally filed against Lay, he laid out the basis of his defense by pleading ignorance of the illegal activities that led to the collapse of the energy giant. While “taking responsibility” for Enron’s collapse, Lay denied knowing what went on at the company. In interviews given after the indictments were made public, Lay said that taking responsibility does not mean that he knew everything that went on at Enron.
While court watchers ponder whether Lay will be able to sustain his defense, the very premise of pleading ignorance flies in the face of the responsibilities demanded of today’s corporate leaders. “Taking responsibility” needs to mean more than a stoic statement of leadership. All of a company’s stakeholders, from investors, regulators, the public, and line employees, need to be able to count on senior leadership’s active engagement in the operations of the organization.
And aside from being just good business practice, it’s now the law.
Legislated largely as a result of Enron’s collapse, the certification requirements of Sarbanes-Oxley Section 302 demand the CEO and the CFO take personal responsibility for the financial statements of the organization. Not only are the CEO and CFO verifying the reliability of the financial statements of the organization, they are also verifying that the system of controls used to derive that information is valid.
In addition, pending revisions to the U.S. Federal Sentencing Guidelines for organizations provide additional requirements for senior leaders to be engaged.
According to the guidelines, a company must “promote an organizational culture that encourages ethical conduct and a commitment to compliance with the law.” Top level executives and a governing authority, such as the board of directors, must monitor and “ensure that the organization has an effective compliance and ethics program.” They cannot delegate these duties to powerless junior managers, according to the guidelines.
While these legal requirements in and of themselves are major commitments of leadership and responsibility, the public commitment of company leaders to be responsible for all of the activities within the organization is a vital foundation for the entire integrity effort within an organization.
Thankfully, the majority of corporate leaders maintain high levels of personal integrity. However, many of those leaders have not developed skills to model that integrity in ways that managers and line employees can rely on to build and sustain integrity-based work environments at the local level.
In many organizations, there is a distinct gap between the lofty principles espoused by leaders and the reality faced in the trenches at the end of the quarter.
There are three traits of leaders of integrity-based organizations that help close that gap by demonstrating integrity at all levels of the organization.
- Leaders must model the behaviors they demand of others. Personal integrity cannot be abstract. It must be shown.
- It can’t be shown only in broad terms, such as inside annual reports and codes of conduct. Integrity leaders communicate the importance of integrity even when engaged in difficult conversations with investors, customers, suppliers or other employees.
- Integrity-based leaders acknowledge the pressures of managers faced with reconciling the company’s values with business objectives on a daily basis. Integrity-based leaders acknowledge the pressures placed on managers and employees, are aware of where ethical lapses are most likely to occur and work to alleviate pressures that might cause managers and employees to violate values or standards.
Such leaders help guide their companies through ethical challenges and create expectations throughout the organization of ethical standards.
For such a leader, pleading ignorance of unethical activity with his or her organization would be a pretty weak defense. They rightfully know too much.
DAVID GEBLER is the President of Working Values, Ltd., a Boston-based business ethics consulting and training development firm. More articles by David Gebler
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