MANAGEMENT COMMUNICATION - Pearson Learning Solutions
MANAGEMENT COMMUNICATION - Pearson Learning Solutions
MANAGEMENT COMMUNICATION - Pearson Learning Solutions
Create successful ePaper yourself
Turn your PDF publications into a flip-book with our unique Google optimized e-Paper software.
3 CommunicationEthicsNever suffer a thought to be harbored in your mind which you would notavow openly. When tempted to do anything in secret, ask yourself if youwould do it in public. If you would not, be sure it is wrong.Letter from Thomas Jefferson to his grandson Francis Eppes, age 14, Monticello,May 21, 1816Pick up the Wall Street Journal or the New York Times any given morning and look through sectionsA and C. The news is not especially encouraging:“AUCTION” BROKERS ARE CHARGED. Authorities Say Ex-Credit SuisseEmployees Misled Investors. A federal grand jury in Brooklyn indicted two formerCredit Suisse Group Brokers, alleging that they lied to investors about how $1 billion oftheir money was placed into short-term securities. The 12-page indictment describeshow the brokers, Julian Tzolov and Eric Butler, allegedly misled corporate clients aroundthe world, primarily through e-mails. The brokers made it appear as if the securities werebacked by federally guaranteed students loans, when in fact they were tied to riskiermortgage products and other debt that earned the brokers higher commissions, accordingto the indictment. 1On other days, it’s likely to be a story like this:000200010270582216FORMER EXECUTIVE TO PAY $200 MILLION TO SETTLE S.E.C. FRAUDCHARGES. A former chief executive of the AremisSoft Corporation, a defunct softwarecompany, has agreed to pay $200 million to settle fraud accusations made by theSecurities and Exchange Commission.That is about the amount of the unlawful profit that the commission said he madetrading AremisSoft stock in 2000. The executive, Roys Poyiadjis, also agreed to a lifelongban on running a public company. He did not admit or deny wrongdoing. The S.E.C. saidthe settlement, which it announced yesterday, was among the largest it has made with anindividual.59Management Communication: A Case-Analysis Approach, Fourth Edition, by James S. O'Rourke, IV. Published by Prentice Hall. Copyright © 2010 by <strong>Pearson</strong> Education, Inc.
60 Chapter 3 ● Communication EthicsMr. Poyiadjis and his fellow executive, Lycourgos Kyprianou, who is still adefendant in a civil lawsuit filed by the commission, issued at least three false statementsabout AremisSoft’s financial condition from 1999 to 2001, the S.E.C. said. 2While the recent list of convictions ranges from Tyco CEO Dennis Kozlowski to Enronand WorldCom executives to Martha Stewart (good grief!), it’s not always chief executivesand senior corporate officers who find themselves in ethical and legal trouble. Often, it’s ayoung college graduate, confronted with choices she wasn’t required to think about in college.AN EMPLOYEE ON WALL ST. IS ARRESTED. Said to Profit from HerPosition of Trust. Prosecutors said yesterday that they had arrested a brokeragefirm employee responsible for protecting market-sensitive information andcharged her with using the information to profit from insider trading.The employee . .., an analyst in the legal department at Morgan Stanley,DeanWitter, Discover & Company, was arrested on Monday at work and chargedon Tuesday with grand larceny, possession of stolen property, scheming todefraud, commercial bribe receiving, and securities fraud, the office of DistrictAttorney Robert M. Morgenthau of Manhattan said. Investigators indicated at anews conference yesterday that they expected to make more arrests. ...[She] is said to have sold to other unnamed parties her advance knowledgeof a revamping of Georgia Pacific, and—just last week—sold proprietary informationabout a Morgan Stanley analyst’s forthcoming downgrade of Einstein Bagelsstock. “Whenever you have a market as heated as this market is, there’s a temptationfor someone with inside information to trade on it,” Mr. Morgenthau said.[The employee] is a law school graduate who, according to one investigator,earned a [substantial salary] at Morgan Stanley. She lives on Manhattan’sUpper East Side.... 3A day hasn’t gone by in the past year without at least one news item dealing with allegationsof misstatement, misappropriation, equivocation, or fraud. They’re often printed alongsidestories of people who have lied to their employers, to their customers and clients, to regulatoryagencies, and to the courts. In other instances, they have simply deceived themselves.What’s going on here? Does this behavior represent a sudden outbreak of unethical conductor confusion over appropriate uses of proprietary information in North American businesses? Orare investigation and prosecution techniques improving? While the latter may be true in part, it’shard to believe that managers have only recently begun to display illegal or unethical tendencies.Many experts on this subject report that a surprising percentage of businesspeople seem tobelieve they can handle information in any way they see fit and can communicate (or fail to doso) with shareholders, clients, customers, competitors, regulatory agencies, legislative bodies,and other branches of government without regard to truth, fairness, equity, justice, and ethics.The latest round of accounting scandals, executive misconduct, and deception on the partof corporate financial officers only serves to underscore the need for values and integrity throughoutthe corporate world. According to BusinessWeek’s John A. Byrne, “In the post-Enron bubbleworld, there’s a yearning for corporate values that reach higher than the size of the chief executive’spaycheck or even the latest stock price. Trust, integrity, and fairness do matter, and theyare crucial to the bottom line.” 4 In the anything-goes 1990s, too many companies allowedperformance to be disconnected from meaningful corporate values. “A lot of companies simply000200010270582216Management Communication: A Case-Analysis Approach, Fourth Edition, by James S. O'Rourke, IV. Published by Prentice Hall. Copyright © 2010 by <strong>Pearson</strong> Education, Inc.
Chapter 3 ● Communication Ethics 61looked at performance in assessing their leaders,” says Larry Johnson, CEO of Albertson’s, Inc.,the food retailer. “There have to be two dimensions to leadership: performance and values. Youcan’t have one without the other.” 5 And, according to Landon Thomas of the New York Times,“with regulatory scrutiny heightened after the collapse of Enron and other companies, corporationsand their boards are adopting zero-tolerance policies. Increasingly, they are holding theiremployees to lofty standards of business and personal behavior.” The result, he writes, “is a waveof abrupt firings as corporations move to stop perceived breaches of ethics by their employeesthat could result in law enforcement action or public relations disasters.” 6THE ETHICAL CONDUCT OF EMPLOYERSA recent National Business Ethics Survey discovered that employees care about the ethicalconduct of their employers. What should be of serious concern is that employees are questioningthe ethics of many of their managers today. The Hudson Institute and Walker Information,both located in Indianapolis, surveyed more than 3,000 workers from business and notfor-profitorganizations across the United States about their experiences and attitudes. Themost worrisome finding? Fewer than half of working Americans believe that their seniorleaders are people of high integrity. 7Other findings in the Hudson–Walker survey may be cause for concern, as well. Only athird of employees feel comfortable reporting misconduct, in part because fewer than half feelthat ethical or compliance problems are dealt with fairly and completely. Case in point: 30percent of employees know of or suspect ethical violations in their organizations in the pasttwo years. However, the majority of these employees—six in ten—who have seen or knowabout a violation have not reported it. Why not? Three primary reasons were given for notreporting actual observed misconduct.• Employees did not feel the organization would respond.• There was a perceived lack of anonymous and confidential means of reporting.• Fear of retaliation from management prevented workers from reporting the misconductthey had witnessed. 8000200010270582216Fast Company magazine reported recently that 76 percent of workers in a national surveyhad observed violations of the law or company standards during the preceding 12 months.Nearly two-thirds of those surveyed thought their company would not discipline workers guiltyof an ethical infraction, and more than half said that “management does not know what type ofbehavior goes on in its company.” Worse, nearly 40 percent said that “management wouldauthorize illegal or unethical conduct to meet business goals.” 9Do any of these findings—these attitudes about ethical behavior—have any effect onyou? Virtually all business leaders say they do. Business—even in a free marketplace—isgoverned by rules. Those rules range from complex tax laws and restrictions on exports tobroad, general notions of truth in advertising and reliance on a person’s word. If competitorseither break the rules or behave as though no rules exist, the free marketplace is jeopardized,expectations are destroyed, and trust is undermined.If you behave in unethical ways, people will quickly realize that you cannot be trusted.Your performance will be seen as unreliable and self-centered. Aside from running afoul ofthe law, unethical behavior will eventually isolate you from the community of business practitionerswho play by the rules and for whom trust is an important part of doing business.Management Communication: A Case-Analysis Approach, Fourth Edition, by James S. O'Rourke, IV. Published by Prentice Hall. Copyright © 2010 by <strong>Pearson</strong> Education, Inc.
62 Chapter 3 ● Communication EthicsDEFINING BUSINESS ETHICSRaymond Baumhart, a former college president and ethicist, once asked a number of businessmanagers what the word ethical meant to them. Half of the managers in his interviews definedethical as “what my feelings tell me is right.” Yet feelings are often an inadequate basis onwhich to make decisions. Twenty-five percent of his respondents defined ethical in termsof what is “in accord with my religious beliefs” and 18 percent defined the term as what“conforms to the golden rule.” Religious authority has been devastatingly criticized, alongwith the “golden rule,” as an inadequate foundation for ethical claims. 10For one thing, religion often requires an act of faith to accept guidelines, norms, dogma,or precepts. And the golden rule (“Do unto others, as you would have others do unto you”)assumes that we each would wish for the same form of treatment. Our interests and preferences,in fact, may be substantially different. A supervisor’s inquiry on behalf of an employeemay be seen as a thoughtful, caring gesture by some and as intrusive snooping or prying byothers. If such guides are helpful, but hardly definitive, how should we make ethical judgments?What does ethical mean to a business communicator?Ethics most often refers to a field of inquiry, or discipline, in which matters of right andwrong, good and evil, virtue and vice, are systematically examined. Morality, by contrast, ismost often used to refer not to a discipline but to patterns of behavior that are actually commonin everyday life. In this sense, morality is what the discipline of ethics is about. And sobusiness morality is what business ethics is about. 11The phrases “corporate social responsibility” and “corporate citizenship” are sometimesused as though they were synonymous with business ethics. Oil companies frequentlyadvertise about how careful they are with the environment, and chemical companies proclaimtheir “good citizen” role of providing jobs, opportunity, and the chance to “do good things.”However, these statements can be misleading if they imply that business ethics deals exclusivelywith the relationships between business organizations and what have come to be calledtheir external constituencies, such as consumers, suppliers, government agencies, communitygroups, and host countries.Even though these relationships define a large and important part of business ethics, theydo not encompass the entire field. Important internal constituencies, such as employees, stockholders,boards of directors, and managers, are also involved, as well as ethical issues that donot lend themselves to constituency or stakeholder analysis. Thus, business ethics is a muchlarger notion than corporate social responsibility, even though it includes that concept. 12THREE LEVELS OF INQUIRYThe three most common concerns in the moral responsibilities, obligations, and virtues ofbusiness decision making have been the choices and characters of persons, the policies andcultures of organizations, and the arrangements and beliefs of entire social and economicsystems, such as capitalism. Business ethics, then, is multileveled.THE INDIVIDUAL For the individual businessperson, business ethics concerns the values bywhich self-interest and other motives are balanced with concern for fairness and the commongood, both inside and outside of a company. The project leader who unfairly claims credit for aproposal that many of his subordinates worked on is clearly putting his own self-interest ahead ofthat of the organization and his fellow employees. It may not be illegal, but it’s certainly unfair.000200010270582216Management Communication: A Case-Analysis Approach, Fourth Edition, by James S. O'Rourke, IV. Published by Prentice Hall. Copyright © 2010 by <strong>Pearson</strong> Education, Inc.
Chapter 3 ● Communication Ethics 63THE ORGANIZATION At the level of the organization, business ethics concerns the groupconscience that every company has (even though it may be unspoken) as it pursues itseconomic objectives. This conscience is a reflection of both organizational culture andconduct. A real estate development firm that buys an entire city block filled with low-incomehousing may see only the benefits to be derived from demolishing the apartments andconstructing offices, shops, and a parking garage. The people occupying the low-incomeapartments to be demolished may have great difficulty finding another place to live that theycan afford. A failure to see them as an important part of the purchase and development plans,again, would not likely be against the law, but it would certainly be unjust.THE BUSINESS SYSTEM Finally, at the level of the entire business system, ethics concerns thepattern of social, political, and economic forces that drives individuals and businesses—thevalues that define capitalism, for example. But even capitalism works within a system of ethicalrules. For the government of one nation to decide that it will not enforce copyright laws or extendpatent protection to products or intellectual property produced overseas is to invite chaos withinthe free-market system. 13THREE VIEWS OF DECISION MAKINGFor business communicators and others who make business decisions, three points of view areavailable to assist in making those decisions. They include a moral point of view, an economicpoint of view, and a legal point of view.MORAL POINT OF VIEW From this perspective, businesspeople ask, “Morally, what is thebest thing to do?” Such questions would be separate from inquiries about economic decisionsthat seek to maximize shareholder wealth or legal decisions that ask what the law permits andforbids. According to many business ethicists, a moral point of view has two importantfeatures. The first is a willingness to seek out and act on reasons.Second, a moral point of view requires the decision maker to be impartial: Decisionmakers must demonstrate a commitment to use reason in deliberating about what to do,constructing moral arguments that are persuasive to themselves and to others. They will alsogive all interests equal weight in deciding what to do. The problem with this point of view isthat most ethical business issues aren’t especially clear and, in many instances, decisionmakers don’t have adequate information at the time they need it most. 14000200010270582216ECONOMIC POINT OF VIEW An economic point of view, by contrast, employs a freemarket model of capitalism in which scarce resources or factors of production are used toproduce goods and services. The forces of supply and demand are used to allocate resources,and the structure of the marketplace determines what is in the best interests of the organization.Economic theory, however, is not entirely value-neutral. Certain assumptions about afree market underlie all business activities, including basic notions about honesty, theft,fraud, and the like.In addition, it is important for business communicators to understand that companies arenot merely abstract economic entities but large-scale organizations that involve flesh-and-bloodhuman beings. Those same firms, further, must operate in a complex environment with manyconstituencies to please, some of which are often in conflict with others. 15Management Communication: A Case-Analysis Approach, Fourth Edition, by James S. O'Rourke, IV. Published by Prentice Hall. Copyright © 2010 by <strong>Pearson</strong> Education, Inc.
64 Chapter 3 ● Communication EthicsLEGAL POINT OF VIEW A third point of view for ethical decision making in business is thelegal viewpoint. Most business activity takes place within an extensive system of laws, so that allbusiness decisions—especially those involving communication—must be made from a legal aswell as an economic standpoint. Many businesspeople assume that “if it’s legal, then it’s morallyokay.” This attitude ignores a number of realities involving the law and decision making.First, the law is inappropriate for regulating certain aspects of business activity. Not everythingthat is immoral is, in fact, illegal. Hiring a relative for a position that other, better qualified,applicants have applied for will certainly raise conflict-of-interest questions, but it may not be illegal.Second, the law is often slow to develop in new areas of concern. Technology, for example,not only presents new opportunities for unethical behavior but often outpaces legal restrictions.The law often employs moral concepts that are not precisely defined, so it is often difficultto use the law to make decisions without also considering issues of morality. In addition, the lawitself is often unsettled or in a state of evolution on many issues. Frequently, the notion ofwhether an action was legal or illegal must be decided case-by-case in the courts, with keyissues often being decided higher within the appellate court system. The law cannot providespecific guidance for behavior in all possible instances. For example, the issue of whether aconversation among a few friends constitutes protected speech or is sexual harassment is onethat courts must decide on the merits of the specific incident. Finally, the law is generally seenas an inefficient instrument, inviting expensive legislation and litigation where more efficientsystems of decision making might do just as well in producing workable answers. 16AN INTEGRATED APPROACHMany business ethicists advocate a decision-making process that integrates these threeviewpoints, considering the demands of morality, economics, and the law together. Decisions,they say, can be made on the basis of morality, profit, and legality together to arrive at workablesolutions that will take into account the best interests of all concerned, protect the investment ofshareholders, and obey the law.A company that elects voluntarily to remove a tainted or defective product from supermarketshelves considers the safety and welfare of its customers while, at the same time,avoiding lawsuits and protecting the company’s good name and market share. Such decisions,though costly in the short run, almost always prove to be beneficial in the long run.What about those cases in which neither the issue at hand nor the outcome of the decisionis entirely clear? Some ethicists focus on the value of dialogue in arriving at an ethicalanswer. Michael G. Bowen and F. Clark Power write, “In this regard, our definition of themoral manager is a person willing to engage in a fair and open dialogue with interested stakeholdersor their representatives.” 17Making choices based on the input and ideas of those who are most affected by the outcomeof your decisions can help to produce better decisions. Becoming an ethical business communicatormay involve more than a simple willingness to talk about the issues with stakeholders,though. It might also include some knowledge of moral judgments and how they are made.THE NATURE OF MORAL JUDGMENTSTwo basic types of judgments are normative judgments and moral judgments. Normative judgmentsare claims that state or imply that something is good or bad, right or wrong, better or worse,ought to be or ought not to be. Normative judgments, then, express our values. They indicate our000200010270582216Management Communication: A Case-Analysis Approach, Fourth Edition, by James S. O'Rourke, IV. Published by Prentice Hall. Copyright © 2010 by <strong>Pearson</strong> Education, Inc.
Chapter 3 ● Communication Ethics 65attitudes toward some object, person, circumstance, or event. Non-normative judgments, on theother hand, are value-neutral. They describe, name, define, report, or make predictions. 18If I were to say, “These figures are mistaken,” that would be normative. To say, “Thesefigures do not match the auditor’s,” would be non-normative. Normative judgments are prescriptive,while non-normative judgments are descriptive. Moral judgments, then, are a special subsetor category of normative judgments.Ethics does not study all normative judgments, only those that are concerned with whatis morally right and wrong or morally good and bad. When decisions are judged to be morallyright or wrong, or morally good or bad, the underlying standards on which the judgment isbased are moral standards. It would be immoral by such standards to short-weight a shipmentof goods, for example, or to identify the contents of a package as containing “all natural ingredients,”when, in fact, it does not.Businesspeople use two types of moral standards to make decisions. Moral norms, onthe one hand, are standards of behavior that require, prohibit, or allow certain kinds of behavior.Moral principles, on the other hand, are much more general concepts used to evaluateboth group and individual behavior. A norm, for example, might permit rounding of figures tothe nearest hundred or thousand in standard accounting procedure, while principles mightdeal with the general notion of full disclosure to interested stakeholders.Alfred P. West, Jr., for example, believes that transparency is a moral principle fundamentalto building trust among those involved in a business. West is founder and CEO offinancial-services firm SEI Investments Company, which operates back-office services formutual funds and bank trust departments. His goal of building an open culture of integrity,ownership, and accountability is a harbinger for what he believes organizations will look likein the future. “We tell our employees a lot about where the company is going,” he says. “Weover-communicate the vision and the strategy and continually reinforce the culture.” 19DISTINGUISHING CHARACTERISTICS OF MORAL PRINCIPLESMoral standards, in many respects, are like other standards. They provide direction, guidance,and counsel. They are guideposts or compass headings when decisions have to be made. Theyare different from other standards in several important respects, though.THEY HAVE POTENTIALLY SERIOUS CONSEQUENCES TO HUMAN WELL-BEING Moralstandards require distinguishing between things that matter and things that don’t. Omittingsmall details about packaging or manufacturing from a product insert may be an importantlegal matter but is probably not a moral issue. Failing to reveal potential hazards of productuse is certainly a moral issue.THEIR VALIDITY RESTS ON THE ADEQUACY OF THE REASONS THAT ARE USED TO SUPPORTAND JUSTIFY THEM If the reasons you employ to support your decisions are not accepted bythe society at large, or at least by a thoughtful group of people who have given the matter carefulconsideration, then you may wish to reassess just how adequate your standards are.000200010270582216THEY OVERRIDE SELF-INTEREST Genuine moral standards transcend the interests of justone or a few people. They involve doing things for the greater good of society or people atlarge. Rather than asking, “How will this affect me?” you might wish to ask, “How will thisdecision affect the entire firm or the whole community?”Management Communication: A Case-Analysis Approach, Fourth Edition, by James S. O'Rourke, IV. Published by Prentice Hall. Copyright © 2010 by <strong>Pearson</strong> Education, Inc.
66 Chapter 3 ● Communication EthicsTHEY ARE BASED ON IMPARTIAL CONSIDERATIONS Moral standards are devised from auniversal standpoint and are clearly more objective than subjective. They don’t bring harm ordisruption to many simply to benefit a few. 20FOUR RESOURCES FOR DECISION MAKINGFour simple but powerful resources are available to every business communicator who is tryingto make ethical decisions. They are observations, assumptions, value judgments, and proposals.Let’s examine each of them independently.OBSERVATIONS These descriptive statements tell about the situations. “Not all of theinformation about pending litigation against the company is revealed in the annual report toshareholders.” Such statements rely on a correct presentation of the facts and can usually beverified through more research. The usefulness of observations can also be evaluated by thedegree of objectivity they contain. The more objective the statement, the more likely it is to bean observation. A statement qualifies as an observation if contrary evidence can disprove it. IfI observe, for example, that “an increasing number of product liability suits is jeopardizingour industry,” I could verify or refute that statement with specific evidence.Observations sometimes look like assumptions because they both appear to describe. Animportant difference is that observations are usually specific and empirical in nature. “Our productpackage insert does not reveal all of the potential hazards associated with this product’s use.” Thisstatement is an example of an observation; a related assumption might be that revealing allpotential hazards would be useful or instructive to our customers. An opposing assumptionmight be that revealing all potential hazards would only serve to frighten our customers becausemany of the hazards are extremely rare.ASSUMPTIONS These reflective statements express world views and attitudes. “Our employeesare honest.” Statements such as this one rely on culture, religion, social, and personal history.They’re usually taken for granted in day-to-day conversation and business correspondence, butthey have theoretical roots in our attitudinal system. They can be evaluated by such criteria asrelevance, consistency, and inclusiveness.Table 3-1 summarizes the key differences among these resources. Proposals and valuejudgments, for example, are action-oriented, telling the listener or reader what to do.Observations and assumptions, on the other hand, merely serve to describe. Proposals andobservations tend to be specific in nature, focused on the action or situation at hand. Valuejudgments and assumptions, though, are more general in nature and provide broad guidanceto a decision maker.TABLE 3-1Four Resources for Decision MakingAction-OrientationDescriptive-OrientationSpecific Proposals ObservationsGeneral Value Judgments AssumptionsSource: Adapted from Marvin T. Brown. The Ethical Process: A Strategy for Making GoodDecisions. Upper Saddle River, NJ: Prentice Hall, Inc., 1996, p. 7.000200010270582216Management Communication: A Case-Analysis Approach, Fourth Edition, by James S. O'Rourke, IV. Published by Prentice Hall. Copyright © 2010 by <strong>Pearson</strong> Education, Inc.
Chapter 3 ● Communication Ethics 67VALUE JUDGMENTS These normative statements guide the actions of others. “Informationthat significantly affects a worker’s schedule or position should be delivered in person by thesupervisor.” Such statements rely on assumptions and make the connection between a proposaland an observation. These statements, however, cannot be verified by empirical research. Theycan be evaluated by different ethical traditions.Value judgments can also be asserted as should statements. Unlike proposals, which areusually specific, value judgments are general statements. “We should be fair in our dealingswith customers.” This statement does not indicate what we should do specifically in eachinstance with a customer. It is, rather, a general guideline for action.PROPOSALS These prescriptive statements suggest actions. “We should develop a child carecenter for our company,” would be an example of a proposal. It is a statement that relies onobservations, value judgments, and assumptions but goes further. It suggests actions thatpeople should take and that can be evaluated by examining supporting reasons. Proposalsoften reveal what people have been paying attention to (observations) and can frequentlyserve as a clue to their values and assumptions.Proposals are often answers to questions. Good questions can generate good proposals.“Should we revise our performance review system?” The best questions are specific and actionoriented,while the best proposals are specific responses to such questions. For example: “Weshould revise our performance review system to include semiannual peer feedback.” The onlymissing element of this proposal is the underlying reasoning or the values that prompted it. 21MAKING MORAL JUDGMENTSMoral judgments seem to depend on decision makers having and using four separate capacities:ethical sensibility, ethical reasoning, ethical conduct, and ethical leadership. 22ETHICAL SENSIBILITY An ethical sensibility is reflected in your capacity to impose ethicalorder on a situation—to identify aspects of the situation that have ethical importance. A personwho is insensitive to the ethically important features of a situation is vulnerable to acting inways that are improper.Suppose you are working as a computer software consultant, and a local charitablegroup asks you to serve as a member of its volunteer advisory board. Sounds noble and worthwhile,right? Well, suppose further that the charitable group decides to accept bids on aninformation technology system that will assist in fund-raising. You’re in a position to provideexpert advice. Now what happens if your employer decides to bid on that IT system? Can youremain a member of that advisory board? Not if you recognize the conflict of interest thatfaces you. Your interests as a commercial software consultant conflict with your interests asan advisor to the charitable group. Ethical sensibility would make you aware of that conflict.000200010270582216ETHICAL REASONING Recognizing the ethically important features of a situation is the firststep toward dealing with them appropriately. The next step is to reason carefully about thesituation to determine what kind of ethical problem you face: Is it bribery, an unfair laborpractice, or consumer deception? Ethical reasoning then offers opportunities for solution:What would be fairest for all concerned? Is this problem similar to one we’ve seen in the past?Is a rule or policy applicable in determining our conduct in this case? If not, should weconsider writing one? What’s the basis for the argument I’m faced with?Management Communication: A Case-Analysis Approach, Fourth Edition, by James S. O'Rourke, IV. Published by Prentice Hall. Copyright © 2010 by <strong>Pearson</strong> Education, Inc.
68 Chapter 3 ● Communication EthicsSometimes simple recognition of an ethical problem will point toward a solution. Let’s sayyour job is to review advertising copy for your company’s products. As you do so, you recognizea series of misleading claims in the proposed ad copy. Your solution is easy enough: Return thecopy to the writing team with specific instructions to remove or correct the misleading claims.More often, however, the solution to an ethical problem involves conflicting values.Let’s say you are a manager who discovers that the production line presents potentialhazards to the reproductive health of female workers. You also recognize that removingwomen from the line would be unfair. Two competing values in this instance—equal employmentopportunity and keeping workers from harm—require some careful ethical reasoning inorder to make an appropriate moral judgment.ETHICAL CONDUCT Recognizing ethical dilemmas and reasoning your way to an appropriatesolution are simply the first two steps in living an ethical life in business. It’s one thing toknow what you should do and quite another to do it. Lynn Sharp Paine of the HarvardBusiness School says, “Hypocrisy and cowardice, both reflected in discrepancies betweenprofessed beliefs and actual conduct, are the enemies of integrity.” 23Recognizing that it would be wrong to file an inflated travel voucher following a businesstrip, you remind your colleagues that the company will gladly reimburse all necessaryexpenses but only for the amounts actually spent. Although you encourage and expect othersto comply with that reasoning, you claim expenses in excess of what you actually spent andask for reimbursement for expenditures that were not legitimate business expenses. In such acase, hypocrisy would best describe your behavior.If you were witness to a fellow employee stealing supplies from your company butfailed to speak with either him or your supervisor, you might well be guilty of cowardice. Yourecognized the problem and knew what the appropriate response would be but failed to act.Such situations require a certain amount of moral courage—the ability to stand up and dowhat is right, even though it won’t be easy, profitable, or popular.ETHICAL LEADERSHIP The capacity for ethical leadership, according to Professor Paine,“is associated with the highest levels of integrity.” She quotes Confucius, saying “The superiorperson seeks to perfect the admirable qualities of others and does not seek to perfect their badqualities. The lesser person does the opposite of this.” She goes on to note that most businessstudents will work in organizations in which they will have the power and responsibility not onlyto exercise their own ethical capacities but to influence the exercise of those capacities in others. 24Numerous researchers and commentators attribute critical importance to the ethicalexample provided by an organization’s top officials. It seems unlikely that great integritywould emerge in an organization led by men and women lacking in basic integrity. Yet, withoutquestion, leadership is not confined to the chairman or chief executive officer of an organization.It extends directly to every organization’s executives and senior managers.Executive-search firm Russell Reynolds, along with personality-testing firm HoganAssessment Systems, recently conducted psychological profiles of more than 1,400 managersin large U.S. companies. Each manager was given 28 true-or-false questions on rule complianceand interactions with others to gauge their level of integrity. The somewhat troublingresult: One out of every eight responded in ways that may be seen as “high risk.” Accordingto Dean Stamoulis, an executive director at Russell Reynolds, the findings indicate that thosemanagers are far more likely to break the rules than the others. “These are folks who believethe rules do not apply to them,” he says. 25000200010270582216Management Communication: A Case-Analysis Approach, Fourth Edition, by James S. O'Rourke, IV. Published by Prentice Hall. Copyright © 2010 by <strong>Pearson</strong> Education, Inc.
Chapter 3 ● Communication Ethics 69Ethical leadership also extends from those managers to their frontline supervisors. Dayto day, these supervisors are responsible for setting examples and assisting those who workfor them. Others in an organization will watch what you do, and if you’re in a position ofleadership or responsibility, an ethical obligation accompanies your management duties. Ifyou let your employees know, directly or indirectly, that you condone industrial spying or thetheft of competitive marketing data, they will assume that the company approves and thatsuch acts are probably all right. The plain fact is, the moral education of those beneath youin an organization depends on your willingness to engage in and reward ethical behavior. 26APPLYING ETHICAL STANDARDS TO <strong>MANAGEMENT</strong><strong>COMMUNICATION</strong>Ethical business practice is a noble goal to which virtually all firms aspire. Many companies,however, fail to achieve this lofty ideal for a number of reasons. Increased levels of globalcompetition, financial pressures, lack of communication throughout organizations, and theabsence of moral leadership at the top levels are but a few of the most prevalent reasons. 27STATEMENTS OF ETHICAL PRINCIPLESPerhaps the most important means of establishing moral leadership in a business organization—and demonstrating that leadership to employees, customers, clients, competitors, and the worldat large—is through a formal statement of ethical principles. Developing and publishing acorporate statement of ethics certainly will not, by itself, make a company ethical, but it iscertainly a good first step. To the question of why a company should have such a statement,Professor Patrick E. Murphy offers this response:First, and most important, ethics statements denote the seriousness with which theorganization takes its ethical commitments. Words are empty without some documentation.The written statement then serves as a foundation from which ethicalbehavior can be built. Corporate culture is often viewed as being more importantthan policies in setting the ethical climate for any organization. However, writtenethical principles send a strong signal that ethics matters to the firm. 28Once an organization’s size, according to Murphy, goes beyond a handful of employeeswho interact regularly face to face, it becomes difficult to convey a sense of an organization’sprinciples and values. An ethics statement makes expectations more concrete. Furthermore,developing such a document forces those engaged in the process, whether they be the founderor current management, to articulate their beliefs in a cohesive fashion and then set themdown in writing for possible challenge by others. 29000200010270582216TYPES OF ETHICAL STATEMENTS Although ethics statements can be classified into severaltypes, three appear to predominate. They include values statements, corporate credos (or setsof basic beliefs), and corporate codes of ethics.The most prevalent form in which ethical principles are stated in U.S.-based corporations isa code of ethics. More than 90 percent of large organizations have one. At least half of those samecompanies also have a values statement. A corporate credo appears to exist in about one-third ofall large U.S.-based firms. Interestingly, while fewer firms seem to have a corporate credo, manyManagement Communication: A Case-Analysis Approach, Fourth Edition, by James S. O'Rourke, IV. Published by Prentice Hall. Copyright © 2010 by <strong>Pearson</strong> Education, Inc.
70 Chapter 3 ● Communication Ethicsthat do have such documents have had them in place for a long time. 30 A recent ConferenceBoard survey of 124 companies in 22 countries found that more than three-quarters of all boardsof directors are now setting ethical standards in those companies, up from just 41 percent a fewyears earlier. Executives at those companies see self-regulation as a way to avoid legislative orjudicial intrusions in their business operations. The study also found that ethics codes helppromote tolerance of diverse practices and customers while doing business overseas. 31Jacques Polet, in reviewing corporate ethical statements in both the United States andEurope, found that the most recurring principles are clarity, transparency, honesty, truth orobjectivity (negative and unpleasant information must be communicated, as well as positiveinformation), credibility, coherence, loyalty, and respect for human beings. 32In examining corporate ethical statements, the importance of communication, as wellas many other behaviors, receives considerable attention. “In the same spirit,” writes Polet,“communication must serve the company (its shareholders, staff, and customers) withoutprejudicing third parties or hurting respectable feelings. Basically, it should reflect thecompany project, expressing its goals, its strategy, and the corporate culture. . . .” 33 Thus,effective management communication is not only a means to an end (a way to convey theprinciples) but an end in itself (ethical communication is a fundamental principle guidingmanagement behavior).TENSION AND ETHICAL VALUES Many values, along with the roles and objectives thatmanagers must follow, are in competition with one another, and a certain tension inevitably pullsfirst in one direction and then another. The value of transparency, or of not hiding from publicview what the company really does and how it does it, may be in competition with the value ofconfidentiality. Employees expect a certain measure of privacy in the workplace, yet the demandfor disclosure is ever-present. Managers must respond to these conflicts and to the tension thatarises from them with caution, sensitivity, and a sense of fairness to everyone concerned. 34Every communication activity, from annual reports to general shareholder meetings,becomes a balancing act for executives and managers. To be honest with our employees andour shareholders, what and how much must we disclose? To preserve our competitive edge,what and how much shall we hold back? Ethical philosopher Gilles Lipovetsky, in The Dawnof Duty, captures the dialectical debate in this way:It is obvious: an ethics of company communication does not present itself interms of a choice between Good and Evil (a question of Morality). In real life,there is a balance between “various more or less contradictory imperatives.” 35THE VALUE OF CORPORATE VALUES A new emphasis on values at the corporate level hasmade it fashionable for many companies to make their values explicit. That’s a change—quite asignificant change—from corporate practices just a few years ago. At Xerox, CEO AnneMulcahy says that corporate values “helped save Xerox during the worst crisis in our history” andthat “living our values” has been one of Xerox’s five performance objectives for the past severalyears. These values are “far from words on a piece of paper,” she says. “They are accompanied byspecific objectives and hard measures.” 36According to market and social trend analyst Daniel Yankelovich, the public’s widespreadcynicism toward businesses today is the third wave of public mistrust about corporations in thepast 80 years. The first, set off by the Great Depression, continued until World War II; the second,caused in part by economic stagflation and the Vietnam War, lasted from the early 1960s until the000200010270582216Management Communication: A Case-Analysis Approach, Fourth Edition, by James S. O'Rourke, IV. Published by Prentice Hall. Copyright © 2010 by <strong>Pearson</strong> Education, Inc.
Chapter 3 ● Communication Ethics 71early 1980s. In each of these periods, companies tended to be reactive, blaming “a few badapples,” dismissing values as “not central to what we do,” or ignoring opportunities to improve. 37The current wave of disapproval began in 2001 with the bursting of the dot-com bubble,the ensuing bear market and financial scandals involving Enron, WorldCom, Tyco, and others.This time, according to a recent survey, the response appears to be different. More and morecompanies are looking inward to see what has gone wrong and looking outward for answers.They are questioning the quality of their management systems and their ability to inculcateand reinforce values that benefit the firm, their stakeholders, and the wider world. And theyare showing little patience with executives who place their businesses at risk by crossing theline from prudent to unethical behavior.In their survey of 365 companies in 30 nations and five regions around the world, consultingfirm Booz Allen Hamilton and the Aspen Institute found that ethical behavior is a core componentof company activities. Of the 89 percent of companies that have a written corporate valuesstatement, 90 percent specify ethical conduct as a principle. Further, some 81 percent believe theirmanagement practices encourage ethical behavior among staff employees. The study found thatethics-related language in formal statements not only sets corporate expectations for employeebehavior, it also serves as a shield in an increasingly complex legal and regulatory environment. 38000200010270582216HOW ETHICAL STATEMENTS CAN HELP While the presence of an ethical statement willnot automatically ensure ethical behavior on the part of corporate employees, such documentscertainly can raise ethical awareness, create an atmosphere in which ethical behavioris expected and rewarded, and promote a companywide dialogue about the value of ethicalbehavior.In 1982, seven people died in the United States after taking Tylenol capsules that hadbeen poisoned with cyanide. Investigators eventually determined that some unknown personhad tampered with the capsules after they had been placed on store shelves for sale. Evenbefore Johnson & Johnson, which manufactures the product, had obtained all the informationon the cause of the tragedy, and even before legal liability had been evaluated, the companyassumed moral liability for it, immediately recalling 31 million bottles of Tylenol with amarket value of $100 million. The company set up a toll-free help line to answer questionsfrom the general public. 39 Johnson & Johnson chairman and CEO James Burke opened up thecompany’s meetings to the news media and offered a reward of $100,000 to anyone able tosupply information leading to the arrest of the culprit. According to Lipovetsky, “There is nodoubt as to the ethical orientation of the operation. It was nonetheless a triumph of communicationwhich managed to dramatize the firm’s responsible action.” 40The Tylenol crisis highlights the importance of personal ethical commitment of topmanagement in a special way. In these periods of extreme tension, while managers may wish todo the right thing, it’s not always immediately clear what the right thing to do is. Johnson &Johnson employees had worked with their credo, a broadly phrased statement of company ethics,since 1947. In the words of one Johnson & Johnson official during the crisis, “What we are doinghere is not specifically mentioned in the Credo, but it is definitely generated by the Credo.” 41Johnson & Johnson’s Jim Burke had no hesitation in assuming direct responsibility forand control over the true spirit of the credo. As Laura Nash reports, “Jim Burke has oftenstated that the guidance of the Credo played the most important role in management’s decisionmaking during the crisis.” 42 If anyone doubted that Burke and his president, David Collins, didthe right thing, the proof is that 11 weeks after the start of the crisis, the Tylenol brand hadrecovered 80 percent of its initial market share and within two years had recovered all of it. 43Management Communication: A Case-Analysis Approach, Fourth Edition, by James S. O'Rourke, IV. Published by Prentice Hall. Copyright © 2010 by <strong>Pearson</strong> Education, Inc.
72 Chapter 3 ● Communication EthicsHOW TO MAKE ETHICAL STATEMENTS WORK Murphy offers a series of seven imperatives tofollow when writing and living out the principles of a corporate ethics statement, code, or credo.• Write it. Writing down the guiding philosophy or values of the firm makes it possiblefor management to communicate those ideas to all stakeholders, especially to theemployees. A written document also signals to everyone concerned that the company isserious about its ethical views.• Tailor it. Tailoring a statement of ethics to an organization’s industry or line of businessoffers managers an opportunity to place special emphasis on those issues mostlikely to arise in the course of ordinary business and to address those matters that itregards as especially important.• Communicate it. This step may be most important in ensuring that all stakeholders,external as well as internal, are aware of and understand the behavior that the companyexpects of them. Many authors note that this process must be ongoing for every company.• Promote it. It is not enough to simply communicate the ethics document. It should beactively promoted at every opportunity through as many publications, events, and channelsas possible.• Revise it. Revising the document every few years will help to keep it current, reflectingchanging worldwide conditions, community standards, and evolving organizational practices.• Live it. The litmus test for any type of ethics document, according to Murphy and others, iswhether members of the organization follow it on a daily basis. Top management must makea concerted effort to reward employees who follow the principles listed in the statement.• Enforce/Reinforce it. For those who refuse to live by the principles, managementmust exact punishment. Sanctions and penalties must be enforced in a fair and evenhandedmanner so that all stakeholders understand how they will be treated and exactlywhat will be the consequences of their behavior. 44For an ethics code to work, top management must convince employees that the company isnot simply using the code to sidestep recent events and—even more important—they must act onwhat they say they value. Linda Klebe Trevino, a professor of organizational behavior atPennsylvania State University, said that outlining appropriate or inappropriate behavior in a codewith the intention of avoiding future problems “can be a healthy response. But if you create a code,especially in response to some problem, and it’s inconsistent with the culture as employeesperceive it, then it appears to be only window dressing and hypocritical,” she added. 45“When management disciplines somebody, they’re sending a very powerful signal,” saysProfessor Trevino. “Most people are going about their business trying to do the right thing. Whenthey see somebody engage in highly inappropriate behavior that everybody agrees is inappropriateand management doesn’t do much about it, it devalues the norm and, in a sense their own status.” 46THE “FRONT PAGE” TESTIn judging whether its policies or its actions are fundamentally sound, managers might simplyapply what’s come to be known as the “front page” test. Would you be pleased if the policies inyour organization or the behavior of your employees were to appear in a story on the front pageof the Wall Street Journal or, perhaps, your hometown newspaper? If not, then you might askyourself, “Why not?” What are we doing wrong that I wouldn’t want others to know about?Do the methods and means of communication in your organization hold up to that test?Does your company deal honestly with its customers and clients, treating each of them fairly andwith respect? Do you honestly and accurately disclose to regulatory agencies and governmental000200010270582216Management Communication: A Case-Analysis Approach, Fourth Edition, by James S. O'Rourke, IV. Published by Prentice Hall. Copyright © 2010 by <strong>Pearson</strong> Education, Inc.
Chapter 3 ● Communication Ethics 73organizations all that they are entitled to know? Are your relations with the press and news mediabased on openness, honesty, and candor? If not, what can you do to improve them?Are the rituals, ceremonies, and formal activities of your organization planned andconducted with a sense of inclusion, honesty, and equality? Do people in your organizationknow how they will be evaluated, by whom, and against which set of standards in their hopesfor promotion or advancement?Day in and day out, do you and others in your company speak, write, listen, and act witha sense that others will appreciate and respect? Do you treat people not simply as they mighttreat you, but in a way they prefer to be treated? In many ways, ethics and communication arenot simply inseparable but are essential to the success of any business and at the heart of howhuman beings interact with one another. Striving for ethical perfection, both as you communicateand as you manage your business, is probably pointless. Striving each day to observe thebest of ethical principles, to demonstrate a level of conduct that others can aspire to, and tolead by example, however, is not only possible but unquestionably worthwhile.For Further ReadingAllen, L. and D. Voss. Ethics in Technical Communication:Shades of Gray. New York: John Wiley &Sons, 1997.Donaldson, T. and P. Werhane. Ethical Issues inBusiness: A Philosophical Approach, 8th ed.Upper Saddle River, NJ: Prentice Hall, 2007.Ferrell, O. C. and J. Fraedrich. Business Ethics:Ethical Decision Making and Cases, 7th ed.Boston: Houghton Mifflin Company, 2006.Fritzsche, D. J. Business Ethics: A Global and ManagerialPerspective, 2nd ed. New York: McGraw-Hill,2004.Gardner, H. “The Ethical Mind,” Harvard BusinessReview, March 2007, pp. 51–56.Hartman, L. P. Perspectives in Business Ethics. NewYork: McGraw-Hill, 2001.Lancaster, H. “You Have Your Values: How Do YouIdentify Your Employer’s?” Wall Street Journal,April 8, 1997, p. B1.McCarthy, M. J. “Virtual Morality: A New WorkplaceQuandary,” Wall Street Journal, October 21, 1999,pp. B1, B4.Murphy, P. E. “Creating Ethical Corporate Structures,”Sloan Management Review, Winter 1989, pp. 81–87.Paine, L. S. “Managing for Organizational Integrity,”Harvard Business Review, March–April 1994,pp. 106–117.Seglin, J. L. “In Ethics, It’s the Thought That Counts,”New York Times, December 19, 1999, p. BU-4.Thomas, L. “On Wall Street, a Rise in DismissalsOver Ethics,” New York Times, Tuesday, March29, 2005, pp. A1, C4.Trevino, L. K. and K. A. Nelson. Managing BusinessEthics: Straight Talk About How to Do It Right,4th ed. New York: John Wiley & Sons, 2006.Van Lee, R., Fabish, L., and McGaw, N. “The Valueof Corporate Values,” Strategy + Business, Issue39, Summer 2005, pp. 52–65.Velasquez, M. G. Business Ethics: Concepts andCases, 6th ed. Upper Saddle River, NJ: PrenticeHall, 2005.Weiss, J. Business Ethics: A Stakeholder and IssuesManagement Approach, 4th ed. Cincinnati, OH:South-Western College Publishing, 2005.000200010270582216Endnotes1. Efrait, A. and Randall Smith. “Auction BrokersAre Charged,” Wall Street Journal, Thursday,September 4, 2008, p. C1. Copyright © 2008 byDow Jones & Company, Inc. All rights reservedworldwide. Reprinted with permission.2. Story, L. “Former Executive to Pay $200Million to Settle S.E.C. Fraud Charges,” NewYork Times, Friday, June 10, 2005, p. C3.Copyright © 2005 by The New York TimesCompany. Reprinted with permission.3. Truell, P. “An Employee on Wall St. IsArrested,” New York Times, November 7, 1997,p. C8. Copyright © 1997 by The New YorkTimes Company. Reprinted with permission.4. Byrne, J. A. “After Enron: The Ideal Corporation,”BusinessWeek, August 26, 2002, p. 68.Management Communication: A Case-Analysis Approach, Fourth Edition, by James S. O'Rourke, IV. Published by Prentice Hall. Copyright © 2010 by <strong>Pearson</strong> Education, Inc.
74 Chapter 3 ● Communication Ethics5. Ibid., p. 70.6. Thomas, L. “On Wall Street, a Rise inDismissals Over Ethics,” New York Times,Tuesday, March 29, 2005, pp. A1, C4.7. The 1999 National Business Ethics Survey.Indianapolis, IN: Walker Information, September1999. A summary is available online at www.walkerinfo.com/.8. Ibid.9. “Conduct Unbecoming.” Fast Company,September 2000, p. 96.10. Baumhart, R. An Honest Profit: What BusinessmenSay About Ethics in Business. New York:Holt, Rinehart, Winston, 1968, pp. 11–12.11. Goodpaster, K. E. “Business Ethics.” InL. C. Becker (ed.), Encyclopedia of Ethics. NewYork: Garland Publishing, Inc., 1992, p. 111.12. Ibid., pp. 111–112.13. Boatright, J. R. Ethics and the Conduct ofBusiness, 5th ed. Upper Saddle River, NJ:Prentice Hall, 2006, pp. 6–7.14. Ibid, pp. 7–9.15. Ibid.16. Ibid.17. Bowen, M. G. and F. C. Power. “The MoralManager: Communicative Ethics and the ExxonValdez Disaster.” Business Ethics Quarterly,February 1993, p. 10.18. Velasquez, M. G. Business Ethics: Conceptsand Cases, 6th ed. Upper Saddle River, NJ:Prentice Hall, 2005, pp. 8–16.19. Byrne. “After Enron,” p. 74.20. Velasquez. Business Ethics, pp. 11–13.21. Brown, M. T. The Ethical Process: An Approachto Disagreements and Controversial Issues, 3rded. Upper Saddle River, NJ: Prentice Hall, 2003,pp. 5–7.22. Paine, L. S. “Ethics as Character Development:Reflections on the Objective of EthicsEducation.” In R. E. Freeman (ed.), BusinessEthics: The State of the Art. New York: OxfordUniversity Press, 1991, pp. 67–86.23. Ibid., p. 81.24. Ibid., p. 82.25. Lavelle, L. “Another Crop of Sleazy CEOs?”BusinessWeek, August 26, 2002, p. 12.26. Paine. “Ethics as Character Development,”pp. 82–83.27. Murphy, P. E. Eighty Exemplary EthicsStatements. Notre Dame, IN: University of NotreDame Press, 1998, p. xiii.28. Ibid., p. 1.29. Ibid., p. 2.30. “Global Ethics Codes Gain Importance as a Toolto Avoid Litigation and Fines,” Wall StreetJournal, August 19, 1999, p. A1. Reprinted bypermission of the Wall Street Journal, Copyright© 1999 by Dow Jones & Company, Inc. Allrights reserved worldwide.31. Ibid.32. Polet, J. “Company Communication: From theEthics of Communication to the Communicationof Ethics.” In G. Enderle (ed.), InternationalBusiness Ethics: Challenges and Approaches.Notre Dame, IN, and Hong Kong, China: TheUniversity of Notre Dame Press and theUniversity of Hong Kong Press, 1998.33. Ibid., p. 6.34. Ibid., p. 7.35. Lipovetsky, G. Le Crepuscule du Devoir.L’Ethique Indolore des Noveaux Temps Democratiques.Paris: Gallimard, 1992, p. 248.36. Mulcahy, A. M. Keynote Address, Businessfor Social Responsibility, annual conference.New York, November 11, 2004.37. Yankelovich, D. “Making Trust a CompetitiveAsset: Breaking Out of Narrow Frameworks,”a report of the Special Meeting of SeniorExecutives on the Deeper Crisis of Trust. NewYork, May 15–17, 2003. Available at www.viewpointlearning.com.38. For a complete description of the study, see VanLee, R., L. Fabish, and N. McGaw. “The Valueof Corporate Values,” Strategy+Business 39,Summer 2005, pp. 52–65.39. Barton, L. Crisis in Organizations: Managingand Communicating in the Heat of Chaos.Cincinnati, OH: Southwestern PublishingCompany, 1993, pp. 84–85.40. Lipovetsky. Le Crepuscule du Devoir,pp. 269–270.41. Nash, L. L. “Johnson & Johnson’s Credo.” InCorporate Ethics: A Prime Business Asset.New York: The Business Roundtable, 1988,p. 100.42. Ibid., p. 97.43. Lipovetsky. Le Crepuscule du Devoir, p. 270.44. Murphy. Eighty Exemplary Ethics Statements,pp. 5–9.45. Seglin, J. L. “An Ethics Code Can’t Replace aBackbone,” New York Times, April 21, 2002,p. BU-4. Copyright © 2002 by The New YorkTimes Company. Reprinted with permission.46. Ibid.000200010270582216Management Communication: A Case-Analysis Approach, Fourth Edition, by James S. O'Rourke, IV. Published by Prentice Hall. Copyright © 2010 by <strong>Pearson</strong> Education, Inc.
Chapter 3 ● Communication Ethics 75000200010270582216CASE 3-1Background NoteExcel Industries (A)The workforce in North America, particularlyin the United States and Canada, is becomingincreasingly female, reflecting a general trendtoward two-paycheck families.According to a study from [the] HudsonInstitute, an increasing number of women areentering the North American job market. Since1990, approximately two-thirds of all newentrants to the workforce have been women.And, since about 2002, nearly two-thirds of allworking-age women in the United States haveentered the workforce. Other studies indicatethat women in the United States have enteredthe job market more for economic than forprofessional reasons. While the number ofwomen with college degrees and professionalcredentials is rising, so is the number of singleparentfamilies headed by women. Thesefamilies are, for the most part, well belowaverage in income and education and are morelikely than two-parent households to requirepublic assistance.At the same time, employers are comingto realize that what had formerly been seen as“women’s issues”—including flexible scheduling,maternity and family leave, anddaycare—are really “family issues,” deservingserious attention from both the public andprivate sectors. Some of these matters havebecome the object of protracted and heatednegotiation during collective bargaining. Whatonce was regarded as a luxury or fringe benefitin many organizations is more frequentlyviewed by employees as an entitlement.In North America, and especially in theUnited States, daycare for the children ofworking mothers is not seen as an entitlementto be provided by government. TheU.S. federal government views itself as constitutionallyexcluded from issues related tomanagement of education and child care, andstate and local governments cite a lack offunding. Corporate America has increasinglycome to see a social responsibility for thechildren of their employees, and employeeshave come to expect and depend on suchcorporate responsiveness to their needs.This case deals with several aspects ofthese emerging family issues. Each employeehas both a cost and a value to a business organization,and each employer has concomitantobligations and responsibilities to those employees.This case is about balance among thoseobligations and management decision makingwhen obligations are in conflict or whenresponsibilities pull in opposite directions.This case also involves corporate communication.The executives and managementof every business enterprise operate in anenvironment that is information-rich, yet rifewith rumor, misunderstanding, and misinformation.Business leaders must understandthat every action, whether intended for publicdiscussion or not, will have an effect onthe public’s perception of their business.Business leaders should also understand that,as they draft their corporate strategy andimplement tactical moves in the marketplace,they will interact and communicate with adiverse and complex audience. Individualswho will see and hear of management’sactions will have varying backgrounds, readingabilities, knowledge of the subject, politicalviews, prejudices, and interests.In many ways, the mass audiencereached by radio, television, newspapers,magazines, and the Internet is actually manysmaller audiences. It may be helpful to thinkof the larger audience as comprised of shareholders;customers; suppliers; competitors;politicians; local, regional, and nationalgovernment officials; potential investors;prospective employees; neighbors; communitymembers; and others.In some cases, business leaders mightwell consider separate messages for separateaudiences, designing their content for theManagement Communication: A Case-Analysis Approach, Fourth Edition, by James S. O'Rourke, IV. Published by Prentice Hall. Copyright © 2010 by <strong>Pearson</strong> Education, Inc.
76 Chapter 3 ● Communication Ethicsbackgrounds, needs, interests, inclinations,and potential reactions of each. Shareholders,for instance, might have a greater interest inknowing how an event or announcement willaffect their investment than do members ofthe surrounding community. Employeesmight have a much keener interest in how anevent will affect their jobs and their lives inthe organization than would others.A Manufacturer Moves into Child CareIn 1988, Excel Industries, Inc., a supplier ofwindow systems to the automotive industry,purchased Nyloncraft, Inc., a $40 millioninjection molding company. Both firms wereheadquartered in northern Indiana, in the heartof the domestic automobile supply region. Atthe time of the acquisition, Nyloncraft was ahighly regarded firm with great promise forgrowth and had exactly the sort of manufacturingcapacity, equipment, and labor forcethat Excel Industries was looking for.When the corporate takeover wasexecuted, Nyloncraft, Inc., operated a daycarefacility that was regarded as among the mostinnovative in the nation. Money magazine,U.S. News & World Report, and other businesspublications featured the facility, describing itas “one of the best-equipped 24-hour-a-daylearning centers in the Midwest that isoperated by a corporation for the benefit of itsemployees.” James J. Lohman, chairman,president, and chief executive officer of ExcelIndustries, said “When the <strong>Learning</strong> Centerwas opened, it suited the needs of Nyloncraftvery nicely. It was expensive, but it helped usto attract and retain a reliable workforce thatwould help the company grow. We had anumber of female workers who were of childbearingage and it made good sense for us toassist them with their child care needs. Weknew from experience,” he added, “that a firstclass,on-site learning center would reduceturnover, absenteeism, and tardiness. It wasgood for business, it was good for our employees,and it was good for the kids.”When he said expensive, Lohmanwasn’t exaggerating. “When Excel acquiredNyloncraft, we immediately invested $200,000in the <strong>Learning</strong> Center, improving it so that itmet or exceeded all recommended standardsfor facilities of that type.” The Center’s annualbudget was in excess of $400,000 to provideround-the-clock care and instruction for 162children.The Cost of Providing On-Site Child Care“Within a few years,” Lohman said, “we discoveredthat fewer and fewer of our employeeshad children enrolled in the Nyloncraft<strong>Learning</strong> Center, so we expanded enrollmentto the community at large.” By July 1988,employees’ children accounted for about 45percent of the enrollment at the Center. “By1990,” he said, “less than seven percent ofthose enrolled were children of Nyloncraftemployees.” And by then, he added, the annualsubsidy had grown to nearly $300,000. Allparents with children enrolled in the <strong>Learning</strong>Center, regardless of who their employer mightbe, received a substantial tuition discount,each paying just a fraction of what such careand instruction would be worth on the retailmarket.“We weren’t just looking after thesechildren, as a baby-sitting service might,” headded. “We provided state-certified instruction,professional preschool developmentprograms, and we fed them. Our insurance,reporting, and oversight problems were growingby the day. It was becoming increasinglydifficult to justify a subsidy that was well inexcess of a quarter-of-a-million dollars for thechildren of only 10 Excel employees. Thefinancial pressure was simply too great for usto continue the operation.”Excel tried unsuccessfully for nearly ayear to find a buyer for the <strong>Learning</strong> Center.Failing that, they tried to find a managementfirm that would agree to take over the day-todayoperations of the facility. “No one wouldstep forward to help us,” he said. “We didn’t000200010270582216Management Communication: A Case-Analysis Approach, Fourth Edition, by James S. O'Rourke, IV. Published by Prentice Hall. Copyright © 2010 by <strong>Pearson</strong> Education, Inc.
Chapter 3 ● Communication Ethics 77want to close the Nyloncraft <strong>Learning</strong>Center. But, increasingly, I saw fewer alternativesopen to us.”Lohman began to think carefully aboutthe decision alternatives available to him andthe audiences that would be most affected byhis choice. Looking after the children of thosefew employees who still used the <strong>Learning</strong>Center would be neither difficult nor expensive.But how would others react to a managementdecision to close the facility? What otherchoice did the company have? What otherchoice did the parents have? Quality daycarewas in short supply in the local area, and timewas running out on Jim Lohman. The board ofdirectors wanted an answer from him soon.The two most troubling questions weredeceptively simple: What should I do aboutthe <strong>Learning</strong> Center, and how should wecommunicate our decision?DISCUSSION QUESTIONS0002000102705822161. What ethical obligations, if any, did ExcelIndustries have to the women who wereemployed there?2. Is an employer obligated to provide daycarefor its employees’ children?3. What obligations does the firm in this casehave to the community? Having once openedits doors to the children of nonemployees, wasthe firm obligated in any way to continuecaring for them?4. Could a firm, such as Excel Industries, sidestepethical issues associated with daycarealtogether by recruiting either male employeesor women past child-bearing age?5. What responsibilities does Mr. Lohman have aschief executive officer to the shareholders anddebtholders of Excel Industries, Inc.? Does hisobligation to maximize shareholder wealth andminimize debtholder risk conflict with an obligationto provide a safe, comfortable workingenvironment for female employees who maybe concerned about child care?WRITING ASSIGNMENTPlease respond in writing to the issues presented inthis case by preparing two documents: a communicationstrategy memo and a professional businessletter. In preparing these documents, you mayassume one of two roles: you may identify yourselfas an Excel Industries manager who has been askedto provide advice to Mr. Lohman regarding theissues he and the company are facing. Or, youmay identify yourself as an external managementconsultant who has been asked by the company toprovide advice to Mr. Lohman.6. Since it became apparent to Mr. Lohman that theNyloncraft <strong>Learning</strong> Center could no longer beeconomically justified, what ethical obligationsdid he have to the women whose children wereenrolled there? Do Mr. Lohman’s responsibilitiesto employees of the firm exceed those to womenwho are not employed by Excel Industries?7. What role should corporate public relations andthe public news media play in communicatingthis decision to Excel Industries employees?What role should they play in communicatingthe decision to the community at large?8. What vested interest do you suppose the communityhas in the continued operation of theNyloncraft <strong>Learning</strong> Center? Do any reciprocalobligations exist between the communityand the employers for the proper care, feeding,and education of preschool children whoseparents are employed in the community? HasExcel Industries violated any “unspoken pact”between management and its workers, orbetween the company and the community?Either way, you must prepare a strategy memoaddressed to Jim Lohman that summarizes thedetails of the case, rank orders critical issues,discusses their implications (what they mean andwhy they matter), offers specific recommendationsfor action (assigning ownership and suspense datesfor each), and shows how to communicate the solutionto all who are affected by the recommendations.You must also prepare a professional businessletter for Mr. Lohman’s signature. That documentmay be addressed to parents of children attendingManagement Communication: A Case-Analysis Approach, Fourth Edition, by James S. O'Rourke, IV. Published by Prentice Hall. Copyright © 2010 by <strong>Pearson</strong> Education, Inc.
78 Chapter 3 ● Communication Ethicsthe Nyloncraft <strong>Learning</strong> Center, addressing theirconcerns in the case. If you wish, you may writeseparate letters to parents who are Excel employeesand to parents who are not employees of the company.If you have questions about either of thesedocuments, please consult your instructor.NYLONCRAFTSummary Balance SheetDecember 1990Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,207Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,308Prepaid Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93Total Current Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,705Fixed Assets, Net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,585Goodwill and Other Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,691Total Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,981Accounts Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,897Accrued Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,232Current Portion Ltd . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 413Long Term Debt, Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,800Due to Parent/Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,639Total Liabilities & Equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,981NYLONCRAFTIncome Statement Year EndedDecember 1990Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36,730Cost of Goods Sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35,332Gross Profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,398Selling and Administrative Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,697Operating Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,299)Other Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 522Loss Before Tax and Corp. Allocation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,821)Note: Figures are given in thousands of dollars (U.S.).This case was prepared from personal interviews and public sources by James S. O’Rourke, Concurrent Professorof Management, as the basis for class discussion rather than to illustrate either effective or ineffective handling ofan administrative situation.Copyright © 1994. Revised: 2005. Eugene D. Fanning Center for Business Communication, Mendoza College ofBusiness, University of Notre Dame. All rights reserved. No part of this publication may be reproduced, stored in aretrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical,photocopying, recording, or otherwise—without permission.000200010270582216Management Communication: A Case-Analysis Approach, Fourth Edition, by James S. O'Rourke, IV. Published by Prentice Hall. Copyright © 2010 by <strong>Pearson</strong> Education, Inc.
Chapter 3 ● Communication Ethics 79000200010270582216CASE 3-2A Collection Scandal at Sears,Roebuck & CompanyIt was just 8:30 A.M. on a Sunday morning.While most of Chicago was either stillasleep or out retrieving the morning paper,Arthur C. Martinez was meeting with adozen of his company’s top executives attheir headquarters building in suburbanHoffman Estates. For a few moments,the room grew quiet as Martinez triedto digest what he had just been told. Lawyersfor Sears, Roebuck & Company wereexplaining how employees had secretly violatedfederal law for nearly a decade.Martinez couldn’t believe what he washearing: Sears attorneys and credit employees,according to a bankruptcy judge inBoston, had for years been dunning delinquentcredit card holders who had filedfor—and had been granted—bankruptcyprotection. The newspapers and cable televisionnews channels didn’t have the story yet,but it would only be a matter of hours beforethey would. The company that Martinez, aformer Saks Fifth Avenue executive, hadstruggled to turn around would quickly bemired in the worst legal and ethics scandal inits 111-year history.The United States Department ofJustice was already considering not only civilpenalties, but also criminal prosecution.Worse, this wasn’t simply a rogue operationor an honest misinterpretation of the law:Sears appeared to have been violating therights of many of its customers systematicallyand intentionally. The company, the lawyerswere suggesting, may even have put the illegalpractice into its procedures manual.How could such wrongdoing have goneunchecked for years? Martinez wanted toknow. “Not one phone call about this? Ever?”he demanded. According to at least one participantin the meeting, it was a “sickeningmoment.”A “Half-Billion Dollar” Handwritten LetterAs an extensive investigation would laterreveal, Sears struggled—first to understandand then to deal with criminal charges andan ethical lapse that would cost the companynearly $500 million. According to Sears’senior vice president Ron Culp, the collectionscheme began to unravel in November1996, when Francis Latanowich, a disabledsecurity guard, hand wrote a letter on a yellowlegal pad, begging the BostonBankruptcy Court to reopen his case.Although Judge Carol Kenner had wiped outhis debts, Sears later asked Latanowich torepay the $1,161 he owed for a TV, an autobattery, and some other merchandise. Butthe monthly payment, he wrote, “is keepingfood off the table for my kids.”Sears, it turned out, had mailedLatanowich an offer. In return for $28 a monthon his account, the company wouldn’t repossessthe goods he had bought with a Searscharge card before he went bankrupt. Thepractice of urging debtors to sign such deals,called reaffirmations, is legal and relativelywidespread in the retail credit business, butmany judges view them as unethical practicesthat keep people from getting a fresh start.Moreover, every signed reaffirmation must befiled with the court so a judge can reviewwhether the debtor can handle the new payment.Sears, Roebuck & Company hadn’tfiled this one with the court and Judge Kennerwanted to know why not.At January 29, 1997, hearing, a Bostonattorney working for Sears offered a convolutedtechnical excuse for not filing. Kenner’sresponse: “Baloney.” According to Newsweekmagazine, there were hints from prior casesthat Sears, both praised and feared nationwideas the most aggressive pursuer of reaffirmations,wasn’t filing many of them with theManagement Communication: A Case-Analysis Approach, Fourth Edition, by James S. O'Rourke, IV. Published by Prentice Hall. Copyright © 2010 by <strong>Pearson</strong> Education, Inc.
80 Chapter 3 ● Communication Ethicscourt. If true, the company was using unenforceableagreements to collect debts thatlegally no longer existed. Judge Kennerpushed Sears for a list of such cases. Sears’response, delivered reluctantly in mid-Marchby a credit manager, was shocking: The companyhad apparently ignored the law nearly2,800 times in Massachusetts alone. Martinezand his senior team could only imagine whatthe company was up to in the other 49 states.Soaring Personal BankruptciesBetween 1994 and 1998, personal bankruptciesin the United States rose from 780,000to more than 1.3 million, leaving manyretailers and credit card issuers awash in baddebt. Sears, as the nation’s second-largestretailer, was in a particularly vulnerableposition. That year, the company earned 50percent of its operating income from credit,including charge cards held by more than 63million households with Sears credit cards.The problem, as Martinez would cometo discover, [was] that too many of those newcardholders barely qualified for credit. In itszeal to attract new business, Sears became alender to its riskiest customers. As the numberof bankruptcies rose nationwide, so did thenumber of unpaid accounts at Sears. By 1997,more than one-third of all personal bankruptciesin the United States included Sears as acreditor. Companies heavily dependent onincome from their credit cards chose toaggressively pursue bad debts, and Sears wasjust one of many to do so. The list includedsuch prominent creditors as FederatedDepartment Stores, the May Company, G. E.Capital, Discover Card, and AT&T.As Martinez would also come to discover,the problem was neither isolated norsmall. During the previous five years, some512,000 customers had signed reaffirmationagreements with Sears, pledging to repaydebts that totaled $412 million. Martinezsuspected that his company’s transformationfrom an exhausted, defeatist bureaucracy into“an aggressive, can-do company” had anunanticipated consequence: Managers simplywouldn’t send bad news up the chain ofcommand.A culture of aggressively pursuing baddebts while filtering out bad news from topmanagement had become part of the company’sculture and official policy. MichaelLevin, chief of Sears’ law department,explained to his CEO that at least one outsidelaw firm had told someone in the companythat Sears’ policy was questionable. Butword of the alert, which might have triggereda broader investigation within the company,somehow never worked its way up throughthe bureaucracy.Martinez leaned back and motioned tohis executive assistant, “Call a meeting of thePhoenix Team,” he said. “Eight o’clocktomorrow.” That would mean 200 of Sears,Roebuck & Company’s top executives wouldget the bad news directly from their CEO. Itwould also signal the start of Sears’ responseto the charges.Martinez then turned to Ron Culp,Sears’ senior vice president for public relationsand government affairs, and BillGiffen, vice president for ethics and businesspolicy. “Give me your best thinking,”he said. “Tell me what you think we shoulddo.”DISCUSSION QUESTIONS1. What is Sears’ best strategy at this point? Whatwould you advise Arthur Martinez to do?2. As Ron Culp thinks about corporate communicationsand the events that have justunfolded in the board room, which audienceswould you advise him to focus on first?3. What do you suppose the interests will be foreach of these audiences? Are they similar000200010270582216Management Communication: A Case-Analysis Approach, Fourth Edition, by James S. O'Rourke, IV. Published by Prentice Hall. Copyright © 2010 by <strong>Pearson</strong> Education, Inc.
Chapter 3 ● Communication Ethics 81interests or are some of them in conflict withone another? What do they want to hear fromMr. Martinez?4. As Bill Giffen examines Sears’ credit collectionpolicies and practices, what advice wouldyou offer? How can Martinez keep a sense ofenthusiasm and excitement in his companyand still encourage people to report anddisclose bad news?5. Even though the reaffirmation agreements areperfectly legal and enforceable, if properlyfiled with the courts, is it ethical to try toextract money from people who have legallydeclared bankruptcy? What ethical obligationsdo those people in bankruptcy have towardcompanies who lent them credit, such asSears?6. Has the reward structure at Sears somehowaffected the communication structure? Whatwould you change if you could adviseMr. Martinez on restructuring either of thosesystems?WRITING ASSIGNMENTPlease respond in writing to the issues presented inthis case by preparing two documents: a communicationstrategy memo and a professional businessletter. In preparing these documents, you mayassume the role of the Vice President for CorporateCommunication for Sears, Roebuck & Company.Your task is to provide advice to Mr. ArthurMartinez regarding the issues he and the companyare facing. Or, you may identify yourself as anexternal management consultant who has beenasked by the company to provide advice to Mr.Martinez.Either way, you must prepare a strategymemo addressed to Arthur Martinez, Chairmanand Chief Executive Officer of the company,that summarizes the details of the case, rankorders critical issues, discusses their implications(what they mean and why they matter),offers specific recommendations for action(assigning ownership and suspense datesfor each), and shows how to communicatethe solution to all who are affected by therecommendations.You must also prepare a professional businessletter for Mr. Martinez’s signature. Thatdocument should be addressed to Sears’ creditcustomers, explaining what happened and how thecompany intends to respond. If you have questionsabout either of these documents, pleaseconsult your instructor.SourcesCahill, Joseph B. “Sears’s Credit Business MayHave Helped Hide Larger Retailing Woes,”Wall Street Journal, July 6, 1999, pp. A1, A8.Culp, E. Ronald. Personal communication,November 1999–January 2000.“Final Accord in G.E. Debt Collection,” New YorkTimes, January 23, 1999, p. B1.McCormick, John. “The Sorry Side of Sears,”Newsweek, February 22, 1999.“Sears to Pay Fine of $60 Million in BankruptcyFraud Lawsuit,” New York Times, February10, 1999, p. C1.Sparks, Debra. “Got an AT&T Credit Card? Don’tGo Bankrupt,” BusinessWeek, September 15,1997.Weimer, De’Ann. “Is Sears Putting the Comebackon Its Card?” BusinessWeek, November 10,1997.This case was prepared from personal interviews and public sources by James S. O’Rourke, Concurrent Professorof Management, as the basis for class discussion rather than to illustrate either effective or ineffective handling of anadministrative situation.000200010270582216Copyright © 2000. Revised: 2005. Eugene D. Fanning Center for Business Communication, Mendoza College ofBusiness, University of Notre Dame. All rights reserved. No part of this publication may be reproduced, stored in aretrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical,photocopying, recording, or otherwise—without permission.Management Communication: A Case-Analysis Approach, Fourth Edition, by James S. O'Rourke, IV. Published by Prentice Hall. Copyright © 2010 by <strong>Pearson</strong> Education, Inc.
82 Chapter 3 ● Communication EthicsCASE 3-3The Soul of DellThe Value of Corporate Philosophy StatementsOn a warm and sunny morning at Dell’sheadquarters in Austin, Texas, in another ofthe regular meetings between Michael Delland Kevin Rollins, a special issue was raisedfor the first time: according to Mr. Dell, theyneeded to “find their soul.” Both Dell andRollins knew that one of the top priorities forDell Computer Corporation would be toarticulate the basic values and beliefs of thecompany and create a guideline for theiremployees.Kevin Rollins knew that now, morethan in all the preceding months he had spentas President and COO of Dell ComputerCorporation, a new company philosophystatement was needed. It was May of 2001and PC margins were decreasing, layoffswere frequent, and Dell’s employees seemedto lack the motivation needed to work in ahigh-tech organization.Regular quality-of-life employee surveys,called “Tell Dell,” revealed that peopleinside the company needed to have a higherstandard than just doing their job properly inorder to avoid getting fired. Many employeeslacked motivation and wondered whythey were working at Dell at all. Managing arapidly growing company in a fast-pacedindustry, Dell and Rollins had never takentime to sit back and examine Dell’s cultureand what they aspired their culture to be like.As the worldwide economy slowed in 2001,they realized that the differentiator betweena good and a great company would be itsculture. 1The next few months after Dell andRollins’ discussion of the company’s culturetook place were slow. But things got movingby September. Regional meetings were heldin forums with managers from all over theworld to identify the key tenets that wouldcome to be known as “The Soul of Dell.”During that same month, the terrorist attackson the United States caused great impact onmany people, companies, and countriesaround the world. Dell Computer Corporationwas no exception.Company HistoryIn 1983, Michael Dell, an 18-year-old freshmanat the University of Texas at Austin,spent his evenings and weekends preformattinghard disks for IBM-compatiblePC upgrades. A year later, he dropped out ofcollege to continue with his rapidly expandingbusiness, which would grow from zeroto $6 million by 1985, simply by upgradingIBM compatibles for local businesses. In1985, Dell shifted his focus to assemblinghis own brand of computers and his businessgrew dramatically, with $70 million insales at the end of 1985. By 1990, sales hadgrown to more than $500 million and Dellwas able to supply a number of Fortune 500companies. The company now had a broadproduct line of desktop and portable computerswith Intel processors and had earneda strong reputation for quality products andservice. 2Throughout the company’s history, abig part of Dell’s success was due to itsunique and distinctive “Dell Direct” model.This model took efficiency to new heights byeliminating the intermediaries between makerand user of PCs and lowered costs by eliminatinginventory with the help of an efficientsupply-chain management system andInternet sales.Today, as the world’s largest PC manufacturer,Dell Corporation offers a greatvariety of computing products directly to000200010270582216Management Communication: A Case-Analysis Approach, Fourth Edition, by James S. O'Rourke, IV. Published by Prentice Hall. Copyright © 2010 by <strong>Pearson</strong> Education, Inc.
Chapter 3 ● Communication Ethics 83000200010270582216customers, with build-to-order systems andcomprehensive services that fulfill the needsof its customers. Dell’s customers range frommajor corporations to individuals all over theworld. Efficient cash management hasenabled Dell to have both extremely highinventory returns and a “negative cashconversion cycle.” 3 This cash flow systempermits Dell to pass on cost savings tocustomers in the form of lower prices forthe best technology available. These competitiveadvantages have helped the companyachieve a solid cash position withoutstanding liquidity.In Search of a Company CultureThe culture at Dell had always been drivenby a continuous program to drive down costsand improve the “customer experience.”Facts were more important and more highlyvalued than emotions and personal feelings.As the company grew and succeeded, thecompany culture that pushed the drive to benumber one and to make a personal fortunewas based solely in economic terms. But inthe year 2000, Dell’s margins in the hardwarebusiness began to decline due to aslowing demand for PCs and a price warwith competitors. Investors were disappointed,layoffs were frequent, and employeesbegan to wonder why they worked in ahigh-tech industry, and why they worked forDell.Kevin Rollins was aware that all greatcompanies have great cultures. They have apurpose and a leadership model. Aware of anurgent need to define his company’s culture,he looked for inspiration, reading books onFranklin, Jefferson, Monroe, andWashington. He soon discovered that whatthe founding fathers of the United Statesbelieved in went well beyond logic. Theywere passionate, idealistic, and had a visionthat exceeded their personal gain andinvolved the risk of losing their lives.Mr. Rollins found this remarkable, and itcaused him to think about the country’s souland its leaders. He believed this was an“interesting paradigm for a company toexamine, as opposed to simply adopting thebusiness paradigm.” 4 With this foundation,he began to develop what became known asThe Soul of Dell.The Events of September 11, 2001The tragedy of September 11, 2001, was aturning point that brought new warmth to thecompany’s changing culture. Instinctively,employees began reaching out to customersand the company put aside the usual economicmeasures of success to help the country getback to normal. Immediate effort was made toprovide equipment to customers who losteverything in the attack and needed technologyinfrastructure as soon as possible. Priority wasgiven to customers who needed hardware tohelp others, like [the] American Red Cross andthe United States Defense Department. Byparticipating in this initiative, employees saidthey felt proud of their work, and found that ithelped them stay focused in the effort torebuild their customers’ world. It createdcompanywide inspiration and made employeesproud of working at Dell. Overwhelmingly,felt [they] were doing the right thing. This collaborativeeffort brought the company togetheras never before and established a much-neededcompany affinity and loyalty. 5 Internal communicationin the company was also dramaticallychanged. Managers reached out toemployees on an emotional level by changingboth the tone and content of their conversations.People began talking about personalanecdotes, instead of facts and figures. Theway in which employees talked to one anotherwas transformed. Executives also changedManagement Communication: A Case-Analysis Approach, Fourth Edition, by James S. O'Rourke, IV. Published by Prentice Hall. Copyright © 2010 by <strong>Pearson</strong> Education, Inc.
84 Chapter 3 ● Communication Ethicstheir way of addressing other employees. Theirtone and actions became comforting and reassuring,emphasizing the concept of “the Dellfamily.”Michael Dell and Kevin Rollins, amongothers, began to address employees in amore personal way. They even signed internalcommunications with simply “Michael” and“Kevin,” instead of “Office of the Chairman.”Frequent personal contact became more commonby organizing a series of town hall meetingsto discuss reactions to the terrorist attacksinstead of having financial briefings.A new section was added to the company’sintranet called “Helping RebuildAmerica” to communicate relevant and timelyinformation. It included leadership messagesfrom Dell and Rollins, dates and times of townhall meetings to discuss emotions and reactionsto the tragedy, online video clips ofemployees helping customers, customer thankyouletters, and personal accounts of those atthe Pentagon and the World Trade Center. Thecompany intranet also featured opportunitiesto volunteer for local relief efforts and not-forprofitorganizations, employee resources, andbreaking news. This effort, according to manyemployees, made the company feel connectedin a way that it never had before.These events increased awareness thatsuccess depends not only on strategic economicefforts, but also on the ability of acompany to value and care for its people.Motivation was created to develop and retainemployees, emphasize leadership, expandtraining, and increase diversity inside thecompany. This effort is now an importantpart of The Soul of Dell.Key PlayersMichael Dell is the founder and CEO ofDell Computers. During the past 18 years,he has grown the company’s sales from $6million to $33.7 billion and opened salesoffices worldwide, employing more than38,000 people around the world. In 1992,Michael Dell became the youngest CEO ofa company to be ranked as a Fortune 500firm. He has been honored on numerousoccasions for his vision and leadership.One of the main goals for his company is todouble company profits by 2005.Kevin Rollins became Dell’s presidentand chief operating officer in March of 2001.Before then, he was president of DellAmericas. He managed all company operationsin the United States, Canada, Mexico,and Latin America. During Mr. Rollins’stenure at Dell, the company has gone througha dramatic growth process increasing revenuesfrom $5 billion to $31 billion in justfive years. Before joining the company, hefunctioned as vice president and managingpartner of Bain & Company managementconsultants, where he specialized in corporatestrategy and the management of high-techcompanies. With his development of The Soulof Dell, he hoped people would refer to Dellas a place where respect, integrity, honesty,and forthrightness are valued.Elizabeth Allen is the vice presidentof corporate communications at Dell. Herresponsibilities include the direction andglobal management of Dell’s corporatecommunications function, including mediarelations, employee communication, andliaison with brand and product advertisingdivisions. Allen has spent more than 20years of her career in corporate communications.Before joining Dell, she was vicepresident of corporate communications atStaples, Inc., where she expanded investor,government, community, and media relations.Previously, she worked for RaytheonCompany and Loral Corporation as vicepresident of corporate communications ineach. In her current position, Allen has theresponsibility of diffusing The Soul of Dellboth inside the company and externally.000200010270582216Management Communication: A Case-Analysis Approach, Fourth Edition, by James S. O'Rourke, IV. Published by Prentice Hall. Copyright © 2010 by <strong>Pearson</strong> Education, Inc.
Chapter 3 ● Communication Ethics 85000200010270582216What the Soul Consists ofThe Soul of Dell consists of five major tenetsincluding: Customers, the Dell Team, DirectRelationships, Global Corporate Citizenship,and Winning. The purpose of this initiativewas to create a statement of corporate philosophyand to provide all employees with anexplanation of the company’s basic valuesand beliefs, so that they know what kind ofcompany they are and what they hope tobecome. 6To begin, Dell believes that by providinga superior experience at a greater valuethey will be able to create a loyal customerbase. In alignment with the trademark of thecompany, they strongly believe in having adirect relationship with their customers. Oneexample of this is what they call thePlatinum Councils, which are regional meetingsheld every six to nine months with theirlargest customers from around the world.These are so important that even MichaelDell regularly attends and speaks with customersone-on-one. 7 The company alsobelieves in providing its customers with thebest quality, [top-notch] technology. Theyalso believe in providing [. . .] value and asuperior customer experience.The Dell Team also aspires to be ameritocracy in which the best individualsand the best teams are rewarded. Theybelieve in looking for the best talent worldwideand developing and retaining them inthe company. In order to achieve this, thecompany hopes to create an environment inwhich the individuality of people is recognizedbut which also encourages people atall levels of the company to actively participatein teams.The Direct Relationship model at Dellmeans much more than selling computers toretail customers without benefit of distributorsor middlemen. The Soul of Dell also emphasizesdirect communication with its customers,suppliers, partners, stockholders, and employees.An especially important aspect of thisdirect communication is for company executives,managers, and employees to behave ethicallyin each of these interactions.In Global Corporate Citizenship, Dellstresses the value of “understanding andrespecting all [nations’] laws, values and cultures”as well as growing profitably in everymarket and contributing in the communitiesin which they have a presence.Finally, the Winning principle of TheSoul of Dell calls for a sense of passion inits employees to win at everything they do.In that way, Dell hopes to create a culturewith operational excellence that createsmarket leadership around the globe anddelivers a superior customer experience,thus providing greater returns for itsshareholders.Dissemination of the SoulThe first exposure of employees to The Soulof Dell was through the company’s intranetin March of 2002. As employees log ontotheir computers each morning, “splashscreens” open with information of newproduct launches and corporate initiatives.In order to introduce employees to thisnew company philosophy, upper managementposted messages explaining TheSoul of Dell. In addition to this, every Dellemployee was handed a copy of The Soul ofDell pamphlet.In the days that followed, managementsent e-mail messages and posted additionalinformation on the intranet so thatemployees would be exposed to The Soulof Dell daily. Managers were given theresponsibility to explain The Soul of Dellto their subordinates and were providedwith a PowerPoint presentation, along withsome of the FAQs and their correspondinganswers.Management Communication: A Case-Analysis Approach, Fourth Edition, by James S. O'Rourke, IV. Published by Prentice Hall. Copyright © 2010 by <strong>Pearson</strong> Education, Inc.
86 Chapter 3 ● Communication EthicsA Dell manager, during a telephoneinterview in October of 2002, said, “I actuallyknow none of the key tenets [of TheSoul of Dell], but would guess they havesomething to do with maintaining work-lifebalance, building a long-term career here,valuing diversity, and leadership.”Interesting, useful values, but not thosearticulated by the company’s leadershipmore than six months earlier.In November 2002, speaking withanother mid-level manager from Dell, aninterviewer learned that she was not veryfamiliar with what The Soul of Dell consistedof. She explained that she did receivea copy of The Soul of Dell and admitted tohaving received e-mail messages, as well ashaving seen some postings on the companyintranet. Still, she was unable to explainwhat comprised The Soul of Dell or even tolist one of the basic tenets of the corporatephilosophy statement. A vice president ofthe company stated that he, indeed, wasresponsible for training his managers on thesubject but did not regard it as a particularlyhigh priority. 8Chicken Soup for the SoulThe executive management team at Dell hasmade culture a key priority item for this fiscalyear. In order to keep The Soul of Dellpresent in the mind-set of employees, managementvowed to continue to encouragemeetings between managers and their teamson the subject. They plan to continue to makeit a key priority going forward: everyemployee’s performance plan will have atleast one line item dealing with the improvementof corporate culture.Bryce Sims, a mid-level manager atDell, said:Like most organizations, Dell is in aconstant state of change; however, mostorganizations haven’t grown from zerorevenue to over $30 billion in 17 years.We have grown very fast and, like most17-year-olds, we don’t know everything.In the past, our culture reallyfocused employees on compensationand promotions. As our domestic growthhas slowed, our stock hasn’t beenthe rocket it was in the ’90s (when itwas the top-performer of all stocks),and importantly not as many promotionopportunities have been created, causinga need for the culture shift. The Soulof Dell program has tried to refocus ourculture.To me, Dell is still about leveragingour direct model, shrinking profitpools, commoditizing technology, customerfocus, and of course most important,execution and results. Changingour culture will take time and willhappen effectively only through executivemanagement example.DISCUSSION QUESTIONS1. How can The Soul of Dell help in acquiringthe company’s identity and culture?2. Should top management have consideredemployees’, suppliers’, and customers’ opinionsand viewpoints in developing The Soul of Dell?3. Can Dell achieve what it aspires to be?4. Was The Soul of Dell diffused correctlythroughout the company?5. How should The Soul of Dell be maintained inthe company?6. What key points are missing in this new companyphilosophy?7. What is the real value of corporate philosophystatements? Does every companyneed one?000200010270582216Management Communication: A Case-Analysis Approach, Fourth Edition, by James S. O'Rourke, IV. Published by Prentice Hall. Copyright © 2010 by <strong>Pearson</strong> Education, Inc.
Chapter 3 ● Communication Ethics 87WRITING ASSIGNMENTPlease respond in writing to the issues presentedin this case by preparing two documents: a communicationstrategy memo and a professionalbusiness letter.In preparing these documents, you mayassume one of two roles: you may identify yourselfas a Dell manager who has been asked to provideadvice to Ms. Elizabeth Allen regarding the issuesshe and the company are facing. Or, you may identifyyourself as an external management consultantwho has been asked by the company to provideadvice to Ms. Allen.Either way, you must prepare a strategy memoaddressed to Elizabeth Allen that summarizesthe details of the case, rank orders critical issues,discusses their implications (what they meanand why they matter), offers specific recommendationsfor action (assigning ownership and suspensedates for each), and shows how to communicatethe solution to all who are affected by therecommendations.You must also prepare a professionalbusiness letter for Michael Dell’s signature.That document should be addressed to Dellemployees. If you have questions about eitherof these documents, please consult yourinstructor.References1. Tischler, Linda. “Can Kevin Rollins Find theSoul of Dell?” Fast Company, November2002.2. Some parts of this paragraph were drawnand adapted from Harvard Business CaseNo. 9-598-116, “Dell Online.”3. Park, Andrew. “Dell, the Conqueror,”BusinessWeek, August 24, 2001.4. Linda. “Can Kevin Rollins Find the Soul ofDell?”5. Some parts of this section have been drawnand adapted from: Allen, Elizabeth Heller.The Shift in Culture at Dell Post-September 11. April/May 2002.6. This section was drawn and adaptedfrom The Soul of Dell v5. February 14,2002.7. “The Power of Virtual Integration: AnInterview with Dell Computer’s MichaelDell,” Harvard Business Review, 76, no. 2(March–April 1998), p. 72.8. Informal interviews with Dell employeesand management, November 8,2002.This case was prepared by Research Assistants Eugenio Escamilla and Celina Celada under the direction of James S.O’Rourke, Concurrent Professor of Management, as the basis for class discussion rather than to illustrate eithereffective or ineffective handling of an administrative situation.Copyright © 2003. Revised: 2005. Eugene D. Fanning Center for Business Communication, Mendoza College ofBusiness, University of Notre Dame. All rights reserved. No part of this publication may be reproduced, stored in aretrieval system, used in a spreadsheet, or transmitted in any form by any means—electronic, mechanical,photocopying, recording, or otherwise—without permission.000200010270582216CASE 3-4Citigroup: Restoring Ethics and ImageBefore GrowthCharles Prince, CEO of Citigroup, is facing adaunting challenge as the head of the largestfinancial services organization in the world.He has joined a company that has experiencedsignificant regulatory scrutiny and thathas been linked to the biggest scandals inManagement Communication: A Case-Analysis Approach, Fourth Edition, by James S. O'Rourke, IV. Published by Prentice Hall. Copyright © 2010 by <strong>Pearson</strong> Education, Inc.
88 Chapter 3 ● Communication Ethicscorporate history. Unfortunately for Prince,the problems are pervasive throughout mostof Citigroup’s diverse service offerings.In March 2005, Prince announced hisstrategy to transform the financial giant andto provide a new direction for the future. Hecalled it the “Five Point Ethics Plan” to:improve training, enhance focus on talent anddevelopment, balance performance appraisalsand compensation, improve communications,and strengthen controls. Due to the size andcomplexity of the organization, there weresignificant unresolved questions. How couldthe plan be effectively revealed? Would theplan be strong enough to change the cultureof the entire organization? How should thecorporate communications department handleboth the initial and long-term communicationof this plan to major stakeholders?About CitigroupIncorporated in 1998, Citigroup Inc. is a diversifiedglobal financial services holdingcompany providing services to consumer andcorporate customers. The company hasapproximately 141,000 full-time and 7,000part-time employees in the United States and146,000 full-time employees in more than 100countries outside the United States. All ofCitigroup’s services can be grouped in threemain areas: Global Consumer, Corporate andInvestment Banking, and Global WealthManagement. Citigroup also has two standalonebusinesses, Citigroup Asset Managementand Citigroup Alternative Investments.Global Consumer Group was 72 percent ofincome in 2004, with Investment Bankingcoming in second at 13 percent. 1The Citigroup umbrella covers severalbrands including Citibank, Citifinancial,Citistreet, Citi, Primerica, Banamex, andSolomon Smith Barney (SSB). Citigroup hasa 200 year old legacy of innovation andachievement. The City Bank of New York isCitigroup’s earliest ancestor, establishing acredit union for merchant-owners in 1812.Many of the rest of Citigroup’s ancestorsoriginated in the late nineteenth century,including Travelers, Smith Barney, BankHadlowly, and Banamex. In the twentiethcentury, acquisitions included IBC, SalomonBrothers, and The Associates. Sandy Weill,former CEO, was recognized as bringing itall together under the one red umbrella ofCitigroup in 1998. 2Sandy Weill: The Man Who Shatteredthe Glass-SteagallEverything about Weill is big, including hisambitionCharles Gasparino, Blood on the StreetCongress passed the Glass-Steagall Act in1933, which established what was known asthe Chinese wall between commercial bankingand investment banking. That sameyear, the man who would influence therepeal of that act in 1999 was born. SandyWeill later became one of Wall Street’s mostinfluential men as the Citigroup CEO in1998. He ran the one-stop financial supermarketuntil 2003. 3In the 1960s, Weill grew ShearsonLoeb Rhodes brokerage from a mid-sizedbusiness into an empire that he sold toAmerican Express Corporation in 1981.After being bounced from Amex, he hadone of the most notable comebacks on WallStreet. He merged his insurance company,The Traveler’s Group, with the SalomonSmith Barney brokerage and the Citicorpbanking empire. This merger made Weill avery rich and powerful man, but the famealso brought a lot of negative publicity.During Weill’s era as CEO, Citigroup wasassociated with numerous corporate scandals,regulatory investigations, and legalsettlements.In an interview with the New YorkTimes on September 11, 2005, Weill still000200010270582216Management Communication: A Case-Analysis Approach, Fourth Edition, by James S. O'Rourke, IV. Published by Prentice Hall. Copyright © 2010 by <strong>Pearson</strong> Education, Inc.
Chapter 3 ● Communication Ethics 89000200010270582216defended what he built, saying “I don’t thinkit’s too big to manage or govern at all. I’msure there would have been things that wouldhave been tweaked this way or that way, butwhen you look at the results of what happened,you have to say it was a great success.”Charles Prince became the nextCitigroup CEO after Weill. His advice forPrince, “Don’t screw (the legacy) up.” 4Charles Prince—Maintaining the LegacyCharles Prince became the chief executiveofficer with Citigroup in 2003 and has beenan employee with the company for 24 years.He began his career in 1975 as an attorneywith U.S. Steel Corporation. In 1979 hejoined Commercial Credit Company, whichSandy Weill took over in 1986. At that point,Prince became what Fortune Carol Loomishas called, “an absolute Weill loyalist, whohas promptly accepted whatever assignmentsSandy has wanted him to take on.” 5 Heserved as main counsel until 2003, whenWeill chose him as CEO. Since 2003, Princehas been a fireman, cleaning up the scandalsand improprieties that have been buildingsince the late 1990s. Much of that cleaninghas meant removing companies and executivesthat helped build Weill’s legacy, includingthe sale of Traveler’s Insurance.Prince has been described as “a smart,logical thinker who’s big in frame, in laugh,and in capacity for work.” One long-timeanalyst notes, “I believe that non-charismaticPrince is going to be a more positive force atCitigroup than the other three charismaticCEOs going back to the 1960s.” 6Distributing Biased ResearchIn 2001, the Office of New York State AttorneyGeneral Eliot Spitzer began an investigationinto possible conflict-of-interest problems withCitigroup’s investment banking practice. Thisjoint investigation between state and federalregulators was resolved and settled in April2003. In addition to payment of $400 million,Solomon Smith Barney (SSB) was required toadopt a series of reforms and measures. Thispayment was larger than any other financialinstitution included in the investigation.The financial impact is even larger due to additionalprivate litigation arising from the settlement.Citigroup took a $1.5 billion chargeprimarily for litigation reserves in the quarter ofthe findings. 7There were multiple findings from theinvestigation concerning Citigroup’s internaloperating practices and communications withclients. The investigation found that theresearch analysis and correlating ratings werenot performed with independence and integrity.SSB business practices encouraged researchanalysts to provide favorable coverage of companiesthat were also investment bankingclients. A portion of each analyst’s compensationwas based on revenues from the investmentbanking unit and investment bankingevaluations. The investigation found incidentsof fraudulent and misleading research reports.SSB also practiced spinning activities that allocatedlucrative shares of IPO stocks to executivesat investment banking clients. 8One of the most notable reformsrequired as part of the settlement was to separatethe investment banking operations fromthe research operations of the company. Seniorinvestment banking executives working for aclient were forbidden from directly communicatingwith the research analysts covering thesame client. The reforms also required theCEO of SSB’s research unit to periodicallyreport to the Citigroup board of directorsconcerning the quality and independence ofthe research products.The Star Telecom AnalystJack Grubman was a notorious telecommunicationsanalyst for Solomon Smith Barney.He touted his relationships throughout theManagement Communication: A Case-Analysis Approach, Fourth Edition, by James S. O'Rourke, IV. Published by Prentice Hall. Copyright © 2010 by <strong>Pearson</strong> Education, Inc.
90 Chapter 3 ● Communication Ethicsindustry and earned an estimated $20 millionper year. In ten different deals, he helped SSBearn $24 million in fees from investmentbanking with WinStar Communications. 9In January 2001, Grubman assigned a$50 price target and classified WinStar with a“Buy” rating. With the stock subsequentlytrading at $13, Grubman’s assistant e-mailed alarge investor stating, “Buy here and sell in thelow $20’s.” However, Grubman did not changehis price target or rating in public. In fact, hemaintained the status quo even when WinStarshares were trading at less than one dollar andthe company was on the eve of bankruptcy. Helater noted in e-mail, “we support our bankingclients too well and for too long.” 10The National Association of SecuritiesDealers alleged that SSB’s research wasmaterially misleading after investigating theWinStar incident. SSB agreed to pay $5 millionto settle the charges.Deceptive Lending PracticesCitigroup acquired Associates First CapitalCorporation and Associates Corporation ofNorth America in November 2000. Theysubsequently merged the acquired entity intothe Citifinancial Credit Company division.The Associates were one of the nation’slargest subprime lenders. Subprime lendingserves borrowers who cannot obtain credit inthe prime market. The loans carry highercosts due to the additional risk taken by thelender and are frequently held by lowincomefamilies.In March 2001, the Federal TradeCommission filed suit against Associates fordeceptively inducing consumers to refinanceexisting debts into home loans with high interestrates and fees. They also alleged thatAssociates tricked borrowers into purchasinghigh cost credit insurance without their knowledge.In some cases, the fees were included inmonthly payments and added thousands ofdollars in additional cost. When consumersnoticed the fees, the employees of Associatesemployed various tactics to discourage themfrom removing the insurance. The FTCdescribed the activities as, “systematic andwidespread deceptive and abusing lendingpractices.” The result was the largest consumerprotection settlement in FTC history andrequired Citigroup to pay $215 million. 11Helping Enron Corporation CommitFraudOn December 2, 2001, Enron filed forbankruptcy protection from its creditors.Investors later found that the companyused highly complex special purpose entitiesand partnerships to keep $500 millionoff of the consolidated balance sheet and tomask significant deficiencies in cashflow. Citigroup was one of the financialinstitutions that helped Enron design thesetransactions.The Securities and Exchange Commissioninitiated enforcement proceedings withCitigroup for assisting Enron in producingmisleading financial statements. The Commissionalleged that loans to Enron were disguisedas commodity trades. The transactionswere essentially loans because they eliminatedthe commodity price risk. Underthese transactions, commodity price riskwas passed from Enron to Citigroup andback to Enron. Without regard for thechange in price of the underlying commodity,Enron was required to make repayments ofprincipal and interest. The commission alsoalleged that Citigroup helped Enron designtransactions that transferred cash flow fromfinancing into cash flow from operations.There was further evidence of similar deceptivetransactions with Dynegy. Citigroupagreed to pay $120 million to settle the allegationsthat it helped Enron and Dynegy commitfraud. 12000200010270582216Management Communication: A Case-Analysis Approach, Fourth Edition, by James S. O'Rourke, IV. Published by Prentice Hall. Copyright © 2010 by <strong>Pearson</strong> Education, Inc.
Chapter 3 ● Communication Ethics 91000200010270582216Spinning WorldCom ExecutivesIn May 2004, Citigroup agreed to pay $2.65billion to settle class-action suits related to itsrole in the collapse of WorldCom. Plaintiffs inthe suit alleged that SSB wrongfully providedfavorable ratings on the company. Telecomanalyst, Jack Grubman, provided the coverage.WorldCom was not downgraded to“neutral” until WorldCom lost 90 percent ofits value. The U.S. House of RepresentativesFinancial Services Committee additionallyfound that Grubman warned WorldCom executives,in advance of public disclosure, thatCitigroup was dropping the stock from therecommended list. 13A former U.S. Attorney Generalappointed examiner alleged that BernardEbbers, WorldCom’s chief executive officer,violated his fiduciary duties by passing over$100 million of investment banking businessto SSB in exchange for allotments of IPOstock shares. Ebbers was the chief executiveduring the time when massive accountingfraud and questionable personal loans werediscovered. WorldCom subsequently restatedearnings by $17.1 billion in 2001 and $53.1billion in 2000. 14The End of Japanese Private BankingCitigroup is the largest and oldest foreignownedbank in Japan. The history of theiroperations dates back to 1902. The operationsin Japan are some of the largest outsideof the United States for Citigroup. Bank officialsat Japan’s Financial Services Agencybegan investigating Citigroup transactionslinked to money laundering, as well asloans that were used to manipulate publiclytraded stocks. The FSA warned Citigroupin 2001, but little corrective action wasperformed.In December 2004, Citigroup washanded the damaging news that the FSA wouldterminate all private banking operations inJapan. This included a requirement to closeover 5,000 bank accounts. The FSA cited thecorporate culture and governance for theinfractions. Citigroup executives blamed theproblem on the unclear reporting structure forkey executives in Japan. Heads of divisionsreported to different bosses in New York. Inaddition to the lost earnings, the closing of thebank accounts represents a challenging blow toCitigroup’s image in Japan and threatens theconsumer and corporate banking units stilloperating in the country. 15Financial Effects of the CorporateScandalsBy the end of 2002, the effects of thevarious allegations were weighing heavily onCitigroup. The SEC, FTC, NASD, the NewYork State Attorney General and other agencieshad performed investigations. Thereserves set aside for still outstanding legalliability grew by billions because of the costsof regulatory and private litigation.During 2002, the year that many ofthese issues were discovered, the companylost over 30 percent of its market value.In May 2003, Citigroup dropped coverageof 117 firms and fired seven of its topanalysts. There was an increasing numberof analyst layoffs up and down Wall Street.J. P. Morgan, Goldman Sachs, and MorganStanley cut up to 25 percent of their researchstaffs. 16In 2005, the Federal Reserve publiclyannounced that it would not approve anymajor Citigroup Mergers and Acquisitionsuntil the company resolved these variousissues. This unusual warning from theFederal Reserve was especially restrictive toCitigroup because some analysts believedthat big acquisitions were the only way tocontinue the aggressive growth. 17Management Communication: A Case-Analysis Approach, Fourth Edition, by James S. O'Rourke, IV. Published by Prentice Hall. Copyright © 2010 by <strong>Pearson</strong> Education, Inc.
92 Chapter 3 ● Communication EthicsChanging Citigroup’s ReputationOne of the initial steps Prince took to cleanup Citigroup was hiring Sally Krawcheck aschief financial officer and head of strategy.Krawcheck was known at Smith Barney as“The Queen of Clean,” and Prince hoped thatshe would continue this trend as Citigrouppushes to clean up its image. 18On February 16, 2005, Princeannounced his Five Point Ethics Plan in agroup memo to his employees as part of hisgoal to make Citigroup the world’s mostrespected financial institution. While this isthe most important goal Prince gave in hispublic plan, there are other benefits thatwill, hopefully, come with this ethicalimprovement. Prince hopes to grow the consumerand international business, and tomake the corporate and investment bank thebest in its class.The four-page ethical document listeda series of initiatives that employees wouldstart to see implemented in 12–18 months,beginning March 1, 2005.Details of the Five Point Ethics Plan• Expanded Training. This point isdesigned to instill an appreciation forCitigroup legacy. The ethics programwas kicked off with a company-widebroadcast of The Company We Want toBe to relate the three main responsibilitieswithin the company: the responsibilityto clients, to each other, and tothe franchise. Annual training aboutthe history and the culture of theCitigroup franchise will be required forall levels of management. Additionally,all employees will receive AnnualEthics/Code of Conduct training.• Enhanced Focus on Talent andDevelopment. A new initiative willbe launched, focusing on flexibility,360 degree reviews, manager surveys,and business leadership seminars forsenior managers. New jobs will becommunicated and posted internally toencourage those with outstanding talentto stay within the company.• Balanced Performance Appraisalsand Compensation. Standardizedperformance appraisals and evaluationsof all managers will be conductedannually. All compensation for businessheads will be based on howCitigroup performs, not just how individualmanagers perform. Employeeswill be paid bonuses on the basis ofhow well they participate in trainingand ethics program.• Improved Communications. CharlesPrince demonstrated that he takes thisinitiative very seriously, as he has traveledaround, meeting with and visitingmanagers and employers. Citigroupwants to improve the consistent communicationof values and goals. Results ofany issues reported to Ethics Hotlinewill be discussed, and more conferenceswill be planned for Senior Managers.• Strengthened Controls. Such controlincludes compliance training, risk controlself-assessments, and the creationof the Independent Global Compliancefunction that will be responsible forensuring Citigroup’s compliance withrules and regulations.Prince Hires Administrative Ethics OfficerAdditionally, on September 26, 2005, LewisB. Kaden joined Citigroup as Vice Chairmanand Chief Administrative Officer. Kadenserved as a moderator for the PBS’s Mediaand Society seminar, including the Ethics inAmerica series which won a Peabody Award.Kaden was a lawyer from Davis Polk &Wadwell, where he handled issues of corporategovernance, mergers and acquisitions,000200010270582216Management Communication: A Case-Analysis Approach, Fourth Edition, by James S. O'Rourke, IV. Published by Prentice Hall. Copyright © 2010 by <strong>Pearson</strong> Education, Inc.
Chapter 3 ● Communication Ethics 93000200010270582216and advised major corporations such asCitigroup on significant issues. Prince said ofKaden, “Lew’s deep experience, insight, andintegrity will be of great value as we pursueour ambitious agenda to build the mostrespected global financial services company.We look forward to his contributions.” 19Reaction to the Plan“Ethics is something you learn as a child;teaching it doesn’t make you an ethical person,”said Prof. Charles Elson, director of theWeinburg Center for Corporate Governanceat the University of Delaware. He did say,however, that “if (Prince’s plan) can clarifyblurry issues and help instill a culture of complianceto a code, I applaud it. But to teachethics to make people ethical, that’s a bitstrained.” 20 Elson went on to suggest, “Theacid test is going to be sort of a no-tolerancepolicy for ethical violations, not just legalviolations. ...If the company demonstratesto its employees that it will not tolerate violationsof its code of ethics . . . then you beginto affect a change in culture.” Elson furtherstated that Prince’s efforts were a “good start”but that he would need to distance himselffrom former administration that did not putcompliance first. “Rethinking his board,bringing in new blood would be quite helpful,”said Elson. He added that Sandy Weillmust go, “I think that Mr. Weill’s completeretirement from the company would go a longway to distance Mr. Prince from the earlierregime.” 21The Departure of Weill’s ArmyA few months after Prince’s plan wasannounced, Robert B. Willumstad, Citigroup’sPresident, COO, and Director announced thathe was going to leave to become a chief executiveof a public company. Willumstad had akey role in creating Citigroup in 1998 with thecombination of Travelers Group and Citicorp.During his tenure as Chairman and CEO ofthe Global Consumer Group at Citigroup, thecompany witnessed strong profit growth andseveral successful acquisitions. Willumstadworked closely with Charles Prince and SandyWeill for years, and was very disappointedwhen he was not chosen as CEO. 22In the same month, Weill stated that hewanted to end his contract early, and launch aprivate-equity fund. There are reports that heis frustrated by Prince’s Five Point Plan andthe Traveler’s Group transaction. One bankanalyst stated, “Sandy always told me he preferredto fix things as opposed to sell them . . .I’m sure he hated (the Traveler’s Group)sale.” 23 Weill has decided to stay on untilApril of 2006 due to conflicts of interest andinformation access.A month after the announcementsabout Willumstad and Weill, MarjorieMagner announced her plans to leave, aswell. Marjorie was the chairman and chiefexecutive of the Global Consumer Group segmentof Citigroup. Magner plans to pursue acareer change outside the financial servicesindustry. 24 She is among the highest-rankingwomen at Citigroup, and her group contributedmore than half of the bank’s incomeover the last several years. Executives atCitigroup knew that Magner disagreed withPrince’s plan and major changes. Princeresponded to Magner’s announcement bysaying that she was one of the “legends whobuilt Citigroup,” and that he is “most proud”of the people she is developing, including hersuccessors. 25On a more positive note, Saudi PrinceAlwaleed bin Talal, Citigroup Inc’s biggestinvestor, said chief executive Charles Princewould need more time to prove himself ashead of world’s largest financial-servicesfirm. “This company is a giant,” Alwaleedsaid, “You have to give him time to institutehis culture and way of thinking. I’m backingthem all the way.” 26Management Communication: A Case-Analysis Approach, Fourth Edition, by James S. O'Rourke, IV. Published by Prentice Hall. Copyright © 2010 by <strong>Pearson</strong> Education, Inc.
94 Chapter 3 ● Communication EthicsPrince’s ResponseCharles Prince said of all these initiatives, “Thereal question is, can we execute it in a way thatbecomes more embedded? The systems aredesigned to provide sticks. This will all tie tohow you pay people. People who don’t completethe required training, for example, won’treceive bonuses. If we don’t pay people theright way, the initiatives risk becoming no morethan cynical happy-talk.” 27 Prince acknowledgedthat he has to own this program. He said,“If we delegate this to the (human-resources)department, it’s not going to work.” 28DISCUSSION QUESTIONS1. Has Citigroup grown too large to enforce corporategovernance or internal controls? Whateffect has the organization’s size and complexityhad on the continued problems?2. What effect will the new plans have onCitigroup’s investors? What can Citigroup doto mitigate negative responses?3. How can Citigroup continually communicatethe reformed organizational culture to thepublic?4. How would you react if you were the corporatecommunications officer of a Citigroupcompetitor?5. Do you believe it is possible to enforce an ethicsprogram with this or any other organization?6. As a corporation communications officer,what would be your method to communicatethe plan to Citigroup employees and inspirechange?7. Is Prince’s plan sufficient given the magnitudeof the problems facing Citigroup?8. Who are the critical stakeholders? How shouldPrince handle the stakeholders’ responses andconcerns?References1. Efrait, A. and Randall Smith. “AuctionBrokers Are Charged,” Wall Street Journal,Thursday, September 4, 2008, p. C1.Copyright © 2008 by Dow Jones & Company,Inc. All rights reserved worldwide.Reprinted with permission.2. Citigroup. “Annual Report 2004,” http://www.citigroup.com3. Chris Suellentrop. “Sandy Weill, HowCitigroup’s CEO rewrote the rules so hecould live richly,” http://www.slate.msn.com, November 20, 2002.4. “Laughing all the way from the bank/Citigroup’s mastermind is still defending hisgrand design,” New York Times, September11, 2005.5. Wikipedia, the Free Encyclopedia Online.“Charles Prince,” http://en.wikipedia.org/wiki/Prince.6. “For Citi, This Prince is a Charm: CEOChuck Prince is no Sandy Weill when itcomes to style, and that has proven to bejust what the scandal plagued giantneeds,” BusinessWeek Online, January 28,2005.7. “Spitzer settlement to cost Citigroup $1.3bn,”Financial Times, December 23, 2002.8. Office of the New York State AttorneyGeneral Eliot Spitzer, “Conflict ProbesResolved at Citigroup and MorganStanley,” http://www.oag.state.ny.us, April 28,2003.9. “Solomon Agrees to NASD Fine,” The AsianWall Street Journal, September 25, 2002.10. “Citigroup to pay $5 million fine to NASD tosettle charges it issued misleading research toprotect an investment banking client with afocus on Jack Grubman,” CNBC BusinessCenter. September 23, 2002.11. Federal Trade Commission. “CitigroupSettles FTC Charges Against the AssociatesRecord-Setting $215 Million for Subprime000200010270582216Management Communication: A Case-Analysis Approach, Fourth Edition, by James S. O'Rourke, IV. Published by Prentice Hall. Copyright © 2010 by <strong>Pearson</strong> Education, Inc.
Chapter 3 ● Communication Ethics 95Lending Victims,” http://www.ftc.gov,September 19, 2002.12. “The Falls of Enron: Citigroup Settles SuitOver Credit Insurance,” Houston Chronicle,September 20, 2002.13. “WorldCom Files Largest BankruptcyEver,” Money, July 22, 2002.14. “Citigroup to Pay $2.6 Billion to SettleWorldCom-Related Suit,” TR Daily, May 10,2004.15. “Citigroup’s Misstep in Japan May BruiseBank’s Global Image,” The Wall StreetJournal, September 22, 2004.16. “Citigroup ceases coverage of 117 firms:Seven analysts fired: Research cutbacksmirror rivals’ in wake of Spitzer deal,”Financial Post, May 24, 2003.17. “US Fed Puts Check On Citigroup Deals,”Financial Times, March 17, 2005.18. “Citigroup swaps top jobs,” The Guardian,September 28, 2004.19. “Lewis B. Kaden to join Citigroup as ChiefAdministrative Officer,” Business Wire,June 15, 2005.20. “Citigroup goes to ethics class,” New YorkPost, February 17, 2005.21. “Films and Forums teach value of ethics,”The Times, March 26, 200522. “Citigroup Announces Departure of RobertB. Willumstad,” Business Wire, July 14, 2005.“Citigroup’s No. 2 Will Leave, Seek a Firm toLead,” Wall Street Journal, July 15, 2005.23. “Frustrations of a Deal-Maker,” TheNew York Times, July 21, 2005.24. “Citigroup’s Marjorie Magner to Leave,”AP, August 22, 2005.25. “Citigroup’s Prince Remakes Empire,As Magner Leaves,” BusinessWeek,September 5, 2005.26. “Citigroup’s chief needs time, says SaudiPrince,” Calgary Herald, September 7, 2005.27. “Citigroup Works on Its Reputation,” WallStreet Journal, February 16, 2005.28. “After Scandals, Citigroup Moves to BeefUp Ethics,” Wall Street Journal, February 17,2005; “Exclusive Interview with Citigroup,”http://welcome.corpedia.com/index.php?id=236s=news&c=news, August 31, 2005.This case was prepared by Research Assistants Julie Ratliff and David Lee under the direction of James S. O’Rourke,Concurrent Professor of Management, as the basis for class discussion rather than to illustrate either effective orineffective handling of an administrative situation. Information was gathered from corporate as well as public sources.Copyright © 2006. Eugene D. Fanning Center for Business Communication, Mendoza College of Business,University of Notre Dame. All rights reserved. No part of this publication may be reproduced, stored in a retrievalsystem, used in a spreadsheet, or transmitted in any form by any means—electronic, mechanical, photocopying,recording, or otherwise—without permission.000200010270582216Management Communication: A Case-Analysis Approach, Fourth Edition, by James S. O'Rourke, IV. Published by Prentice Hall. Copyright © 2010 by <strong>Pearson</strong> Education, Inc.
Change language