Is Ethics in Business Possible?

The November 15 article Does Your Company Actually Live Its Values? brought up a timely topic that should be top of mind for all business executives—but  seldom is. Let me explain.

The author makes a valuable point in the opening paragraph, as follows:

“It turns out that getting people across the organization to actually adopt a company’s value system can be easier said than done.”

Even though companies tout ethical business practices as a priority, from my perspective the above point is true. And I think the primary reason for this lack of adoption are organizations’ overwhelming emphasis on performance metrics over any values they present.

Why do I say this?  In my experience, employees in corporate American focus on hitting or exceeding the metrics that are used to measure their performance. And to achieve high performance, those employees need to make ethical compromises.

Since everyone seems to be focusing on Boeing’s business practices these days, I’ll use them as an example in explaining what I mean here.  Boeing’s core values are stated as:

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I suspect they are meant to be prioritized in that order. Integrity is the first core value in their statement, implying that the company places ethical behavior above all other values on the list. Quality was second on the list so seemingly second in stated value importance.  Stakeholder success is listed last among Boeing’s seven core values.

Let’s be clear about what is typically meant by the term stakeholder.  Several decades ago, corporate stakeholders were typically defined by using a three-legged-stool analogy, with customer, employee and stockholder each  representing one of the legs. Back in those days, the legs were for the most part equal in length—i.e., importance.

Today, companies primarily connote “stakeholder” as those who have invested in the company—for the most part, stockholders—with the customer and employees legs on the stool being chopped off to the nub.

Let’s call out a couple of well-known instances where Boeing’s six other core values were--and possibly still are, at least to some extent—given a back seat to shareholder success.

Last spring, the New York Times published an expose on claims of shoddy production in Boeing’s North Charleston, South Carolina, factory.  Specifically, too many of the completed planes were found to have debris—including metal slivers—dangerously close to wiring beneath cockpits. A worker interviewed for the article says that when he brought up concerns about this to management, nothing was done other than to move him to another part of the plant. The issue had reached the point that Qatar Airways, a major customer, had notified Boeing that they wouldn’t accept shipments of airplanes from this facility.

When asked to comment about whether production output was taking precedent over these quality and safety, Boeing issued a statement that “production output, quality and safety are all priorities and each can be maintained.”  That can be true but it’s pretty clear that in this case quality took a back seat to production; i.e., revenue.

The example cited above represents a direct contradiction to Boeing’s core value statement.  And I believe the reason for this is that the company’s employee performance metrics were related to increased revenue, in this case higher production. 

And that this is why—as the author cited above writes—"to  adopt a company’s value system can be easier said than done”.

This is not an isolated instance. In 2017, a similar problem was seen in Boeing’s Everett, Washington, plant. Again, a customer—the U.S. Department of Defense—stopped  accepting KC-46 Tankers produced in Everett until the company showed it had solved a “debris problem,” which included tools, bolts and trash found in the body of these planes. With more than one plant running into the same problem, it seems like the managers and employees at all Boeing plants understand that production output is placed above all other of its core values.

I won’t even get into the issue of the 737 Max, where it has been shown that Boeing cut corners in certification of that plane in order to bring it into production as quickly as possible.  This certainly is not an example of ethical behavior.

With all of the above, however, I don’t want to give the mis-impression that non-ethical behavior is limited to a single company.  In fact, I believe it is the norm in industry. 

 There are numerous public examples similar to the ones outlined above that I could cite, even though their impact hasn’t had the scrutiny of the ones described above. For instance, how many companies have built “short” of parts, to be added later? The answer is many. And it is well understood that because this is outside of normal production processes, there is a higher probability that products produced this way will have quality problems. Again, this is based on employee production output metrics, which tend to weigh stockholder success above all other core values.

I believe there is a general problem with ethics in American industry because revenue is “king” and the factors that most contribute to it are production output and cost.

This column is supposed to focus on supply chain issues and it should be pretty clear from the above how a customer company’s unethical behavior can influence suppliers, which I believe are represented by the employee leg of three-legged stool since they play similar roles. Below, I’ll lay out an example that captures this point.

I once worked for a company that set a year-after-year goal of 5% price reduction for all of its suppliers. In my mind, having a general goal like that is bad enough, since the potential for cost reduction is certainly not the same across all the types of purchased products 

And think about the practical aspects of such a policy.  If a purchased part remained in production for 25 years, it would result in a supplier having to sell that part for less than 28% of its original price. And 25 years of production is not unusual, with many companies working to reduce the part proliferation by re-using them not only on updated products but, as possible, across all products produced.

This certainly shows that a 5% price-reduction target is impractical and unrealistic.

Since we’re talking about lack of ethics in working with supply chain partners, I’ll ask you what do you think happens when suppliers are constantly hounded by their customers for unrealistic price reductions? Believe me when I tell you they don’t like it and feel it is unethical. And like with company culture, once you impose a revenue related relationship with what is supposed to be a partner, it’s difficult to re-establish collaboration.

At that same former employer of mine, the CEO was once quoted in the Wall Street Journal as saying that a major issue he was having to deal with was having “too much of a family feeling” between employees.  And this was in spite of pretty good company financial results.  Go figure.  I guess he wanted employees competing against each other rather than working in a collaborative manner.  I wonder how that position lines up with that company’s basic core values, which are stated as “Integrity, Quality, Commitment, and Innovation?”

So my answer to the question posed in the title of this article is that while ethics are possible in corporate America, they are not likely given how employee performance metrics are set and the practices they encourage from their employee.  After all, how many executives and employees are measured on how they achieve their performance? There is no performance metric I am aware of for ethics, and because of this it does not seem to be on the radar screen of many companies today.

Paul Ericksen is IndustryWeek’s supply chain advisor. He has 38 years of experience in industry, primarily in supply management at two large original equipment manufacturers.