CEOs’ values, ethics, behaviour, and organizational outcome

This article is about the influence of CEOs’ values and behaviours on their organizations’ culture, which shapes performance outcomes and secures a long-lasting market leadership.

“Culture” has been a topic of discussion across various fields of business, sociology, history, and anthropology. In an article written by Charles Rogel (2014) he mentioned that “an organization’s culture consists of values, beliefs, attitudes, and behaviours that employees share and use on a daily basis in their work”. The culture determines how employees describe where they work, how they understand the business, and how they see themselves as part of the organization. Culture is also a driver of decisions, actions, and ultimately the overall performance of the organization.

“Until I came to IBM, I probably would have told you that culture was just one among several important elements in any organization’s success along with vision, strategy, financials, …etc. I came to see, in my time at IBM, that culture isn’t just one aspect of the game – it is the game.” (Lou Gerstner, CEO IBM 1993-2002)

Organizations are embodiments of their leaderships’ values and are a mere reflection of top-down cultural alignment. In the last decade, there have been many examples of unethical practices by CEOs or senior managers that have had a negative impact on their organizations, in some cases, leading to legal action. Therefore, understanding CEOs’ influence on culture requires a strong comprehension of the role that values, ethics, morals and behaviours play in relation to the CEO, and their impact on business.

Values are our fundamental beliefs. They are a set of personal principles we use to measure what is right, good, and important to us. They are the standards that provide guidance to distinguish between right and wrong. Culturally, we see differences as to how values are defined.

Honesty, integrity, compassion, courage, honour, responsibility, patriotism, respect and fairness, are among the most commonly heard-of and observed values. One could categorize the values formally mentioned as “personal values”, and are often considered to be values derived from a higher authority. That is a convenient way to differentiate them from what are often called “utilitarian” or “business values”, such as excellence, quality, safety and service, which define some elements of positive and negative attributes in a business context.

It should come as no surprise that organizations that endure long-term success have core values and a core purpose of which they remain fixated on, despite, at times, a period “bumpy” days. What changes, are their business strategies and practices, and these are changing endlessly to adapt to the ever-changing demands of the business world. Respected and fundamentally sound companies understand what should remain sacred. The ability to manage continuity and change is down to the consciousness of the organization.

Ethics are a set of rules, which are commonly agreed upon, known, and communicated within a group of people, and form a standard guideline for conduct. Ethics are the rules from which behaviours are measured and evaluated—for their morality. Consider ethics to be the governance instrument that steers individual accountability toward our interactions with others, ultimately influencing and permitting certain behaviours, which constitute our interactions.

Consider the word, “evaluate”: When we evaluate something, we compare it to an existing or known standard or benchmark. We determine whether it meets such standard, falls short of it, comes close, or far exceeds it. To evaluate is to determine the merit of the subject or action as compared to a standard.

A Code of Ethics, which reflects a company’s values, is the document that portrays the culture that defines what one can expect the behaviours of the company, and its employees to exhibit. They constitute and illustrate the commitment to the organization’s fundamental principles (values), ultimately shaping the organization’s interactions, outputs, and how it conducts business.

While the business strategy paves the way for achieving the organization’s mission, the Code of Ethics details the platform from which the leadership team, along with all employees, use to achieve it. To an army, a Code of Ethics is not the battle plan, but rather the marching orders with which it must be aligned—with great precision—to ensure it is exhibited and carried out internally, as well as observed externally. They are the means to the end; their related behaviours need to be clear and consistently need to be explained, interpreted and discussed. Regardless of position, role or rank, those who do not reflect the Code of Ethics should be apprehended so that those who do, are retained enough to reap the rewards.

Business ethics are the principles that guide the way a business behaves. Many subject areas are based on broad principles of integrity and fairness regarding issues such as accounting practices, product quality, customer satisfaction, employee wages and benefits, local community, environmental responsibilities, etc.

Some organizations are public about their values and Code of Ethics, while others are not. However, with today’s countless cases of major accounting frauds that have obliterated employee pension funds and investor capital, it has become increasingly more vital for organizations to publicly state and commit to their values and Code of Ethics. Companies that publicly commit to their values and Code of Ethics, tend to align themselves on the positive side of the public eye and have an obligation to stakeholders, customers, and employees to uphold their commitments to such values.  On the other hand, companies that fail to define their values may often be those that don’t have any. This lack of commitment to build and live by a set values or a code is a strong indication of a company that lacks identity, and whose elements are not grounded or known to outsiders—and quite possibly, its employees.

Morals, in brief, are a set of self-imposed standards that govern one’s relation with themself, to adhere to their values and ethical composition. Morals dictate to which extent a person can stand for, compromise, or disconnect from their values and ethics, despite influences by others—be it a superior authority, colleagues or even subordinates.

If the employees within the organization are governed by a single set of values and ethics, and they embody such values and ethics, then individual morality will be in sync with that of the organization. Whistleblowers are a great example of some of the known cases where such individual-to-organization alignments of values are not met, aside from possible legal implications. In modern times, in multinational or culturally diverse organizations, employees stem from various culturally influenced value systems that may not align with the organization’s code of ethics. This gap in alignment, a possible lack of culture-fit, can lead to a wide range of individual moral conflicts between employees; and a disconnect may be evident. Undisputedly, diversity is strength; but having the right culture-fit is a necessity that many organizations have geared their recruitment process to selectively proceed with those candidates that exhibit the appropriate culture-fit.

Behaviour is the outward expression and reflection of our morals that compose our interaction or reaction to people and circumstances we face. It is based on how others view us and how they judge us.

With no insight into peoples’ minds, one’s ethics and morals can only be evaluated through their behaviour. Therefore, when one acts in ways that are consistent with our values and ethics, we will characterize that as acting ethically. When one’s actions are not congruent with our values—our sense of right, good and just—we will view that as acting unethically.

“Organizational outcomes were a reflection of the top leader’s cognition and values”, (upper echelons theory – Hambrick and Mason, 1984)

There is a very clear link between leadership values, ethics, morals and behaviours, and the success of the business: Leaders are the ones who set the tone of the organization by influencing the culture and defining the set of ethics within which it operates. To keep leading in a dynamic and challenging environment, a leader must lead by example, maintain the discipline, commitment and responsibility, and adhere to the culture of the organization, to accomplish and deliver the task.