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An Ethical Double Standard in the C-Suite?

Judging from the recent goings-on at Best Buy, are members of C-suites running renegade, answering to completely different sets of behavioral rules, or none at all?

Wednesday, June 27, 2012
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In light of the recent controversial resignation at Best Buy of both its CEO and its chairman, and less-recent resignations of top leaders amidst other ethical quagmires -- including that of former Hewlett-Packard CEO Mark Hurd -- a question hovers like a dark cloud above corporate America: Are members of C-suites running renegade, answering to completely different sets of behavioral rules, or none at all?

Just taking in the general outline of the alleged misdeeds of former Best Buy CEO Brian Dunn and former Best Buy Chairman and Founder Richard M. Schulze, one can see where following specific rules of conduct and reporting might have spared Best Buy such a drastic corporate upheaval.

According to various news reports, Schulze resigned May 14, two days after the Best Buy board of directors' audit committee issued its report finding that he knew about Dunn's affair with a 29-year-old female subordinate for months, but never reported it to the board. Dunn, who resigned in April, "violated company policy by engaging in an extremely close personal relationship [with the] employee that negatively impacted the work environment," according to the report. (Here is a recent post about the debacle on HREOnline's The Leader Board blog, as well.)

The report says Schulze learned about the affair in December when he was handed a written statement concerning Dunn's behavior by a Best Buy employee. He confronted Dunn, who denied the allegations, upon which Schulze dropped the matter. In a statement about his resignation, Schulze said, "I understand and accept the findings of the audit committee."

So was Schulze guilty by omission or commission . . . or just improperly trained? Despite the fact that he sat at the very top of the company, it was his lack of training and familiarity with proper protocol that most likely took him down, says Roy Snell, CEO of the Society of Corporate Compliance and Ethics in Minneapolis.

"Is the C-suite treated differently? I don't see that as the biggest problem here," says Snell. "The biggest problem is that top leaders don't know how to run a compliance program. They're not familiar with the methods. They just talk" about zero tolerance and the importance of ethical cultures without implementing the kinds of compliance and reporting rules that would ensure such cultures.

In that kind of environment, no matter what rules apply to the rank-and-file, you end up with "the kind of problem that occurred at Best Buy," Snell says, "where Schulze was told about it in December, 2011, he was untrained in the field of proper compliance of program management, he goes to the CEO, the CEO denies it and Schulze say 'Don't do it,' and walks away."

One amazing aspects of the Best Buy case, he adds, is that the company as a whole "had some pretty startling best practices." It has an ethicist on its board of directors; it has an ethics officer, Kathleen Edmond, with a website, even, promoting her work and outlook. There is great transparency there, with a list of infractions and the people involved and the outcome, listed on that site. Snell calls it "a stunning, remarkable form of transparency" that clearly, sadly, did not extend to the top.

Another problem Snell sees is the large number of companies that have hired ethics officers, but have yet to hire compliance officers. "Some people believe that adding ethics officers is the answer. I don't," he says. "I think we need the position combined, compliance and ethics, in one. So you get the talking, which is helpful: 'We're an ethical company; we exercise zero tolerance' . . . but when push comes to shove, you have the person you need on your staff whose job it is to fix it and if you can't fix it, you go to the board."

And that person can't be the human resource officer either, Snell adds. "HR is one of the strongest enforcement forces there is," he says, "but HR still needs help. HR still sometimes feels ethics is vague, 'This is the CEO; it's not really our deal.' "

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"When it comes to very big problems that affect the C-suite, HR sometimes gets weak-kneed [due to conflicting loyalties]," he says. "That's why the compliance-officer position was created, because of an understanding that HR sometimes is mixed straddling between the C-suite and the staff."

Luis Ramos, CEO of The Network, a Norcross, Ga.-based provider of governance and compliance solutions, doesn't see quite the problem in quite the same light Snell does, but does see room for improvement.

By and large, he says, most of his some 3,000 customers "are in support of the push for ethical behavior from the top down. What does happen from time to time is you see mistakes being made and someone bypassing ethical procedures," but that's not necessarily confined to -- or hidden in -- the C-suite alone.

Ramos does concur, however, that a stronger commitment to the role of compliance officer is needed throughout the business community. "One issue we see," he says, "is a case in which a compliance officer gets the title, but not the time or power to deal" with some of the problems appropriately when they arise.

He also sees cases in which "the compliance-officer function is not staffed as it should be because there's just a small amount of resource. These types of problems, however, are primarily confined to the smaller and mid-sized companies," he says.

Most large companies now recognize the importance of setting up a review board that "looks at everything that comes up, archives it and never lets it go, so if there are multiple allegations, they can all be wrapped into one case," says Ramos.

Most large companies, he adds, are also listening to one of his group's most cogent pieces of advice, that "the dissemination of incidence reports must [include] the board," that no report -- or even mention -- of questionable behavior go to only one person.

Without knowing exactly what was in place at Best Buy," says Ramos, "what struck me is that if you have an employee report on someone in the C-suite, you have a procedure in place where not just the chairman gets this information, but the board" gets it as well.

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