The Unwritten Code No Longer

Pilotstone Technologies, an Internet commerce firm in suburban Chicago, confronted a dilemma this summer.

The managers had promised one client that a specific employee would head its project. But the client had delayed the project's start. Now a second company needed work and the same employee was the only one available to do it.

More to the point, the promise to client No. 1 was only verbal, and the second project was twice as big as the first, says Mike Marchese, Pilotstone's vice president of sales and marketing.

Pilotstone reached for its code of ethics and decided to honor its original promise. Three days later, the project started. Impressed, the second company agreed to hold its project until the company could take it.

Score one for the corporate ethics movement. After years of writing lofty codes of conduct about commitment to the customer and responsibility to employees, an increasing number of companies are actually trying to live up to them.

In the largest corporations, full-time ethics officers are enforcing the codes and training employees on how to use them. Their message is clear: The ethical approach isn't the best way to do business, it's the only way.

"In a competitive world like we're in, one of our greatest competitive assets is our reputation," says Jerry Guthrie, director of ethics and business conduct for Atlanta-based BellSouth Corp. "[Protecting] it really directly relates to the bottom line."

But communicating it to employees takes more than a pamphlet or seminar.

TI plays by the code

Earlier this year, a company that does work for computer-chipmaker Texas Instruments (TI) offered to donate uniforms for a TI softball team. The team liked the idea and asked permission of the company's ethics office, headed by Carl Skooglund.

"Foul ball" was the official ruling.

"All suppliers must have a fair opportunity to compete for our business," he says. And employees should avoid even the appearance of a conflict of interest. "What would [other contractors] think if they looked at the TI sports team and saw a competitor's logo?"

Dilemmas abroad

Tougher for ethics executives are decisions that involve overseas operations.

Two years ago, a United Technologies office in Eastern Europe tried to bring in an American car. Employees needed it for business travel. But they "got the business" from local customs agents, who wanted some money under the table to move the paperwork.

The office asked headquarters: Is it OK to pay?

Under United States law, payment was technically legal. True, the US Foreign Corrupt Practices Act bans American companies from bribing government officials involved in project bids. But it allows "facilitating" payments to encourage officials to do what they're supposed to do anyway.

Legal or not, the company's ethics office said no.

"There isn't a country that says: 'You may bribe my government officials,' " says Pat Gnazzo, United Technologies vice president of business practices. "We've learned over time even though it's on the books and no one enforces it, there will come a day when it is enforced. Look at Italy. Look at Korea and two [Korean] presidents who were indicted for taking money from companies."

"You don't want [employees] there doing that when somebody decides to enforce the law," he says.

So the car languished on the docks for six months before customs officials released it with no payment made.

Most corporate dilemmas are less dramatic.

"Many of them are very mundane, individual kinds of things," says Jerry Guthrie, corporate director of ethics and business conduct for BellSouth in Atlanta.

Company sticks it to guns

For example, BellSouth forbids firearms on its property, but employees asked if they could keep guns in their cars. (No, the policy extends to company parking lots.)

The BellSouth ethics office has had to make sure proprietary information it had about one vendor stayed out of the hands of a competing vendor.

Then there are conflicts of interest - a frequent challenge.

When some BellSouth employees wanted to sell long-distance telephone service, on the side, for another telecommunications company, they pointed out that BellSouth sold mostly local service.

But the ethics office turned them down. Its wireless division does sell long distance in direct conflict with the moonlighting job.

An ethical approach to job cuts

Layoffs represent perhaps the toughest challenge for an ethics-driven company.

The booming American market has cut the pace of work force reductions of late, but last year, Levi Strauss & Co. decided to cut jeans output at its US factories by a third.

It was a difficult dilemma. Levi Strauss hadn't made significant layoffs in years. It had a long history of strong support for workers' rights (racially integrating its sewing facilities in the South during the 1950s; in 1991, choosing its contractors worldwide based on ethical criteria).

The company looked hard at not only which factories were most efficient but also the impact of closing them on local communities. Could a town survive the closing of a major factory?

In the end, the company announced 11 plant closings but matched the cutback with a $200 million program to assist and retrain workers who lost their jobs.

Levi Strauss also created an $8 million pool to help affected communities with civic projects. Even union leaders praised the effort.

"It's always unfortunate when workers are laid off," says Jo-Ann Mort, spokeswoman for the Union of Needletrades, Industrial and Textile Employees (UNITE). "But we were able to negotiate a model settlement."

"They've done an outstanding job," says an employee at the Levi's plant in Harrison, Ark., which stopped production in February. "I'm sorry that the decision was made to close the plant. [But] there's no big animosity. [The package] was very liberal."

"We believe pretty strongly that acting with a corporate conscience is not only good for the soul, it's good for business," says Gavin Power, a Levi Strauss spokesman. "Consumers don't just make purchases based on price and product." Increasingly, they're looking for what the company stands for, he adds.

How Bad Companies Turn Good

Many companies strive to act good these days, in part, because some acted so bad in the past.

For example, the ethics movement got a big boost in the mid-1980s after an outraged public learned that defense contractors were charging the federal government $800 for a hammer and other everyday items.

To stave off action by Congress, the defense industry launched the Defense Industry Initiative.

Companies that signed the agreement pledged to uphold an explicit code of conduct. It worked so well that other industries turned to it as a model.

The next big step came in 1991, when the US enacted sentencing guidelines for corporations that broke federal law. Fines were increased, but they could also be reduced if companies showed not just standards of conduct but efforts to enforce and communicate them to employees.

Suddenly, ethics became cost effective and the corporate call went out for ethics codes, ethics officers, and ethics training.

The trend has stayed positive.

Last year, a survey of companies by the Ethics Research Center in Washington, D.C., found that half had ethics-training programs, up from 28 percent in 1987.

The Ethics Officers Association, formed five years ago with a dozen members, now sports 507 members. Two-thirds of them work in companies that didn't even have an ethics officer before 1992.

Despite the growing awareness of ethics today, many company ethics codes don't address newer issues, such as sexual harassment and personal use of electronic mail.

And although many codes are too dense and legalistic to inspire workers, says Jeffrey Seul, an ethics consultant and lecturer at the Harvard Law School, some companies are switching to codes that are short, easy to understand, and espouse core values.

That's the point of an ethics code. It's not a rule book, says Tim Mazur, vice president of the Council for Ethics in Economics in Columbus, Ohio. "It's defining what is and what isn't the spirit of the company."