March 2008

EthixBiz News: Buy Book
Ask Dr. EthixBiz: Externalizing Costs
EthixBiz Review: Green to Gold by Daniel Esty & Andrew Winston
Gill's Benchmark Ethics: Organizational Culture: Four Aspects

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EthixBiz News

Welcome to David W. Gill's EthixBizine monthly---a free e-zine, distributed twelve times per year, for business leaders, managers, students . . . and anyone else interested in promoting more ethical business. Forward this free zine with your colleagues. Best to use the forward option below. Visit the www.ethixbiz.com web site for the EthixBizine Monthly archive . . . tools for re-tooling your ethics program . . . a complete menu of the EthixBiz consulting and training services . . . and more.

It's About Excellence: Building Ethically Healthy Organizations by David W. Gill is finally off the press. (ISBN: 1-930771-34-7; Executive Excellence Publishing, 2008; Tel: 1-877-250-1983.)

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Ask Dr. EthixBiz

" Externalizing Costs"

Dear Dr. EthixBiz:

I am troubled when, let's say, "Company A" in-sources jobs to a third-party overseas-based "Company B" in a so-called "turn-key" arrangement.  What happens is that American Company A provides on-site work space and limited sponsorship of Company B contract workers from overseas---but not other basic necessities such as medical and dental care. These overseas-based workers (and their dependents) must then pay out-of-pocket for US medical visits because their home country health care providers refuse to reimburse them for medical expenses incurred in the US. Two questions: is it fair to these overseas based workers for Company A to save labor costs by forcing them to pay out of pocket their own basic health and dental expenses? And in the case of catastrophic illness or injury is it fair for Company A to foist these emergency costs onto US taxpayers (or hospital emergency room budgets) just so they can save money? Is this smart business strategy or unethical business practice?

— Mark C.

Dear Mark:

This is a classic example of what we call "externalizing" business costs. Instead of the business bearing the full costs of its workforce---and making investors shoulder it on the books, or passing it onto customers as part of the price of the product---others bear the cost. Another example: when a business doesn't factor in the cost of clean-up or recycling related to its products, it is externalizing these costs onto others, whether they know (or approve) or not. What we want is full cost accounting, not sneaking costs onto others.

 Having said that, if the Company B workers come to the US fully informed about these matters and willing to take the risk of having to pay out of pocket, it is hard to hold Company A completely at fault. The more serious issue is when costs are deliberately foisted onto the hospital or to the broader community without their agreement.

 The more fundamental problem is the lack of safety-net, basic health care in our society---combined with skyrocketing health care costs. Company A is almost forced by marketplace competition to play this Company B game. Let's hope Company A is lobbying for national health care reform to even the playing field and make sure that everyone living and working here can get basic care.

—Dr. EthixBiz

Remember: Everybody has a right to "Ask Dr. EthixBiz."
Send your questions and hard cases to ask@ethixbiz.com

The EthixBiz Review

Green to Gold: How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage by Daniel C. Esty & Andrew S. Winston (Yale, 2006)

Daniel Esty is a Professor at Yale University in both the Law and Environment Schools and director of the Center for Business and the Environment. He has considerable experience working in the private sector and as a leader at the U.S. Environmental Protection Agency. Andrew Winston has been a marketing and business development executive (TimeWarner, Viacom) and director of the Corporate Environmental Stategy Project at Yale; he now runs of Winston Eco-Strategies. Their wealth of experience comes through in Green to Gold.

Esty and Winston provide a brief historical overview of the factors which are driving today's concerns of business and the environment. Global climate change may be the most dramatic---and controversial—of these factors, but this is in no way the only issue. Declines in reserves of fish, forests, and oil, growing concerns about hazardous waste disposal and pollution of land, sea, and air, and increases in citizen activism demanding business environmental responsibility---these are some of the important forces that keep environmental issues on the business agenda.

A great strength of Green to Gold is that Esty and Winston are concerned equally with managing the downside and the upside of these issues. First, it is about risk management and cost reductions as expenditures (for energy, resources) are minimized and wastes and by-products are recycled. Second, it is about innovating new businesses and products, turning lemons into lemonade, so to speak. Embracing the environmental challenge can both lower costs and spur innovation. Green to Gold is packed with specific examples. The book also addresses the challenge of "eco-tracking" and finding the metrics to get real about measuring progress in these areas.

Green to Gold describes how to build an "Eco-Advantage Culture" and avoid some common pitfalls. They discuss hundreds of companies, some exemplary, others less so, in a balanced and sometimes surprising way. Even McDonald's and Wal-Mart get praise for some of their initiatives; other companies are described as over-rated on their environmental reputations. The evidence and examples offered by the authors is a cut above many crusading competitor books on this topic.

Green to Gold is a 300-page goldmine of valuable insight for all business leaders and managers, not just for environmentalist groupies.

—David W. Gill

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Gill's Benchmark Ethics

Organizational Culture: Four Essential Aspects

Discussion of "corporate" or organizational "culture" has been growing over the past couple decades, and for good reason.

"Culture" is the organizational/group counterpart to what we call "character" in an individual. It's all well and good for an individual to say that he or she is committed to x, y, or z. But do they have the strength of character to make it happen? Character is about our capability, readiness, and inclination to act in one way or another. Character is about the muscle, will, and skill to walk our talk. The positive inclinations and capabilities we often call "virtues” of character; the negative ones have been called "vices."

So too in organizations and businesses: it is our corporate character---our culture---that either enables or disables our performance. An "accidental” or "misaligned" culture has the same chance of success as an out-of-shape competitor in the Olympic Games. A toxic, negative business culture has the same chance of success as a toxic team culture and organization in professional sports.

No matter how glorious our mission and vision or how exemplary our code of ethics and business conduct, the wheels are going to come off if the cultural strength is not there. As Lou Gerstner wrote in Who Says Elephants Can't Dance? (HarperBusiness, 2002; p. 182), "I came to see, in my time at IBM, that culture isn't just one aspect of the game---it is the game."

Business cultures have four aspects, four layers, four components. Neglecting any one of these aspects is a recipe for weakness.

Physical Culture

Our physical infrastructure is laden with values. What I mean by that is that our buildings and grounds, our furnishings and office set-up, our fleet of company vehicles, our equipment, hardware and software, all shout out "teamwork" (or "individual") ……"class hierarchy" (or "equality") ……."beauty" (or "ugly")….."share" (or "protect") ….."come on in and make yourself comfortable" (or "go away") ….. and so on. Don't expect your organization to build camaraderie and teamwork if your office configuration leads them away from each other and provides no congenial meeting space---or if every computer has its own distinctive program configuration.

The point is to figure out carefully what the core values of your culture need to be for success, and then embed those values in the physical infrastructure of the company.

Organizational Culture

Our policies, structures, and processes are also laden with values. For example, our communication and information processes are positive, inclusive, and transparent—or negative, exclusive, and obscure. Some information should and must be protected, of course. The point is to examine our internal and external communication policies and align them with our core values. A second, obvious, example here is compensation: if our compensation is all individual, don't expect teams to perform at their best. If it is all about team and group, don't expect individuals to be as motivated in some circumstances.

The point is that the core values of our company culture need to be intentionally embedded in the org chart, the policies and processes by which we operate.

Personnel Culture

 The third level of culture is that of human flesh and blood. If we believe that "teamwork" is a critical core value but we hire individualists, no matter how high performing in other ways, our culture will limp along. If "fun" is a core value (Southwest Airlines, Whole Foods) and we hire grumpy personalities, no matter how expert in flying or groceries, our culture will be out of alignment. In Good to Great Jim Collins talks about the critical importance of "getting the right people on the bus" and the wrong people off.

The point is that the personal character traits and values of employees must align with the core values of the culture or we will not achieve the excellence and ethics we hope for.

Informal Culture

The fourth level of culture is the informal atmosphere, the company rituals and habits, the stories told around the water cooler. It's how we dress, greet one another, celebrate or mourn together (or alone), make decisions, react to news, good and bad, and so on. Actually, in the corporate culture literature, this aspect of culture gets quite a bit of attention. The difference between casual, fun cultures like Southwest Airlines or Trader Joe's and their more straight-laced counterparts fascinates observers. It is important for managers and leaders to take a cultural reading at this level and take action to build a healthy, positive informal atmosphere. People spend a huge part of their lives in the workplace; making sure that that workplace experience is positive and enabling is just smart leadership.

A cultural anthropologist (like Indiana Jones) would pay careful attention to (1) the physical, (2) the organizational, (3) the people, and (4) the informal aspects of any new civilization they discovered. Business leaders can't afford to overlook any of these aspects of their own corporate cultures as they pursue excellence and ethics.

© 2008 David W. Gill.

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