What some companies are doing to encourage toeing ethical line

Stirring morals into the heart and soul of a company is not easy. Trade-offs crop up at all levels. For the senior executive, it could mean choosing between short-term profits and long-term stability. For low-level managers, it may mean giving in to peer pressure or losing a job.

The following companies have all set up, or are in the process of setting up, an ethics code and system to promote moral responsibility in their operations. One company was pushed into it by crisis, the others because the timing was right. The managers here talk about the importance of ethics, the profit trade-off, and how their systems work.

Dow Corning Corporation. Watergate lighted the fire under this maker of silicones. That scandal, and a number of other payoff disclosures at the time, were ''eroding public confidence in the American corporation,''says John Swanson , manager of business communications at Dow Corning, based in Midland, Mich. That national feeling prompted this Fortune 500 company, and a host of others, to develop a program about business conduct.

In 1976, Dow Corning's president named four managers to a business conduct committee. The next year it published its code of conduct, which now gets reviewed every two years ''because of the pace of change in the world,'' Mr. Swanson says. For instance, while the code used to forbid ''grease'' payments overseas, it now allows them - although they must be accounted for and not hidden as other expenses. (Grease payments are small payoffs necessary for ordinary day-to-day operations. US law now allows American companies to make these payments overseas.) Contracts with distributors state that the distributor has read, and understands, the code of conduct.

Every year the committee visits about 20 Dow Corning locations around the world. ''When we talk to heads of regions, we begin to learn about more localized observations that have escaped us. When sitting across the table from someone, asking them questions, you get spontaneous responses. It's a little different from having (problems) transmitted through six layers of management,'' explains Swanson, the only committee member without a rotating position.

Through these audits, Dow Corning discovered in the late '70s that competitors in Europe often get together and talk business. ''This tends to lead to price fixing,'' Swanson cautions. ''We came down hard on that practice . . . and haven't suffered for it.''

Latin America is particularly tricky, he says with a sigh, because government extortion is common. Dow Corning has been able to take a stand so far because ''we have good technology, and good products, many of which can't be duplicated.'' But, he admits, ''we expect to see a time when others can make some high-volume materials as efficiently as we can. Then we will have to make new decisions.''

Swanson grants that the face-to-face method of keeping tabs on ethics is ''time consuming, difficult, and expensive.'' But he says that ''dozens of situations that could have become serious legal or ethical problems were nipped in the bud. We are now convinced that questionable payments are not necessary to compete.''

Central Maine Power Company. A crisis drove this Augusta, Maine, company to adopt its first ethics code this year.

About a year ago, a senior vice-president of the utility gave false testimony before the Maine Public Utilities Commission. The commission investigated, the vice-president was fired, the president retired early, and the board of directors ordered the company to draw up a set of business standards.

''We always had ultimate good faith in the integrity of our employees, but this incident made us realize that it's necessary and helpful to spell this out, '' says Brewster Seward, general counsel at Central Maine, the largest electric utility in the state.

In the works are a code of ethics, a regulatory relations committee and policy, and a corporate-purpose statement that outlines the mission of the company. These guidelines are designed to deal with illegal payments, concealment of information, misuse of company property, political contributions, accounting controls, and regulatory and customer relations.

But most bosses realize a commitment on paper is almost worthless. ''We want to get (the guidelines) discussed at the grass-roots level and get suggestions, '' Mr. Seward says.

The Norton Company. ''We've had various codes for many years,'' comments Ronald Marcks, general counsel of this Worchester, Mass., company. ''We think (our concern for ethics) goes back to the beginning of our company, in 1885.''

It's been argued that unless a company is born with it, a corporate ethos of fairness and morality is tough to create. Norton officials say their ''heritage'' has been a crucial factor in establishing a code of ethics, an ethics committee on the board, and top management support. Problems are handled on the local level, and serious ones are reported once a year by Norton managers worldwide to the ethics committee. Emergencies get top attention right away.

''We see no conflict'' between moral behavior and good financial performance, says Richard Flynn, vice-president of finance at this maker of abrasives and petroleum and mining equipment. But, he adds, some ethics decisions have meant lost orders and cost increases.

For instance, some countries install price controls which many companies operating there don't observe. Norton does. ''It has caused us some pain,'' Mr. Marcks says. ''In some cases, operations have gotten to a break-even level. But even laws we don't agree with, we think we need to observe.''

Norton sees some of these losses as worth it in the long run. ''You prosper most in an environment free, open, and morally secure,'' says Mr. Flynn.

Chemical Bank. This bank is in transition. It has a new chairman and is trying to position itself in the rapidly changing, and fiercely competitive, financial-services industry. For these reasons, the bank is ''fine-tuning and formalizing'' ethical policies it has held all along, says Marie Lee, director of the social responsibility group at Chemical.

The bank's focus on this issue is not ''reactive,'' Ms. Lee says, but an ''effort to prepare for the future.'' Business is becoming more global, banks are moving over state lines, and more people can be affected by a bank's decisions. ''The environment is becoming so complicated that (banks) really need new tools to deal with it.''

Right now, Chemical's social and ethical guidelines are a potpourri of committees, an ethics code, and training. This fall the bank introduced ethics to a new management training program. But it was a bit too academic and too long , Ms. Lee says. The bank is rearranging the course, with the help of consultants , and will offer it next to officers, clerical staff, and all new employees.

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