Associated Press
Michael Woodford was dismissed as president and CEO of Olympus Corp. after blowing the whistle on wrongdoing.\r\n

When it comes to adapting, fortune favors the flexible. When it comes to ethical behavior, fortune favors the rigid. Enter the Olympus Corporation, the venerable Japanese camera maker. Now seven executives from Olympus, including the ex-chairman, have been summoned to Mount Olympus. Japanese authorities made the arrests after investigating a massive cover-up of $1.5 billion in investment losses going back several years.

Last year, Michael Woodford, a Briton who was then president of the company, sniffed out the wrong-doing in accounting irregularities and asked his colleagues for answers, whereupon he was dismissed. Now the nearly 100-year-old company faces delisting from the Tokyo Stock Exchange and its 40,000 employees face an uncertain future. What’s the lesson here?

In most organizations, the ethical conduct of leaders follows a normal distribution curve. There are highly ethical employees at one end and highly unethical employees at the other. The rest of the employees “occupy morally,” as Thomas Hardy describes in "Far from the Madding Crowd," “that vast middle space of Laocidean neutrality which lay between the Communion people of the parish and the drunken section.” What an organization and its leaders decide to do with the middle space often determines the success of the organization.

An organization’s ability to sustain high performance must be rooted in uncompromising and deeply socialized values. It is a culture of ethical behavior that allows an organization to consistently keep its promises to its stakeholders over the long term, and keeping promises is the essence of high performance.

Increasingly, organizations recruit, hire and on-board a higher percentage of employees who arrive without a moral compass, lack a personal ethical creed and are absent an unwavering commitment to do the right thing. Empirical studies show, for example, that a high percentage of the population would rob a bank if they knew they could get away with it. When ethics trump economics, organizations keep their promises, establish enduring trust and create more long-term value. On the other hand, when everything is for sale, employees reduce things to a simple risk/reward calculation. They become venal, rational actors, in which case the organization is only as good as its control environment and corporate governance. But sooner or later, there’s a breakdown in the system. The only questions are when and how big. You hope you don’t have an Olympus-like, Olympic-size disaster, but there’s no way to know.

In leading people and organizations, possessing every known talent and capability can’t compensate for ethical misconduct. Teddy Roosevelt said, “Courage, intellect, all the masterful qualities, serve but to make a man more evil if they are merely used for that man’s own advancement.”

If you don’t believe in ethical conduct for its own sake, you can at least believe in it for its strategic value. But even so, understanding something is a very different thing than applying it. So it is with ethics. Leaders today face an unending stream of ethical dilemmas to which they must respond. An ethical dilemma is a situation in which there arises conflict between self-interest and stewardship

When a high-stakes ethical dilemma appears and the leader is without immovable ethical convictions, he will likely abandon stewardship in favor of self-interest. George Washington said, “Few men have virtue to withstand the highest bidder.”

What can leaders do? Model, teach and reinforce three things:

  • A fine-tuned ethical sensibility to interpret situations.
  • Consistent ethical behavior as defined by the organization’s values.
  • Effective use of decision-support tools to overcome ethical dilemmas.
Specifically, teach employees:
  1. What it means to do the right thing (ethics vs. economics, means vs. ends, intent vs. behavior).
  2. Why they should do the right thing (ethics and long-term competitive advantage, ethics and the creation of value).
  3. How to do you do the right thing (applying values in specific situations, ethical dilemmas, the nature of stewardship).
  4. How to influence others to do the right thing? (influence and power, culture and prevailing norms, modeling behavior).
In the 21st Century, highly ethical organizations have an unprecedented opportunity to compete on values. Those organizations that develop and practice an ethical gold standard will have an Olympic competitive advantage.

Timothy R. Clark is the founder of TRClark LLC, a management consulting and leadership development organization. Email: [email protected].