Codes of Conduct Don’t Always Protect Reputation 

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By David T. Hickey and Sean M. Connolly 

The term “appearance of impropriety” invariably arises in the context of conduct and ethics. Federal employees by regulation are required to avoid conduct that creates the appearance that they are violating the law or ethical standards.

FAR provisions covering the government-contractor relationship set out the general rule that appearances of impropriety, in the form of conflicts of interests, must be avoided, and company ethics codes typically warn about appearances of improper conduct. Preventing, detecting, evaluating, and addressing “appearance” problems is difficult, particularly when no clear violation of law is present. Nevertheless, whether it is viewed as a normative goal or a mandatory rule, “appearances of impropriety” can result in devastating consequences to a company’s or government agency’s reputation.

Alone, ethics codes will not protect an organization’s reputation. Leadership is required. CEOs, boards, and every level of management, must vigilantly endeavor to steer their organizations clear of even “appearances” of questionable behavior by emphasizing the reputational risk associated with “appearances of impropriety” at every opportunity, by adopting best practices, by bringing to life ethics codes and policies and procedures, by promoting ethics and legal compliance education, and by communicating effectively within an organization and without.

For the Defense Department and the uniformed services, reputational risk is associated with conduct and events that undermine the public trust. For industry, reputational risk is associated with conduct and events that undermine the trust of its customers as well as the public.

Any loss of this trust based on even just one event or one employee’s conduct may have ruinous effects on a company’s reputation, impacting profits and taking years, if ever, to overcome. Many of you read about the tragic death of retired Air Force Lt. Col. Charles Riechers, who was slated for the Air Force’s number two acquisition position.

Two weeks before he died, the Washington Post ran a story about Riechers’ pre-appointment employment by a contractor. The New York Times, in reporting Riecher’s suicide discussed the scrutiny that his employment relationship was under. The Air Force defended the arrangement as routine.

The procurement community debated whether any unethical behavior actually occurred in his employment. No one ever alleged that Riechers committed a crime. While no one will ever know for certain, news reports attribute the story as a cause of his decision for taking his own life. It is quite possible that the mere public allegation of an appearance of impropriety meant a great deal to Riechers.

For companies, business reputation and associated appearances should be viewed as a vital corporate asset that must be protected. While violating regulations or laws obviously damage a company’s reputation, so too does even the appearance of sharp dealing or impropriety, even if not technically illegal. Negative press and word-of-mouth communications based on so called “appearances of impropriety” will damage government and customer relations and company profits.

Johnson & Johnson’s response to a cyanide crisis in the 1980’s shows that ethical conduct does enhance the bottom line. While not legally required to do so, the company’s recall of its Tylenol products won great praise and resulted in a reputation of corporate integrity.

Just as precisely identifying situations where an appearance of impropriety that may give rise to allegations is difficult, so too, is identifying the precise ingredients that lead to an ethical culture that make appearance problems less likely to occur. Both concepts require context and experience. Most ethics infrastructures include codes, best practices, policies and procedures. But these elements, while necessary, are not enough.

Fundamentally, ethical leadership that promotes an ethical culture is required. NDIA’s Code of Ethics vests responsibility for the company’s conduct directly in the hands of the CEO. That is where responsibility for profits resides, and ethical behavior must also sit on that same level of emphasis.

Leaders must institutionalize values and explain the values behind the rules that apply to employees. Consistency in policy and practice, consequences for unethical behavior, and swift action to confront appearance issues all add to an ethical organizational culture.

Leaders must serve as decision-makers to guide employees in circumstances not specifically contemplated in a code. Leaders must ask hard questions to flesh out ethical and legal dilemmas. Would the individual be proud to tell his or her family about their actions? What if it was published in a newspaper? How would it look in an obituary? Does the action honor the Golden Rule?

The chief executive and his or her lieutenants must communicate and demonstrate to employees and to outside stakeholders that the company really means what it says in matters of ethics.

Please email your comments to SErwin@ndia.org