Where can you find a company where employees are happy, have high energy, great morale, and speak the same organizational language? Where people know not only what the organization’s values are, but use those values as their basis for making decisions?

No, we don’t need to go to Shangri-La to find it. The road map, according to Joel Kurtzman, leads to common-purpose companies.  Kurtzman has spent more than 30 years working with global companies and their leaders.

Common purpose is a term Kurtzman uses to talk about a quality of leadership that creates an enormous impact in an organization’s culture and spirit – its soul, if you will - that drives success beyond financial statements. While the concepts aren’t novel, when taken together he has observed significant patterns of success for leaders and in companies when they are integrated and authentically and consistently applied.

In a recent interview, I asked him for some current examples of common purpose organizations: American Express , FM Global and Li & Fung Limited were on his list. Common purpose is about the type of leader a company has, he says: Amex’s CEO Ken Chenault has followed in the footsteps of former CEO Henry Golub who put a high priority on people, values and brand, helping employees understand the brand and values sufficiently that they make good decisions based on them.

Common purpose occurs, Kurtzman says, “when a leader coalesces a group, team, or community into a creative, dynamic, brave and nearly invincible we.”

“We,” that elusive grail which is the subject of countless team building exercises, Human Resources’ angst, and management books, is an outcome when the CEO creates a bigger purpose for the organization than just making money or reaching quarterly numbers. Kurtzman cites as examples Microsoft’s aim to change the world and NASA’s executing President Kennedy’s vision to put a man on the moon. In both, everyone knew what they were focusing on and what the organization stood for – a common purpose.

As a result of the financial crisis, the focus for most CEOs now, says Kurtzman, is thinking about making money, meeting next quarter’s numbers. As an economist he knows all about the importance of numbers, but what he sees changing and engaging cultures is more fundamental: tapping into the passion behind what a company stands for, to drive a common purpose.

Too many organizations, he points out, develop company values and purpose but don’t use them in decision making, so they exist on paper, or on a web site, but don’t become a daily way of creating and reinforcing a shared culture, a sense of “we.”

The sense of “we” starts with the leader. Leaders in any organization are under intense scrutiny, Kurtzman says. Those watching CEOs copy their style and behavior. In his extensive interviews with CEOs over the years, leaders have admitted the connections they have to their respective organizations are fragile, and can be easily broken.

CEOs need to know how to read their organizations’ emotional tone. Committed-to-developing-a-shared-“we” CEOs need to engage in a number of behaviors that build trust including leading-by-listening, building bridges, showing compassion and caring, demonstrating their own commitment to the organization, and giving employees the authority to do their job while inspiring them to do their best work.

Excessive executive compensation is a big barrier to being a common-purpose company Kurtzman says. “When people feel compensation is too much for those in leadership roles, it creates mistrust.” Leaders think they can survive with mistrust but ultimately they can’t,” he says.

More than 20 years ago, when Kurtzman was business editor at The New York Times, he asked leadership guru Warren Bennis a question: How do leaders inspire and encourage followers to take action? Bennis replied that good leaders are deeply integrated into the business and emotional life of the organization and have a deep connection, a real fit.

That question became the catalyst for Kurtzman’s most recent book, Common Purpose: How Great Leaders Get Organizations to Achieve the Extraordinary. The book is essentially a collection of leadership stories from Kurtzman’s interviews and research that illustrate how those in charge have developed or lost common purpose in their organizations, or whose styles precluded its possibility.

Kurtzman refers often to the success of 175-year-old FM Global, a commercial insurance company, and its current chairman and CEO Shivan Subramaniam in building a common-purpose company. The company is united around the purpose that most losses are preventable. One-third of employees are engineers and the other two-thirds are trained to think like engineers. Their focus is help clients identify and mitigate risks that would impact property, product or lives.

Common purpose is reinforced in several ways at FM Global: people hired are a fit with its goals and purpose; leaders are accessible, seek out opportunities to learn from employees, and believe knowledge is developed and embedded throughout the organization; employees have a common language and are developed to have a common understanding of the business and a quick, effective way to set directions;  communication is transparent; employees learn from and support each other, examining what goes wrong to fix it; and there is a formula for everyone sharing in the company’s success.

Subramaniam, who often eats in the cafeteria sitting with employees to listen to their ideas and comments, thinks of himself as an employee as well as the CEO. He follows, for example, the company policy that executives at a certain level fly business class in flights over two hours, rather than buying a corporate jet - which the board had encouraged him to do. He explained in his interview with Kurtzman: “But I told the board I felt it would send a terrible message throughout the company if we bought a private jet.”

Kurtzman’s book shares many other stories of when companies have created common purpose, healthy and functional organizations, and financial success. Some examples: Pixar, Google, Apple, Wynn Resorts, Continental, IBM, Ritz-Carlton, and Clayton, Dublier & Rice.

However, Kurtzman points out in our discussion that while HP was a common-purpose company under its founders (where people lived the HP way) and Toyota in his experience operated with true common purpose in the 1970s (with a sense of empowerment and respect for the individual) in neither case was it sustained.

He is the first to admit that achieving and maintaining a common-purpose company is hard work. “It is difficult for a company to keep a sense of common purpose for longer than a decade,” says Kurtzman. “It has to be nurtured or it goes away. Things happen. Leaders start losing touch with the organization.”

He estimates that 25 percent of companies have achieved creating a common-purpose organization. In general, he says, those that are likely candidates include: a young company (about 40 – 50 percent of start ups begin as common purpose); a company with a new, energized CEO; or an organization on its way back from losing its balance.

Leaders of conscious capitalism companies and those involved in creating and sustaining common-purpose organizations share a leadership style that involves a sense of “we,” that recognizes and rewards employees beyond money and creates a value proposition throughout the organization that impacts stakeholders.

What will it take for other business leaders - looking at the impact on their organizations of high turnover, poor morale, lost productivity, quality problems, and lost clients - to consider whether building a common-purpose leadership style might be worth the effort?

Gael O’Brien is a Business Ethics Magazine columnist. Gael is a thought leader on building leadership, trust, and reputation and writes The Week in Ethics.

When Dimitrios Biller, former National Managing Counsel of Toyota’s National Rollover Program, filed a lawsuit against Toyota in July 2009, he positioned himself as a whistleblower. Among other things, he accused Toyota of withholding and destroying product safety information.

However, three things didn’t add up then.

• If Biller believed Toyota had committed fraud, why did he accept a $3.7 million severance package in 2007  and sign a confidentiality agreement?
• Why, if Biller believed Toyota had withheld product safety information that plaintiffs’ attorneys were entitled to see, did his website promote himself as being responsible for legal victories in product safety cases that he bragged saved Toyota significant dollars?
• What kind of ethical slope had Biller put himself on and why would he further risk his reputation? He kept the severance and when he left Toyota absconded with 6,000 internal documents.

At the time he filed suit he said he was released from attorney-client privilege because Toyota had committed criminal acts.

Not surprisingly, Toyota found out Biller had confidential documents and was using them in classes he taught on legal discovery. Toyota filed suit against him last year. Toyota said then that Biller violated attorney-client privilege, his ethical and professional obligations, and a restraining order Toyota had obtained against him. The company accused Biller of making inaccurate and misleading allegations.

After Toyota sued him, Biller sued Toyota back, accusing the company of racketeering, defamation, inflicting emotional distress, and wrongful termination. Messy.

In February 2010, Biller’s Toyota documents were subpoenaed by the House Oversight Committee looking into the unintended acceleration issue. Although Biller’s documents weren’t related to unintended acceleration, the committee was interested in how Toyota approached safety.

In reviewing the documents, Committee chair Rep. Edolphus Towns found evidence that Toyota routinely withheld company records rather than turn them over to the court, settling personal injury cases to avoid revealing engineering data. Towns indicated this was a violation of court discovery orders in litigation. 

Meanwhile Biller’s lawsuit against Toyota went to arbitration. Last week the arbitrator, Judge Gary Taylor, found that Biller betrayed the confidences of his client, Toyota, and “violated ethical, statutory, and contractual prohibitions.”

Judge Taylor ordered Biller to return the documents, drop his lawsuit, and pay $2.6 million in damages to Toyota. Toyota in a statement expressed vindication and said the Judge’s award “completely discredits his (Biller’s) meritless attacks on our company and our people.” Biller represented himself in arbitration and hasn’t yet made a statement.

Biller misused the term whistleblower. His methods were ruled a violation of attorney-client privilege and he behaved unethically, further jeopardizing his professional reputation. Whatever damage Biller’s accusations have done to Toyota, the company has been deluged by federal criticism and international media on its handling of safety and unintended acceleration. In the absence of transparency, Toyota has found public trust and reputation are jeopardized.

While Toyota might say it is vindicated by the ruling, and Biller might say he is vindicated by Congressional criticism of the automaker, this is a sad tale without vindication.

Gael O’Brien is a Business Ethics Magazine columnist. Gael is a thought leader on building leadership, trust, and reputation and writes The Week in Ethics, a weekly column where this article was first published.

A feisty debate over the safety of a widely used chemical has put Colgate-Palmolive at the center of a case study in product disclosure and corporate responsibility - one that may ultimately help outline how companies wading through a murky regulatory review and unsettled science should attend to their stakeholders and customers.

The current squeeze on Colgate stems from a U.S. Food and Drug Administration decision this year to train its microscopes more closely on triclosan, a chemical with antibacterial properties that in recent decades has been added to scores of products, but now is under new scrutiny because of studies that suggest it may harm both human health and the environment. And while the FDA conducts its review – and critics of triclosan mount their arguments to curtail its use by consumers – Colgate and other product manufacturers have to decide what they can and should say to the marketplace, not to mention when and how to convey it.

The hurdle the company faces is clear: a core ingredient of its top-selling Colgate Total toothpaste is suddenly the heart of a public health tempest, but regulators have neither banned the chemical nor deemed it unsafe. There is no well-tested playbook for the scenario, says David Nash, partner at McMahon DeGulis, an environmental law firm based in Cleveland.

“The dilemma becomes, what kind of legal, moral, or socially responsible duty do they have to stakeholders to go beyond where the regulatory agency has already gone?” he asks. “In this fast-moving field, I would be hard-pressed to say [there is a] consensus on best practices.”

It complicates matters for Colgate that few products have gotten more mileage out of triclosan than Colgate Total, which won special FDA approval in 1997 for its use of the chemical in a patented formula to prevent gingivitis, a common form of gum disease. In short order, Colgate Total vaulted above competitors to become the top-selling product, and today it remains a big contributor to Colgate’s worldwide 44.4% share of the global toothpaste market and its 35.6% slice of the U.S. market, according to company filings this year. At the beginning of last year, Colgate announced that among its toothpaste varieties, the Colgate Total brand by itself had 16% of the overall market in North America.

Another thorny issue for Colgate is that the FDA is heightening attention on triclosan (PDF) at the same time it serves as the first line of defense against critics. That’s because on the one hand, the FDA is teaming up with other federal regulators, particularly the Environmental Protection Agency (PDF), to sponsor new research on triclosan’s safety. But on the other, the FDA has issued a statement that “triclosan is not currently known to be hazardous to humans” and that the agency “does not have sufficient safety evidence to recommend changing consumer use of products that contain triclosan at this time” – and won’t have its first answers until spring 2011.

That leaves product makers with decisions that perhaps they would not have faced even 10 years ago, when corporate social responsibility factored far less in the strategic thinking at most companies. Should a company proactively inform its customers that a key ingredient of its product is facing questions? Should it amend its marketing? Should it play an active role in the scientific debate? Should it publicly defend its turf? Should it simply do nothing and wait?

Colgate’s response to date largely has been to point those who specifically ask about triclosan to the FDA’s prior approval of Colgate Total. A company spokeswoman points to a statement on the FDA website (PDF) that says, “In 1997, FDA reviewed extensive effectiveness data on triclosan in Colgate Total toothpaste. The evidence showed that triclosan in this product was effective in preventing gingivitis.” Colgate’s own statement adds that since the approval, “Colgate has routinely provided FDA with updated information, consistent with the agency’s guidelines, and is confident that further study will continue to add to the substantial body of research that affirms the safety of triclosan in Colgate Total.”

It’s a detached defense, sticking to discussion of its product and not engaging in the greater triclosan debate. What time will tell is whether Colgate is telling consumers enough to position itself best for when the FDA makes a final determination on triclosan, says Barbara Burton of The Burton Company in La Jolla, Calif., a corporate responsibility consultant.

“You have to determine what to disclose,” she adds. “When you’re not disclosing what you should, you assume risk.”

Nash says the corporate social responsibility issues Colgate faces – and their impact on how the company communicates with consumers – are bound to repeat themselves in other industries and settings. He points to prominent cases from just the past year, citing Toyota’s struggle with scrutiny on accidents involving its vehicles that were attributed by some to faulty equipment; the firestorm that Goldman Sachs faced when securities regulators essentially accused it of cheating its customers; and BP’s very public missteps in the wake of its giant Gulf of Mexico oil spill. And Nash says the rules of engagement for these episodes are in constant flux.

“Science changes,” he adds. “Medicine changes. So does perception. So does politics. So does tolerance for risk.”

Widespread Use and Unknown Impact

Triclosan is hardly just Colgate’s concern, but its wide use actually makes matters trickier for the company. The chemical – first developed in the 1960s by Ciba – appears in products as varied as clothing, kitchenware, furniture, toys, and even food, says Douglas Throckmorton, deputy director for regulatory programs at the FDA’s Center for Drug Evaluation and Research. “Every time I’ve asked for a list [of products using triclosan], they say, ‘Beware – we’re sure we’re missing some,’” he says.

One of the most prominent uses, however, is in antibacterial soaps, hand sanitizers, and body washes, and that’s where the current debate is centered. Throckmorton says that since 1994, the FDA has been working on its “monograph” of definitive rules governing the use of ingredients such as triclosan in these products, and that until the work finishes, companies can use these kinds of substances. The slow progress is what inspired critics of the process to step up their arguments this year that the monograph’s delay was allowing products to continue using triclosan despite new research studies indicating it is unsafe.

It’s notable that Colgate isn’t at the nucleus of the debate. Throckmorton says Colgate’s use of triclosan doesn’t fall under the proposed monograph, or even under a separate pending monograph for toothpastes, because its 1997 “new drug application” approval from the FDA was built on extensive and specific studies showing Colgate Total’s “safety and efficacy” in preventing gingivitis. That means even if the agency were to ban triclosan from hand soaps, Colgate could still use it in Colgate Total.

For now, the scientific dispute has several fronts. Throckmorton says the FDA’s announcement in April that it was coordinating with the EPA and other agencies to further study triclosan stems from research studies in recent years analyzing the chemical’s potential impact on animal reproductive systems; its possible carcinogenic effects on skin; its widespread appearance in environmental and population samples; and its role in anti-microbial resistance. One of the biggest concerns is its potential as an “endocrine disruptor,” which means that it can alter hormone behavior.

Most recent studies have traced triclosan’s impact on animals, although its pervasiveness in humans is clear. The federal Centers for Disease Control and Prevention reported several years ago that it found triclosan in the urine of three-quarters of participants in a 2,500-person health survey.

Some public health advocacy groups say growing evidence points to triclosan’s negative health effects, and have urged the FDA to act swiftly. The Natural Resources Defense Council filed a lawsuit against the FDA in July 2010 to force the agency to finish its soaps monograph. And the FDA’s April announcement to step up its review appears to have been pushed by inquiries from Rep. Edward Markey of Massachusetts, who chairs a House panel on energy and the environment and has asked the agency to restrict triclosan use.

Arguing the opposite case have been triclosan’s defenders, particularly chemical companies that make the substance for commercial use as well as industry groups such as the American Cleaning Institute, which dismisses the critics as fear-mongerers and contends that products with the substance have been used safely for decades in homes, hospitals, and offices.

Colgate has been on the periphery of the debate because of its special approval status. But any negative finding against triclosan would undoubtedly impact the company. And both NRDC and Markey have called on the FDA to revisit its approval of triclosan in Colgate Total.

“We didn’t have data on the endocrine disruptor effect when it was approved,” says Sarah Janssen, senior scientist for NRDC. “We have asked the FDA to review those applications and determine whether it really does meet that bar of being safe.”

Exposure and Disclosure

As the triclosan debate swirls, Colgate has planted itself behind the FDA’s 1997 blessing of Colgate Total as well as similar endorsements, such as the product’s clearance for use in 173 countries and seals of approval from dental associations. The spokeswoman declines to go beyond the company’s basic statement, saying, “We are unavailable to further discuss.” It also is not openly combating the critics raising general questions about the chemical.

McMahon DeGulis partner Nash says Colgate is “absolutely entitled” to stand on its FDA approval as a valid response to questions.

But that doesn’t dismiss the question of whether Colgate ought to tell customers about the broader argument over triclosan’s safety. Burton, the consultant, says the tide is turning toward greater disclosure, particularly with initiatives such as the United Nations Global Compact and the development of the International Organization for Standardization’s 26000 standard on social responsibility, which calls for broad transparency with stakeholders on matters related to product safety.

“You don’t want to take the chance of not disclosing information about potential safety concerns,” she says.

She adds that while wide disclosure in a case like Colgate’s could have a negative short-term impact on market share, it also could generate long-term customer good will.

However, in instances as messy as the triclosan safety debate, there is also risk of disclosing data that simply breeds confusion, says Ken Strassner of Strassner Consulting in Sandy Springs, Ga. “I do not believe that you have to automatically disclose everything,” he adds. “There is a fair amount of consumer research that shows people don’t understand the science.”

There is also the concern of disclosing information that could wrongly inflame fear among customers. “We talk to our clients about being transparent, but doing it in a smart, responsible way,” Nash says.

Indeed, a company faces risk management questions if inappropriate disclosure exposes “the company to frivolous legal action [or risk] to its share price or to the investing community,” he adds.

In order to decide what to disclose, Strassner says a company must fully understand the “best available science.”

That’s also critical for risk management, because a company needs to vet the “credibility and validity of the data,” as well as the scientists conducting the studies, to ensure “advocacy science” is not driving decisions, Nash says.

Strassner also says a company in Colgate’s situation should stay engaged in the overall review, offering its technical expertise and input on findings. “I would participate in these processes in an open, straightforward, technical way,” he adds. “I’m not suggesting you run to the head of FDA and say ‘Kill the investigation.’”

If Colgate’s case underscores how balancing socially responsible conduct with company interests is more than ever a tightrope walk, it also should remind corporate leaders that such challenges are sure to multiply.

“We’re in a very complex society with very complex technology,” Nash says. “Frankly, this kind of stuff is going to come up again, and I think it’s going to come more frequently.”

Tom Stabile has worked as a reporter and editor for 19 years at magazines, newspapers, and trade publications in New York, Washington, D.C., and Santo Domingo covering business, education, government, criminal justice, and the arts.

Criticisms of business seeing value creation only in terms of achieving short-term, unsustainable results and how business schools prepare future leaders predate the financial meltdown. Warren Bennis and Jim O’Toole talked about the need to reform business education several years ago. The crisis simply made it more obvious that business as usual isn’t working, either in the classroom or boardroom.

The piece of management education reform that involves the role of ethics has added importance not only because trust in business has fallen so far, but also because it is tied to how leaders behave and the impact that has on a company culture as well as society.

When students return to campus in coming weeks, dialogue and debate on the purpose of management education and how ethics is handled will continue, impacted by initiatives that seek to help reinforce high ethical standards. Some examples are the MBA Oath project, and programs giving students experience practicing values and integrating ethics into other organizational risk considerations.

While well-regarded companies that have recently suffered reputation meltdown are real-world examples for the classroom, even more important is learning about other models for doing business, like Pepsico, a company that is intentionally setting high ethical standards for itself while still making significant profit.

For many companies ethics has a walk-on part—not much focus beyond the compliance function and website rhetoric about how a company describes its values. If integrating ethical considerations into strategic business decisions was the norm, we wouldn’t keep enduring debilitating crises where consequences of actions apparently aren’t clear to leaders until a regulator shows up or media headlines send stock prices lower.

Performance with Purpose

The reality is that crises at Toyota, Goldman Sachs and BP – to name a few -- involved ethical failures as potent as the business miscalculations and addiction to gaining ever-higher quarterly profits, where choices and shortcuts harmed stakeholders. Just as the ethical debacle of Enron was a wake up call met by additional regulation and beefed up ethics focus in companies, the corporate crises so far this year offer another kind of wake up call that companies and management education would do well to heed. How many more examples do we need of value creation only being about profit at the expense of society?

Indra Nooyi, Pepsico’s chairman and CEO, told students at Yale’s School of Management in May 2010 that “performance with purpose is how we run the company.”  She explained that “Performance with purpose is about how you can intimately link what a company can do with what the needs of society are and together deliver great performance.”

“Pepsico wants to be the model of the good company,’ she continued, “an example of how business should be done in the 21^st century.” This sets the bar very high at Pepsico. The business model requires integrating ethical considerations into the mix of business considerations, aligning decisions with purpose, and acting in a manner that inspires employees to do their best work. The result, if made a reality, establishes trust with stakeholders.

It is the inconsistencies that often trip a company up. Simon Webley, Research Director at the Institute of Business Ethics in London, makes a distinction between doing ethical things (like philanthropy and environmental activities) and doing things ethically. Doing the former is no substitute for doing things ethically, he says, mentioning a company in the U.K. known for the wonderful things it does for the community, but yet it doesn’t pay its suppliers on time. “It is easier to do CSR (corporate social reposnibility) than to integrate high ethical standards throughout the organization.”

Adhering to high ethical standards is at the heart of the Oath Project started at Harvard Business School last year as a grassroots movement of students and faculty. The voluntary pledge to “create value responsibly and ethically” seeks to create a community of MBAs (signers are from more than 250 schools) who share a high standard for ethical and professional behavior. Nitin Nohria, who became Dean of Harvard Business School this month, has been a strong supporter of the project.

Role of Values

Will signing a piece of paper change anything? It depends. We should consider how change occurs; it starts with a personal act of intention, followed by action, gaining reality through repetition and reinforcement until it becomes how things are done by an individual, and a collection of individuals. It is too soon to know the success of the movement or its influence on the companies graduates join. However, it is a start. The Oath Project is supported by many organizations, including Aspen Institute’s Business and Society Program (BSP).

Part of expressing high ethical standards is the ability to speak up in support of those values. Over 100 business schools globally are participating in an innovative, cross-disciplinary business curriculum called Giving Voice to Values (GVV) created by Mary Gentile. The program raises different kinds of questions than the case study approach: “Rather than asking ‘what is the right thing to do?’ she says, “we ask ‘how can I get the ‘right thing’ done?’” In GVV, students go on to answer other questions raised including: “What do I say to whom, what will they say back, and then what do I say? What data do I need? What allies do I need, etc.”

In GVV, Gentile says, “we ask students to create and practice literal scripts and action plans so that the program goes beyond awareness building and analysis to action.” The relatively new program was incubated at the Aspen’s BSP and also sponsored by Yale School of Management before moving to Babson College last year.

To help students practice integrating ethics into the decision-making mix, Loyola Marymount University (LMU) has developed an invitational intercollegiate business ethics case competition which attracts international participation. It is also sponsored by the Ethics and Compliance Officer Association, a professional group for corporate compliance officers, whose members serve as judges. MBA and undergraduate teams make presentations showing their understanding of the legal, ethical and financial dimensions of problems.

“Every decision you make in business generally occurs when you are under pressure, without all the information or time you’d like, and in the midst of competing factors – usually financial, legal or ethical issues,” says Thomas White, professor and director of the Center for Ethics and Business, who created the competition. “There needs to be more emphasis on ethics education in MBA programs (however it is done) because individuals need more technical ability in recognizing and resolving ethical issues, which are as sophisticated and complex as any financial problem, and getting more so.”

The success of business education reform has many champions, and is coming up again at a time when there is crisis fatigue as well as examples of successful companies with a value proposition that puts a priority on social good. Will current business leaders support training new leaders in skills and competencies that support new models of business or will we need to endure more business as usual?

Gael O’Brien is a Business Ethics Magazine columnist. Gael is a thought leader on building leadership, trust, and reputation and writes The Week in Ethics, a weekly column at http://theweekinethics.wordpr

Jeffrey Hollender, Co-founder & CEO of Seventh Generation, tells Big Think:

Poorly managed corporate risk all too often becomes risk that stakeholders unwittingly end up assuming. The consequences can be dire: Think deaths and accidents from unintended acceleration in now-recalled Toyota vehicles, the shocking demise of Lehman Bros. that fueled the global economic meltdown, or the deaths of oil platform workers in the explosion that started BP’s environmental catastrophe in the Gulf of Mexico.

Scandal affecting public figures also continually demonstrates the high costs of poorly managed risk. Estimates are, for example, that Tiger Woods lost between $23 to $30 million in endorsement deals last year, even though according to Forbes, he still topped other sports icons’ endorsements.  Finance professors at University of California at Davis estimated that shareholders of companies sponsoring Woods lost between $5 billion to $12 billion  in market value from November 17, 2009, when the scandals around his private life broke, to December 17, 2009.

Especially troubling here is that no matter how many examples establish irrevocably the very high human and financial consequences of reputation damage, and no matter how often leaders talk about the importance of having or regaining trust and reputation, the examples keep happening in different companies, with different leaders, with harm inflicted in different ways. It is almost a perverse corporate version of the movie “Groundhog Day” in which a calamitous day keeps repeating itself until the hero figures out what he has to do differently to find a way out.

Risk Management and Ethics

When will it be the right time for corporate leaders to do things differently? Mediator extraordinaire Kenneth Feinberg can’t be everywhere. His newest assignment is administering BP’s $20 billion oil damages fund; his intervention deemed necessary because there was little trust in BP’s handling of the claims.

A recent supplemental research report by the Ethics Resource Center observes that companies are put at risk when leaders fail to see that ethical leadership  is a vital component of effective and responsible management.

Companies that put themselves at risk and whose behavior is also considered to have contributed to the financial meltdown have been required to appear at so many hearings, they’ve worn a virtual path to Washington DC. On June 30 and July 1, 2010, Goldman Sachs and AIG face questions from the Financial Crisis Inquiry Commission on The Role of Derivatives in the Financial Crisis.  In that venue, companies are seen as the problem, not part of the solution; so the public relations hits to reputation are high.

The jury is out on what it will take to convince corporate leaders to build into their risk management strategies the capacity to ask crucial questions about ethical liability, as is done with legal liability. Such a step, hardly radical, would have the objective of putting ethical conduct on the table as a deliberate outcome; evaluating business strategies and actions to assess the potential for unintended consequences that could harm credibility, trust, reputation, and their stakeholders.

Getting on the Bandwagon

An easier way to court public favor seems to be on the sustainability bandwagon. A recently-released UN Global Compact/Accenture Survey (PDF) states, “Demonstrating a visible and authentic commitment to sustainability is especially important to CEOs because it is part of an urgent need to regain and rebuild trust from the public and key stakeholders...trust that was shaken by the recent global financial crisis.” Of the 766 global CEOs surveyed, 72 percent say “strengthening brand, trust and reputation is the strongest motivator for taking action on sustainability issues.”

One of the disconnects pointed out in the survey is that CEOs often assume their own company is more respected and trusted than their industry. This can fuel arrogance and lead to miscalculations. However, even having more trust and respect than accorded others in your industry can evaporate fast as we saw when Toyota’s gold standard of quality fell like a house of cards. Another disconnect is that while 92 percent of CEOs say sustainability should be embedded throughout the organization, only 59 percent are actually doing that. So, how much weight do we give here for intentions?

While 54 percent of CEOs say sustainability will be fully integrated in core business in another 10 years, the qualifiers are based on a number of factors coming into play, including creating a viable market for sustainable products and services. So bets are hedged. Also problematic is the 72 percent of CEOs who say brand, trust and reputation (essentially intangibles) are their biggest motivators for sustainability; standard drivers for business decisions like revenue growth, cost reduction, personal motivation and customer demand are motivators for less than half the CEOs.

This begs the question: Will CEO commitment for sustainability have the enduring motivation to do the hard work of building ethical and responsible corporate policies and practices? Or is it a public relations placeholder until something else comes along?  Commitment to making sustainability real would be a big step forward in ethical leadership. So too would consciously looking at potential ethical liabilities, before taking a course of action. Continuing with business as usual and expecting different outcomes is my definition of insanity. The lessons of the past several months offer ample reason to ensure that ethical considerations are paramount in corporate risk assessment.

Gael O’Brien is a Business Ethics Magazine columnist. Gael is a thought leader on building leadership, trust, and reputation and writes The Week in Ethics, a weekly column at http://theweekinethics.wordpress.com

Dear EarthTalk: What is “kenaf” paper? From what I've heard, it’s good for the environment. But what exactly are its benefits and where can I obtain some? -- Tiffany Mikamo, via e-mail

Kenaf, a fast-growing, non-invasive annual hibiscus plant related to cotton, okra and hemp, makes ideal paper fiber as well as great source material for burlap, clothing, canvas, particleboard and rope. Its primary use around the world today is for animal forage, but humans enjoy its high-protein seed oil to add a nutritious and flavorful kick to a wide range of foods. In fact, kenaf has been grown for centuries in Africa, China and elsewhere for these and other purposes, but environmentalists see its future in replacing slower-growing trees as our primary source for paper.

U.S. Department of Agriculture (USDA) research shows that kenaf yields some six to 10 tons of dry fiber per acre per year, which is three to five times more than the yield of Southern Pine trees—now the dominant paper pulp source in the U.S. And to top it off, researchers believe kenaf absorbs more carbon dioxide—the chief “greenhouse gas” behind global warming—than any other plant or tree growing. Some 45 percent of dry kenaf is carbon pulled down from the atmosphere via photosynthesis.

Bill Loftus tends kenaf plants at the Kenaf Research Farm.

No wonder environmentalists are so bullish on kenaf for our common future. “The more kenaf we grow, we can not only absorb significant amounts of the carbon dioxide that is responsible for global warming,” says Bill Loftus of the non-profit Kenaf Research Farm, “but also educate the world on how to be self-sustainable through kenaf’s many properties of providing food, shelter and economic opportunities.”

As to its use for paper, 10 major U.S. newspapers have tested kenaf-based newsprint and were pleasantly surprised by how well it held up and how crisply it displayed text and pictures. And since it is already brighter than wood-based pulp, it requires less bleaching before it can be used to carry ink. But since kenaf is not mass-produced the way paper trees are on big plantations across the Southeast and West, it still costs more than regular paper and as such has not gone mass market, despite its environmental.

Also, while some policymakers and many environmentalists would like to see our paper feedstock switched from Southern Pine and other trees to kenaf, entrenched timber companies with big investments in tree farms (and who employ many a Washington lobbyist) do not. And with many timber companies already suffering economically, lawmakers are unlikely to mandate changes that could make matters worse.

Even if kenaf doesn’t become the paper of tomorrow, it may still have a bright future. The Kenaf Research Farm reports that  Toyota is also experimenting with using kenaf to reinforce the sugarcane- and maize-based biopolymers it hopes can replace many of the plastic and metal parts in the vehicles it is designing today.

Your best bet for finding some kenaf paper is to try a specialty art supply or stationery store. One good online source is The Natural Abode. Photographers might try using kenaf photo paper, such as Pictorico’s ART Kenaf, in their ink jet printers to give their snaps a unique look and a green pedigree.

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I heard a CEO recently say that his company has had a compound annual growth rate for sales of 29% since 1978 and an employee turnover rate of about 5% compared to an industry average of 110%. Those are numbers that get your attention.

When the same CEO talks about the trust that has been built in business relationships and characterizes the energy felt in the company as “joyful,” it is pretty evident his company isn’t Toyota, Goldman Sachs, Massey Energy, BP or a number of other companies that have recently been working out of crises.

Actually, he is talking about The Container Store. While many companies tout the importance of their people, Chairman and CEO Kip Tindell explains that for the Container Store “putting employees first is a profit strategy.” Employees are the #1 stakeholder. Paid 50% to 100% above industry average, Tindell says they receive about 240 hours of training compared to the industry average of seven hours. “You have to have a high level of service,” he explains, “to sell empty boxes.”

At the heart of his comments is the importance of the Foundation Principles Tindell created when Container Store was 10 years old and expanding. He wrote the principles so that new employees could better understand the culture. One of the principles is “communication is leadership.” He uses words like “consistent, reliable, predictable, effective, thoughtful, compassionate and courteous” to describe what communication looks like in the company. He says unabashedly, “We tell employees everything.”

Tindell characterizes the relationship with employees, suppliers and customers as being fun for everyone, where everyone is engaged. A byproduct, he feels, is that people identify with the brand so much they feel a part of it, passionately interested in helping the Container Store succeed. That was evident, for example, during the worst of the recession when suppliers gave the company better deals than they did others.

Tindell shared his stories at a conference on Conscious Capitalism at the end of May 2010 sponsored by the Conscious Capitalism Institute (CCI)  and Bentley University. He was joined by Gary Hirshberg, founder and CE-Yo (yes, that’s the title) of Stonyfield Farms,  which is the world’s largest organic yogurt producer, and Doug Rauch, who served as president of Trader Joe’s for the last 14 years of his 31 years with the company.

Stories about how purpose drives the business, how customers connect with the emphasis put on saving the environment, and how customers and employees are treated begin to create a different definition of “business as usual” for these companies.

Hirshberg tells those in attendance that he started Stonyfield 27 years ago with a question: “Is it possible to create an enterprise where everybody wins?” Stonyfield’s compound annual growth rate of over 24% in the last 18 years has successfully blended the company’s social, environmental and financial missions, he says. Trader Joe’s, explains Rauch, operates a purpose-driven business where employees know their opinions, as well as their advancement, matter; customers have made it more profitable than Whole Foods.  (John Mackey, Whole Foods Co-CEO, is also one of the leaders of the Conscious Capitalism movement.)

CCI, established a year ago, needs a broader array of stories going forward from leaders in other industries to illustrate the principles of companies driven by more than profit making a difference in the world. CCI wants to be the “knowledge hub” for the movement offering collaboration between corporations, research faculty at business schools, and thought leaders from consulting organizations.

Obviously, the idea behind a purpose-driven company didn’t start with Conscious Capitalism. Decades ago companies like the ones mentioned and others like Johnson & Johnson, Levi Straus, the Body Shop, and Ben & Jerry’s created strong brand loyalty around the quality of their products, loyalty to their customers, and the commitments they made to the world in which they lived. Fathers and mothers of operating with clearly expressed values and modeling the benefits of corporate social responsibility, they created a higher playing field for business.

However, as James O’Toole of the Daniels College of Business, University of Denver pointed out at the conference, a virtuous company is hard to sustain over time and especially if leaders change. Companies like Johnson & Johnson, Xerox, and Herman Miller are still around and their commitments regarding how they want to operate are intact even if interrupted or watered down at various times.

O’Toole, Daniels Distinguished Professor of Business Ethics, raised a critical question CCI and others will need to address: How can a “virtuous company” be made to last beyond its founder’s involvement with the company?

Conscious Capitalism is emerging at a time when how business operates is at a crossroad. It advances an approach by which a company can be profitable while also safeguarding trust, reputation, and credibility with stakeholders. It supports leaders in achieving their human potential and through that their business potential.

Raj Sisodia, co-founder and chairman of CCI and a professor of marketing at Bentley University, observes that traditional leadership models have outlived their usefulness. “The more self-actualized people become, the more we’ll need self-realized leaders who demonstrate mastery of serving some higher purpose and choosing right action.”

Conscious Capitalism is also at a crossroads. If it can learn from the success and missteps of other movements its voice will have more weight. It will need to determine what is a realistic bar for companies to measure themselves against as CCI seeks to change the way companies do business.

It will also need to address how founders pass on their purpose-driven passion to successors, and beyond that, how, from CEO to the next leader, cultures can maintain the focus on operating from a purpose bigger than delivering profit to shareholders, while keeping employees engaged, customers loyal, trust high, and reputation and financial strength intact.

In developing relevant research and providing a credible forum for the stories that demonstrate what is working and what isn’t, CCI has the opportunity to shape the future of the movement. It is a tall order but more than most people the leaders of Conscious Capitalism subscribe to the notion that the greatest opportunities emerge from the biggest challenges.

Gael O’Brien joins Business Ethics as a columnist. Gael is a thought leader on building leadership, trust, and reputation and writes The Week in Ethics, a weekly column at http://theweekinethics.wordpress.com

Toyota’s announcement of a technical fix for its sticky gas pedals – which can lead to sudden acceleration problems - is not likely to bring a quick end to the company’s current recall nightmare.

Having already halted sales and production of eight of its top-selling cars in the U.S. - and recalled more than 9 million cars worldwide, in two separate recalls – Toyota faces the prospect of billions of dollars in charges and operating losses. The Toyota brand, once almost synonymous with top quality, has taken a heavy hit.

While all the facts are not yet in, it’s clear that Toyota’s crisis didn’t emerge full-blown overnight.   Fixing the problem and ensuring that something like it doesn’t happen again will require an all-out effort, from assembly line to the boardroom.  Even then, there are no guarantees. Maintaining a good corporate reputation in the 21^st century is tricky business indeed.

Toyota’s case offers a number of valuable lessons for other business people and companies to consider.  Here, for starters, are five:

Aggressive growth can create unmanageable risk. Toyota’s desire to supplant General Motors as the world’s number-one car-maker pushed it to the outer limits of quality control.

“The evidence that Toyota was expanding too much and too quickly started surfacing a couple of years ago.  Not on the company's bottom line, but on its car-quality ratings,”  writes Paul Ingrassia, a Pulitzer Prize-winning former Detroit bureau chief for The Wall Street Journal.

Ingrassia, who has just authored a new book on the auto industry, notes that in 2005 Toyota recalled more cars and trucks than it sold; by 2007, Consumer Reports magazine stopped automatically recommending all Toyota models because of quality declines on three models.

One wonders if, when accepting management’s plan for aggressive growth, Toyota’s board of directors exercised appropriate diligence to ensure that growth could be achieved without betting the entire franchise.  Were quality control and safety part of the discussion?  Maybe gaining market share wasn’t worth the trade-off.  Quick tip to directors of other high-growth-oriented companies: read up on Merrill Lynch’s experience with dominating the sub-prime mortgage market.

Get the facts quickly and manage your risks aggressively. One of the more troubling aspects of Toyota’s recalls (there have been two) has been the company’s differing accounts of the source of the problem.  The current recall, covering 4.1 million cars, involves potentially sticky gas pedals.  Late in 2009, Toyota also recalled 5.4 million cars whose gas pedals could get stuck on floor mats.  Plus, Toyota says there are some cars affected by both problems.  (For an interesting technical analysis of some of the issues involved, go here.)

Uncertainty is not an asset, especially when lives could be at stake.  A Los Angeles Times investigation, for example, casts doubt on Toyota’s explanation, quoting one auto safety consulting group as saying, "We know this recall is a red herring."  (Read Toyota’s position here.)

And the questioning is just beginning.  A U.S. Congressional committee headed by Rep. Henry Waxman has already requested copies of emails and other documents from both Toyota and the National Highway Traffic Safety Administration, which regulates Toyota with regard to the recalls.   Congressional hearings are scheduled for Feb. 25.

In cases such as this, investigators almost always start with two time-worn questions.  What did you know?  And when did you know it? Answers to those questions provide the groundwork for analysis of a company’s response and handling of a problem.  Were employees encouraged to flag safety issues to senior management?  Were sufficient resources devoted to investigating the problems?   When did the board become aware of the situation and what did it do about it?

Companies generally can’t predict when crises might occur.  However, good internal risk assessment programs can help identify those areas of the business where management should be on the alert.   Robust risk management programs help a company address problems as they pop up on the internal corporate radar screen – and before they explode in public.

Your supply chain is only as strong as your weakest link. The reality is that auto companies make hardly any of their parts.  They assemble cars from parts made by others.  In this case, the offending gas pedal assembly was made for Toyota by a company called CTS of Elkhardt, Indiana.

It’s far from certain how much blame the parts supplier deserves.  In fact, CTS says Toyota’s acceleration problems date back to 1999, years before CTS began supplying parts to Toyota. (And the replacement gas pedal parts Toyota has announced as a fix for the problem will be made by CTS, suggesting a degree of confidence in the supplier.)

Nonetheless, “(if) you are outsourcing for your entire vehicle line, [and] the outsourced component is defective, the recall and the embarrassment is much greater,” iconic car company critic Ralph Nader told Toronto’s Globe and Mail last week. “The overall message is that quality control [means] daily vigilance,” Nader said. “You can't coast on your reputation because it can fail very quickly.”

Supply chain monitoring is a critical factor for companies that rely on third-party suppliers. That’s increasingly true for a broad variety of industries, not just automobiles, as business grows ever more global.  Smart companies will know their suppliers and their respective strengths and weaknesses.

Accept Responsibility.  This is one area where Toyota seems to be doing a good job, albeit maybe a year or more too late.

Toyota's National Ad on Recall - January 31, 2010

Two decades ago, when Audi encountered a safety issue similar to Toyota’s, Audi took the position that “it was the driver’s fault,” David Cole, Director of the Center for Automotive Research, told Design News.  Coles says that reaction ultimately hurt Audi’s reputation.

Toyota seems to be avoiding the appearance of passing the buck.  When pressed by the New York Times about problems that might have been caused by supplier CTS, for example, Toyota spokesman Mike Michels said: “I don’t want to get into any kind of a disagreement with CTS. Our position on suppliers has always been that Toyota is responsible for the cars.”

Accountability matters enormously.   Johnson & Johnson’s 1982 recall of its painkiller Tylenol, following the deaths of seven people in the Chicago area, has earned it a permanent place in the annals of crisis management.  But that recall stemmed from the deadly act of an outsider (who has never been caught), not any problem with the product itself, as is the case with Toyota.

Take the Long View. The three leading factors burnishing corporate reputation these days are "quality products and services, a company I can trust and transparency of business practices,” writes public relations executive Richard Edelman, who last week released his corporate “Trust Barometer” survey for 2010.

That’s unfortunate news for Toyota, given the hand that it’s currently playing.  But the company doesn’t have much choice.  By one estimate, auto industry recalls conservatively cost an average of $100 per car - suggesting that Toyota might be on the hook for at least a one billion dollar charge.   That doesn’t include lost revenue to Toyota and its dealers from the production shutdown.  And competitors are already trying to woo customers away and capitalize on Toyota’s misfortune.  Disgruntled investors and Wall Street analysts will make the company aware of their feelings; class action lawsuits are almost a certainty (one lawyer is already searching for Toyota customers as clients).

Reputation can be easily lost – and Toyota’s reputation is indeed threatened – but it’s highly unlikely the company will collapse completely.  And that may be one of the one of the biggest lessons for other companies as they study how Toyota emerges from this recall crisis.  The reality is that Toyota is positioned for recovery about as well as it could be – owing, in large measure, to the reputation for quality products and corporate responsibility it has developed over the last two decades.  That reputation is a valuable asset, and one that Toyota will undoubtedly be citing and calling upon, in the weeks and months ahead.