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Executive Insight
Students Get Lesson on Business EthicsExecutives relate how need for honesty underpins workplace.One night not that long ago, Frank Paden, president and chief executive officer of Farmers National Bank, was entertaining clients at a local watering hole when one of his daughters entered. He extended his hospitality only to learn that the bartender provided drinks for her and her female friends, at no cost to them.Paden related this incident during the presentation on ethics in business that he led in a financial literacy class at Canfield High School.It followed a discussion on whether it is ethical for high school students who work for pizzerias and fast-food restaurants to comp their friends without the owners or management's knowledge, an apparently common practice.Junior Achievement of Mahoning Valley Inc. coordinated the inaugural "Excellence through Ethics" day Oct. 19 when 30 businessmen and women, many of them chief executive officers, spoke about ethics in the marketplace at 11 high schools in Trumbull, Mahoning and Columbiana counties.Also speaking at Canfield High to Sherry Creighton's classes were Thomas Hollern, area president of National City Bank, and Leo Daprile, chief executive officer of Gem-Young Insurance & Financial Services Inc., Boardman.Some of the insights the executives learned during their careers and tried to impart hit home. The concept of insider information, however, and the conditions under which it can be disclosed came across as foreign to most students. But all three executives are well aware of the U.S. Securities & Exchange Commission and its rules. Trying to compress and explain some of those rules was daunting. As would be expected, Hollern, Daprile and Paden spoke forcefully on the need for ethics in business and how it underpins successful ventures and careers, how its absence resulted in insider trading scandals, MCI-WorldCom, Enron and the demise of the public accounting firm Arthur Andersen, and Martha Stewart's going to prison.All stressed how, as the leaders of their enterprises, they must live up to the standards they expect of their subordinates, how they must strive to avoid even the appearance of questionable behavior. Paden distributed the nine-page code of conduct and conflict-of-interest rules given each Farmers' employee and the additional 10-clause code of ethical conduct he signed upon becoming CEO in 1996."Ethics is what the business world is built on," Hollern told his class. "Would I quit before I did something I knew was wrong? Yes. Money isn't everything." That was a declaration that surprised most students whose response to a hypothetical was "Caveat emptor,"that huge profits were sufficient justification to sell a hair tonic that promises to cure baldness."The energy traders at Enron had a critical decision to make," Hollern said. "Many of them made a lot of money. A lot of them looked around and saw that everybody else is doing it, why shouldn't I?" Not only was their behavior unethical, it was often illegal, he continued, and a number have gone to prison.The teacher, Creighton, noted that students whose families own and run their own businesses weren't so cavalier about justifying scams. The students, most of them in ninth and 10th grades with a smattering of juniors and seniors, were vaguely aware of the most recent spate of corporate scandals. Efforts at reforming corporate governance, such as the Sarbanes-Oxley Act of 2002, came as news to them."In our business," Hollern tried to explain, "we rely on accounting statements." Accountants' statements in which there is little confidence would keep a bank from lending money and providing other financial services. "We have to believe in what they're doing," he continued.Likewise, banking is "built on the confidence and respect" of its customers, Hollern told the class. "Always tell the truth," he advised. Whether a banker is dealing with his colleagues, customers, competitors or the community, he said, "Always exceed your standards and you'll get ahead."While some ethical issues are seemingly black and white, "There's a lot of gray in ethics," Hollern related. Some unethical (and illegal) behavior is tolerated, such as employees who help themselves to small quantities of office supplies or make personal long-distance calls at company expense."Integrity and ethics are never negotiable in our company," Daprile informed his class. "Do we tolerate failure? Yes. And stumbling around, because that's how you learn. But you don't tolerate a breach of ethics."The president of Gem-Young decried the prevalence of "situational ethics" as he led his class through 10 hypotheticals that ranged from a salesman lying about a promised delivery date to get a large order to using office computers for personal e-mail, from a manager setting goals he knows his sales force can't meet to a salesman violating a company policy on gift-giving to win a large order, from whether to report a fellow employee routinely leaving early to whether to inform one's superior that most of his subordinates hate him.The students were ingenuous in their justifications of what most in the business world know is unethical behavior. Naivete accounted for some answers, such as Alexa going along with the proposition, "Since management's goals are carefully developed, I should take whatever steps are necessary to achieve them." She and many of her classmates assumed such management's goals would be ethical because they had taken the time to think through their plan.If management has a policy against gift-giving, some students offered it is all right to pay for such inducements provided it comes out of their own pockets. Their assumption was that their increased commission would more than offset the price of the gift. Daprile disagreed while allowing it says something about an employee's desire to make a sale by paying for the gift himself."I have a responsibility to let my employees know the rules," he stated. As sales manager, "I will remove roadblocks for the sales force," but he will not allow them to engage in thinly disguised bribery and call it entertainment or building customer goodwill."My father told me when I started out," he said, "you have two things, ethics and integrity.Daprile was aware of the custom among of many high-school students who work for food vendors of not changing their friends for pizza and other fast-food. Some members of the class admitted they do so and saw nothing wrong in doing so. One boy said he doesn't give food away but will add toppings to sandwiches and not charge for them. One admitted he doesn't charge his friends but would charge his mother if she came in to buy a pizza."Stealing is stealing," Daprile reminded them. "And why would you make your mother pay but not your buddy?"To the students who patronize the restaurants where their friends work, he said, "You are compromising them." Real friends don't engage in such behavior. Peer pressure is an excuse, not a reason, he added. Paden offered five hypotheticals, all related to human resources issues. Often doing what may seem the humane or decent thing is forbidden by the SEC. Case in point, at a party, a retired shareholder asks the CEO if he should sell some of his stock so he can meet basic expenses. The CEO know the shareholder's pension income comes mostly from the stock in his company. The company will soon announce a dividend cut but hasn't notified the SEC.The students, however, were more interested in knowing what Paden would do if he caught an employee using a copying machine for personal use or to help out on a community project.Before he was named CEO, Paden responded, he would walk past the copying machine while it was in use. Today, from time to time, employees get in a defensive posture around the machine when he walks by.Like Hollern, he realizes non-business use of company assets occurs, that because of the relative insignificance no one gives it a second thought. An executive must weigh employee morale as he balances misuse of company assets, they concede. "It's a tough call," Paden commented.To the issue of students who work in restaurants comping their friends, he was asked if the practice were OK if they first got the owners' permission or offered to pay for it by deducting the takeouts from their pay.Had anyone ever been caught comping their friends, he asked. No one had and the question seemed to answer itself."