Today I'm going to share a 5-step exercise program. You won't need workout gear or cross-trainers. And forget about engaging in Richard Simmons-like activity while listening to Swingin' with the Oldies. This exercise program stretches the mind and works a different set of muscles. Think of it as calisthenics in conflict resolution.
The recent spat between Google (Nasdaq: GOOG) and
Facebook (Nasdaq: FB) got me thinking about how companies make decisions and the effect they have on stakeholders and shareholders. (In case you missed the news, Facebook hired PR firm Burson-Marsteller to engineer a campaign about Google's privacy policies.)
When hit with a crisis, many public companies try to take the easy way out to save face and protect shareholder value. One company involved in a tizzy may blame another. Other times, a firm will blame "the system" or a business practice, as Sony (NYSE: SNE) CEO Howard Stringer did when questioned about the company's security breach.
These kinds of responses are often the handiwork of corporate communications and investor relations departments, which work with corporate attorneys in the hope of handling a crisis without triggering litigation.
Corporate social responsibility (CSR) programs give companies a way to demonstrate to investors and stakeholders that they have a commitment to the communities where they do business. But relying on CSR work to elevate your corporate profile is often a band-aid solution. Crises within the investment community could be avoided if the companies and their executives resolve to follow a different model of decision making -- one not created by management or consultants, but rooted simply in the ethics of the leadership team. I've come up with 5 exercises to help bring out ethical behavior in the way you make investment decisions and conduct business. I've found them useful for influencing my decisions in PR, and I think they're equally applicable in the financial world. Here's your five-part workout.
Exercise 1: Is it moral? We all follow societal norms and values because, well, they're just accepted. So where did former Enron CEO Ken Lay's morals lie? Enron's hyper-inflated earnings were a result of the way a large accounting firms valued the company's knowledge or technology assets. Granted, it's hard to put a price tag on intangible assets. But it's an accepted practice to approximate value, even if it's not always accurate. (In five years, ask me if the market was truly moral in the way it priced the LinkedIn (NYSE: LNKD) IPO, which, at the time of writing, is selling at more than twice its initial offering price.)
Exercise 2: Is it legal? Perhaps executives at WorldCom, Tyco, Adelphia, and countless other companies believed they could hide their actions by failing to share particular information. Apparently, they skipped their collegiate business law courses on what is and isn't fraud. (Former WorldCom CEO has a legitimate excuse for not knowing as much as he should about the law -- he was a physical education major.)
Exercise 3: What are the economics? As investors, we want to make money and seek any sort of ROI possible. But at what cost? The C-suite often draws lines in the sand, much in part to reflect their organizations' bottom lines. We hear of decisions that are made "in the best interests of the company." But what does that really mean? The likely translation: "We need money. This deal will pay bills."
Exercise 4: What's the social value? Have you ever thought about a company's social policies before making an investment? Pharmaceutical companies have come under fire for getting doctors to use certain drugs in exchange for lavish gifts. As an investor, can you feel good about practices like that? At what cost should someone broker a relationship? I know a lot of PR practitioners who schmooze journalists, but most reporters are too smart to fall for it. In reality, the only thing most reporters want is information to build good stories. Is the same principle true when it comes to investing our money? Do investors only want clear and complete information so they can make informed decisions?
Exercise 5: Who's responsible? In this final part of the workout, I want you to think about who is responsible for making ethics a factor in your investment decisions. If ethics are important to you, then share your values -- and your ethics workout -- with anyone who is part of your decision tree. Then connect with the companies in which you invest to learn more about their ethics, especially the ethics of those occupying the C-suites. "Ethicizing" is meaningless unless leadership is committed to it.
Unfortunately, the ethics workout never ends. Ethical decision-making takes soul searching and honest introspection. You have to have a clear understanding of your values and goals. It's hard work, and you will get a little sore. But once you get the hang of them, you'll find these exercises much easier than sweating with Richard Simmons.