Ken Silverstein EnergyBiz Insider Editor-in-Chief

Punishment serves as a deterrent. But a clear cut mission and a code of ethics that is inculcated throughout the bloodstream of corporations is essential. It's the foundation to which boards, managers and workers rely when they reach a fork in the road. It's the principles they use when deciding whether to emphasize short-term gain or long term stability. Profits and ethics are not mutually exclusive but assimilating the two does require placing the concerns of customers, communities and workforces above the notion of profit at all cost.

"Given the right environment, people can do the right thing regardless of what is in the air," says Leigh Hafrey, professor at MIT Sloan School of Management and author of a book titled "Five Steps to Mastering Ethics in Business." "It's not easy. But part of what makes it easier is to give managers and employees the tools to stand by their principles even under pressure. That's why role models matter so much."

In the case of Kansas City-based Westar, former CEO David Wittig was just found guilty of 39 counts of conspiracy, wire fraud and money laundering. Former Chief Strategy Officer Douglas Lake was also convicted of 30 similar counts, all for activities before they were forced out of Westar in 2002. They are expected to receive multiple years in prison and pay millions in fines. The utility, meanwhile, vows it has undergone a complete transformation.

How could otherwise reasonable men lose their sense of direction? Economist Milton Friedman has argued that it is the social responsibility of corporations to increase profits thereby putting more people to work and paying more taxes to support programs that benefit the general public. But business ethicists caution against a myopic pursuit toward earnings -- one that can blind companies. The quarterly reporting syndrome that pressures companies to meet earnings expectations promotes temptation.

Those expectations, however, must be tempered by the needs of other prevailing interests, namely the well-being of vendors, suppliers and workers. If any constituency feels slighted, the house of cards could begin to wobble. And unless the structure is reinforced with values that build trust, it could all come crumbling down. No doubt, Enron Corp. is the poster child for unethical conduct. Indeed, the managers there were a constituency unto themselves.

"Business is conducted through relationships that are built on trust," says Dennis Reina, with an organizational development firm in Stowe, Vermont. "To be successful, you can't sacrifice the human need for that of the business need."

Cinergy Corp., for example, has been a strong advocate of sharing increasing amounts of information with all stakeholders -- even if it might come at the expense of other company goals. The idea is that if stakeholders believe implicitly in a company's integrity, then the business will be trusted and better able to financially perform. Cinergy, for instance, was one of the first utilities to agree to expense stock options.

Ultimate Responsibility

Oftentimes, the rules that govern ethical behavior are not clear cut. Some ethicists say the lack of such clarity facilitates moral lapses by helping to create an uneven battlefield. Take energy trading, which emerged in the 1990s with the opening of electricity markets but which has been tarred as a leading factor in the degeneration of power markets and even free enterprise itself. Young traders were given free reign to increase corporate profits, all in an environment that had ill-defined rules.

Were they maximizing profits or manipulating markets and who makes that determination? Clearly, policymakers write the laws and regulatory bodies enforce them. But corporations and individuals are all part of the mosaic. Oftentimes, the laws that govern marketplaces can't keep up with the pace of free enterprise. Under such circumstances, companies or individuals could justify any "unethical" choices because rules and regulations are not yet in place. A strategy that continually "skirts the edges" is a prescription for failure, says Richard Sides, president of Dallas-based Strategies that Work, a consulting firm.

"The individual is the ultimate fiduciary," adds Leo Hindery, Jr., managing partner in InterMedia Partners in New York City and the author of "It takes a CEO."

In the heat of battle, though, people can lose their heads. The human psyche may work to rationalize iffy behavior by claiming "everyone" is participating. The subsequent peer pressure then works to "corrupt" the organization. That's, unfortunately, the situation with the recently convicted Westar execs. And, it's also apparently the case of former Enron Exec's Ken Lay and Jeff Skilling who are to stand trial for alleged corruption. In just about all these kinds of events, the corporate codes of conduct were relegated to meaningless pieces of paper.

But the same forces that can push managers to evade common sense can also be positively channeled. It's about creating a team environment in which the participants see their roles as facilitating the greater good and not in feathering their own nests.

Despite the systemic failings at some energy enterprises, morality did triumph. Enron, for example, had its whistleblowers who complained to their managers that some of the activities didn't pass the smell tests. Invariably, individuals put in such awkward positions must ask others and themselves if certain actions would be wrong and if they are unsure, then they should ask their bosses. It's about treating customers, employees and communities with dignity and respect. The companies that have neglected this lesson are the ones now on the trash heap of history.

"Strong individuals can take an organization diametrically opposite to where it needs to go," says Cal Clemmons, author of the "The Perfect Board." "But those who will stand up and be counted will be proven right in the end."

Corporations must no doubt serve their shareholders. But they must also try and enrich their other constituencies, oftentimes setting aside short term needs. The ones that can strike that balance will serve themselves and their societies well.

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