Success Secrets and Stories
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Success Secrets and Stories
Guarding Against Greed to Protect Investor Trust
Can ethical behavior truly be the foundation of business success? Explore how integrity and accountability can transform the workplace into a bastion of respectability and achievement. Drawing from Elmarie Pretorius's seven guidelines for fostering integrity, we uncover the strategies that help build a company culture rooted in ethics. From hiring employees who embody integrity to educating staff on ethical standards, we discuss the key steps businesses must take to align values across all levels. Learn how setting a strong example and implementing clear consequences for unethical actions can enhance a company's reputation, attract top talent, and secure customer trust.
The episode also revisits some of the most notorious corporate scandals of the early 2000s, including the downfall of Arthur Andersen and Bernie Madoff's infamous Ponzi scheme. These cautionary tales demonstrate the catastrophic consequences of unchecked corporate greed and the importance of regulatory frameworks like the Sarbanes-Oxley Act of 2002. By examining these ethical failures, we highlight the essential role of oversight in safeguarding financial integrity and protecting investors. Don't miss this essential discussion on the lessons learned from past corporate misdeeds and the ongoing importance of maintaining a robust ethical stance in business.
Presented by John Wandolowski and Greg Powell
and welcome to our next podcast on success secrets and stories. I'm your host, john monolosky, and I'm here with my friend and co-host, greg Powell. Greg, hey, everybody, yeah, so today in our podcast we wanted to talk about the goal of ethical conduct, and in my world it kind of comes down to the movie titled by Spike Lee Do the Right Thing. A better description is a good. Ethical conduct in the workplace indicates that the employees take pride in their company's ethical standards and have respect for each other, for the customers, for the suppliers, for the partners. It also includes professional conduct, business etiquette and the understanding of the importance of each employee to represent their company's brand in a positive manner.
Speaker 2:Now, those aren't my words, that's actually from an article Doing the Right Thing the Seven Guidelines to Promote Ethical Conduct in business by owner, and her company is called the mind spa of Elmarie Pretorius. She lives in the city of Johannesburg in South Africa, so if you look her up on the website, she's in a. The article is actually from LinkedIn and I thought it was very much on the point of talking about ethical behavior A little bit more of her overview, she continues. Ethical behavior in the workplace is defined as the moral code that guides the behavior of employees with respect to what it is in terms of right and wrong in regards to conduct and decision making. Ethical decisions making in the workplace takes into account the individual employee's best interest, and it also takes into account the best interest to those impacted. That was, according to the Work Institute. Greg, thanks.
Speaker 1:John. So there are seven guidelines here to promote ethical conduct in your business. Working and doing business inside the boundaries of the law is not always the same thing as doing the right thing, meaning behaving ethically when the moral standards of the business are in play. Do you behave ethically? Moral standards of the business are in play. Do you behave ethically In today's world with all the corruption, the lines have become somewhat blurred and more and more people demand a transparent, honest and decent brand, product, service, employee, supplier, customer from the business world.
Speaker 1:So ethical conduct should be present in both the individual employee as well as the organization as a unit, because it influences how the outside world, be it customers or other stakeholders, view the business. The business's ethical conduct not only enhances respect for the brand but also increases the business trustworthiness, which helps with reoccurring of business and in addition, attracts quality job seekers. Occurring of business and in addition, attracts quality job seekers. The first one develop and communicate the company's ethical code of conduct. Do the right thing from the word go by establishing the rules. Got to set that groundwork there. It is vital that everyone knows what the desired behavior is on moral standards for the company. People need to know what the boundaries are. This helps to get suppliers, employees, management, customers on the same page. Yes, john.
Speaker 2:Did you have an ethical statement in the organization that you worked for? Since you had so much customer relations and customer interactions, was there an ethical message at the beginning of their work? It's like a code of conduct.
Speaker 1:Indeed, it was John. Practically every company I've worked for in the last 10 or 15 years have had that, and there's even training on what that code means and how you make it work or how it doesn't work for you, and that was when people were hired. In fact, in the orientation process we talk about what the code of conduct is for the company. It's an employee rule how you're supposed to behave.
Speaker 2:Perfect.
Speaker 1:Okay, all right. So employing the right people. No question about making sure that you've got folks in play they aren't just talented with the job they do, but that they know where the moral compass is. That moral compass should point to the true north. Your managed employees and suppliers become the face of your company's brand, right? If they are corrupt, people will assume the same of the company. If they are corrupt, people will assume the same of the company. Take some good advice from Mr Warren Buffett. In looking for people to hire, you look for three qualities integrity, intelligence and energy. And if they don't have the first, the other two will kill you.
Speaker 2:Wow, that's directly on the point, exactly.
Speaker 1:All right. Number three educate and equip your management and staff. Sometimes, the reason for an absence of ethical behavior might indicate that it has never been taught, so you've got to equip your management and staff with the know-how of what the right thing to do is.
Speaker 2:They need to know what it is and why it's important. Yeah, and that's one of the things actually that the author, her company, mindspot, teaches, so it's part of her program. The next thing that she came up with, that she has under seven goals, is setting a good example, to be an ethical role model. Lead your team and your company by setting good examples on how to behave ethically. Make sure that everyone is treated equally under the same set of ethical rules and strictly enforce them throughout the company. This will, in turn, help you create the reputation as an ethical leader, a supplier, an employer, which will actually attract better quality employees at the same time and more loyal customers.
Speaker 2:The next point is to enforce consequences for unethical behavior. First, ensure that it is correct, easy and the private procedure to follow when reporting an unethical behavior. Also, encourage people to report wrong behavior. Secondly, make sure that you have the objective for the people with integrity, that you will investigate the situations thoroughly but fairly, and then don't be reluctant to enforce the consequences. That's kind of the point. Ethical behavior should always pay the penalties to avoid reoccurrence.
Speaker 2:And number six is to maintain communication with all stakeholders. It is important for everyone involved in your business to understand that you, your company, the management, the employees, the product, the services, the brand, what they stand for. Make sure that you encourage open communication. Your customers, your suppliers, your employees need to know you and the leaders that you appoint and your business. That can be trusted All of you can be trusted. This can only be done if everyone involved does business in a transparent and open way. Uncluttered and uncomplicated communications.
Speaker 2:And then the most important part is number seven. History will repeat itself if you do not learn from it. Put a star on that one, because that's the essence of what we wanted to talk about. Learn from your mistakes, learn from your slip-ups, even the ones that are made by your customers, the ones that are made by your employees, by management. Learn from them. This will give you a pretty good manual on how to remain ethical and will guide you on what are the expectations. When you observe and try not to make the same blunders, you can navigate your company to a more successful and a more ethical circumstances.
Speaker 1:Greg. Thanks, john. Ethics, or simply honesty, is the building block upon which our whole society is based. Business is part of our society and is integral to the practice of being able to conduct business. You've got to have a set of honest standards. So let's summarize In the end, you want to improve the workplace, workforce and your business's brand. Therefore, it is always good to keep changing your ethical code of conduct according to the current needs and wants of the environment and the people involved in your business. Actions matter more than words, and by maintaining open and effective communication, along with giving staff the proper training and penalizing those that don't abide, you will be able to achieve ethical conduct. So we've got some examples of unethical behavior in business.
Speaker 2:Chuck. Yeah, thanks, ray. So unethical behavior in business. So what exactly are we talking about? When Greg and I were kicking this around, greg and I had examples, but we didn't want to start with the examples first. We wanted to try to give you some guidelines on how to do the right thing in terms of ethical code. But unethical behavior and the effects that it has had in different organizations have happened from top of house the CEOs, the presidents. Those are probably the most visible and most obvious examples of unethical behavior and it can be devastating to both the customers, the employees, the investors. Most importantly, we want to talk about three examples One from energy industry, one from the business consulting side and one from the personal finance and investment space.
Speaker 2:The temptations of power and greed can quickly cloud a leader's mind and cause them for that irrational kind of behavior, the unethical kind of behavior. The first one that came to both of our minds was Enron. That was the one that hit us, the first example of what was unethical, and both of us had the same example. It was Jeff Skilling as CEO and the chairman was Ken Lay. So Enron was founded in 1985 by Ken Lay and it was a merger of two gas transmission companies. One was Houston Natural Gas Corporation, the other one was merger of two gas transmission companies. One was Houston Natural Gas Corporation, the other one was InterNorth Incorporated, and Enron was originally a large energy commodities kind of company. Their service base was basically Houston, texas, and it employed over 20,000 employees.
Speaker 2:Enron created a accounting method that they devised that was not the historical kind of approach, the traditional approach. They came up with a method that was called market-to-market MTM and they, I guess, coined the phrase of MTM back in 92. Enron used the special purpose vehicles to hide their debt and toxic assets from the investors and the creditors. The price of Enron shares went from $98 per share to $0.26 at the level when they went bankrupt. The company paid its creditors over $21.8 billion and they actually made a movie of this train wreck called the Smartest Guys in the Room Guys in a Room, and it is worth taking the opportunity to see the movie because it's a wonderful example of people who were just unethical but full of themselves. The Smartest Guys in a Room was probably the perfect title for that movie. And, greg, let's talk about the next example of large egos.
Speaker 1:Thanks, john. Some of you might remember from history lessons or you were actually there at the time a company by the name of Arthur Anderson. So at that time, arthur Anderson was a big consulting company and the highest level of leadership was Jim Wadia, who was the CEO, and David B Duncan was a partner. So as far as the issue with Arthur Anderson, it's really around corporate reputation. So way back in 1913, arthur E Anderson and a gentleman by the name of Clarence Delaney founded an accounting firm called Anderson Delaney Company. They changed their name to Arthur Anderson Company in 1918.
Speaker 1:The firm was based in Chicago and provided auditing, tax advising, consulting and other professional services to larger corporations. By 2001, it had become one of the world's largest multinational corporations, and back in the day we used to call them the big five accounting firms. Yes, this was one of them, along with Deloitte, Ernst Young, kpmg and PricewaterhouseCoopers. Arthur Anderson, though, felt victim to the excessive greed of one of their customers, enron, with his disproportionate and unwarranted use of balance sheet entities in an effort to hide his losses. As a result of the scandal and loss of name reputation, arthur Anderson had to reemerge as another company Accenture in 2001. John.
Speaker 2:And I always try to bring people back to what happened. What was the result? Well, right about at that time. This is 2001, 2002, there was Enron, there was WorldCom, there was Tyco. It was basically $104 billion of bankruptcy all happening at the same time and there was a real outcry of we have to do something. And the government stood up and they created what they call SOX regulations, and the right term is the Sons-Berns-Oxley Act of 2002. It's a mouthful, so they usually everybody refers to it as Sox or Sox-Oxley, and it was.
Speaker 2:The purpose was basically to protect investors, to ensure that companies had accurate representation for their financial states. But what SOX really did was to define what was proper internal controls and to validate financial statements. Two was to store electronic records for at least five years and, three, comply with new reporting standards for executives and public accounting firms. Here's the big, most important point Penalties. Sox imposed criminal penalties for noncompliance, including fines, imprisonment, clawbacks for incentives. The whole key here is it was a train wreck and they put in the vehicles in order to protect investors to invest not only in their stock but also in terms of their performance. There was thousands of people that were affected by those failures of those companies and everyone will go back to their 401k where they had those investments, and some of the better companies were profitable. Those three were on the top of the list, so when that went away, it affected a lot more people than the 20,000, 30,000 employees. Greg, I think you had probably the most entertaining unfortunately example of greed that we should be talking about.
Speaker 1:Thanks, john. I think greed is the operative word. All right, so let's talk a little bit about a Ponzi scheme. This is the most prolific Ponzi scheme in US history. The highest level of leadership in this situation was Bernie Madoff. Bernie Madoff was the founder of Bernard L Madoff Investment Securities LLC. He was active with the National Association of Securities Dealers. That was a self-regulatory securities industry organization, and he served as chairman of his board of directors and was a member of this board of governors. So he was involved in situations that you would think ethical is just his way of life. Let's talk about this Ponzi scheme. He started his firm in 1960 with $5,000 he saved from working as a lifeguard. That's one of those almost Horatio Alger story, right?
Speaker 2:Yeah, rags and riches Lifeguard, really. Yeah, that's how we're starting out here. Oh, I mean started off as a mechanic, but I was in Ponzi scheming.
Speaker 1:So Madoff served as NASDAQ's chairman NASDAQ 1990, 1991, and 1993.
Speaker 2:What is the definition of a con man? He's fooling you.
Speaker 1:It's got to have this guy's photo on it. So on March 12, 2009, madoff pleads guilty to 11 felony charges, including money laundering, perjury, false filings with the SEC and fraud.
Speaker 2:And let's sit back for a moment.
Speaker 1:When you think about a Ponzi scheme, you're kind of putting money in and you think you're getting interest and you're making a good investment here, but that money really wasn't making any investment because it wasn't being invested. It was turning around and getting other folks, maybe some startup money, from their investments, but the money was all going to the founder of, bernie Manoff. And we're not talking about thousands of dollars, we're not talking about millions of dollars, we're talking about billions of dollars. And there were many high profile victims, including Steven Spielberg, kevin Bacon and his wife, keira Sidgwick, and New York Mets owner Fred Wilpon. So it wasn't just a common everyday person. Celebrities were also caught up in this Ponzi scheme.
Speaker 1:16,500 investors have filed claims against Bernie Madoff. But here's the point that I think John and I are trying to drive home here regarding ethics and ethical behavior. Bernie's excuse was it wasn't like I was being blackmailed into doing something or that I was afraid of getting caught doing it. He continues I was being blackmailed into doing something or that I was afraid of getting caught doing. It continues. I sort of. You know, I sort of rationalized that I was doing, what I was doing was okay and that it wasn't going to hurt anybody. How wrong could he have been?
Speaker 2:There were people that were near suicide, if I'm not. No, I don't remember, but I think there was elements of people that had lost their lives because of the shock of losing everything that they had invested. And it comes to no surprise to me that the people that these people hurt are not really part of what they use or are concerned about, and our government stepped up and helped us with large corporations, but a Ponzi scheme is happening all the time and you have to be fully aware of what you're doing with your money and how you're investing it, and you're looking for an ethical statement, an ethical company and a history of a company that's doing the right thing. By bringing back that other theme from the other part of the article, doing the right thing is something that you can see over time and lines that run through my head whenever I think about Ponzi schemes if it seems too good to be true, it's too good to be true. There's a reason why you're getting 37% interest on your money, because it's basically funny money. It's not the real thing.
Speaker 1:Yeah, greg in human resources, really very bright guy, and I learned a lot from him. I learned a lot more after I stopped working for him, when I actually sat down and thought about some of the things he was teaching us and modeling. But he said, when you look at employees, especially bandagement type folks, their moral compass has to point to true north. It can't be south, it can't be east. It has to, because if it doesn't you're in trouble. And so we're talking before about employing people, hiring people. That moral compass has to be dead on north.
Speaker 2:Okay, so I know what it means to be headed to the north. Maybe you can explain that just a little bit. Of a true compass setting to the north, what does that mean? So a compass?
Speaker 1:you can get a cheap little compass at a drugstore or grocery store or whatever in the side aisles and it might just spin around a little bit, but those that are really magnetized in the correct way, it will always point to true north. It doesn't waver, it doesn't. You know, two out of four hours is pointing to north. The other two hours is pointing to north. It always, every single time you pick up that device and you take a look at it, that little red notch is pointing to north and it's telling you the truth.
Speaker 2:Yes, it's telling you the truth and that's the whole element of it, is being honest, telling the truth, and that's why I personally think this particular podcast on ethics is a very important podcast. So, if you like what you've heard, my book is available on Building your Leadership Toolbox on both Amazon and Barnes Noble. The podcast is available on what you're listening to, thank you. It's also available on Apple and Google and Spotify and other formats. Dr Durst's books and his MBR program that a lot of our program is based on is on successgrowthacademycom. If you'd like to get a hold of us, we now have a website. It is wwwauthorjawcom. Yes, my initials are J-A-W and you can get a hold of Greg or I. I'll send him the message and the music is brought to you by my grandson. So we want to hear from you. Send us a line, offer a suggestion, tell us where we can improve. The podcast has actually been fun because of your involvement and we do appreciate it. So thanks Greg, thanks John.
Speaker 1:As always.
Speaker 2:Next time.