Applying Ethical Frameworks at McKinsey & Company
Order Instructions:
The Price of Doing Good: Consequences of Ethical Decision Making
Consider the following two scenarios:
Scenario 1:
James works in the accounting department of a large firm. While going over the books for the past several months, James notices that someone has altered the figures to increase earnings by several thousands of dollars. He suspects that the errors, which are in the company’s favor, are too consistent to have been honest mistakes. He knows that he should report his findings through the company’s ethics hotline. However, he worries that doing so will jeopardize his security and reputation with the company.
Scenario 2:
Mary owns a small toy manufacturing company. One of her employees has noticed that one of the pieces on the most popular toy can detach from the toy. This could pose a potential choking hazard to young children who play with the toy. No customers have yet reported problems with the toy. Mary wonders if she should report the potential hazard before anyone gets hurt. However, the recall would cost her company money and result in loss of sales during the busy Christmas season.
As the scenarios illustrate, making ethical decisions often requires a trade-off for an organization or individual. After a scandal results from ethical wrongdoing, the proper course of action seems clear. Even so, organizations continue to struggle with making ethical decisions on a day-to-day basis as they weigh the cost of making such decisions.
To prepare:
•Choose a positive example from the past ten years of a business organization whose leaders acted ethically when they encountered an ethical dilemma. Select, analyze, and describe the ethical decision making and actions in the organization.
By Day 7 of Week 6, submit a 4-page (not including cover page or references) analysis of the ethical situation. Your analysis must include the following:
•An explanation of the ethical framework applied by the organization to make its decision, including support for your analysis from scholarly research
•An examination of both the positive and negative consequences of the decision, including the tradeoffs that the leadership of the organization made in making their decision
•A minimum of five references
SAMPLE ANSWER
Applying Ethical Frameworks at McKinsey & Company
Introduction
McKinsey is a global consulting firm that was founded about 87 years ago and has enjoyed a growing reputation for high ethical standards based on its culture of trust and values that advocate for client confidences, and always having the best interests of the clients at heart. However, the company faced a public scandal involving some of its most senior directors that rocked the organization, including all its 18,500 employees and over 1,400 partners across the globe who wondered what could have gone wrong at the firm (Raghavan, 2014). The first scandal involved Mr. Anil Kumar one of McKinsey’s Directors who pleaded guilty to charges of insider trading in 2010 after which he also confessed to Giving secrets he accessed while doing his job to Raj Rajaratnam of the Galleon Group hedge. The next scandal involved Rajat Gupta a former managing director at McKinsey who also gave secrets to Mr. Rajaratnam, although at the time he was a board member at Goldman Sachs (Raghavan, 2014). These two scandals were extremely public and significantly damaged the good reputation of McKinsey in the eyes of the public and most importantly its clients. Once Mr. Dominic Barton was appointed as the global managing director of McKinsey & Company, he made it a personal mission to transform the organization’s culture so as to prevent any such future scandals. The strategy he undertook is critically analyzed below.
Recognizing the Ethical Issue
The very first step that McKinsey took under the leadership of Mr. Barton was to recognize that an ethical issue did exist. Instead of blaming others or the individual responsible for the ethical breaches, the company shouldered the blame and took action to prevent future breaches (Kotalik, et al. 2014). When Dominic took over the global company, everyone at the firm was in a state of shock as the older members asked themselves how such a thing could happen to the company they knew, worked for, and were dedicated to. On the other hand, the younger members were wondering what mess they had gotten themselves into by deciding to build their careers at McKinsey, yet all signs were indicating that there was a major problem at the firm (Raghavan, 2014). However, with a cool head and a mission to transform the culture if the organization and restore the integrity that the firm was known for, Mr. Barton knew that he would have to take drastic measures to create change. Barton clearly saw that the organizations values were not the problem and that the problem lay in the enforcement of the ethics code that had guided the firm for decades (Raghavan, 2014). Once he had identified the problem, he set out to implement strategies that would eliminate the problem now and in future.
Putting Safeguards in Place
After identifying the key ethical issues that caused the two scandals, Barton realized that there was a weakness in the implementation of the ethics code that had guided the company since its inception, and he decided to put safeguards in place to protect the company (Jackson, Wood, & Zboja, 2013). One of the first safeguards he implemented was a personal investment policy that restricted the firm’s employees and members of their families from trading in the securities of any of its clients. The next safeguard was a rule that required all company consultants to fill an online questionnaire about crucial topics such as investments and ethics, which are vital to the operations of the company. These two initiatives were met with significant resistance from the company’s European partners who had never been restricted from trading in the stocks of any client so long as they did not deal with the client directly (Raghavan, 2014). However, the new policies were received gladly by the company’s American investors who had witnessed the arrest of Mr. Kumar in horror, and they agreed that changes were necessary to avoid any such things happening in future. He also created a department of professional standards that would be responsible for ensuring that all employees adhere to the honor-system and values-based ethics code that was the foundation of the company.
Building a robust self-sustaining ethics infrastructure
In order for an organization to have a robust ethics system, it is not enough that the company has a written code of ethics, but just as important is that the company appoints a committee of independent non-executive directors who are not part of its board. The committee will be responsible for ensuring that the code of ethics is adhered to throughout the organization and that every employee is in compliance with the ethics code (Morales-Sánchez & Cabello-Medina, 2013). Barton understood this, crucial ethics principles applied it as part of his reform strategy by getting the approval of the Shareholders Council, which acts as the company’s board to implement the new policies he had created. He took a further step by redefining the role of the company’s disciplinary panel and making its activities very public, which caused quite a stir within the organization as employees were openly shamed and punished while others were even dismissed (Raghavan, 2014). All these policies are self-sustaining and as long as they remain in place and are consistently implemented, McKinsey can look forward to better days without drastic ethical scandals. However, for the self-sustaining ethics system to survive and thrive it has to be supported by the top management as well as all the staff so that it can become part of their everyday culture to nip any ethics violations in the bud long before they become toxic to the organization.
Talking with Employees at all Levels often
In the 1980s, a researcher named Tom Peters championed the idea of managing employees by walking around, which could not be more relevant in modern organizations today, just as it was in those years. By walking and around and talking to employees managers and supervisors can communicate to employees what is expected of them and how they are doing in terms of achieving the expectations (Craft, 2013). These informal interactions are crucial as they provide an opportunity for managers to interact with employees in an informal setting where the employee is comfortable and can freely air their views and concerns about ethics and other work issues (Craft, 2013). In the case of McKinsey, such an approach might prove quite difficult to implement given that they have a global workforce distributed across the whole world, but the firm has found innovative ways to implement this strategy. One such strategy was the introduction of the Survey of Leadership initiative, which was launched in 2011 that allows subordinates to anonymously submit their appraisals of the behaviors of their leaders, who are the senior partners (Raghavan, 2014). This initiative was criticized by many senior partners who thought that their subordinates would use it to report frivolous issues that would tarnish the names of some partners, such as incidents at the staff cafeteria. However, the system was implemented and majority of the reviews are actually positive with only eight percent being negative.
Choosing to Live the Corporate Values and Opening Communication Channels
It is crucial that every organization realizes that no ethics or compliance manual can completely cover all the ethical dilemmas that employees face on a daily basis, which makes it crucial for organizations to equip their employees with corporate values that shall guide them in times of uncertainty (Thiel, Bagdasarov, Harkrider, Johnson & Mumford, 2012). By ensuring that all employees understand the driving values of the organization that live through every decision made at all levels of the organization, the leaders can have the peace of mind that comes with knowing that even when one is not there to provide specific guidance regarding tricky decisions, employees will still make the right decisions based on those values. Barton has taken the same approach at McKinsey by inspiring the organizations values in all employees through various methods such as the orientation process where employees are tested on their understanding of the firm’s code of ethics using hypothetical situation. Another indicator of how Barton impacts McKinsey’s values on employees is through his talks to newly recruited employees where he shows them how important the company’s values are in their daily operations (Raghavan, 2014). When speaking to new consultants Barton makes it his goal to stress the importance of looking at ethics broadly not just in form of specific examples, but more importantly he shows them how they should always use values in making all their decisions.
Conclusion
In conclusion, McKinsey is an appropriate example of how an organization can recover from ethical scandals and implement strategies to protect the organization from any future ethical debacles, while enhancing the ethics culture within the entire organization. The strategies implemented by McKinsey under the leadership of Dominic Barton were appropriate for the company, especially in the consulting industry where ethics is vital for success. However, it is important that all firms that have not yet implemented effective ethics infrastructure do so immediately given the crucial role that ethics plays in the corporate culture of most organizations. As much as all the strategies analyzed above are crucial to all organization, I believe that the most important of all of them is that ethics should be a part of an organization’s culture and should be reflected in all its values.
References
Craft, J. (2013). A Review of the Empirical Ethical Decision-Making Literature: 2004-2011. Journal Of Business Ethics, 117(2), 221-259.
Jackson, R., Wood, C., & Zboja, J. (2013). The Dissolution of Ethical Decision-Making in Organizations: A Comprehensive Review and Model. Journal Of Business Ethics, 116(2), 233-250.
Kotalik, J., et al. (2014). Framework for Ethical Decision-Making Based on Mission, Vision and Values of the Institution. HEC Forum, 26(2), 125-133.
Morales-Sánchez, R., & Cabello-Medina, C. (2013). The Role of Four Universal Moral Competencies in Ethical Decision-Making. Journal Of Business Ethics, 116(4), 717-734.
Raghavan, A. (2014, January 11). In scandal’s wake, McKinsey seeks culture shift. Retrieved from http://www.nytimes.com/2014/01/12/business/self-help-at-mckinsey.html?module=Search&mabReward=relbias%3Ar%2C{%222%22%3A%22RI%3A14%22}&_r=0.
Thiel, C., Bagdasarov, Z., Harkrider, L., Johnson, J., & Mumford, M. (2012). Leader Ethical Decision-Making in Organizations: Strategies for Sensemaking. Journal Of Business Ethics, 107(1), 49-64.
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