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Ethics In Material Handling

Does a Tough Economy make it harder to do the right thing?

Maybe you’ve seen these situations: A material handling salesperson low-balls a price, knowing the customer’s needs won’t be met and they’ll have to return for more. A customer asks for a second (read fictitious) invoice to pad an account or make reports look better. Another customer asks that a distributor falsify paperwork to show the product was shipped to a branch in a state that won’t levy sales tax. Those corners get cut in the business world all the time, right?

Well, no. But some material handling distributors have faced these dubious scenarios, and quickly avoided them, realizing an easy dollar isn’t worth a tarnished image. As Warren Buffett said: “If you lose money for the firm, I will be understanding, If you lose reputation for the firm, I will be ruthless.” Temptations arise each day, but most people can turn to the sense of right and wrong hardwired into them during their youth and refined through the years.

Importance of Upbringing
“A lot of it comes from upbringing and the influence of family and authorities, or the lack of influence of family and particular authorities,” says Patricia Harned, managing director of programs for the non-partisan Ethics Resource Center in Washington, D.C., which works to inspire institutions to act ethically. “People do continue to develop a sense of morality all throughout their lives and it grows and changes as they encounter new experiences and take on different social obligations. All of our lives, we are developing a sense of morality and refining it, and applying it.”

And sometimes, of course, people make the wrong choice. Tyco, Adelphia, Enron, the stories of reckless decisions made when no one was looking became so abundant, President Bush a year ago called for a new ethic of responsibility in America’s corporate community. “In the business world, there are so many pressures to profitability that certain practices, which ought to be questioned, aren’t,” Harned says. “Vendors offering gifts to purchasing agents, for example, has become accepted, or at least considered far above the sin of, say, doctoring financial statements offered to the SEC. But the honest road can be the longer road,” says Harned, “and companies should question any practice that betrays the image of integrity they’ve set for themselves.”

Why Do People Cheat?
Distributors acknowledge that sometimes losing an order is not the worst thing in the world, but honesty and integrity are more important than any dollar amount or any order you can bring in.

There are many theories as to why people cheat, but the distributors interviewed for this story had only one adamant and unanimous answer: “We won’t do business that way.”

David Rizzo

David Rizzo, president of A.J. Jersey Inc., of South Plainfield, New Jersey, has refused to play along with some customers’ desire to avoid paying the sales tax. “There are companies with out-of-state locations that say to us: Let’s make believe we shipped it to another state in order to avoid the sales tax,” he says. “We find that to be highly unethical, especially in times when the economy is down and states need money. We all have to pay our taxes in order to get the benefit of a secure environment – police force, fire, safety, road issues. And these are big companies that want to avoid paying tax. We walked away from a job just about a month ago, and pretty much lost a customer over it, because we refused to sell the trucks without sales tax.”

People also have tried to use different tax-exempt forms for service or purchases that don’t apply. Some will try to say that their forklifts will be used in production when they really will toil in finished goods. “The onus is on the company – our company. We are instructed by New Jersey to collect the tax. It is not our job to say ‘OK, we’ll look the other way.’”

Value of Accuracy
In the same ethical vein, Rizzo does not want his company pruning a cost estimate when safety is involved. “When doing rack jobs and systems, unethical companies will scrimp on lagging and securing safety bracing or safety netting, because they want to provide a less expensive price. We always go in with the manufacturer‘s recommendations on how to install this equipment. If that means we have to lag every upright and tie them together and put crossbeams in, we will put that on the quote. We are going to be a little higher in price, but we know when we do this job we are providing a safe environment.”

Rizzo, like other distributors interviewed, said that parents and other mentors instilled in him the sense to know that it is easier over the long term to play by the rules. That avoids guessing games months or years later, when an old scheme unravels. Rizzo’s father, Patrick Rizzo, who ran A.J. Jersey for some 29 years before retiring three years ago, had a big hand in setting the moral compass for David and another son, Steven, the company’s vice president. Says David Rizzo, “My father always insisted on doing things ethically.”

John Foley

At Binghamton Material Handling, in Binghamton, New York, President John Foley, during a visit to a manufacturer, learned that one of his customers had not received some of the product that had been paid for, and long since forgotten. Binghamton Material Handling, too, probably could have forgotten about it, essentially pocketing the money. Of course it didn’t. It sent the customer credit for the amount undelivered.

“Like I tell my kids, every little tiny decision you make sends you down a road further and further. At some point, when you come to a big juncture, if you haven’t made the right little decisions you have put yourself into a box for the big ones,” Foley says.

Ethics and the Economy
“We find that concern for ethics really varies with the state of the economy, to a high extent,” says David Kenealy, president of DAK Equipment & Engineering of Chicago. “When business is going strong and companies are profitable, it is easier for firms to act ethically. I think a poor economy is directly related to a greater disregard for good business ethics, and we have seen a huge plunge in good business ethics.”

Kenealy’s company looks at ethics in three arenas: those involving customers, competitors and suppliers. Generally, ethics among competitors have been fine, he notes. But he encountered two unhappy episodes of late: A customer who took DAK’s design drawings and presented them to a DAK competitor to seek a quote. (The competitor didn’t know where they came from.) And DAK had to sit by while one of its suppliers brought in another distributor to sell directly to one of DAK’s long-standing customers.

David Kenealy

“The other distributor wasn’t aware we were selling to that customer. The manufacturer, though, was,” Kenealy recalled. “In fact, the manufacturer’s sales rep told his supervisor (who wasn’t involved) that he would not assist in this sort of thing, and he was washing his hands of it. Turned out that one of the senior executives at that company went directly into our account and sold against us. That was a pretty severe breach of ethics and it affected the amount of business we do at that company.”

When companies are desperate for sales, Kenealy says, it drives certain actions. “Short-term decisions to increase sales or profits on anyone’s behalf are usually accompanied by some sort of compromise in ethics. When people focus on the long term—what’s right for the business relationship and what’s right for the future of the company involved—the solution really becomes self-evident.” So Kenealy stresses that his company use the long lens when charting seas roiled by ethical storms.

Choosing Right or Right
Business owners can struggle with ethical dilemmas when two or three options seem like the right thing to do. In his book, Defining Moments: Choosing Between Right and Right, author Joseph L. Badaracco tells the story of Rebecca Dennett, a bank manager who cannot tell an employee, desperate for information about her financial future, that the branch would be closing; Dennett has promised a higher-up that she will breathe nothing of the news since important regulatory paperwork had not been filed. She wants to be true to a friend, and true to her boss. She can’t do both.

“If you lose money for the firm, I will be understanding. If you lose reputation for the firm, I will be ruthless.”
– Warren Buffett

“Good managers often struggle with some version of this predicament,” Badaracco writes. “They want to live up to their personal standards and values, they have to meet the expectations of their customers and shareholders—often in the face of relentless profit pressures, and their own jobs are the foundation of their families’ security.

“Most of the time, managers find ways to juggle all these responsibilities and aspirations,” he writes. “In some cases, however, they cannot.”

Gary T. Moore, president of Materials Handling Equipment Co. in Denver, says ethical considerations don’t often arise in clear, black and white situations, but they do arise all the time. “Ethics have to do with everything from safety to how you treat customers in certain situations,” he says. “There are always a couple of cases with that traditional kickback situation. And we have said ‘No, we are just not going to do business that way.’”

Gary T. Moore

Starts at the Top
“But it’s seldom that clear cut,” Moore adds. “There’s a myriad of different shades of ethical situations that distributors are faced with over the period of a year, not quite daily. I think more often what you say is, ‘This is what’s right. This is what we need to do here.’”

Moore points out that ethics are not always written down in a book. “Many situations come up, and they come up in just about every direction you go. One thing to ask yourself is how would this sound if you had to answer questions under subpoena and under oath, and how you would feel about your answers. Is it a defensible action? Is it defensible to myself? I think a lot of it is your internal compass. I think companies do have a definite personality in that regard and I think it’s driven by the top people.”

Going for the Gold by the Golden Rule
The Small Business Administration acknowledges that business ethics are a hot topic these days. “With everything from insider trading to employee theft on the rise, it is no wonder that businesses are beginning to focus on the impact of ethical leadership. But along with this new focus comes a lot of gray area, and many times, managers are forced to decide on issues where there are arguments on both sides—a problem that makes ethical decision-making very difficult.”

How Honest Are You?
Take the Integrity Self-Test by clicking here.

The questions address both work and personal life situations, and are a good way to remind employees of your company’s ethics policy.

Norman Vincent Peale and Kenneth Blanchard, in their book The Power of Ethical Management, list three questions to ask yourself whenever faced with an ethical dilemma in your business:

  • Is it legal? In other words, will you be violating any criminal laws, civil laws or company policies by engaging in this activity?
  • Is it balanced? Is it fair to all parties concerned, both in the short term as well as the long term? Is this a win-win situation for those directly as well as indirectly involved?
  • Is it right? Most of us know the difference between right and wrong, but when push comes to shove, how does this decision make you feel about yourself? Are you proud of yourself for making this decision? Would you like others to know you made the decision you did?

Most of the time, when dealing with “gray decisions,” just one of these questions is not enough. But by taking the time to reflect on all three, you will oftentimes find that the answer becomes very clear.

Recent Books on Business Ethics

There’s No Such Thing As “Business” Ethics: There’s Only One Rule For Making Decisions by John C. Maxwell, Warner Books, 2003. Ethical lapses in corporate America are well-documented, but what lessons can be drawn from them? How does one judge what ethical behavior is? Does one ethical standard apply to all situations? Leadership expert John C. Maxwell thinks he has the answers. In this book he explains how integrity can be maintained using the Golden Rule, regardless of an individual’s creed, culture or circumstances.

Harvard Business Review on Corporate Ethics, edited by Joseph L. Badaracco, Harvard Business School Publishing, 2003. A highly readable collection of articles by leaders in the business ethics field designed to help businesspeople recognize and respond to ethical dilemmas. At the heart of the collection is the link between good ethics and good business.

Business Ethics: Concepts and Cases by Manuel G. Velasquez, Pearson, 2001. Ethical dilemmas and the environments that create them are examined, and tools are offered to help resolve these problems. Clearly written with many examples, statistics and real-world studies, such as the Microsoft antitrust case and cigarette company lawsuits.

Recent Books on Corporate Scandals
24 Days: How Two Wall Street Journal Reporters Uncovered the Lies that Destroyed Faith in Corporate America by Rebecca Smith and John R. Emshwiller, HarperCollins, 2003. A classic David-versus-Goliath tale in the style of All the President’s Men that follows two investigative reporters from a simple story about the resignation of Enron CEO Jeff Skilling to the downfall of the worldwide $20 billion company. The narrative is as fast-paced as Enron’s collapse. Final Accounting: Ambition, Greed and the Fall of Arthur Andersen by Barbara Ley Toffler and Jennifer Reingold, Broadway Books, 2003. An Arthur Anderson insider and former independent ethics consultant explains how arrogance, greed and an erosion of values brought down a company once described as the accounting profession’s conscience. Reingold explains what went wrong at Anderson and traces the roots of its ethical missteps. A book with ramifications for both company presidents and investors. Disconnected: Deceit and Betrayal at WorldCom by Lynne W. Jeter, John Wiley & Sons, 2003. The primary WorldCom reporter for the Mississippi Business Journal traces the rise and fall of a corporate giant that began with the confession, in 2002, of a $7 billion accounting error. Central to the story is CEO Bernie Ebbers who started out as a motel owner and who was at the helm when mistakes and unethical behavior finally sank the company. A gripping tale by an industry insider.

Pigs at the Trough: How Corporate Greed and Political Corruption are Undermining America, by Arianna Huffington, Crown, 2003. Many of the stories of dishonesty, greed and corruption widely reported over the past few years are brought together in this book. Huffington pulls no punches. Her language, beginning with the book title, will amuse some and offend others, but her indictment of corporate and government excess is highly readable.

Developing an Ethics Code of Conduct
for your Company

Companies are looking hard at ethics policies for their businesses, or at least a discussion on the importance of the qualities that make up an ethical relationship with customers, colleagues and supplier partners. The U.S. Small Business Administration offers advice on developing an ethics policy for your company and says these five fundamental principles can be your guide:

  • Purpose. A purpose combines both your vision as well as the values you would like to see upheld in your business. It comes from the top and outlines specifically what is considered acceptable as well as unacceptable in terms of conduct in your business.
  • Pride. Pride builds dignity and self-respect. If employees are proud of where they work and what they are doing, they are much more apt to act in an ethical manner.
  • Patience. Since you must focus on long-term versus short-term results, you must develop a certain degree of patience. Without it, you will become too frustrated and will be more tempted to choose unethical alternatives.
  • Persistence. Persistence means standing by your word. It means being committed. If you are not committed to the ethics you have outlined, then they become worthless. Stand by your word.
  • Perspective. In a world where there is never enough time to do everything you need or want to do, it is often difficult to maintain perspective. However, stopping and reflecting on where your business is headed, why you are headed that way, and how you are going to get there allows you to make the best decisions both in the short-term as well as the long-term.

You can read the Business Codes of Conduct developed at companies like BellSouth, Boeing, Buchman Laboratories, Lockheed Martin, Pitney Bowes, Tom’s of Maine, and others from a link at the E-Center for Business Ethics:   www.e-businessethics.com/linkconduct.htm.

Resources on the Web

There are hundreds of Web sites devoted to business and personal ethics. Below are some of the best specifically devoted to business owners containing policy papers, case studies, Q&A formats, best practices and references. For easy access, all of these sites are directly linked.

Company Web Site
E-Center for Business Ethics at Colorado State University
The Wharton Ethics Program at the University of Pennsylvania
Corporate Watch
KPMG Business Ethics Newsletter
The Institute for Business, Technology and Ethics
The Caux Round Table
Ethical Leadership Group
International Business Ethics Institute
The Ethics Resource Center

Material Handling Equipment Distributors Association


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