HIgH PERfoRmancE WItH HIgH InTEgRITy:

the final word

High Performance with High Integrity: The Foundation of Global Capitalism Bad and unethical business decision making is the primary cause of the financial meltdown and, in turn, the global recession. The failure to fuse high performance with high integrity—to achieve the foundational goals of the modern corporation—has eroded trust in the free enterprise system and created a crisis in global capitalism. High performance means strong, sustained economic growth; provision of superior goods and services; creation of durable benefits for shareholders and other stakeholders; and a sound balance between risk taking and risk management. High integrity means robust adherence to the letter and the spirit of formal rules, both legal and financial; voluntary adoption of global ethical standards that bind the company and its employees; and an employee commitment to core values of honesty, candor, fairness, trustworthiness and reliability. There are two reasons “why” high performance and high integrity are foundational corporate goals. First, their fusion allows organizations to avoid catastrophic risk that injures the company and its stakeholders. But it also confers affirmative benefits inside the company, in the marketplace and in the broader global society. Ultimately, performance with integrity creates the fundamental trust among shareholders, creditors, employees, recruits, customers, suppliers, regulators, communities, the media and the general public. This trust, which is so essential to sustaining corporate power and freedom, has been so sadly lost in the current crisis. But the hard question is “how” companies can achieve this all-important combination in a complex, fast-moving global enterprise.. The fundamental task of the CEO is to create a strong, uniform and global performance-with-integrity culture, which entails shared principles (values, policies and attitudes) and shared practices (norms, systems and processes). Although this culture must

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include some elements of deterrence against ethical and legal wrongdoing, at the end of the day, it must be affirmative. An underlying tenet of this culture should be that people want to do the right thing because leaders make this a real company imperative. Clear expectations must be set for all employees that this culture applies in every nation and cannot be bent by corrupt local practices, regardless of short-term business costs. Companies like BP, which had catastrophic plant safety issues, and Siemens, which has been enduring a towering bribery scandal, have faced major these major problems because they failed to have such a strong global culture. Based on my nearly 20 years of experience in one of the world’s most complex companies, I believe that implementation of eight core principles and associated practices are “how” CEOs and top management fuse high performance with high integrity: >> Upholding committed and consistent business leadership that makes performance with integrity the foundation of the corporation and does not hand this responsibility off to staff leaders; >> Managing performance with integrity as a business process by building the integrity infra structure (risk assessment and risk abatement to prevent, detect and respond) into all business operations, from sales and marketing to engineering, manufacturing, finance, IT and sourcing; >> Adopting global ethical standards beyond what the law requires (e.g., no bribery in either public or private sectors anywhere); >> Using early warning systems to stay ahead of global trends and expectations on formal rules, ethical standards and country risk; >> Fostering employee awareness,

// BY Ben W. Heineman, Jr.



knowledge and commitment through stimulating, systematic education and training; >> Giving employees voice through ombuds systems that treat concerns professionally, fairly and promptly and prohibit retaliation; >> Recognizing that the top staff leaders—the CFO, General Counsel and HR leader—must be not only partners to the business leadership, but ultimately guardians of the corporation; and >> Designing compensation systems so that top business leadership is paid not just for performance, but also for performance with integrity. Without robust implementation of these principles and associated practices, “tone at the top” rhetoric from the board and business leadership will be just so much eyewash. Increased regulation is an inevitable result of the poor and unethical business decision making that has been a significant catalyst of the current economic crisis. Yet, the future of healthy, sustainable capitalism still hinges on corporations’ ability to govern themselves properly. This means balancing wealth creation and risk management, having compensation systems that reward balanced growth rather than kowtowing to greed, respecting customers and investors by embodying fairness and providing transparency---- and, most importantly, by fusing high performance with high integrity. This fusion is not the initiative of the month. Now, more than ever, it is the foundation of capitalism.

Ben W. Heineman, Jr. is GE’s former Senior Vice President for Law and Public Affairs. He is currently distinguished senior fellow at Harvard Law School’s Program on the Legal Profession and senior fellow at the Belfer Center for Science and International Affairs at Harvard’s Kennedy School of Government. His most recent book is “High Performance with High Integrity” (Harvard Business Press 2008).

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