Ethical Dilemma Analysis: Executive Spending Gone Crazy

During my tenure as a sales assistant at an equities broker in New York City , I worked for the Chief Executive Officer (CEO) who frequently asked the members of the sales assistant desk to perform innumerable personal tasks. The manager's attitude caused conflict and unhappiness among staff members, but the New York office's numbers far outperformed the results of any of the other firm's offices. Many would argue that the CEO was unethical in his personal use of subordinates but others would say that his management style was the main factor in the financial success of the firm.

Introduction

After college, I worked for two years as a sales assistant for a French equities broker. The office employed approximately thirty salespeople and sales-traders who were assisted by six sales assistants. While there was a head of the sales assistant desk, I contractually reported directly to the CEO. My job duties included planning travel, negotiating annual travel contracts, booking and attending meetings with investors, executives and financial analysts, and other various office tasks. The CEO was very powerful as the New York office was highly profitable.

The CEO had a very harsh management style. Early in my tenure at the firm, the CEO yelled across the trading floor because I had provided him the wrong report. (This error was corrected in about one minute, but he did not ask whether I had the data he needed, he just assumed I had wasted one business day working on the wrong thing. Though I quickly provided the correct information, my embarrassment among my colleagues was already firmly in place.)

In addition to his rough management, the CEO also assigned the sales assistants to do a variety of personal tasks ranging from picking up clothing from Hermes to scheduling doggie summer camp for his dog; or from picking up sushi lunch in the rain to tracking down a specific style of Puma shoes for his friend in Paris. These tasks created problems in the workplace by putting the employees in an uncomfortable position, taking time away from duties more related to corporate needs, and were arguably a misuse of company resources.

In addition, the CEO engaged in use of company resources in a way that put me in a difficult position. For example, company policy stated that each employee would be reimbursed each day for lunch up to $7.00 by turning in his or her receipts at the end of the month. The CEO would ask the sales assistants (including myself) to order and pick up lunch for him using a corporate credit card. He would request lunches that would cost up to $65.00. This regularly put me in the awkward position of being unsure whether to do as he said and spend the excessive amounts on lunches or ask him for a special waiver (making me look like someone who would question authority or second-guess his orders.) We were also told to put expenses such as clothing repairs or personal Christmas cards on a corporate credit card. While the corporation may have been fine with covering these expenses (although shareholders probably would not have been happy to find that out) it was unethical for him to put the sales assistants in the position of having to violate corporate policy or second-guess their boss.

I generally value such virtues as fairness, truthfulness, trust, self-control, and moral leadership; these virtues are all supportive of business success and I saw a lack of these traits in the CEO. Additionally, I think business run best when employees and officers take a sense of accountability or ownership in the end results. I was faced with a dilemma on a frequent basis; do I question the CEO, perform the tasks, or seek review from someone in our office or the central European office?

Why did this occur?

There are a variety of factors that led to the CEO's ability to use corporate assets (including employees) with little oversight. The most important of these was that the firm was spread out over Europe and North America, and New York was by far the most profitable office. While the profitability led to the office receiving less scrutiny, Ferrell, Fraedrich, and Ferrell note that "[o]ne of the biggest issues that corporate boards of directors face is executive compensation.[1] In using corporate funds and corporate employees for personal use, the CEO was sidestepping the board's discretion in his compensation. The CEO was behaving unethically, in my opinion, and a person who behaves unethically and is rewarded (in this case through errands and physical goods paid for with corporate funds) he or she is likely to continue to act unethically.[2] Therefore, without any oversight or ethics committee, there was no one for employees to go to to ensure that the CEO was not misappropriating funds.

Additionally, the employees of the firm were, on the whole, very well compensated. All employees received catered breakfast, lunch reimbursement, health club membership, monthly $30 transit certificates, excellent health benefits, and the firm had no dress code. The sales assistants generally complied with requests from the CEO because they knew that we were well-compensated and did not want to jeopardize our jobs. This applied to the head of the sales support desk as well, who was a single mother and greatly appreciated the job's flexible hours and compensation packages. Again, when the head of the desk conducted personal business for the CEO on a regular basis, it provides an example for the other sales assistants: the CEO's personal needs come first, even before duties that need to be conducted for the business. Socialization probably also created an atmosphere where the sales assistants were used to being asked to do personal tasks without questioning them to any business officers. All of the sales assistants were faced with role stress, which Ferrell et. al. define as "the strain, conflict, or disruption that results from a lack of agreement on certain job-related activities."[3] Confusion over job duties can create stress that leads to unethical behavior.

How could these ethical conflict situations have been avoided?

A large problem with the firm was a lack of written policies and procedures. While the firm did provide an employee handbook, it did not include a specific code of ethics or clear procedures for where to seek assistance on ethical dilemmas. We were instructed on regulations and laws that must be followed, but were not instructed on where to turn for advice on day-to-day administration within the firm.

A code of ethics or code of conduct could have explained the proper use of company resources as well as provided for an ethics hotline or ombudsperson who could have answered questions that the employees had regarding duties and expenditures.[4] An ethics committee could have delineated proper behavior for the CEO and his use of employees' time and company funds. Since the bank as a whole was a decentralized organization, the CEO was given decision-making authority. A code of conduct could have clarified the proper uses of employees and funds. Even though a code of conduct will not resolve every issue that might come up, it can provide guidance that can be helpful in determining proper decisions and actions that may come up. Overall, shareholders of the public corporation would likely not have approved of the CEO's use of the entire sales assistant desk for his personal matters. In the absence of standards, employees generally make decisions based on how their superiors act.

The organizational structure also could have been changed in order to better meet the firm's needs. Given that the CEO is compensated in the millions of dollars, hiring a personal assistant for him might have been a wise business move. This would have freed up the CEO not to worry about trivial matters without disturbing the assistants who had their own business-related tasks and projects to complete. Additionally, an assistant whose job was to perform needed non-business tasks for the CEO would have reduced the number of ethical dilemmas that the sales assistants were faced with. It was difficult to organize client meetings and presentations when I would be interrupted with requests to purchase a $50 lunch. In addition to feeling annoyed that I was doing personal work that probably did not significantly help the business, I was also faced with breaking lunch reimbursement policy by spending far more than the $7 limit. If the CEO was not bound by the spending limit, simply notifying the employee purchasing the lunch would have been helpful.

The head of the sales support desk also had an ethical duty to delineate job duties and explain corporate procedure. Supervisors should take responsibility for their employees' actions and should provide guidance; while the head of the desk was not defined as a manager, she clearly noted that the sales assistants were unhappy and confused. She had a moral duty to assist the other members of the desk with ethical questions, especially in the absence of a code of conduct.

Lessons and take-aways

This situation resulted in reinforcement of the fact that proper flow of information is critical to success in any organization. In the New York branch of the equities firm, there was not explicit information on proper conduct nor was there a defined system for grievances or questions. A negative result of this dilemma was that even though I earned my stockbroker license while working at the firm, I was turned off to the firm and the industry as a whole and decided to leave, even after they had given me a raise and a very large bonus. As a result, the firm had spent thousands of dollars on training, examinations, and licensure for me but did not get to benefit by my continuing with the firm. Had I felt like a more valued and respected part of the team, I might have stayed with the company. When I did not have anyone in the firm to turn to for assistance or guidance, I ended up leaving. This might not have been the best decision, but it certainly had negative effects on the firm as a whole. Over the past several years, the turnover rate on the sales assistant desk has been quite high. I think that the CEO's treatment of the assistants and the unclear job duties have a lot to do with people's unhappiness with the job.

It would be particularly helpful for the firm as a whole to create a code of conduct that applies to all of its offices worldwide. There should be a centralized ethics committee or officer who could answer questions on a confidential basis. There might be resistance from local managers, but especially because of the large geographic distances separating the offices, some guidelines would be helpful for all employees.

The leader of an organization plays a strong role in creating and affirming corporate culture. When a top manager misuses company funds and appropriates company employee time for personal use, other employees are encouraged to do the same. Without strong ethical leadership, it is difficult for employees to determine what actions are in the best interest of the firm. Additionally, the CEO of this firm acted with a coercive leadership style.[5] While he did achieve results, he often created a negative organizational climate. As a leader, I will seek to lead with an authoritative style, inspiring employees to follow a vision through a positive climate, not a negative one. As a utilitarian, I seek to create the environment that provides the greatest good for the greatest number of people, and I think that the CEO's actions here were not positive in a utilitarian way.

As society is discovering more and more ethical business dilemmas, it is even more critical for executives to act in an appropriate manner. Even if the purchase of extravagant clothing and food may have been acceptable in the past, there is ever-increasing scrutiny on corporate executives. As such, it is critical that the firm develop a global code of conduct and that executives act in a reasonable manner. Shareholders are demanding reductions in executive excess, and it is both ethically and fiscally responsible for the CEO of this firm to reign in his extravagant use of employees and funds.

Looking back at the situation, I hope that if I am faced with a similar dilemma, I would first hope that my supervisor or an ethics hotline were available to answer questions about the appropriateness of my (and the CEO's) actions. After that, I hope that I would have the courage to at least ask the CEO for clarification of whether I was acting within appropriate corporate procedures. This situation was a striking example of an organization's lack of direction and inefficiency caused by the lack of clear codes of ethics and conduct.

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[1] Ferrell, O.C., John Fraedrich, and Linda Ferrell. Business Ethics.
Boston
: Houghton Mifflin Company, 2005.

[2] Ferrell, et. al. Business Ethics.

[3] Ferrell, et. al. Business Ethics.

[4] An example is the ethics hotline that Nationwide Insurance maintains for its employees, as discussed in class.

[5] Ferrell, et. al. Business Ethics.