Loyalty as Attitude and Action: Promoting Values-Based Decision Making

EFFECTIVE EXECUTIVE NOV.2009

ORGANIZATIONAL LOYALTY

Loyalty as Attitude and Action: Promoting Values-Based Decision Making

-- Richard Coughlan

Leaders' understanding of loyalty among employees in organizations today will advance more rapidly if they focus on three key issues. First, leaders must determine the most common targets of loyalty in the organization and take note of how those targets have shifted in recent years. Second, leaders must search, with a critical eye, for evidence of loyal behavior in the workplace. Finally, leaders must help to build systems that encourage and reward loyal behavior.

Who are the most loyal individuals in your organization? More import-antly, what characteristics do these loyal individuals share? In other words, why do you think of them as the most loyal employees?

Many organizations aim to build and maintain a high-level of loyalty among their employees. Too many companies, however, do so without understanding the true meaning of loyalty. Most leaders seem to believe that the concept of loyalty has something to do with reducing employee turnover. That is, leaders believe that if they can create a culture that leads to an extended tenure for many of its employees, they have achieved loyalty among their workforce. My work with organizations in a variety of industries over the last 15 years suggests this is a naive view of loyalty. In today's economy, plenty of organizations have relatively low turnover, especially voluntary turnover, but loyalty has not necessarily increased.

But, what really defines a loyal employee? A willingness to work nights and weekends? A particular place in the hierarchy? A dominant presence at most meetings?

It is not exactly any of these things that separate the loyal from the disloyal. Loyal employees can be relatively new hires. They may not be the first to arrive in the office in the morning. They might be fairly quiet during meetings, speaking only when key decisions are imminent. Loyal employees can be found at all levels of the organization. While we expect the leadership team to include very loyal individuals, some of the best examples of loyalty can be found among those who regularly interact on the front lines with customers. These individuals tend to be tuned into the idea of loyalty because most of their effort is spent trying to identify and cultivate loyal customers. Their success in doing so is tightly tied to their own view of the values that guide their co-workers and the organization.

Think about the potential targets of your employees' loyalty. To whom or what do they display loyalty? To the firm? To their superiors? To their co-workers? To their profession? How about to the firm's customers or its shareholders?

Every employee has varied and competing targets of loyalty. Beyond those listed above, individuals may be loyal to their family, their community, their profession and other groups to which they belong.

The key to understanding loyalty's true nature lies in the exploration of the choices made by individuals throughout the organization. Loyalty is both an attitude and an action. The most telling evidence of the presence or absence of loyalty can be found in the choices made when employees face dilemmas with high-stakes consequences attached to them. Leaders must evaluate whether those choices have been guided by a clearly defined set of values. In reviewing high-stakes decisions made by employees in your organization over the past year, can you identify a consistent set of values that motivated those choices? Is that set of values similar to the one advanced publicly by the organization in its values statement or code of ethics?

I would like to provide a new conceptualization of loyalty built on three pillars. First, that loyalty involves choices. Second, that the proper target of loyalty is a set of values shared by a work group. Finally, that loyalty's moral underpinning should be more strongly emphasized and reinforced through a system of mechanisms meant to guide decision making.

Loyalty Involves Choices

In my view, every employee faces a choice (or more accurately, a series of choices) about whether to display loyalty to a variety of targets during their time on the job. For most, these choices do not involve explicit, deliberate processes. Instead, while performing their day-to-day activities, employees initially utilize a set of values that combines previous experiences with newly inculcated principles that have been advanced by the organization during an orientation period. New employees model the behavior of others, looking and listening for cues about what is acceptable and what leads to success. Their values may not be tested in a significant way during this period, though minor adjustments to the set of values may occur.

At some point in their employment, employees may begin to uncover alternative sets of values at work in the organization. Perhaps a new project provides them with an opportunity to work with new colleagues who operate with a different understanding of what is acceptable and what leads to success. Or, perhaps the employee earns a promotion to a position that requires him or her to manage others for the first time. In such a case, the existing set of values will probably require some adjustment. Inevitably, the employee will face a dilemma, perhaps an ethical dilemma, in which the existing value set does not provide a clear choice about how to proceed. It is situations like these three that provide us the best view of whether loyalty is present or absent in a given organization. If I wish to learn the values of an organization, the best method of doing so is to trail its decision makers for several months, taking note of the information they gather and the choices they render. It is especially helpful to monitor a group discussing a dilemma with high stakes.

Occasionally, an examination of these decisions yields a conclusion that a very small, well-defined set of values is at work in the organization. If many individual employees from various parts of the company seem to be operating in concert with this set of values, loyalty exists. If the analysis indicates a lack of coherence or competing sets of values, then the organization must refocus its efforts toward building loyalty among its employees. The first step in this process is clarifying the set of values that should guide decisions.

Loyalty as Adherence to Shared Values

Some organizations craft and make public a statement of their values. I think this is a useful step if many individuals from various parts of the company have verified that those values indeed drive decision making in the firm. The task of the leader is to help establish, maintain and occasionally refine the particular values that guide decision making in the organization.

Richard Coughlan is an award-winning educator and senior administrator at the University of Richmond's Robins School of Business, where he directs the graduate school of business and the University's executive education division. In addition, he serves as a consultant, facilitator and teacher for Fortune 500 firms and their suppliers. He also provides keynote speeches on loyalty and ethical decision making at conferences of national and international associations, most often in the hospitality industry. A former manager for Hyatt Hotels and The Pebble Beach Resorts, Professor Coughlan earned his MBA and PhD at the University of Arizona, where he studied judgment and decision making. His research on loyalty and ethical decision-making has been published in leading academic journals and earned him the 2004 Distinguished Educator Award at the University of Richmond. A member of the Society of Business Ethics, Coughlan is writing a book on loyalty and morality that is expected to be published next year.

I am fond of Henry Montgomery's definition of decision making as "a search for good arguments." The best leaders I know pay particular attention to finding appropriate rationale for the choices they make, even if the rationale might never be made public. In leading others, the job of the executive is to guide employees' "searches for good arguments" by clarifying the values that are meant to serve as justifications for choosing one option over another.

However, the leader must recognize that employees still face a choice about when and whether to adhere to that set of values. There are many factors that tempt them to ignore the company's values and choose a different set, even while they remain employed. To build and maintain loyalty, executives must establish a culture that supports and rewards behavior consistent with the company's key values. If the leader is interested in measuring loyalty, he should forget about metrics involving employee turnover or average tenure and begin developing measures that focus on the degree to which values drive decision making.

Loyalty's Moral Underpinnings: Ties to Ethical Decision Making

Unethical behavior at work is almost always preceded by a series of decisions. It very rarely occurs as an immediate and automatic response to a situation. Many factors shape the decisions we make on the job, including personal and organizational pressures that seem to multiply as we advance through the organizational hierarchy. Conflicting loyalties are common. Understanding the pressures that these loyalties produce and deciding how to manage them is crucial in reducing unethical behavior in any firm.

My own observations and experiences suggest that there are four main factors that shape individual decision making at work. They are a company's culture, its code of ethics, its communication systems and, finally, its compensation structure.

Culture

Perhaps the largest influence on employee decision making is an organization's culture. The term `culture' is so widely used today that it has lost some of its meaning, but for me it refers to the core beliefs shared by members of an organization. These beliefs provide answers to questions about the main goals of the business and the proper means for achieving those goals. As noted above, these beliefs are the most appropriate targets of employees' loyalty. In a very important way, then, culture provides implicit guidelines for ethical decision making. As firms grow, these guidelines are made more explicit in a code of ethics or a statement of values.

Codes of Ethics

Recent data suggest that more than 90% of firms with over 500 employees have some kind of code of ethics. Not surprisingly, the content of such codes varies widely. Some are simply lists of things employees are prohibited from doing while other codes address important values more generally. From an ethical standpoint, among the important questions to consider here are:

• Do organizational members at all levels have a say in creating or revising the current code?

• Does the code truly reflect the organization's values?

• Does the code have enough detail to provide guidance about important decisions?

• Does the code include some mention of the process for handling suspected violations?

Loyal members of the organization will want a strong say in establishing the code. As a young manager once told me, "Even in the absence of an explicit code, everyone understands what the real code is around here."

Communication

Three aspects of a firm's communication system deserve attention by those interested in ethical decision making – the flow of information down, up, and across the company. First, how do leaders communicate the firm's ethical expectations to others in the organization? It might be through employee handbooks, codes of ethics, training programs or informal conversations. Each can contribute to increasing loyalty in the organization. Of course, the message is also delivered through the behavioral examples of leaders. Second, what opportunities do employees have to initiate conversations about ethical issues to those at higher levels? Many companies have created ethics offices and hotlines to encourage employees to discuss their concerns. In cultures where frequent and open communication is commonplace, such formal practices might not be necessary. Still, some type of system to encourage upward communication is crucial.

Finally, are employees encouraged to talk about ethical issues within their own departments and across the organization? Integrating discussions of values into everyday conversations goes a long way toward improving ethical decision making. Those who frequently think and talk about ethical issues are bound to choose right over wrong more often than those who consider ethics only in times of crisis.

Compensation

A final explanation for unethical behavior is an incentive system that inadvertently rewards unethical behavior. For example, a few years ago, Sears created an incentive plan for mechanics that rewarded them based on the number of repairs they completed. Not surprisingly, many mechanics performed unnecessary repairs and passed the cost along to consumers. Ultimately, the company paid huge fines and revised its reward system. Similar examples abound in many organizations, where the focus remains on numerical outcomes without regard for the means used to achieve those outcomes.

What actions are rewarded, financially and otherwise, in your firm? Think beyond quotas and incentives to the criteria used for promotion and job assignments. Are there clear standards for advancing in the organization? Do these standards reflect the values espoused by the organization?

While any of the four major topics addressed above can serve as a starting point for a discussion on ethics, they should not be treated independently. For example, changing a firm's culture often necessitates modifications to its compensation plan and its system of communication. Updating a code the right way means involving employees from all over the organization. If their participation has not previously been welcomed, additional work will need to be done before changes can occur. From my perspective, the important thing is to get the conversation started within your organization, so that necessary changes can be made in coming years.

The focus of the discussion must be on the values that you see as crucial to the success of the organization going forward. Leaders must strive to build loyalty in their organizations but they are also obliged to articulate the positive ends that can result if employees display loyalty in their decision making.