Baldrige National Quality Program CEO Issue Sheet

BALDRIGE:

Ethics—A Strategic Imperative

For any organization, large or small,

public or private, ethics should mean

going beyond profit or loss considerations, beyond simply distributing

a code of conduct, to creating an

organizational culture that values

sound governance, transparency,

integrity, and social responsibility.

For U.S. companies, ethics has

become a strategic imperative and a

competitive or marketplace necessity. 

Senior management is responsible

for creating an environment in

which employees’ decisions and

actions and stakeholder interactions

conform to the organization’s moral

and professional principles. The

Baldrige National Quality Program’s

Criteria for Performance Excellence

emphasize that responsibility for

stewardship and ethical business

practices starts at the top with an

organization’s chief executive and

governing body. Senior leaders must

consider carefully how situations

will be perceived by others, the

possible long-term consequences

of short-term thinking, and the

long-term consequences of their

strategic actions. Also, senior leaders

must ensure their organizations’

missions and visions are aligned

with ethical principles, and they

personally should be role models

for these principles. 

In an age when organizational

credibility and ethics are coming

under increased scrutiny, senior

leaders must build stakeholders’ and

employees’ trust in the governance of

their organizations and ensure legal

compliance and ethical behavior.

“Regardless of role or region, all Medrad employees are responsible for promoting the

integrity that has made Medrad a market leader,” says John P. Friel, President and CEO

of Medrad, Inc., a medical device manufacturer and 2003 Baldrige Award recipient.

“Ethical behavior also fosters a rewarding place to work.”

All employees must attend training on Medrad’s Code of Business Conduct. The Code

formalizes the manufacturer’s commitment to ethical business practices and sends a

consistent worldwide message to its employees and business partners. It also provides

a framework for Medrad employees to better understand the importance of ethical

decisions. An anonymous hotline allows employees to report behavior that they feel is

not ethical, and a Compliance and Legal Ethics Advisory Board and Business Ethics

Committee review issues and develop policies and programs.

Social responsibility is important to Medrad as well. During the Medrad Day of

Caring, operations are suspended so employees can spend the day volunteering.

Over 75 percent of employees spend the entire day doing whatever is needed at

more than 30 local United Way agencies. According to Friel, “What we lose in

work hours, we recoup with a renewed perspective about our jobs, our coworkers,

and the impact each of us can make. The primary purpose of the event has always

been to share our success with those in the community who need it, but the other

benefits are undeniable.”

Medrad, Inc.: Maintaining an

Ethical Workplace

“Ethical practice in an educational organization is a top priority. Our primary

constituents are children, and to meet the expectations of parents and the

community, all our interactions with students, parents, and the community must be

completely above reproach,” notes Dr. Robert McKanna, Superintendent of

Community Consolidated School District 15, a 2003 Baldrige Award recipient in

Palatine, Illinois. “We recognize that teachers and other staff members serve as

intentional or unintentional role models, and their exemplary behavior reinforces

our district’s commitment to teach ethical, responsible behavior.” 

Expectations about ethical practices are made clear to new employees the first day

on the job, when the superintendent and union officials discuss codes of conduct

and ethical behavior. In addition, training, video programs, and other targeted

forms of communication address ethical issues that may be confusing or that can

lead to difficult legal issues, such as issues regarding Internet and e-mail usage. 

For students, ethical behavior is taught and reinforced by the district’s Civic Beliefs

Program. Across the district, these beliefs are incorporated into the curriculum and

made an integral part of instruction. They are reinforced where possible through

service learning activities such as student-directed food drives.

Community Consolidated School District 15:

Modeling Ethical Behavior

Profits and Ethics—

You Must Have Both
“Ethics and governance are growing areas of our business,”

says Rob Marchalonis, General Manager of Stoner, Inc.,

a chemical manufacturer with 43 employees and a

2003 Baldrige Award recipient. “Stoner employees take pride

in the company’s ethical business culture,” he adds.

Stoner’s approach to sustaining ethical behavior includes

addressing ethics-related issues in a team handbook; Stoner

University classes on ethics; open-book management that

allows for cross examination and questioning; incentives

to “share the rewards of the company,” which promote

more “buy in” and improve team morale; and a team culture

that discourages any behavior detrimental to the company

or teammates.

Environmental responsibility also has been key to Stoner’s

success: Stoner has not only reduced the amount of toxic

chemicals it uses by 31 percent but also has increased the

use of environmentally friendly water-based formulations

by 74 percent. According to Marchalonis, “‘Health, safety,

and environmental responsibility’ has been one of our core

values for more than a decade.”

BALDRIGE: Ethics—A Strategic Imperative 

Baptist Hospital, Inc.: Building on a Foundation in Ethical Behavior

Stoner, Inc.: Sustaining an Ethical Business Culture

Caterpillar Financial: Ensuring Ethical and Fiscal Accountability

According to President Al Stubblefield, “Ethical behavior is the

very core of who we are. Everything we do has its foundation

in ethical behavior, beginning with our mission statement:

To provide superior service based on Christian values to

improve the quality of life for the people and communities

served through our values of Vision, Integrity, Superior

Service, Innovation, Teamwork, and Stewardship.”

Baptist Hospital, Inc. (BHI), a 2003 Baldrige Award recipient,

has committed itself to improving the quality of life for the

communities it serves. The hospital system provides a number

of free health programs for the area’s poor and uninsured—

6.7 percent of its total revenue goes to indigent patients, compared to 5.2 percent and 4 percent for its closest competitors.

BHI outlines appropriate staff behaviors and ensures legal

and ethical compliance to patient rights with its Code of

Conduct. Patient confidentiality is safeguarded with the

utmost sensitivity. For instance, employees working with

patient information are required to position their computer

screens so that the content can not be viewed by passersby.

The organization’s Standards of Performance allow discussion

of patient information only when necessary to meet the

patient’s health needs.

BHI staff are expected to model ethical behavior. “Our ‘no

excuses’ culture is very evident in our intolerance toward

unethical behavior,” adds Stubblefield. “Our employees

know that ethical behavior is a requirement if they want to

remain a part of our team.” 

“Our reputation for integrity and high ethical standards has

been paramount to our historical success in achieving a

worldwide leadership position,” says President Jim Beard. “Our

commitment to maintaining our reputation will continue to

play a key role in our future success.” 

Ethics and governance have always been important principles

for Caterpillar Financial Services Corporation U.S. (CFSC), a

2003 Baldrige Award recipient. Since 1974, the Code of

Worldwide Business Conduct has served as a guide for each

Caterpillar employee in making sound ethical decisions.

An Office of Business Practices provides a confidential

communication source for employees to raise concerns. 

As a multibillion dollar financial services company, CFSC has

established strong internal financial control mechanisms.

Segregation of duties and authorities prevents abuse, and

systems are audited internally and externally. CFSC’s Business

Excellence Council monitors portfolio quality, and, as an issuer

of publicly traded debt, CFSC’s financial and portfolio practices

and results are evaluated and made public by external rating

agencies and analysts. The Caterpillar Executive Office and

Audit Committee of the Board of Directors provide oversight

to CFSC. Although not required by law, Caterpillar also

established share ownership requirements for recipients of

stock option grants more than a decade ago, and shareholders

approve all equity programs.

For more information, contact

● Luanne Radermacher, Corporate Communications Manager, Medrad, Inc., (412) 767-2400, ext. 3184

● Robert Tenczar, Director of Communications, Community Consolidated School District 15, (847) 963-3212

● Pam Bilbrey, Senior Vice President, Corporate Development, Baptist Health Care, (850) 469-2335

● Rob Marchalonis, General Manager, Stoner, Inc., (717) 786-7355, ext. 3104

● Gary Carson, Continuous Improvement Consultant, Business Excellence Department, 

Caterpillar Financial Services, (615) 341-8209

● Harry Hertz, Director, Baldrige National Quality Program, (301) 975-2036 or nqp@nist.gov 

Visit the Baldrige Program’s Web site at www.baldrige.nist.gov for a general overview.