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Don't forget about integrity

|Written By Matt Powell

Companies often overlook corporate integrity in favour of financial benefit, something a prominent former U.S. corporate lawyer says is a big mistake.

"Corporations are built on reputation," said Benjamin Heineman Jr., former corporate counsel for General Electric. "Each senior leader needs to understand that they will be held personally accountable."

Heineman was at the Schulich School of Business at York University last week to talk about the importance of corporate and legal integrity at multinational companies as part of the Davies Fund Business Law Lecture. The talk was packed with lots of war stories from Heineman's work at GE and with its famed former CEO, Jack Welch, whom Heineman advised exclusively.

Heineman spent 16 years with the company. As general counsel, he managed more than 1,100 lawyers in 100 different countries and is said to have helped develop the roles of in-house counsel in business and management. He is currently working with Harvard Law School, where he has been named a senior fellow.

The lecture explored the idea of corporate governance and its relation to the concept of corporate integrity, especially for multinational corporations. According to Heineman, companies have to demonstrate committed and consistent leadership, and top executives need to be proactive to ensure integrity.

"You can miss numbers and survive but you absolutely cannot miss out on integrity," he said. "That's the attitude I made sure was introduced at GE."

Heineman went on to discuss specific incidents where he felt GE had violated its own policies on integrity and the actions it took in response.

Heineman recalled one incident, for example, involving the company's military engine sector. In that case, the Israeli government had purchased fighter planes from GE but led the company into an offshore embezzlement scheme that involved more than 25 employees and a top executive, he said.

Ultimately, the 25 employees were fired, but letting the executive go was a slightly different process.

"Technically, he hadn't done anything wrong because he hadn't been personally involved in any financial gains," he says. "But, I advised the board that this person, who had been with the company for 30 or so years, had violated the type of culture we wanted to instill and ultimately violated our policies on integrity. I felt, in the end, we had no choice but to fire him."

He noted the company's views on integrity played a big role in the decision. One of the worst things that can happen at a multinational corporation is the development of a culture of silence in which employees feel intimated to speak up, he said, adding that trust is key.

"It comes down to trust," he said. "Employees need to be trained to a point where they can learn to trust its leaders and the company itself. Only then can a company develop higher integrity levels."

A major issue that has developed recently among multinational corporations involves the conflict between local laws and global standards, he said. Heineman cited, for example, the difficulties strict policies by the Chinese government can create for companies trying to maintain integrity. As a result, it's often difficult for companies to draw the line between understanding local laws and recognizing global standards.

Heineman mentioned a specific case involving a GE employee who was being investigated by the Chinese government because of his religious beliefs. In the meantime, authorities insisted they be allowed to access GE's computers and files on the employee in question. GE refused because it violated internal policies that laid out employee rights, which include freedom of religion.

"It's really important for corporations to understand that there will be hard choices and decisions, but these decisions need to relate back to the company's integrity policies," he said. "We had not violated any laws by employing this man, and in our view, he was doing nothing wrong because our policies clearly outlined that he is allowed to believe what he wants.

"Companies need to learn to foster employee awareness, knowledge, and commitment to the corporation. Employees need to be trained very heavily on the reliance of integrity policies within a company's structure if the company wants to make use of these policies. Providing employees with a culture where they are welcomed and heard is very important and it's been shown to work. It did at GE."

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