Good afternoon. I’m happy to have this opportunity to speak to UTC’s Business Practices Officers.
I thought I’d start this afternoon by sharing my philosophy on how a corporation develops a strong ethical culture. All of us in this room know that an ethical workforce doesn’t just materialize. Rather, it is the result of a culture where ethical behavior is built into everything we do.
To build a culture of ethics, ethics must be discussed openly and routinely at all levels of a corporation. Developing strong ethics in a corporation also requires support and vision from senior leadership. Senior leaders must maintain the highest personal standards and they must ensure that the corporation establishes the right system of rewards and discipline. Finally, to ensure long-term success a corporation’s business practice processes must be robust enough to support growth and change within the corporation.
As the President of UTC, I spend a great deal of time thinking about how UTC can develop the best workforce – a workforce that will allow us to win in a very competitive market. A reputation for having the highest ethics will help us attract and retain the best people. Our own employee surveys have shown us again and again that employees value working in an environment where their supervisors act with integrity and where decisions are based solely on merit.
Ensuring ethical conduct by our workforce is critical because even a single lapse can have a catastrophic effect on our future. As this group knows, over the past few years there has been a lot of press attention focused on ethical lapses at large companies and in government. Stories about corporate accounting and securities fraud, and more recently, back-dating of stock-options appear regularly on the front page and on the evening news.
Unfortunately, building a strong ethics program in a global organization is not an easy task. A major customer of ours, the Department of Defense, examined this challenge in the wake of a recent scandal. Ken Krieg, Under Secretary of Defense, in a speech to defense industry leaders explained the DoD’s approach for building an effective ethics program. I’d like to share with you a few points from Secretary Krieg’s remarks.
Recognizing the need for constant and direct leadership involvement, Secretary Krieg stressed the need for giving employees hands-on training, following up with audits and inspections, and encouraging proper behavior by talking constantly about ethics. Secretary Krieg summed up his remarks by saying that you can’t just hand Ethics manuals to employees on their first day of work and then relax, thinking the job is complete.
Secretary Krieg’s remarks were right on, and I think that UTC does a good job in each of these areas. Notwithstanding all of our efforts, we have experienced some significant lapses at UTC.
In response to these lapses, UTC is strengthening its ethics program to go beyond the fundamentals of establishing rules, conducting training and punishing improper behavior.
UTC has implemented comprehensive changes, including adding a new competency for performance appraisals and requiring cross-functional risk assessments and compliance audits. In addition to these initiatives, UTC’s DIALOG and Ombudsman programs have been especially effective in encouraging employees to come forward when they see questionable practices.
Through all of these efforts, UTC is building a culture where ethical behavior is expected and valued. As a whole, I have found UTC’s employees to be both motivated and ethical. However, I’m mindful that in a company of 215,000 employees the potential for ethical lapses will always exist. And, as we have seen in the past, the ethical failure of a few employees can have a significant impact on both the bottom line and reputation of our company.
The nine Otis employees who engaged in anti-competitive behavior not only cost UTC $295 million in fines, but also damaged our reputation among regulators, customers and investors. The Hamilton Sundstrand wastewater discharge matter has been widely reported in the news media as an environmental breach. But at its root, this was an ethical lapse, which once again resulted in the company losing millions of dollars. Moreover, UTC’s hard-earned reputation as a business leader in environmental issues was tarnished.
While the Otis and Hamilton Sundstrand matters received the most attention, we unfortunately experienced incidents of unethical behavior across all business units. Last year, almost 300 UTC employees were discharged for improper behavior, and 250 more were subject to disciplinary actions. Ethical lapses are both expensive and disruptive to our business, which is why we maintain a zero-tolerance policy for violations of our Code of Ethics.
While we should learn as much as we can from the ethical failures we experience, we must not lose sight of the success we are having in raising ethical awareness at UTC. The overwhelming majority of UTC employees come to work each day and do their jobs in an honest and honorable way. But our goal is perfection – and that never comes easy. We must work until every single UTC employee is committed to our Code of Ethics.
Before closing, let me thank you for the work you do every day in setting and communicating the standards across UTC; for the excellent training that you conduct; and for the high level of professionalism that you bring to your investigations. I also want to compliment all of you for the work you are doing this year to improve the risk assessments and mitigation plans being developed across the company. I can assure you that when I meet with the Division Presidents and Senior Corporate Staff, I emphasize the importance of identifying potential problem areas and ensuring that safeguards are in place to prevent future escapes.
