How Lubrizol’s Ethics Program Protects Its Value For All Stakeholders


For many years Lubrizol, through its Lubrizol Additives and Lubrizol Advanced Materials business segments, has been a global provider of specialty chemicals serving a wide variety of markets and end-use applications.

Lubrizol’s products are used in gasoline and diesel engines, automatic transmissions, gear drives, marine engines, tractors, personal care products and pharmaceuticals, plastics, coatings, paints and inks, and industrial materials.

It has taken time and sustained effort from many people to attain this position. Founded in 1928 in Cleveland , Ohio, Lubrizol has 7,000 employees worldwide, and  $5  billion sales per year.

The challenge

The new millennium marked a perfect storm for ethics and corruption problems that have resulting in the catastrophic failures of major American Companies.

Some of the companies that come to mind are Worldcom, Enron, and Adelphia. Not to mention Dynergy, RiteAid, Tyco, Global Crossing, ImClone Systems and many others.

Unfortunately, these  discrete failures were symptomatic of the looming systemic failure, and were followed by the sub-prime mortgage crisis, the global financial crisis, and the uncovering of other large Ponzi Schemes tied to Bernard l. Madoff ($50 Billion) and Alan Stanford ($8 Billion).

These failures were brought about for many reasons, including: a culture of arrogance in the companies, fraud, and conflicts of interest. These were complemented by accounting scandals, and the failure of:  independent auditors, rating agencies, regulators, senior management, corporate boards, and outside counsel.

In such an environment, how does a  $5 Billion company, with 7,000 employees, operating in many different countries and different cultures around the world take steps to ensure that everyone is working together to create value for the company and its stakeholders, and that not one of their employees or vendors does anything to jeopardize the company?

The solution: The Lubrizol Global Ethics Program

Lubrizol has worked diligently over a period of years to create a culture where ethical decision-making is the norm. It purposefully cultivates leaders who produce exceptional results and who consistently make good decisions that benefit the company.

As part of that effort, the role of Chief Ethics Officer was established.

Partnering closely with the company’s General Counsel, legal community and internal audit staff, the ethics office is responsible for providing leadership on matters related to ethical and legal conduct through the development, implementation and interpretation of the Corporation’s compliance and education strategy.

Senior executives at Lubrizol decided to take a pro-active approach towards an ethics program many years ago. That approach has served them well in that ethical failures reported in the news clearly demonstrated that an excellent reputation can be instantly lost, and it was in the best interest of all Lubrizol  stakeholders to share accountability for protecting the company’s value.

Much time and effort is spent communicating with employees, educating them about their responsibilities as corporate citizens, so that ethics and legal understanding is integrated into everyday decision-making and behaviors.

The hallmark of the Lubrizol Ethics Program is “Shared Accountability”, supplemented with an “Ethics Helpline”-an 800 number used to answer questions and log ethics inquiries.

The Basic Ethical and Legal Conduct Guideline Policy

“Employees of Lubrizol and its subsidiaries, as well as members of our Board of Directors, must respect the laws, customs and traditions of each country in which they operate. At the same time, employees are not to engage in any course of conduct which, even if legal, customary and accepted in such country, could be deemed to be in violation of Lubrizol’s Ethical and Legal Conduct Guidelines.”

(A link to the complete Ethical and Legal Guidelines can be found below.)

Features important to the program’s success include:

  • The Chief Ethics Officer reports to the Audit Committee of the Board and reports on the progress of the program regularly
  • The support of the Executive Council is unwavering, as is that of the legal community and internal audit
  • The Ethics Office and its global network of regional coordinators support the effort on a part-time basis in addition to other functional responsibilities
  • The Corporation’s expectations have been communicated globally, in the languages of all employees, via Lubrizol’s Ethical and Legal Conduct Guidelines
  • A toll-free help line is in place to receive questions, concerns and reports
  • Employees are trained on the Corporation’s guidelines and its expectations of them; program results are also communicated regularly to all employees
  • All reports are recorded and investigated. Violations are dealt with swiftly and aggressively

Outcome

In the last year out of 300 Ethics Cases, 15% resulted in disciplinary action, and 5% resulted in termination.

All ethics inquiries are logged. Calls are analyzed by type, location, and severity. Reports are created for the Audit Committee, Executive Council, Senior Management, and General Employee Population.

Lubrizol’s Ethics Program has been cited as an industry best practice by the American Chemistry Council.  Additionally, the program has been shared nationally in programs sponsored by the Ethics Officer Association, the U.S. Government’s Federal Sentencing Commission and the U.S. State Department.

Conclusion

Lubrizol believes an ethics program is essential.  This is a reality that the executives of many leading companies face as communications are instant and everywhere.

The Lubrizol Ethics program (1) enhances shareholder value by minimizing financial and material risk to the Corporation (2) fosters and an environment of corporate confidence in its leaders, associates and systems (3) guides business decision and behaviors, and (4) enhances the organization’s ability to deal with its customers, suppliers, shareholders and employees with honesty and integrity.

Ultimately the success of the program is measured not by how many people who are caught, but by how many people who are helped.

One thing is clear: Lubrizol is serious about ethical and legal conduct.

Takeaways

You can’t sit back and wait. It’s important to have a proactive approach towards ethics to protect the value of the company for all stakeholders.

Actions speak louder than words. It’s not enough to have an ethics program. There must be follow-through and the guidelines must be re-enforced with separation of company and employee if necessary.

This case study was adapted by a presentation by Mark Meister, the Vice-President of Human Resources, and former Chief Ethics Officer (a position he held for nearly 15 years) of Lubrizol Corporation, to the Senior HR Thought Leaders Forum, sponsored by Dise & Company at the Union Club in Downtown Cleveland, March 2009.

Supplement: The Fundamentals of the Lubrizol Ethics and Legal Conduct Guidelines

Fundamental #1

Insisting on honesty and integrity in dealing with customers, suppliers, all third parties and with one another.

Fundamental #2

Simply stated:

“We Don’t Lie”

“We Don’t Steal”

“We Don’t Cheat”

Simple Test for Ethical Decision-Making

  • How would I feel if my family or friends knew of my actions
  • Would I behave differently if I knew my actions would be reported on the evening news?
  • Does this meet “the treat others as you would like them to treat you” test?

 More on Lubrizol’s Ethical and Legal Conduct Guidelines can also be accessed here.

 

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Ralph Dise

Ralph Dise is founder and president of Dise & Company. Ralph has a life-long interest in developing leaders and helping enterprises succeed. He learned his earliest leadership lessons as a teenager attending a summer military program.