(LEAD 505 Organizational Leadership & Ethics) Salomon Brothers Pro ect!

("ro#p $)

(LEAD 505)! &ee' (() Salomon Brothers Pro ect! ("ro#p $) ()arch *+, *0%*) "-O.P $ S/.DE0/S! La1a2ne Smith Brandon Stone Erica /anner $arol &arh#rst 3enni4er &oemmel

5nstr#ctor! Dr6 /errance $#saac (So#th1estern $ollege Pro4essional St#dies)

(LEAD 505 Organizational Leadership & Ethics) Salomon Brothers Pro ect! ("ro#p $)

/a7le o4 $ontents
/a7le o4 $ontents 888888888888888888888888886666666* 5ntrod#ction888888888888888888888888888888669 Salomon:s Ethics De4ined8888888888888888888888886 9;5 Salomon:s Ethics )aintained6688888866888888888888888865 A44ects o4 Emphasis on Ethical $hanges at Salomon888888888888885;< /he $risis888888888888888888888888888668 5;= /he Strateg2 8888888888888888888888888886 =;%+ S#mmar2 88888888888888888888888888886666666666666%+ -e4erences 88888888888888888888888888888666666%5

(LEAD 505 Organizational Leadership & Ethics) Salomon Brothers Pro ect! ("ro#p $)

Introduction
/his is an in;depth case st#d2 o4 the international sec#rities 4irm, Salomon Brothers, 1hich speci4icall2 descri7es ho1 the leadership that e>isted 1ithin the organization managed the crisis that deepl2 1o#nded and #ltimatel2 trans4ormed the compan2:s ethical c#lt#re and prominent rep#tation among the glo7al sta'eholders in the 4irm6 /his anal2sis see's to de4ine 1hat Salomon:s ethical 7eha?ior 1as li'e at the time o4 the crisis and 4ollo1 #p 1ith a description o4 the changes that too' place 1ithin the organization 4rom the perspecti?e o4 leadership and ethics6 @ollo1ed 72 a 7rie4 description o4 ho1 the ne1 ethical changes are maintained and ho1 these changes a44ected the entire organization, 4rom the 7eginning o4 the crisis to the end o4 the case st#dies e>planation o4 the e?ents6 )ore speci4icall2, this anal2sis see's to address the A#g#st disclos#res that la#nched the 7eginning o4 this crisis and e>plain the depth o4 the conseA#ences o4 s#ch a re?elation6 5n doing so, 1ill address ho1 leadership managed the sit#ation and gi?e personal opinions o4 ho1 )a#ghan handled it6 )an2 changes too' place #nder the ne1 management:s strateg2:s to c#re the ethical ailments that 1ere e>posed d#ring this crisis and this anal2sis see's to e>plore the concepts and ideas that most closel2 relate to the st#d2 o4 ethics in leaderships as ha?e 7een e>perienced thro#gho#t this co#rse6 How the Companys Leaders Define Ethical Behavior 5t:s interesting in this case o4 ho1 the leadership o4 the Salmon Brothers determines ethical 7eha?ior6 At the t#rn o4 the %<<0:s Salmon Brothers 1ere disclosing their ?iolations 1ith the .nited States /reas#r2 4rom a#ctions stemming 4rom Salmon Brothers 7id6 5n its a4termath $EO 3ohn "#tre#nd and President /homas Stra#ss anno#nced their resignations (Salmon, %%%) d#e to press#re 4rom the 7oard o4 directors6 /hese actions alone 1o#ld lead #s to 7elie?e that the

(LEAD 505 Organizational Leadership & Ethics) Salomon Brothers Pro ect! ("ro#p $) o?er1helming ma orit2 o4 Salmon Brothers and their e>ec#ti?es deemed the actions o4 the leadership as #nethical6 Ethical 7eha?ior has al1a2s 7een the standard 4or &arren B#44ett, and it 1as his interim chairman tag that started the ethical o#rne2 7ac' to the top 4or Salmon Brothers6 E?en 7e4ore his appointment B#44ett:s rep#tation 4or integrit2 had preceded him6 /his is 1h2 1hen B#44ett 1as as'ed his role that Bm2 o7 is to clean #p the sins o4 the past and to capitalize on the

enormo#s attri7#tes that this 4irm has6 Salmon has to earn 7ac' its integrit26C (Salmon, %%+) Dis integrit2 1as so in4l#ential that it allo1ed Salmon Brothers to participate in /reas#r2 a#ctions6 D#77ed the B)2ster2 )illionaire 4rom OmahaC B#44ett pro?ed that it:s ethics, ?al#es, and integrit2 that determines o#r character and rep#tation6 Do1e?er, his rep#tation didn:t mean that Salmon Brothers 1o#ld simpl2 4all o#t o4 hot 1ater6 Amid the allegations Salmon Brothers lost in?estors, c#stomers, and emplo2ees6 People 4elt that the2 co#ld not tr#st or 1or' 1ith6 /his incl#ded B#44ett reporting 7e4ore $ongress to disc#ss the crisis and 1hat the ne1 Board o4 Director:s intentions 1ere to not onl2 redeem their transgressions 7#t to ma'e s#re that Salmon Brothers did not repeat the same things6 Salmon Brothers ?ie1s also changed6 )a#ghan stated that it:s Bleadership m#st en4orce ?al#es8C (Salmon, %*=)6 De contin#ed that people 1ill deem 7eha?ior as appropriate i4 there are no actions that state that it:s not6 /ho#gh actions lost millions o4 dollars 4or the compan2 as 1ell as emplo2ees and leadership roles le4t, B#44ett and Salmon Brothers held the ship and s#r?i?ed thro#gh #sing ethics and integrit26 /he .S /reas#r2 e?en commented that it 1as in part d#e to B#44ett:s complete honest2 1ith them that allo1ed Salmon Brothers to ma'e it thro#gh their ordeal6 Bottom line is this! Other companies and corporations had 4aced the same iss#es8 and 4ailed6 /he leadership o4 )a#ghan and B#44ett sho1ed their ethical 7eha?ior6

(LEAD 505 Organizational Leadership & Ethics) Salomon Brothers Pro ect! ("ro#p $) &hat had 7een occ#rring 1o#ld no longer 7e accepted and the t#rnaro#nd 1o#ld 7e 7ased in integrit2 and ethics6

How Companies Ethical Standards Maintained &hen )a#ghan and B#44ett arri?ed on the scene there 1asn:t m#ch 4or ethical standards6 54 there 1ere then Salmon Brothers 1o#ldn:t ha?e 7een 1here it 1as 1ith the la16 Do1e?er, 5 7elie?e that the statistics spea' 4or themsel?es on ho1 standards 1ere maintained6 O?er =00 emplo2ees and +5 managing partners le4t Salmon 7et1een the initial reports and the %<<9 4iscal 2ear6 Ethical standards 1ere maintained 72 the integrit2 o4 leadership6 )a#ghan and B#44ett 7oth let their character spea' 4or itsel4, and emplo2ees and managers 'ne1 ho1 things 1ere going to 7e6 5 also 7elie?e that actions o4 the ne1 leadership also allo1ed 4or standards to 7e maintained6 /heir honest2 1ith all parties in?ol?ed let e?er2one 'no1 that ethics 1ere going to 7e standard and held 7e4ore an2thing else6 &hen B#44ett handed the reins 7ac' o?er to )a#ghan he stated that it 1as in part 7eca#se o4 his ethical standards and a7ilit2 that led B#44ett to 7elie?e that )a#ghan 1as going to contin#e 1hat the2 had 7oth changed at Salmon Brothers6

How the emphasis on ethics has affected the organi ation and its mem!ers" An2 time that an organization endea?ors to alter the ethical c#lt#re 1ithin the ran's, it can 7e almost g#aranteed that the ad?ent#re 1ill 7e met 1ith o4ten more than moderate amo#nts o4 hostilit2 and pre #dice6 )ost people inherentl2 don:t li'e change, e?en more so 1hen the change is something 1hich cannot 7e tangi7l2 seen6 Ethics is one s#ch thing 7eca#se the proposed changes are merel2 4elt instead o4 7eing seen and o4ten can 7arel2 7e tolerated 72

(LEAD 505 Organizational Leadership & Ethics) Salomon Brothers Pro ect! ("ro#p $) mem7ers o4 the organization6 Detachment 4rom the alteration comes 4rom not 7eing adeA#atel2 in?ol?ed in the processes o4 their design6 Perhaps i4 the ethical changes at Salomon had come

4rom the gro#nd #p, and not as a direct res#lt o4 s#ch a corr#pt impropriet2 as 1as o#tlined in the case, the changes and ne14o#nd emphasis on ethics 1o#ld ha?e 7een more readil2 accepted and em7raced6 Salomon:s c#lt#re 1as in desperate need o4 a complete and #tter o?erha#l6 BAltho#gh con4ident that the 4irm 1as not Bendemicall2 corr#ptC, as charged 72 some o#tsiders, )a#ghan 7elie?ed that Bcertain aspects o4 the c#lt#re needed to 7e modi4ied6C (Salomon $ase, %*=) /hose speci4ic and certain aspects that needed the most modi4ication 1ere centered on a drastic change in the ethical c#lt#re at Salomon6 )a#ghan 7elie?ed that these changes 1o#ld 7e 1ell accepted 72 the ma orit2 o4 the emplo2ees 1ithin the organization 7eca#se Bthe2 1ant to 1or' in a A#alit2 1or'placeC (Salomon $ase, %*=) and 7ettering the ethical c#lt#re o4 the organization 1as s#re to ma'e 4or a A#alit2 en?ironment6 Do1e?er, this 1as not the case 4or Salomon:s emplo2ees6 -onald Sims e>plains that Bthe h#man tendenc2 to 1ant to conser?e the e>isting c#lt#re is re4erred to as Bc#lt#ral persistenceC or inertia8Also an organization:s c#lt#re that s#pports #nethical 7eha?ior tends to 4eed on itsel46C (Sims, (() A4ter the crisis hit BB#44et drasticall2 altered the s2stem and c#lt#re that led to the Salomon 7ond 4iasco #nder the 4ormer $EO 3ohn "#t4re#nd:s leadership6C (Sime, (E) Do1e?er, instead o4 emplo2ees em7racing the changes 1ith open arms as )a#ghan had hoped and pro ected, man2 emplo2ees 7egan to consider lea?ing their o7s in search o4 something 1ith more sta7ilit2 and higher le?els o4 compensation6 D#e to the damaged relationships 1ith their clients, the go?ernment and its shareholders, emplo2ees 1ere not con?inced that a mere change in the ethical c#lt#re co#ld 'eep Salomon in 7#siness6 5n the London o44ice speci4icall2, BSalomon lost E5F o4 its eA#it2 gro#p, most o4 its salespeople,

(LEAD 505 Organizational Leadership & Ethics) Salomon Brothers Pro ect! ("ro#p $) and all 7#t t1o anal2sts6C (Salomon $ase, %9E) /he e44ect on the organization and its mem7ers

o4 this ne1 emphasis on ethics 1as a mass e>od#s o4 man2 'e2 emplo2ees6 Do1e?er, this pa?ed the 1a2 4or management to start o?er and enlist people that 4it into the ne1 c#lt#re at Salomon and 7e a part o4 the re7#ilding o4 their long;standing rep#tation o4 7eing an ethical, client;dri?en organization6

#ur $ppraisal of %ew Managements Ethics Strategy 5n order to adeA#atel2 gi?e an appraisal o4 and see' to descri7e the changes that too' place #nder the ne1 management:s ethics strateg2, one m#st 4irst ma'e a comparison 72 o#tlining the incompetence o4 the old ethics strateg2 and descri7e 1here the gross incompetence o4 managements old strategies 1ere hidden6 B"#t4re#nd:s leadership led to a c#lt#re that 1as tailor;made 4or greed2 and po1er;h#ngr2 emplo2ees 1hose commitment to ethical 7eha?ior 1as s#spect6C (Sims & Brin'mann 990) Altho#gh the e?idence in this partic#lar case 1as c#lminated 72 the re?elation that "#t4re#nd not onl2 'ne1 o4 the 4alse 7ids 7eing made 72 their organization, 7#t also 4ailed to report it to the proper a#thorities in the go?ernment, this 7eha?ior 1as simpl2 a s2mptom o4 a m#ch larger disease 1ithin the ran's at Salomon6 /he ethics strateg2 1as corr#pt 4rom the top do1n and #ntil it 1as p#7licall2 ro#ted o#t and all remaining parties 1ere held to ne1 le?els o4 acco#nta7ilit2, no proposed amo#nt o4 ne1 strateg2 1o#ld s#44ice6 B#44et and )a#ghan p#t on their 1hite glo?es and got to 1or' 1eeding o#t the dirt2 little secrets o4 miscond#ct that 1ere hidden 1ithin the ran's o4 the organization6 B2 4orming a crisis committee and immediatel2 4oc#sing on singling o#t an2 signi4icant 7reach o4 la1 that occ#rred 1ithin the organization, B#44et 7egan a ne1 strateg2 o4 Blose mone2 4or the 4irm, 5 1ill 7e ?er2 #nderstandingG lose a shred o4 rep#tation 4or the 4irm, 5 1ill 7e r#thless6C (Salomon $ase, %%=)

(LEAD 505 Organizational Leadership & Ethics) Salomon Brothers Pro ect! ("ro#p $) 5nstead o4 contin#ing 1ith the greed2 strategies o4 his predecessor, B#44et implemented a strateg2 that ?al#ed the organizations rep#tation a7o?e all else6 B#t ho1 co#ld the2 remain

pro4ita7le 1ith this 'ind o4 strateg2H Drastic changes to the 1a2 the compan2 1as 4#nded had to 7e made6 /hese changes 1ere 1elcomed 72 those that sa1 the need 4or the ethical inter?ention and it s#ccess4#ll2 1eeded o#t those that 1ere there 4or the ?er2 reasons the2 1ere see'ing to rep#diate6 )anagement:s strategies to rein?ent the ethics o4 the organization consisted o4 a complete o?erha#l to the compliance proced#res, an entirel2 ne1 compensation s2stem, a drastic red#ction in operating costs and a consistent le?el o4 acco#nta7ilit2 1ith the go?ernment and all their clients6 )anagement tr#l2 7elie?ed that in doing so, the2 1o#ld 7e a7le to remain pro4ita7le and reclaim their rep#tation in the ind#str26 B#44et e>plained that, B1e simpl2 1ant no part o4 an2 acti?ities that pass legal tests 7#t that 1e, as citizens, 1o#ld 4ind o44ensi?e6C (Salomon $ase %9%) 5ndeed the pro4its did 4ollo1 their good 7eha?ior and their changes to the ethical strategies6 Despite all this, man2 emplo2ees 1ere lost along 1ith se?eral 'e2 clients, 7#t Salomon ?ictorio#sl2 reclaimed their name and their reno1n in the 4inancial 1orld 72 in?enting a ne1 model o4 ethical and moral 7eha?ior 4rom the gro#nd #p6

&he Crisis Brought on !y $ugust Disclosures 5n A#g#st 1hen the Salomon Brothers compan2 1ent p#7lic 1ith the ?iolations 1ithin their compan2 it created a 4ear4#l en?ironment 1ithin the entire organization and all shareholders6 /he 4ear created a tho#ght o4 Ban'r#ptc2 to ha?ing their a7ilit2 to operate re?o'ed6 /hese ?iolations are irreg#larities connected 1ith 7ids in three .6S6 /reas#r2 Sec#rit2 A#ctions6 At 4irst the /reas#r2 s#spended Salomon 4rom reg#lar a#ctions o4 7ills, notes and

(LEAD 505 Organizational Leadership & Ethics) Salomon Brothers Pro ect! ("ro#p $) 7onds, altho#gh the2 had a change o4 heart a4ter )r6 B#44ett spo'e to them6 De spo'e to them 7eca#se o4 the ?ital need to 7e a7le to contin#e 1ith a#ctions in order to sa?e the 7#siness and correct the errors that ha?e 7een made6

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/he compan2 1as 4ar 4rom o#t o4 heat6 -esignations 1ere collected, and other emplo2ees 1ere s#spended6 /he compan2 1as still #nder increasing press#re 4rom irate go?ernment o44icials6 /he p#7lic disclos#re o4 1hat happened 1ithin this compan2 hindered an2 rep#tation 4or integrit2 or ethics this compan2 ma2 ha?e had6 And as )r6 B#44et has told his 'ids man2 times 7e4ore, B5t ta'es a li4etime to 7#ild a -ep#tation and 4i?e min#tes to tear it do1n6C ()al'in) 5nternal -e?ie1s #nco?ered ?iolations in addition to the ones that had 7een descri7ed6 /his crisis 1as a death sentence 4or the compan26 Leadership pla2s an important role in the a7ilit2 4or a compan2 to 4#nction legall26 Sims stated, BLeadership is a critical component o4 the organization:s c#lt#re 7eca#se leaders can create, maintain, or change c#lt#re6C /hese ?iolations gained the attention that the2 did 7eca#se o4 the #nethical decisions that 1ere made, that #ltimatel2 a44ected the li?es o4 e?er2one in?ol?ed6 A 4ormer emplo2ee states that 1hen manip#lated n#m7ers 1here 4o#nd the2 1ere told, B/his is ho1 the game is pla2ed6C (Sims *00*) )r6 B#44ett coined as B)r6 $leanC had a lot o4 1or' ahead o4 him to gi?e this compan2 a clean 7ill o4 integrit26

How Management Handled the Crisis /he management that handled the 7r#nt o4 the corrections 1as &arren B#44et and Der2c' )a#ghan6 /he2 had their 1or' c#t o#t 4or them 7e4ore the2 e?en acA#ired the positions that the2 ?ol#nteered themsel?es into6 /he2 handled the crises 1ith great care and concern6 /heir ta'e 1as

(LEAD 505 Organizational Leadership & Ethics) Salomon Brothers Pro ect! ("ro#p $) that the2 1ere cleaning #p the mess or sins o4 the past and 7#ilding #p the integrit2 o4 the 4irm6 B&e 1ill 4ollo1 the 4acts 1here?er the2 lead and get them o#t6C (Salomon %%+) B#44et has a rep#tation 4or integrit2, and this 1as an ad?antage point 4or Salomon

%0

Brothers6 A4ter as a compan2 loosing the con4idence o4 the "o?ernment, the2 had an o7ligation to 7#ild that con4idence and their rep#tation 7ac' #p6 /hat onl2 comes 72 cooperating (Salomon %*()6 B#44et and )a#ghan:s philosoph2 1as, B4ollo1 the 4acts 1here?er the2 lead and get them o#t6C (Salomon %%+) )anagement too' care o4 c#stomers, 72 calling and sharing that the 1orse 1as 7ehind them6 Once it 1as said and done, the2 shared ho1 the compan2 1as as p#re and 1hite as a compan2 co#ld 7e 7eca#se o4 the go?ernment in?estigation 1ith their 4ine tooth com76 /he2 also too' care o4 sta44 72 letting them 'no1 1hat 7eha?iors 1here appropriate6 A )emo that )r6 B#44ett sent o#t to all sta44 demanded! Unless and until otherwise advised by me in writing, you are each expected to report, instantaneously and directly to me, any legal violation or moral failure on behalf of any employee of Salomon Inc. or any subsidiary or controlled affiliate. You are to make reporting directly to me your first priority. You should, of course, report through normal chain of command when I am unavailable and, in other case immediately after reporting to me hen in doubt, call me !Sims "###$.

5t is clear that )r6 B#44et:s intentions 1ere to pro?ide 4#ll in4ormation on the 1rong doing and not co?er it #p as )r6 "#t4re#nd had tried to do6 )r6 B#44ett disclosed that ethical

(LEAD 505 Organizational Leadership & Ethics) Salomon Brothers Pro ect! ("ro#p $) 1rong doing 1o#ld not 7e tolerated or hidden 4rom the a#thorities at an2 cost6 Dis actions pro?ed to the go?ernment that Solomon 1as committed to a ne1 ethical standard6

%%

&he &reasury $uction 5n %<<*, /he Department o4 3#stice and Sec#rities and E>change $ommission completed its in?estigation o4 Salomon 5nc6 A ten;month in?estigation 1as cond#cted 1hich detailed that Salomon 1as in ?iolation o4 @ederal la1s, /he @alse $laim Act as 1ell as common la16 (Department o4 3#stice, %<<*) D#ring this in?estigation the ne1 acting $EO, &arren B#44et cooperated 1ith a#thorities and ens#red that the2 had access to all in4ormation necessar2 to complete the in?estigation6 Both agencies concl#ded that Salomon 1as indeed at 4a#lt and placed sanctions against Salomon 4or its #nethical 7eha?ior6

Conse'uences of the $uction A4ter the in?estigation, 7oth agencies determined that Salomon Brothers 1ere o7ligated to pa2 4or their miscond#ct and pa2 restit#tion to their ?ictims6 BSalomon Brothers 5nc6 1o#ld pa2 a total o4 I*<0 million in sanctions, 4or4eit#res and restit#tion to resol?e charges arising o#t o4 alleged miscond#ct in /reas#r2 a#ctions and go?ernmental sec#rities trading6C(Department o4 3#stice, %<<*) /his #dgment came a4ter e44orts 1ere 7eing made to recti42 the ill cond#ct at Salomon6 Salomon cooperated at d#ring e?er2 point o4 the in?estigation6 B#44et D#ring the ci?il s#it, Salomon 1as also ordered to pa2 I%<0 million dollars in 4ines 4or illegal trade practices and the2 1ere ordered to esta7lish a I%00 4#nd 4or ?ictims6 (Department o4 3#stice, %<<*) 0o criminal charges 1ere 7ro#ght against Salomon Brothers, 5nc6 .nder the leadership o4 B#44et Salomon 1o#ld pa?e the 1a2 4or a solid transition6

(LEAD 505 Organizational Leadership & Ethics) Salomon Brothers Pro ect! ("ro#p $)

%*

Salomons Decisions in the &reasury $uction /he decision not to plead g#ilt2 to minor criminal charges spo'e to the solid integrit2 o4 the c#rrent leadership at Salomon6 &arren B#44ets decision to cooperate 4#ll2 and to openl2 and honestl2 share the pass miscond#ct o4 the organization ill#strated his desire to recti42 the sit#ation properl26 54 Salomon chose to plead to minor charges and create a A#ic' 4i> o4 the iss#e man2 1o#ld s#spect that the transgression 1o#ld 7e o?erloo'ed6 B2 admitting 4a#lt and end#ring the entire in?estigation B#44et modeled the correct 7eha?ior to his sta44 and allo1ed them to #nderstand the magnit#de o4 past actions6 /he Department o4 3#stice commended the c#rrent leader o4 Salomon in %<<* 4or his actions and transparenc26 B&hile the alleged ?iolations 1ere serio#s, 1e 7elie?e that the com7inations o4 p#nishments are adeA#ate, and there is no need 4or in?o'ing the criminal process6 Salomon:s cooperation has 7een e>emplar26 S#ch actions 1ere ?irt#all2 #nprecedented in m2 e>perience6C (Department o4 3#stice, %<<*) /he leadership displa2ed that the2 co#ld 7e tr#sted and 1as attempting to settle the iss#es that aro#se and ta'e 4a#lt in the past 7eha?ior6 Salomon 1as correct to 1ithstanding the in?estigation and demonstrated that the 1rongdoing 1as not appropriate to its c#stomers6 /he leadership o4 Salomon pro?ided a 1onder4#l e>ample to its c#rrent sta44 and modeled the correct 7eha?ior th#s creating a ne1 atmosphere and en?ironment at Salomon6

(LEAD 505 Organizational Leadership & Ethics) Salomon Brothers Pro ect! ("ro#p $) Schein(s )ive *rimary Mechanisms Schein:s 4i?e primar2 mechanisms are! Attention, reactions to crises, role modeling, allocation o4 re1ards and criteria 4or selection and dismissal6 .nder Schein:s mechanisms,

%9

attention is descri7ed at 1hat the leader enco#rages emplo2ees to 4oc#s onG ?al#es, priorities, and 7elie4s6 /he important thing 1ith this is that leaders are consistent 1ith 1hat the2 comm#nicate and pa2 attention toG emplo2ees 1ill recei?e a clear message o4 1hat is e>pected o4 them6 54 a leader 4oc#ses on short term goals, the 4#t#re o4 the compan2 ma2 7e in eopard26 B&hen an organization:s entire 4oc#s is on ne>t A#arter:s pro4its, its 4#t#re is in eopard2C (SimsJBrin'mann, 99%)6 &hen a leader esta7lishes 7oth long term goals and 'eeps their emplo2ees 4oc#sed, it B4orms deep emotional attachments and allo1s 4ollo1ers to transcend their o1n interests 4or s#perordinate goalsC ($i#lla, <%)6 /he ne>t mechanism, reaction to crises, is a po1er4#l message concerning the c#lt#re o4 the compan2 and allo1s emplo2ees to see the leader:s ?al#es6 A leader:s reaction to a crisis 1ill set the tone 4or all other emplo2ees6 @or e>ample, i4 the leader reacts to a crisis 1ith integrit2 and honest2, their 4ollo1ers 1ill most li'el2 react the same 1a26 /his t2pe o4 relationship is central to team1or', 1hich is Bmaintaining a responsi7le, acco#nta7le and a#thenticit2 in the leader;4ollo1er relationshipC ($i#lla, +<)6 0e>t, Schein disc#sses ho1 leaders 7eha?e, or on 7eing a role model6 /his mechanism is simpl2 leaders comm#nicating their ?al#es thro#gh their o1n actionsG simpl2 B1al'ing the tal'6C As emplo2ees o7ser?e the 7eha?ior o4 leaders, Bthe2 clearl2 see 1hat is ?al#ed in the organizationC (SimsJBrin'mann, 99*)6 As a leader B1al's the tal',C the2 portra2 trans4ormational leadership 1hich is Bmoti?ating, #pli4ting, and #ltimatel2 moral in that it raises the le?el o4 h#man cond#ct and ethical aspirationC ($i#lla, %5%)6 0e>t, the mechanism spea's o4 the allocation o4 re1ards6 -e1ards are gi?en to compensate 7eha?ior that is consistent 1ith the compan2:s ?al#esG the2

(LEAD 505 Organizational Leadership & Ethics) Salomon Brothers Pro ect! ("ro#p $) co#ld 7e pa2 increases or promotions6 Do1e?er, this contingent rein4orcement co#ld also 7e negati?e in nat#re6 &hen emplo2ees 4ail to meet the compan2:s ?al#es, the2 ma2 7e corrected 72 negati?e 4eed7ac', reproo4, threats, andJor disciplinar2 actions ($i#lla, %E()6 /he last

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mechanism disc#ssed 1as the criteria 4or selection and dismissal o4 indi?id#als6 /his descri7es ho1 a Bleader decides 1hom to recr#it or dismiss 7ased on their ?al#esC (SimsJBrin'mann, 99+)6 O4ten, leaders select 4#t#re emplo2ees 1ho are most similar to the ?al#es o4 the compan26

Evaluating the Ethical State of an #rgani ation +sing &his Model 5 7elie?e that this model is #se4#l and applica7le to all organizations6 Ethical leadership 7egins at the top and it comm#nicates the climate to others 1ithin the organizationG it is the most important 1eapon in the ethics arsenal6 B54 leaders 1ant to cast an ethical shado1, the2 need to practice 1hat the2 preach and ma'e ethics the cornerstone o4 ho1 the2 cond#ct 7#siness6 /his is done 72 practicing ethics in their personal li4e, 7#siness, and in their relationshipsC (SimsJBrin'mann, 99()6 5t is the leaders 1ho shape the climate o4 the organization 1ith their ?ision and 7eha?ior6 As h#mans, 1e are comm#nal creat#res6 /o p#t it another 1a2, 1e 1itness others and em#late their actions6 O#r leaders m#st 1al' and tal' ethicall2, 7eca#se as De1e2 states, Bone:s standard o4 cond#ct sho#ld simpl2 and #ncriticall2 7e an acceptance o4 the r#les o4 the c#lt#re 1e happen to li?e inC ($i#lla, *E)6 5n the end, 1hen leaders act morall2 and ethicall2, this creates the compan2:s c#lt#re 4or e?er2one to act ethicall2G as comm#nal creat#res6

&he %ew Managements Ethical Strategy /he ne1 leadership at Salomon pro?ided a 4rame1or' and acti?el2 demonstrated the intense need 4or integrit2 and ethical 7eha?ior6 B#44et and )a#ghan 7eha?ior and a7ilit2 to

(LEAD 505 Organizational Leadership & Ethics) Salomon Brothers Pro ect! ("ro#p $) mo?e 4or1ard in a time o4 con4lict and t#rmoil inspired a ne1 c#lt#re at Salomon6 /he ne1 leadership at Salomon co#ld ha?e maintained the compan2:s pre?io#s #nethical 7eha?ior and paid the penalties and mo?e 4or1ard6 5nstead the leadership not onl2 addressed the past

%5

miscond#ct the2 also ens#red that 4#t#re miscond#ct 1o#ld not occ#r6 /he strateg2 that &arren too' 72 ta'ing immediate action and spea'ing directl2 to his sta44 and sta'eholders 1as imperati?e and impressi?e6 &arren and )a#ghan displa2ed that #nethical 7eha?ior 1as no longer the norm6 &arren set the 7ar 72 7eing engaged and acti?e in the organization in e?er2 le?el6 De de?eloped a 4rame1or' 1here emplo2ees 1ere held acco#nta7le and sta'eholders 1ere respected and a7le to ha?e an open line to the leadership6 /his strateg2 instilled tr#st in the organization and pro?ided Salomon 1ith a rene1ed c#lt#re o4 integrit2 and ethical 7o#ndaries6

Summary
5n this case anal2sis, 1e ha?e so#ght to ans1er the 'e2 A#estions a7o#t the ethical 7eha?ior 1ithin Salomon 7rothers 7oth 7e4ore and a4ter the crisis6 &e ha?e #sed o#r o1n e>perience and research to identi42 the 'e2 concepts and ideas 4rom this case that relate to o#r st#dies o4 ethics and leadership 4rom this co#rse6 .ni4orml2, the most important concept or idea 1e ha?e learned 4rom the case 1as the importance o4 integrit2 and honest26 5t ta'es a long time to 7#ild strong character and a relia7le rep#tationG ho1e?er, it onl2 ta'es one da2 to lose it6 @or Salomon, that da2 came in A#g#st and 2ears later the2 are still tr2ing to re7#ild 1hat 1as lost6

(LEAD 505 Organizational Leadership & Ethics) Salomon Brothers Pro ect! ("ro#p $)

%(

,eference
$i#lla, 36 B6 (*00+)6 %thics, the heart of leadership6 (*nd ed6)6 &estport, $/! Praeger P#7lishers6 Dar?ard B#siness -e?ie1 on Leadership6 %<<= DBS Press .n'no1n6 (%<<*) &epartment of 'ustice and S%( enter )"*# +illion Settlement with Salomon ,rothers in -reasury Securities (ase. -etrie?ed 4rom! http!JJ1116 #stice6go?JatrJp#7licJpressKreleasesJ%<<*J*%%%=*6htm Sims, - (*000) (hanging an organi.ation/s culture under new leadership. 3o#rnal o4 B#siness Ethics6 AB5J50@O-) "lo7al Sims, -6 Brin'mann, 3 (*00*) 0eaders as moral role models1 -he case of 'ohn 2utfreund at Salomon ,rothers6 3o#rnal o4 B#siness Ethics. AB5J50@O-) "lo7al pg6 9*E Paine, L2nn Sharpe and Santoro, )ichael6 3orging the 4ew Salomon (%<<+) Dar?ard B#siness $ollege6 $ase 9<5;0+(