I have been pondering this question since 1990, when I left a job in the real world of corporate America to become Executive Director of the Center for Ethics and Corporate Policy in Chicago. Beginning in 1993, when I left the Center to start Ethical Leadership Group, I began predicting (or worrying) that business ethics was nearing its peak in terms of management interest. Any year now, I said to myself, and the ethics roller coaster car would come plummeting to Earth, and would, just perhaps, enjoy some smaller, safer ride back up in the distant future.

Then in 2001 along came Enron and Andersen, and I stopped predicting a business ethics crash.

However an article in the June 26 Wall Street Journal called "Why Management Trends Quickly Fade Away" leaves me wondering whether I should brush off that dusty prediction. In it Phred Dvorak writes about a study of management fads by Robert David and David Strang in the April/May edition of the Academy of Management Journal. It turns out that the life span of management ideas has shortened from a decade to fewer than three years. One of the major culprits: management consultants.

The study, says the WSJ, blames "'fashion surfers' - consultants who rush to offer services when an idea is hot, even though they don't have expertise in the area. . . . The authors suggest that the surge of less-qualified consultants contributes to ensuring frustration as businesses struggle to implement the idea. Eventually, interest falls off and the bloom ends."

I don't know if ethics and compliance management is at this point. I do see considerable frustration as companies try to implement ethics and compliance ideas that don't make sense for their businesses. Yet I hope we are not at the point of TQM in the mid to late 1990s.

For ethics as management fad is exactly what many employees fear. One of the discouraging sentiments we most often hear from employees in our focus group work is "this company is like Baskin-Robbins--a new management flavor every month. Ethics will be a flavor of the month too." Encouragingly, quite often another employee will pipe up and say something like "I hope not, because this company needs a foundation of ethics in order to be successful. It's about time we paid attention to this."

Research by Gary Weaver and Linda Trevino sheds further light on the power underlying these anecdotes. When employees believe that ethics and compliance efforts are merely tactics to protect the company, the efforts have no impact, or worse, actually increase cynicism among employees. When employees believe that ethics and compliance efforts reflect a true commitment, they have a chance of producing positive results.

Fad or foundation? Let's build the latter.

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Once upon a time, annual shareholder meetings were virtual rubber stamps for the status quo at companies. Sure, shareholders were always invited to stand up and offer some comments, often critical comments, about issues of interest or concern -- at least to those who chose to speak. But these carefully choreographed events generally ended the same way. Management proposals were approved by an overwhelming majority of voted shares, and "dissident" proposals typically were voted down by an equally overwhelming majority of votes.

Not so at Home Depot.

Indeed, an amazing thing happened at that company's recent annual meeting (actually, several amazing things happened, but I will focus on one). In the face of increasing scrutiny of ethics and governance challenges in corporate America, and in the wake of growing unhappiness over various issues, including claims that the relationship between Home Depot's Board and its CEO were too cozy, the company's shareholders rose up and spoke loudly and effectively. According to a June 2 New York Times story, thirty percent or more of shareholders who voted withheld approval from 10 of the 11 directors. Forty percent voted in favor of a proposal opposed by management that would give shareholders a voice in deciding executive compensation. Forty-one percent voted to split the role of chairman and chief executive. And fully forty-five percent voted in favor of a proposal that would give shareholders the right to approve extraordinary retirement benefits for executives (read the article here). Percentages like these cannot be dismissed as reflecting merely the views of the "activist fringe" of Home Depot shareholders. Rather, such totals can only occur if "mainstream" shareholders are similarly discontent.

Indeed, the extraordinary Home Depot numbers speak to the increasing impact and influence of mainstream shareholder groups, including pension funds and other large institutional investors, on ethics, governance and corporate responsibility issues in corporate America. Shareholder activism is on the rise and has proven to be increasingly effective in recent years. This trend will continue. A January 2006 survey by Mercer Investment Consulting reported that roughly a quarter of 183 institutional investor respondents plan to step up their proxy voting and shareholder engagement activity over the coming two years. And in April, the heads of leading institutional investment firms from 16 countries and representing over $2 trillion in assets officially signed onto the newly launched "Principles for Responsible Investment". These principles -- initiated by the UN Secretary General and developed in conjunction with the UN Environment Programme Finance Initiative and the UN Global Compact -- are designed to provide a framework for achieving enhanced long-term investment returns by better reflecting environmental, social, corporate governance and ethics considerations.

Home Depot presents just the most recent, and most dramatic, example of this evolving trend, but it is certainly not alone. ExxonMobil has been the repeated recipient of enhanced shareholder attention, and indeed its active shareholders have recognized strength in numbers by working together on proxy campaigns involving issues of common interest and concern. Put a few institutional investors together and you can produce a healthy block of votes for or against any of a full range of issues that shareholders care about. Alan Murray commented about this trend in his June 7 column in the Wall Street Journal.

All of which is to urge wise, thoughtful business leaders to pay heed to the shareholder groups that are knocking at your doors. Take them seriously, and develop true strategies for constructive engagement. Your owners are increasingly effective and increasingly mobilized. This trend is not likely to reverse itself. Most critics of the social responsibility movement argue that shareholders are the only relevant stakeholders that management should consider in running companies. Even accepting this as true (a topic for another blog, perhaps), your shareholders are speaking. Are you listening?

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In a scandal of incredible magnitude, Kim Woo Choong, founder and long time CEO of the giant Korean conglomerate Daewoo, was convicted this week of fraud and embezzlement.

According to a New York Times story, the presiding judge wrote in his verdict: "A severe punishment is inevitable for Mr. Kim because he abandoned corporate ethics and circumvented the law, pushing Daewoo Group to bankruptcy." The detailed list of issues includes helping to falsify Daewoo's books to inflate its assets 41 trillion won. This is roughly $43 BILLION US dollars at today's exchange rates.

The penalty is also fairly substantial. Ten years in prison for the frail 69 year old, and a forfeiture of $23 BILLION US dollars.

The amounts boggle the mind. But Daewoo was South Korea's leading company, at one time accounting for 10% of the nation's total GDP. (To get a sense of this scale, that is roughly the same percentage accounted for by Exxon Mobil, Wal-Mart, General Motors, Chevron, and Ford--America's five largest companies by revenues.) As leader of Daewoo, Mr. Kim was one of his country's heroes. Daewoo's failure was a huge blow to Korea--the fact that misdeeds were at the heart of the failure clearly struck a chord.

How did such an icon fall from the pinnacle of power? There were probably many reasons, but Mr. Kim's ability to rationalize was surely one of them. He tried at least two common rationalizations in his defense. The judge didn't buy them, noting that Mr. Kim tried "to justify them [his actions] by describing them as management decisions and as part of a widespread practice of his times." So neither the South Korean judge nor the Enron jurors cared much for the "everybody else was doing it" defense.

As for the other rationalization? Ethics Officers routinely hear "That's not an ethics issue, it's a business issue." The Daewoo case has 43 billion more reasons why red flags should go up when we hear it . . . .

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