Create a new story about business: we have a unique moment to make a lasting difference in corporate practice. This is a moment we must seize.

• Author: Freeman, R. Edward
• Position: GOVERNANCE LEADERSHIP

IMAGINE YOU ARE a director of a company that creates such great products and provides such terrific service that extreme customer loyalty is the norm. The firm's employees are energized contributors who live the firm's values--all the best talent wants to work for your organization. You have the brightest and most innovative managers who keep you ahead of the competition. Whenever there are potential problems with a product or practice, employees throughout the organization raise the issue, confident that when the information gets to the right place, the company will listen and act quickly to remedy the situation. Your suppliers view you as their best customer--in every sense of the word--and they are always thinking of ways to make your company and its products better. Your community shudders to think what life would be like without your company in their backyard. Business students across the globe study your company as an example of best practice, and the most common question your CEO gets asked by the media is: "Why can't other companies be like yours?"

Given the above, two other facts are almost certainly true: first, your firm's shareholders realize strong, sustainable returns; and second, as a director you are confident that continued company growth--and not a subpoena or civil suit--is in your future.

I am sure this scenario strikes some people as a dream. I do not disagree, but I believe the dream is an eminently realizable one, as was the dream of sending people to the moon and returning them safely to earth--an accomplishment that involved far less computing power than is contained in the laptop with which I am writing this article. Achieving great things requires that great effort accompany our aspirations. This is what leadership is all about.

The first step

The first step toward making such companies a reality is for leaders to actively incorporate values and ethics into all of their business decisions and to encourage others to follow their lead.

I have been teaching business ethics at the Darden School for nearly 20 years. Since 1988 we have included business ethics as a required core discipline in our integrated program--just as we include accounting, finance, marketing, and other functional areas. Our students are trained to recognize that all business managers' decisions include dimensions of ethics and values. This is no different for executives and directors.

Admittedly, events of the last three years give some grounds for doubting that ethics can be integrated as a core discipline of business practice. It is important to recognize that viewing "business ethics" as an oxymoron has great traction in the larger culture--and this is a view that we must not pass on to the next generation of leaders.

I believe we can make an enduring difference in the coming years, and ironically, without the recent spate of malfeasance, I might not be so optimistic. The upside of the current scandals is that they have led to a widespread recognition among business leaders that laws and regulations alone are necessary but not sufficient to strike at the root of questionable business practices.

Other groups--stockholders, customers, regulators, lawmakers, educators, the media, and the general public--are very engaged with this issue as well. Given this widespread level of engagement, we have a moment--a unique moment--to make a lasting difference in corporate practice. This is a moment we must seize.

My optimism does not rest upon naivete--it is supported by recent concrete action. Of particular note, I am encouraged by Business Roundtable and its 160 members, who just over one year ago launched the Business Roundtable Institute for Corporate Ethics. I serve as the institute's academic director (see sidebar on page 25 for more information on the institute).

I am further encouraged that, even in the age of branded business schools, 18 leading scholars from competing schools took the bold action to work together and join the institute, recognizing that the importance of the task at hand requires the collaboration of us all.

More directly, I am encouraged by the genuine desire for change that I am hearing in my work with senior executives and directors. In fact, this past summer 11 Fortune 500 CEOs came together for an entire day at an institute seminar to tackle tough ethics issues--a CEO discussion of ethics among peers that I believe to be without precedent.

So far, we are making good progress toward telling a new story about business, but there are many chapters yet to be written. Directors have a particularly important role to play.

A new set of ground rules

Directors and company executives are keenly aware of the ways in which the ground rules have changed. Among the most noticeable differences driven by the wave of current corporate ethics crises is the unprecedented level of legislation and regulations that have resulted.

The Public Company Accounting Reform and Investor Protection Act--more commonly known as the Sarbanes-Oxley Act (SOX)--was signed into law in July 2002 and has become the most far-reaching corporate reform legislation in a generation. The regulations rightfully received widespread bipartisan and public support. In the almost three years since its passage, the most significant provisions have been widely implemented by corporate America. One aspect of SOX...