Corporate Ethics Programs
What are they?
A systematic approach to raising ethical awareness of employees, providing guides and education on ethics and having resources available to assist in identifying and resolving ethical issues
Corporate Ethics Programs
Components of a program
Code of ethics
Ethics training for employees
A means for communicating with employees
Reporting mechanism
Audit system
Investigation system
Not every program will contain all of these components, and the emphasis on each will vary
Corporate Ethics Programs
Compliance Strategy
Tries to prevent
- criminal conduct, violation of government regulations, and self-interested behavior by employees (e.g., conflicts of interest)
Imposes standards of conduct and tries to compel acceptable behavior
Relies more on corporation lawyers and compliance officers
Corporate Ethics Programs
Integrity Strategy
Seeks to create conditions that support right action
Communicates the values and vision of the organization
Aligns the standards of employees with those of the organization
Relies on the whole management team, not just law and compliance personnel
Benefits of an Ethics Program
Prevent ethical misconduct
Monetary losses and losses to reputation
- Sears - loss of $60M and customer trust
Adapt the organization to rapid change
Regulatory changes, new technologies, mergers & acquisitions, and global competition can require new ways of doing business
Managing relations with stakeholders
Informs suppliers about a company’s own standards
Reassures other stakeholders of the company’s intent
Corporate Codes of Ethics
Three approaches
Statement of specific rules or standards
- Often called codes of conduct, or statements of business standards or practices
Statement of core values or vision
- Often called a credo or mission statement
Johnson & Johnson’s Credo
Statement of corporate philosophy that describes the beliefs guiding a particular company
- Hewlett Packard - The HP Way
Corporate Codes of Ethics
Who writes the codes?
General Counsel 84%
CEO 77%
Senior HR Executives 75%
Chairman 58%
Senior Financial Executives 42%
Employee Representatives 15%
Consultants 9; 8%
Corporate Codes of Ethics
Reasons given for adopting codes
Generate discussion of what is ethical conduct
Help achieve consensus on ethical conduct
Enhance commitment to company ethical conduct
Communications tool
Discover core principles
Corporate Codes of Ethics
Problems
Over emphasis on rules at the expense of judgment
- Employees might conclude that anything not forbidden is permitted
Heavy focus on actions that harm the company may lead to cynicism about the purpose of the code
Other approaches
Focus on a strong corporate culture and leadership, rather than on a written code
Rely upon extensive government regulation and internal auditing
Federal Sentencing Guidelines
The goal of these guidelines is to
"provide just punishment, adequate deterrence and incentives to maintain internal mechanisms for preventing, detecting and reporting criminal conduct."
Potential fines are raised based on four factors:
Organization size ("The bigger you are, the harder you fall.")
Involvement of top officials (How many and what level)
Prior violations (including violations by companies acquired by merger/acquisition)
Obstruction of justice
Federal Sentencing Guidelines
Two factors that reduce potential fines: The
implementation of an effective program that detects and prevents ethics
violations and demonstrates a good faith effort to avoid ethics violation
Cooperation with federal authorities in any criminal investigation
Federal Sentencing Guidelines
An effective program will
Have compliance standards that are reasonably capable of reducing criminal conduct
Specifically designate high level managers to oversee the program
Exercise due care not to delegate major authority to a person known to have criminal tendencies
Develop a method of communicating the policies and procedures to all employees
Federal Sentencing Guidelines
An effective program will
Take steps to achieve compliance by using monitoring and auditing systems designed to detect criminal conduct by employees and by having a reporting system where employees can report criminal conduct by others
Consistently enforce standards through appropriate disciplinary mechanisms
Take steps to prevent future occurrences, including modifying the ethics program
Problems with Ethics Programs
Some evidence that misconduct occurs because of organizational pressures and peer behavior, not because of ignorance over ethical standards
This suggests that ethics programs include goal-setting and reward systems
Ethics programs may be adopted as "window dressing", rather than focus on real solutions
Large companies already have "effective" compliance programs - but small companies might invest too much in them, when other approaches would be better