Developing an Effective Ethics Program
The Responsibility of the
Corporation as a Moral Agent
• Increasingly, corporations are viewed not merely as profit-making entities but also as moral agents that are accountable for their conduct to their employees, investors, suppliers, and customers.
The Need for Organizational Ethics Programs
• Scandals in corporate America have lowered the public’s trust of business.
• Understanding the factors that influence ethical decision-making can help companies encourage ethical behavior.
• Employees are not legal experts and therefore need guidance with legal issues impacting their jobs.
The Need for Organizational
• One reason why ethics programs are required is to help sensitize employees to the potential legal and ethical issues within their work environments
• Five top recommendations to CEO’s for rebuilding trust and confidence in American firms
– Making customers the top priority
– Assuming personal responsibility and accountability
– Communicating openly and frequently with customers
– Handling crises more honestly
– Sticking to the code of business ethics no matter what
An Effective Ethics Program
• Helps ensure that all employees understand the organization’s values and comply with the policies and codes of conduct that create its ethical climate
– Diverse employee backgrounds (education, experience, family) make organizational socialization more critical.
Values Versus Compliance Programs
• Compliance orientation
– Creates order by requiring that employees identify with and commit to specified conduct
– Uses legal terms, statutes and contracts that teach employees the rules and penalties for noncompliance
• Values orientation
– Attempts to develop shared values
– Focuses more on an abstract core of ideals such as respect and responsibility, although there are penalties for misconduct
Ethics Programs Can Help Avoid Legal Problems
• The Federal Sentencing Guidelines for Organizations encourage companies to assess their key risks and customize a program to address these risks.
• The program must be communicated to all employees—providing a common understanding of organizational values, policies, and procedures.
– Companies that act to prevent organizational misconduct may receive a “carrot” and avoid organizational penalties.
– Those that do not may receive a “stick”— fines and penalties.
Minimum Requirements for Ethical Compliance Programs
• Standards and procedures, such as code of ethics, that are reasonably capable of detecting and preventing misconduct
• High-level personnel who are responsible for an ethics and compliance program
• No substantial discretionary authority given to individuals with a propensity for misconduct
• Standards and procedures communicated effectively via ethics training programs
• Establishment of systems to monitor, audit, and report misconduct
• Consistent enforcement of standards, codes, and punishment
• Continuous improvement of the ethical compliance program
Source: Adapted from U.S. Sentencing Commission, Federal Sentencing Guidelines Manual (St. Paul : West, 1994), Chapter 8.
Codes of Conduct
• Codes of conduct
– Formal statements that describe what an organization expects of its employees
• Codes of ethics
– Most comprehensive document consisting of general statements that serve as principles and the basis for the rules of conduct
• Statement of values
– Serves the general public and addresses stakeholder interests
• Ethics officers or committees are responsible for oversight of the ethics/compliance program:
– Assess the needs and risks that an organization-wide ethics program must address
– Develop, revise, and disseminate the code
– Conduct training programs for employees
– Develop effective communication
– Make sure the company is in compliance with government regulation
– Establish audits and control systems
– Take action on possible violations of the code
– Review and modify the program to improve effectiveness
Ethics Training and Communication
• Keys to successful ethics training
– Help employees identify the ethical dimensions of a business decision
– Give employees a means to address ethical issues
– Help employees understand the ambiguity inherent in ethical situations
– Make employees aware that their actions define the company’s ethical posture both internally and externally
– Provide direction for employees to find managers or others who can help them resolve ethical conflicts
– Eliminate the belief that unethical behavior is ever justifiable by stressing that
• Stretching the ethical boundaries results in unethical behavior.
• Whether discovered or not, an unethical act is just that.
• An unethical act is never in the best interests of the company.
• The firm is held responsible for the misconduct of its members.
Systems to Monitor and Enforce Ethical Standards
• An internal system for employees to report misconduct is an opportunity to register ethical concerns:
– Ethics hot lines
– Questionnaires used to serve as benchmarks
• Enforcement is also important:
– Corrective actions to provide standards and punishment
– Consistent enforcement critical
Continuous Improvement of the Ethics Program
• Always improve
• Revisions are needed
Common Mistakes in Designing/ Implementing an Ethics Program
• Not having a clear understanding of the goals of the program from the beginning
• Not setting realistic and measurable program objectives
• Senior management’s failure to take ownership of the ethics program
• Developing program materials that do not address the needs of the average employee
• Transferring a domestic program internationally
• Designing a program as a series of lectures