Until recently, few organizations seriously considered ethics to be a legitimate topic for enterprise planning and strategic thinking. Those at the top of an enterprise regularly spent time developing their organizational and functional strategic plans, their growth strategy, possibly even their brand strategy, but ethics and regulatory compliance was merely an issue for the finance department, legal counsel, and possibly human resources.
Today we are painfully aware that, henceforth, organizational ethical behavior will require serious attention, at both the board and executive level. Widespread organizational misbehavior and criminal activity have made the creation of a formal ethics strategy a high priority for all enterprises, irrespective of their size or structure. Many larger organizations have established a postion for an Ethics Officer, and smaller organizations turn to consultants that specialize in ethical consultation. Such individuals provide the frontline of defense against moral decay in corporate America.
An Ethics Strategy
What would an “ethics strategy” look like? Here are some basic guidelines:
- An ethics strategy should be concerned with ensuring that all corporate activities are ethical, legal, and within all regulatory guidelines.
- Because actions, be they right or wrong, arise from character, an ethics strategy should provide a road map to ensure the ongoing development of individual and organizational character. This is generally accomplished through the institution of “ethics programs” to train employees.
- And finally, an ethics strategy should provide for monitoring and policing organizational activities to minimize and prevent ethical and legal violations. This has become increasingly important, because some recent case law has ruled that individual board members can be held liable for ethical lapes, where ethical plans and programs are not in place.
In developing an ethics strategy, a good place to start is with the regulatory requirements, as they, of themselves, impose a minimal, de facto ethical standard upon every organization.
While regulatory guidelines have, for some time, addressed such well-known topics as sexual harassment, racial, gender and age discrimination, hiring and firing practices, safety, advertising, packaging and labeling, many new regulatory factors are now in place and designed to prevent wrongdoing. They include:
- The Federal Sentencing Guidelines for Organizations (FSGO) of 1991, which outlineminimal ethical requirements and provide for substantially reduced penalties (up to 95%)in criminal cases where federal laws are violated if ethics programs are in place. Reduced penalties have provided a strong impetus for establishing ethics programs.
- The Sarbanes-Oxley Act of 2002, which introduces accounting reform and requires attestation to the accuracy of financial reporting documents.
- The proposed New York Stock Exchange regulations which will require all listed companies to possess and communicate, both internally and externally, a Code of Conduct or face delisting.
As well, organizations must monitor new and revised regulations from regulatory agencies such as the FDA, FTC, BATF, IRS, ERISA, and many others
Plans and programs need to be established within the organization to ensure that the organization is in compliance with all such regulatory requirements.
Once these regulatory requirements have been addressed, organizations can then work toward enhancing their corporate character. This is commonly approached by introducing an “ethics program” that consists of a series of ethical training modules that are designed to educate and build ethical character on an individual basis throughout the organization.
Ethics programs and training are a necessary foundation to ensure an ongoing and deepening response to ethical issues as they arise for employees on the job.
While basic regulatory complaince can mitigate many problems, the ethical-legal landscape has become so complex in recent years that many employees do not, in many cases, possess a clear idea of what is right or wrong, legal or illegal. Areas such as antitrust, price discrimination, managerial conduct, export, intellectual property infringement, whistleblowing, inappropriate gifts, and the like are beyond the purview of almost all employees. To address all possible blindsides, each individual needs ethical training.
A good faith effort to create systems intended to prevent and detect violations is important in FSGO determinations. An ethics program is more likely to be considered effective if it includes the following components:
1) Statement of Values
The creation and communication of a statement of organizational values is considered to be necessary guidance.
2) Code of Conduct
A code of conduct or an ethics policy that communicates a commitment to ethical behavior throughout the organization, and explains how these values are to be applied in representative situations.
3) Executive Leadership and a System
A plan and systems for the communication, monitoring, and enforcement of the Code of Conduct. Important consideration in this respect, include:
- Establishing and locating responsibility for the organization’s ethics program high in the organization to ensure that it is taken seriously and receives the requisite oversight.
- Communicating standards and procedures to all employees.
- Creating a vocabulary and an ethical context that encourages high standards. Because ethical questions are often difficult to decide, it is important that ethical issues, grey areas, and dilemmas be discussed openly within the organization, and that counseling and guidance resources be made available to employees to improve their ethical decision-making. It is here that ethics training becomes essential to instill ongoing ethical behavior throughout the organization.
- Monitoring, auditing, and reporting systems that detect and prevent unethical or illegal activities, collect data upon relevant actions, and report that data to those charged with ethical oversight. This implies the creation of safe and effective processes whereby employees can seek guidance on the applications of standards and procedures and report suspected violations without fear of reprisals.
- Communicating that improper behavior has consequences. While even being accused of criminal activity is damaging to an individual and his or her company, convictions under FSGO can lead to fines up to $290,000,000 per offense!
- Enforcing standards consistently and applying reasonable discipline according to the nature of the offense.
- Responding to offenses such that similar offenses will be minimized, including modifying standards and procedures as needed.
- Offering voluntary self-disclosure of unethical or illegal activity in a timely manner to appropriate authorities.
While such ethics programs can ease sentencing and penalties for criminal activity, they also provide other, higher-order benefits. Ethical standards, and the training that supports them, helps employees know how to do the right thing by ensuring a common understanding of what is expected and required. An ethical work environment increases job satisfaction and reduces misconduct and the pressure to behave unethically. At the same time, such an environment increases the ability to communicate across all levels, builds trust, and promotes greater consistency in decision making. This results in fewer violations of laws and regulations and the serious consequences that accompany them, proving that good ethics equals good business
Directors and executives have a responsibility to attend to the ethics of the organization they govern and lead. In the wake of recent scandals, it is imperative to develop an ethics strategy and to put practices in place that encourage and ensure moral behavior, develop individual and corporate character, and protect the organization from illegal or unethical activity.
Copyright © 2003 KLM, Inc. All Rights Reserved.
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