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.
Components of a Corporate Ethic program:
- Code of ethics;
- Ethics training for employees
- A means for communication with employees
- Reporting mechanism
- Audit system
- Investigation system
- Not every program will contain all of these components, and the emphasis on each will vary
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
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 millions 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
- What are the rules?
- 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
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- Often called a credo or mission statement
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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
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
