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.

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
      • Often called a credo or mission statement

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


  • 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
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