Ethics has become a matter of serious concern in Corporate America.
There are multiple reasons for this increased interest in “doing what is right,” including recent scandals, legislation such as Sarbanes-Oxley and Dodd-Frank, as well as increased prosecution and fines for companies who break the law.
Perhaps one of the most important factors in the creation of ethics programs by major corporations are the Federal Sentencing Guidelines (FSG), which were revised in 2010.
The Federal Sentencing Guidelines were created to assist judges in determining the severity of sentences and fines to impose on a company that has been found guilty of wrongdoing. Chapter 8 of the FSG permits judges to reduce a fine by 80% or increase a fine by 400% depending whether a company has or does not have an effective ethics program.
It became very clear to many CEOs that creating such ethics programs was a worthy investment and a wise move. Today, more than 60 of the Fortune 100 companies have a designated ethics officer and an ethics program.
CREATING A CULTURE
Ethics programs do much more than determine the amount of fines. An ethics program can lead to the development of an ethics culture within an organization, reflecting the principles and values of those in charge. It can also build morale, loyalty and productivity as well as deter wrongdoing.
What then, constitutes an effective ethics program? In my view, these are five essential requirements.
1. “Tone from the Top”: The message that the company has strong moral values and that unethical behavior will not be tolerated must come from the CEO and/or chairman as well as from senior management. The message has to be repeated in a variety of ways, such as during company-wide staff meetings, on the company’s websites and in brochures, etc.
2. “Walking the Talk”: Unless management leads by example, the message (the “tone from the top”) will be perceived as hypocritical and will have no serious impact on the employee’s behavior. In fact it will be counter-productive to good ethical behavior by creating an environment of cynicism and mistrust.
3. An Ethics Code: Ethics codes are important in many different ways. They are good tools in communicating to stakeholders the vision and values of the company. But ethics codes alone will never suffice in creating ethical behavior in a company. Example: Enron had a 4-inch thick ethics code, yet it was not part of the culture.
A code of conduct should make it clear for all employees as to what is acceptable and what is not within a company. An ethics code should address issues such as conflicts of interest, transparency, confidentiality and sexual harassment, among other topics.
4. Training Program: Most people believe that they are “ethical” and in most cases there is validity to that claim. We all want to do “the right thing” but our intention does not always match the reality of our actions. Ethics training can give us the tools we need to both recognize an ethical dilemma and then to resolve it.
5. Effective and Confidential Reporting System: A company needs to have a reporting system in place that will allow employees to report wrongdoing in all confidentiality. Many Fortune 500 companies use third-party hotlines that allow employees to report wrongdoing to management in complete anonymity and thus without fear of retribution. In other companies, such as Ruder Finn, the ethics officer plays the role of the person any employee can go to in complete trust to express concern about an incident or a practice that makes them uncomfortable.
Trust is at the core of every relationship. Disastrous consequences—financial, legal, commercial—can follow a breach of trust. Because trust has been broken so many times in the marketplace, a crisis of confidence pervades corporate culture today.
The creation of and adherence to a clear and consistently applied ethics program can build and restore trust between and among an organization and its employees, its customers, its shareholders and the community at large.
As Warren Bennis, the founding chairman of The Leadership Institute at U.S.C., once said: “Trust is the lubrication that makes it possible for organizations to work.” firstname.lastname@example.org
Emmanuel Tchividjian is senior VP and ethics officer at Ruder Finn. He can be reached at email@example.com.