Black & white fever: the state of business ethics; Ethics programs have been implemented widely in recent years, but there's still widespread skepticism about how well they are working. And, building a viable ethical culture inside a company is still a daunting challenge.Tone at the top has long been a mantra mantra (măn`trə, mŭn–), in Hinduism and Buddhism, mystic words used in ritual and meditation. A mantra is believed to be the sound form of reality, having the power to bring into being the reality it represents. in discussions of business ethics business ethics, the study and evaluation of decision making by businesses according to moral concepts and judgments. Ethical questions range from practical, narrowly defined issues, such as a company's obligation to be honest with its customers, to broader social , but apparently, tone at the top isn't enough. In an era where the average CEO (1) (Chief Executive Officer) The highest individual in command of an organization. Typically the president of the company, the CEO reports to the Chairman of the Board. tenure is five years or less, what's needed may be more tone that resonates at the bottom and in the middle.
"I've been working in corporate accounting for 40 years, and I've found a lot of cheating and stealing that's gone on, but never at top levels--never," insists Bryan Roub, senior vice president and CFO See Chief Financial Officer. of Harris Corp. and a former Financial Executives International (FEI FEI
Fédération Équestre Internationale. ) chairman.
Prosecutors usually target the heavy hitters at the top, of course. What about the bottom? There's been a 7 percent drop since 2003 in "the evaluation of employee performance based on ethical conduct" and only a 4 percent increase in the disciplining of employees for breaking ethical standards, according to according to
1. As stated or indicated by; on the authority of: according to historians.
2. In keeping with: according to instructions.
3. a study released last fall by the Ethics Resource Center (ERC (database) ERC - An extended entity-relationship model. ), a nonprofit organization Nonprofit Organization
An association that is given tax-free status. Donations to a non-profit organization are often tax deductible as well.
Examples of non-profit organizations are charities, hospitals and schools. dedicated to the study of business ethics. In economic terms, it seems that that the personal costs to business people, especially those below top management, who break ethical rules may be falling.
Yet, if ethics programs are any clue to how ethical business is, it should be the most ethical institution in society. The ERC's 2005 survey--the fourth iteration of its National Business Ethics Survey since 1994--showed double-digit increases in the use of ethical codes, ethics training programs and ethical information channels by business over the past decade. The problem is that the codes, programs and channels don't seem to have made business much cleaner.
Says ERC President Patricia J. Harned, "If you're looking at whether employees are behaving better than five years ago, we have not seen those outcomes changing substantially." For example, though more than half of employees have seen misconduct in the workplace, fewer than half who saw it blew the whistle and reported it to management. That's a 10 percent drop from the previous survey, and puts the whistle-blowing whistle-blowing, exposure of fraud and abuse by an employee. The federal law that legitimated the concept of the whistle-blower, the False Claims Act (1863, revised 1986), was created to combat fraud by suppliers to the federal government during the Civil War. level as low as it was in the year 2000, just before the sleaze sleaze
A sleazy condition, quality, or appearance: "His record of public service is untouched by any stain of shadiness or sleaze" James J. Kilpatrick. dam burst and the dirty truth about Enron Corp., Tyco International For the unrelated division of Mattel, see .
Tyco International Ltd. NYSE: TYC is a diversified manufacturing conglomerate incorporated in Bermuda, with United States operational headquarters in New Jersey. and other business frauds, cheats and scams gushed into the headlines.
Some critics say that the only way to break business from its allegedly bad ethical habits is to keep beating up on it. "The problem we have here is there are relatively few prosecutions," says Richard Cebula, Shirley and Philip Solomon's Eminent Scholar in the economics department of Armstrong Atlantic State University Armstrong Atlantic State University, abbreviated AASU, is a state university located in Savannah, Georgia. It is a unit of the University System of Georgia and is accredited by the Southern Association of Colleges and Schools. in Savannah Savannah, city, United States
Savannah, city (1990 pop. 137,560), seat of Chatham co., SE Ga., a port of entry on the Savannah River near its mouth; inc. 1789. , Ga. "If there is a sufficiently large In mathematics, the phrase sufficiently large is used in contexts such as:
However, Cebula argues that just as drivers are less likely to speed when they've just seen a police car--a syndrome called "black-and-white fever"--business people are less likely to behave unethically when they know they'll pay a price for misconduct.
Of course, those people who do get caught, or even unjustly accused, by the Securities and Exchange Commission (SEC) or Justice Department pay a steep price. Prosecutors have been so busy that Judges are lambasting them for overzealousness. In March, a judge in the trial of former KPMG KPMG Klynveld Peat Marwick Goerdeler (accounting firm)
KPMG Kaiser Permanente Medical Group
KPMG Keiner Prüft Mehr Genau (German)
KPMG Kommen Prüfen Meckern Gehen partners said he was "bothered" by allegations that the government had been using strong-arm tactics to get the testimony and cooperation it wanted. "I think it's shameful, and it may be worse than that," the judge said.
KPMG was only the latest in a series of cases in which government prosecutors may have gotten a bit carried away in their pursuit of suspected white-collar criminals. A U.S. Chamber of Commerce The U.S. Chamber of Commerce is the world's largest not-for-profit federation of businesses, representing more than 3 million businesses and organizations in the United States. As of 2003, the chamber was comprised of 3000 state and local chambers and 830 business associations. report this spring spotlighted numerous cases of questionable prosecutions. "The real question is: what cases should be criminal?" asks Bruce Hiler, chair of the Securities and Financial Institutions Regulation department at law firm Cadwalader, Wickersham & Taft and a former associate director of the SEC's Division of Enforcement. "The government is almost presuming pre·sum·ing
Having or showing excessive and arrogant self-confidence; presumptuous.
pre·suming·ly adv. bad faith."
The Stick, and the Stick
A purely economic analysis suggests that a regime of tough love--prosecutions and penalties--may be just what business needs if it is to stay the ethical course. After all, every time business ethics has come to the foreground in the past two or three decades, it's been against a background of prosecutions or threats of prosecution. Old hands in the ethics and compliance field trace the origin of the field itself to the defense procurement scandals of the early 1980s.
"My mother called me from Pittsburgh to ask if I was a crook, because the paper said that all defense contractors were crooks," recalls Pat Gnazzo, senior vice president of business practices and chief compliance officer at CA Inc. (formerly Computer Associates), who was at that time an attorney for a defense contractor. Led by such luminaries as Jack Welch For the illustrator named Jack Welch, see Jack Welch (illustrator)
John Francis "Jack" Welch, Jr. (born on November 19 1935 , the defense firms put together a Defense Industry Initiative mandating codes of ethics and compliance programs to win back the public trust.
Keith Darcy, president of the Ethics and Compliance Officers Association, cites two other events that made ethics a business priority. In 1991, the Federal Sentencing Guidelines The Federal Sentencing Guidelines are rules that set out a uniform sentencing policy for convicted defendants in the United States federal court system. The Guidelines are the product of the United States Sentencing Commission and are part of an overall federal sentencing reform for Organizations said ethics and compliance programs would be a mitigating factor in sentencing corporations convicted of crimes. Then, in 2004, an amendment to those guidelines stressed the need for companies to "promote an organizational culture This article or section is written like an .
Please help [ rewrite this article] from a neutral point of view.
Mark blatant advertising for , using . that encourages ethical conduct." The result, says Darcy, has been a much-needed shift from mere legal compliance to deeper cultural transformation.
What's the difference between compliance and culture? Darcy explains, "One could argue that Enron was in substantial compliance with the law (obviously not so in terms of accounting practices), but you could argue that there was a culture of greed, and at the end of the day, culture trumps compliance."
Culture is now a factor that prosecutors may consider not only in sentencing, but also in deciding whether or not to file criminal charges at all. The problem is that culture is such a vague concept that no one is sure how to measure it, or how to build it.
"The real challenge of the business ethics movement is not the black-and-white decision of obeying or violating the law, but the grey area of whether you made intelligent, rational ethical decisions," says W. Michael Hoffman, executive director of the Center for Business Ethics at Bentley College Bentley College is located at 175 Forest Street in Waltham, Massachusetts, 10 miles west of Boston. Founded as a school of accounting and finance in Boston's Back Bay neighborhood, Bentley moved to Waltham in 1968 and today is ranked 31 on Business Week's top 100 undergrad . Nancy Thomas-Moore, director of ethics and business conduct at the Weyerhaeuser Co., notes that the company's CEO called its first ethics handbook "gray for a reason."
At Weyerhaeuser, Tyco International and PriceWaterhouseCoopers (PwC), efforts to inculcate in·cul·cate
tr.v. in·cul·cat·ed, in·cul·cat·ing, in·cul·cates
1. To impress (something) upon the mind of another by frequent instruction or repetition; instill: inculcating sound principles. a culture of ethics acknowledge that much of ethical decision-making is impossible to capture in rulebooks. Both Weyerhaeuser and Tyco, for example, have developed training programs that offer employees scenarios of ethical challenges. Barbara Kipp, a partner in PwC's Governance, Risk and Compliance practice and the firm's global ethics leader, says the firm sets forth broad principles and leaves implementation up to the individual managers.
There seems no reasonable alternative in a company that does business in more than 100 countries worldwide, where differences in living standards living standards npl → nivel msg de vida
living standards living npl → niveau m de vie
living standards living npl , cultures and customs might make specific rules (such as a monetary limit on gift giving) impractical and perhaps even counter-productive.
But gray areas are dangerous when the stakes are high enough to include prison terms for making the wrong call. "You're not allowed to make an honest mistake," says Roub. "It's a violation of the law, you've ruined your career, maybe even ruined your life."
Ethics and culture, traditionally classed among the "soft" issues of business, have become the hard nut to crack. "In order to achieve compliance with the law, you have to build an effective ethics and compliance program and an effective culture of ethics and compliance," says PwC's Kipp. But that's easier said than done. The challenges to developing an ethical culture Ethical Culture is a nontheistic religion established by Felix Adler in 1876. The Ethical Culture Movement is a non-sectarian, ethico-religious and educational movement. are great.
In the first place, cultural change takes time. Says Gnazzo, "Culture can't happen (programming) can't happen - The traditional program comment for code executed under a condition that should never be true, for example a file size computed as negative. Often, such a condition being true indicates data corruption or a faulty algorithm; it is almost always handled overnight. You can write the values overnight, but culture is not imbedded until you act on the values enough times that you're known for it." Nancy Thomas-Moore of Weyerhaeuser says her company's culture of integrity dates back to the day it was started on a handshake over a century ago. "One of the new things happening is we're all trying to figure out how you measure ethical culture," she says. "I do know it takes a long time for these messages and behaviors to filter through the company."
Weyerhaeuser's culture grew more slowly than its trees. Who has time for that anymore? Historic rates of merger and consolidation throw together disparate cultures and systems daily, and few companies can realistically plan their culture on a century-long scale.
In the second place, real culture change takes commitment. The best recent examples are in companies where the alternative to change was extinction.
Take Tyco, for example. Within a few months of accepting the top job vacated by disgraced Dennis Koslowski, CEO Edward Breen replaced the whole board and 290 employees.
One may well question the ethics of replacing people who may have had nothing to do with the malfeasance The commission of an act that is unequivocally illegal or completely wrongful.
Malfeasance is a comprehensive term used in both civil and Criminal Law to describe any act that is wrongful. at Tyco. "It was a fairly draconian decision, but the decision was in the interest of speed, objectivity and fairness as we moved forward," says Eric Pillmore, Tyco's senior vice president for corporate governance Corporate Governance
The relationship between all the stakeholders in a company. This includes the shareholders, directors, and management of a company, as defined by the corporate charter, bylaws, formal policy, and rule of law. . "Our highest priority was to move quickly, to save the company from bankruptcy and to preserve 240,000 jobs."
Tyco also made structural and operating changes, such as separating financial and operating management to emphasize that--while financial partnership is fine as far as it goes--the first responsibility of finance is controllership. It did something few companies have done by making Pillmore's governance position a direct reporting relationship to the board. "What I have is a voice at the table, and that really helps--versus a job lower in the organization," he says.
Listen to business people speak about ethics, and it won't take long before they say, as does Bryan Roub, "Good ethics is good business." They talk about the contribution of ethics to brand value, for example. They observe that most people basically want to do the right thing. To which Cebula retorts, "How do we know one way or the other?"
Very few things in the field of ethics are clear. However, when accused of misconduct, businesses and their executives face sentencing guidelines that will evaluate their success at building an ethical culture--a phenomenon that no one is quite sure how to measure, much less to build.
There is no straightforward pattern for ethics success, only experiments conducted in the dark. The outcomes of those experiments may determine the fate of executives and the companies they lead. Or they may sink into the background, supplanted by more urgent priorities, only to be remembered in a decade or so when the next crop comes in.
Gregory J. Millman (firstname.lastname@example.org) is a New Jersey-based freelance business writer and author and a frequent contributor to Financial Executive.
RELATED ARTICLE: takeaways
* While research shows a considerable jump in formation of ethics programs in recent years, there is little evidence that employees are more ethical.
* Prosecutors have been criticized for overzealousness, however. Some critics argue that the government seems to presume bad faith before a probe begins.
* An ethical culture is a vague concept, and businesses have trouble deciding how to measure it or build it. But it can be a mitigating factor when sentencing violators.
* Companies like Weyerhaeuser and Tyco International have developed training programs that offer employees scenarios offering ethical challenges.