Corporate ethics ... "follow the leader"? (Manage Your Assets).

"The economy and markets right now are in the midst of a full-blown corporate governance shock," said Stephen Roach, chief economist at Morgan Stanley. (Washington Post Newsweek Interactive, 2002)

In a National Business Ethics survey of 1,500 workers conducted by the Ethics Resource Center and KPMG, one-third said they had seen their bosses lying to employees, customers, vendors, and the public, and even abusing employees, stealing from the company, or breaking the law. More than 75 percent claimed to have seen their bosses break the law or violate company standards in the preceding six months.

The keys to running an ethical company are accountability, honesty, and information transparency. The trouble is many companies are structured so that no one has complete information, no one makes complete decisions and no one has clear responsibility. This kind of structure lets managers to CEOs hide behind their lack of accountability, which guarantees corporate governance irresponsibility and stock decline. Here are some thoughts from CEOs and others on the topic.

Russell Freeman, CFO, Perot

Systems Corporation

Thousands of decisions are made every day that must be made with a clear understanding of a company's ethical standards. As leaders, we have a responsibility to communicate and demonstrate the standards that our company expects in the actions of all employees. Perot Systems' founders set an expectation in the company's original goals that our employees would operate with high standards by walking in the center of the playing field of ethical behavior -- never on the sidelines. We have a formal policy, "Standards and Ethical Principles," that every employee must periodically review and affirm. We measure our actions against a rigid standard, "Would I do business in complete trust with someone who acts the way I do?" and the answer must be "yes." This could require us to take a difficult course of action, but over time will create greater trust with clients, partners, employees and shareholders. Long-term, we believe there is a tangible financial return generated by acting responsibly and ethically. Nevertheles s, being ethical is not about driving financial success -- it is about doing the right thing even when there are negative financial consequences.

Contact: [e-mail]

Michael W. Conron, Securities Partner, Venable, Baetjer and Howard, LLP 

Due to recent corporate scandals, Congress passed a controversial law last summer that many people consider an attempt to legislate corporate ethics. Although the Sarbanes-Oxley law does make illegal some activities that that many consider unethical, such as insider loans and certain document destruction practices, the new law and the subsequent avalanche of rules it has spawned are less concerned with ethics than with the quality of the disclosure process.

High-quality disclosure is essential to the appropriate valuation of public companies and the integrity of our capital markets. Key components of the law impose a process for developing disclosure, supervising firms that audit disclosure and assigning legal responsibility for disclosure. These processes compel directors and officers to become familiar enough with the issues facing their companies to be able to provide accurate and lucid disclosure of such issues. Since the focus is on process, the system continues to presuppose the ethical behavior of executives and board members.

Notwithstanding the additional work this law has generated for lawyers, accountants and other consultants, it is easy to envision a corrupt, but competently advised, management team observing all the process requirements of the new law and still issuing fraudulent disclosure. This management team would be difficult to prosecute even under the new law because a prosecution for securities fraud would still involve a lengthy, and perhaps unsuccessful, inquiry into who knew what and when.

Accordingly, under the new or old rules, legally compliant corporate governance requires the retention of experienced securities counsel and accountants, but good corporate governance requires honor and integrity in the elected officers and directors of our public companies.

Contact: [e-mail]

Guy Haddleton, CEO, Adaytum

What happens in the boardroom and in the general ledger can no longer be a case of "out of sight, out of mind." We don't have the luxury of obscuring the details in the name of competitive considerations or confidentiality. We must fight the negative light shed on corporate governance and financial management by building a trusting relationship with our investors and stakeholders.

The only way corporate executives can establish -- or re-establish -- trust with the investment community is by earning it over time. By maintaining ongoing communications, clearly outlining expectations for performance, and continually meeting those goals, executives can reaffirm the shareholder's trust in both the corporation and its stewards.

While software can't solve moral and ethical issues, it can help companies that do have ethical leadership to have the most up-todate and realistic data for discussing corporate performance and meeting shareholder expectations. Furthermore, by following enterprise performance planning best practices, companies can drive accountability throughout an organization, forming a democracy of checks and balances to keep the corporation honest As a result, companies can build a consistent track record of planning and meeting expectations, thereby inspiring confidence and ruling out the potential for misleading accounting measures.

Contact: [e-mail]

Welcome to "Manage Your Assets," a series of business topics in which top analysts and consultants share their best advice on the subject. Readers can continue the dialogue on their own by contacting the consultants directly. We also encourage reader response and participation in this column. If you would like to ask a question or are a consultant and would like to be profiled, contact [e-mail] (photo may be required, if chosen).

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