Creating and sustaining an ethical workplace.
In many respects, Sarbanes-Oxley has become a prescriptive code of ethical behavior. SOX mandates that public organizations take a long, hard took at their internal officers and business operations. Public companies are required to document timely compliance with the act's provisions and, at the same time, demonstrate an ethical commitment to the implementation process itself,
Given this, present-day board members have a significantly greater responsibility to take appropriate steps to ensure their organizations conduct business in an ethical manner. The role of the board has clearly evolved in recent years from a perceived custodian and optimizer of shareholder value to a body that must be concerned with risk management.
In 2004, the Sentencing Commission amended the Organizational Sentencing Guidelines, thereby further encouraging an organization's board of directors and senior management to establish an ethical culture. According to these new guidelines, boards are now expected to exercise oversight responsibility for compliance and ethics programs while executing their fiduciary and decision making duties as directors. At the same time, corporate boards must also be knowledgeable about the programs that management has put in place, hold them accountable for these programs and determine their effectiveness.
In essence, this is the optimal time for risk managers to work with corporate boards to create and sustain a strong ethical environment. It is true that compliance with the Organizational Guidelines is voluntary. However, a business that fails to consider implementation of the amendments as corporate best practices places itself in a precarious and vulnerable position. And in the process, it may also inadvertently support unethical behavior
While it is critical to be in step with all regulatory directives, good ethics goes beyond organizational compliance. It has been reported that there is a close correlation between an organization maintaining a strong ethical commitment and overall organizational performance. Given the focus of regulators and the investing public on ethics of late, creating and demonstrating a strong ethical culture is also good for business. There is growing evidence that a broad cross-section of stakeholders, including shareholders, regulators, law enforcement, lenders, insurance underwriters, analysts and bond raters are willing to reward organizations that have a proven commitment to integrity, the demise of many once-respected organizations has created a new business environment--one in which a focus on reputation requires businesses to understand and address the inherent risks of an ethically challenged company.
The Tone from the Top
Foremost in the creation of an ethical culture is the personal integrity of organizational leadership, which is essential for creating and sustaining an effective and value-based "tone from the top." It has often been said that a deterrent to unethical behavior is ethical leadership. Employees are very sensitive to situations that impact their workplace and base much of their perceptions of the organizational culture on what they hear senior management say and, more importantly, what they see senior management do.
Because personal values ultimately drive human behavior, the key objective for corporate leaders is to convert identified organizational values into behavioral standards in the workplace. To accomplish this, leadership must make certain that as soon as an employee enters the organization, they are greeted by an internal culture that speaks to ethical values that are inculcated and supported within the organization.
Each new employee should be met with a specific "ethics message" from the CEO, which should include a discussion of organizational culture and values; prescriptive models for ethical behavior (code of ethics); internal ethics support; zero tolerance for unethical conduct; rewards/incentives for ethical behavior; confidential reporting mechanisms; and the organization's support and commitment to its ethics program. This approach sets the tone of the organization and also serves to introduce new employees to the organization's internal culture, available ethics support mechanisms and the components of its ethics program.
The board, while not managing the day-to-day business of the organization, plays an important role in monitoring ethics practices, policies and procedures, as well as overall performance. Together, the board and senior management play a pivotal role in the creation, implementation and sustainability of the organization's ethics program. The board has responsibility for the oversight of the process of creating the program, and senior management has responsibility for the development, execution and ongoing monitoring to ensure the program's successful implementation.
To begin the process of creating an ethics program, or reviewing one already in place, the risk manager can work with the board and senior management to conduct an ethics assessment that includes a detailed questioning of the following:
* corporate activity and culture
* ethics approach and compliance
* ethics policies and procedures
* employees' cultural perceptions
* ongoing ethics program monitoring
* ethics oversight and review
* ethical decision-making models
* ethics support resources
* management and leadership practices
* rewards for ethical behavior
* ethical issues and misconduct
* ethics education and training
As part of the ethics assessment, an organization should conduct a critical in-depth review of how it conducts its business and how it creates and sustains its culture. This in-depth review, together with an evaluation of the above elements, should give the risk manager, the board and senior management a detailed snapshot of the way in which the organization conducts business.
A review and analysis of instances of unethical behavior will serve to highlight the particular ethics risks and vulnerable areas within an organization that have allowed (or may allow) misconduct to occur. The risk manager should play a significant role in the process of assessing the organizational culture, conducting periodic ethics risk assessments and responding to identified risk in a timely manner. In addition, the risk manager should continually apprise the board and senior management of the identified ethics risks, as well as assist and support them in addressing risks and overseeing responsibilities.
Implementing the Program
When implementing an ethics program, an organization should consider including the following:
* relevant compliance laws
* ongoing employee ethics training
* ethical decision-making models
* designating an ethics resource person
* identification of ethical dilemmas encountered in the specific workplace
* opportunities for role playing and contemplating identified problems
* access to in-house ethics information, education and communication processes within the organization
* a confidential mechanism for reporting instances of unethical conduct
Additionally, the risk manager may also recommend that employees participate in creating the organization's code of ethics and enforcement procedures. Involving employees in the ethical code development process instills a sense of personal ownership and individual responsibility to live up to these standards.
Ethics education is an integral component of an ethics program and serves to provide employees with the necessary tools to deal with ethical dilemmas encountered in the workplace. All employees in an organization should be provided with ethics education that presents an ethics overview, ethical theories and decision-making methodologies.
To sensitize employees to workplace dilemmas, an organization should first conduct a survey to identify those specific ethical dilemmas encountered by its employees. Next, an organization should utilize the identified dilemmas in focus groups and roundtables to familiarize employees with specific workplace dilemmas, thereby providing employees with an opportunity to deal with a dilemma before they encounter it.
Although no organization will be able to identify every potential ethical dilemma in advance, the process of identifying organization-specific dilemmas will serve to help employees recognize and understand the dilemmas that may be encountered in the workplace as well as provide the opportunity to engage in decision-making with guidance before actually confronting a similar dilemma.
Ethical decision-making models can also help provide employees with a framework for deciding upon a course of action. More specifically, decision-making methodologies provide an organizational framework for determining the facts of a given situation; identifying the alternatives and consequences of each contemplated action; choosing a course of action; implementing the decision; and evaluating its outcome.
Although not legislatively mandated, many organizations have implemented confidential ethics helplines. These helplines serve two purposes. First, they offer assistance for employees grappling with a specific ethical dilemma in the workplace. Second, ethics helplines serve to alert an organization to the types of ethical dilemmas its employees are encountering in the workplace. Based on information regarding specific ethical questions (with confidential details protected), the organization can then offer educational programs that specifically address these particular situations. This specificity can serve as a key component in keeping the program timely and relevant. To ensure its success, the integrity of an ethics helpline must never be called into question.
To encourage individual moral autonomy, an organization must eliminate impediments to "speaking up." Furthermore, consulting an ethics helpline and coming forward regarding ethical concerns should be actively supported. The risk manager can assist the board and senior management in creating an ethical culture that achieves a balance in the manner by which ethical behavior is encouraged, supported and rewarded
Additionally, it is important for the board and senior management to constantly review how organizational justice is dispensed within the organization and what mechanisms the organization utilizes to recognize and reward ethical behavior. An organization should pay particular attention to the behavioral incentives it employs to encourage employees to behave ethically and comply with the organization's policies and procedures. In addition, recognition by the organization of instances of individual ethical behavior should be frequently disseminated throughout the organization.
Avoiding Common Pitfalls
There are many threats to an organization that could impede a risk manager's attempts to create and sustain an ethical workplace, including:
* minimal employee guidance for dilemmas within the code of ethics
* hiring and promoting individuals with questionable backgrounds
* unreasonable or unwarranted firings and/or advancements
* retaliation against an employee who has spoken up
* lack of helpline integrity
* inadequate ethics training
* unrealistic expectations
* lack of an appropriate and consistent response to claims of misconduct
* pervasive nonquestioning and/or obedience to authority
* inadequate communication channels
* ineffective support mechanisms
Organizational culture is largely set by the words and actions of the board and senior management. To reinforce the organization's message, the board of directors and senior management must, at all times, serve as role models and demonstrate a strong commitment to ethical conduct. The question for the organization is always whether the employees' view of the tone from the top is in alignment with senior management's perception of its own behavior. If there is a disconnect between the perception of the tone from the top held by employees and that held by senior management, then management should conduct a self-evaluation to review and identify reasons for this discrepancy.
The risk manager can also assist the board and senior management to implement an ongoing evaluation process to determine the success of the ethics program. To that end, the risk manager may consider retaining the services of an independent reviewer of ethics programs to evaluate the organization's program. In addition, the risk manager can work with human resources, legal and marketing/public relations departments as well as senior management to create ethics communications via e-mail, ethics posters and handouts to all employees. Creating an ethics violations database by using past situations to educate and sensitize employees to those dilemmas that were encountered in the workplace is another option to consider.
Sustaining an ethics program within an organization requires the creation and support of a dedicated ethics resource position, such as a chief compliance officer or chief ethics officer. Merely, having a code of ethics will not provide the human ingredient that is essential in delivering ethics assistance and support to employees who are confronting a workplace dilemma and are uncertain about a course of action.
In essence, the ethics resource position is an integral component for enabling an organization to sustain its ethics program and culture. Furthermore, the creation of this position provides an additional safeguard that serves to diminish the likelihood of that problems will ever arise from unreported and unresolved ethical dilemmas.
Committing to Ethics
Organizations do not behave ethically by chance; they are created and supported to operate as such. In today's marketplace, businesses will increasingly be rewarded for demonstrating a strong and dedicated commitment to corporate integrity. In this environment, the risk manager plays an important role in assisting the board and senior management in meeting their moral responsibility to create an organizational culture that evinces the highest standards of ethical conduct.
By implementing an effective ethics program and providing ethics support mechanisms, organizations can create and sustain an ethical workplace to reduce exposure to reputational risk as well as potential losses of financial assets, physical property and valuable human resources.
Robin J. Zablow, JD, Ed.M., Ed.D., is a senior manager in the litigation and fraud investigations practice of BDO Seidman, LLP, a national accounting firm. Based in the firm's New York office, she assists clients in implementing fraud prevention and ethics education programs.