Instilling ethical conduct.

Why your association needs an organizational ethics program.

Employee misconduct is on the rise, litigation is pervasive, attorney's fees are outrageous, and juries return judgments in amounts overwhelming to most organizations. In this hostile environment, ethical conduct is more critical than ever and requires more than cosmetic efforts.

The United Way experience is a haunting reminder of what can happen when defining and inculcating responsible conduct are not priorities of the association's chief executive officer and board of directors. Associations face daily ethical dilemmas. I'm told by association friends that conflicts of interest, kickbacks, misuse of association property, diversion of association funds, and incomplete financial reporting are common issues faced in their organizations.

One notable story involves an association CEO who lobbied his board to relocate the national office. The board approved buying out the CEO's residence based on an independent appraisal. When the appraisal arrived, the executive disagreed with the designated value, suppressed the report, and arranged for an appraisal that met his expectations. The new figure was significantly higher than the first, and the board did not learn of the first appraisal until several years later when the chief executive retired. This occurred despite the existence of a code of ethics.

Ethical dilemmas do not always involve money. In January of this year, the coach of a national sports organization was dismissed for allegedly having sex with three of his young female players. The coach admits he had sex with these females, but contends that the acts were consensual and occurred after the women were of age. Assuming the acts were legal, do they constitute ethical and responsible conduct? The organization's board did not think so and now faces a $1 million lawsuit for wrongfully dismissing the coach.

Addressing ethics is your Job

Like many organizations in America today, yours probably has a code of ethics and some commitment to ethical leadership. (See the "Leading" column "Codify Your Ethics" in this issue of ASSOCIATION MANAGEMENT.) You may even have created an ethics committee to address concerns as they arise. Beyond these initial efforts, however, probably little else has occurred. Your association probably lacks a written plan outlining how to encourage ethical behavior. Furthermore, financial resources committed to the ethics initiative most likely are nominal.

Did you know that ASAE has formal, written standards of conduct, published in Who's Who in Association Management, that, as a member of ASAE, you are expected to follow? The code requires you to actively promote and encourage the highest level of ethics within the industry or profession your association represents.

I do not intend to criticize your association's efforts. Ethics codes and committees are necessary and desirable. In fact, if your association does not have a code and committee, you need to create them. But these two steps alone do not constitute a complete and effective organizational ethics program.

How much effort is enough?

Last year, I attended a conference of corporate ethics officers representing organizations that had developed formal ethics compliance programs. I met an attorney who boasted that he worked for a nationally prominent insurance company - an "ethical" company that always did the right thing. Taken aback by his bravado, I asked him how he had determined that his company was ethical. He replied that the company had developed a code of ethics and created posters and brochures. The CEO had made a video outlining his desire that everyone act ethically. I was unimpressed by the insurance company's superficial efforts. And this representative of a supposedly leading-edge company gave no examples of ethical dilemmas and how the company's response reflected a responsible decision.

Although there were many outstanding conference presentations, several weeks later I learned that three presenting organizations were involved in serious ethical and legal controversies. One of them agreed to pay millions to settle claims of fraudulent sales practices. Another recently lost several lawsuits stemming from product defects. The unsettling aspect of these verdicts was the punitive damages imposed because of company attempts to hide crucial evidence. The third organization is under investigation for price-fixing and solicitation of unlawful payments in exchange for favorable concessions. These examples show that having a code and committee is not enough.

Due diligence 

The consequences of improper behavior by an association include

* debarment from participation in federal programs;

* multimillion-dollar judgments;

* outrageous attorney's fees;

* public humiliation and lost member confidence; and

* tarnished reputations and careers.

Another compelling reason for effective ethics programs is found within the United States Sentencing Guidelines. Federal district court judges use these when sentencing organizations convicted of federal crimes. The guidelines provide for significant reductions in fines and penalties if an organization has implemented an effective program of ethics and legal compliance.

To obtain a reduction in a fine or penalty, prior to an offense, the organization must have made a genuine institutional commitment and exercised due diligence to prevent and detect violations of law. Under the guidelines, due diligence at a minimum requires that the organization take the following steps:

* Establish compliance standards and procedures capable of reducing the prospect of criminal conduct.

* Assign high-level personnel to oversee compliance with standards.

* Use due care not to delegate substantial discretionary authority to individuals who the organization knew - or should have known - had a propensity to engage in illegal activities.

* Communicate standards to all employees by requiring participation in training programs or by disseminating publications that explain in a practical manner what is required.

* Use monitoring and auditing systems reasonably designed to detect criminal conduct and install a reporting system whereby employees can report unlawful activity by others within the organization.

* Consistently discipline those who violate the standards.

* Respond appropriately to violations and act to prevent further similar offenses, including any necessary modifications to the organization's ethics program.

Ethics program steps

The challenge is to implement the sentencing guidelines' recommendations so that your association's organizational ethics program reflects its unique needs and character. The following steps are crucial to the success of any organizational ethics initiative.

1. Ensure that the governing body makes a genuine commitment to the ethics initiative and devotes enough financial resources to develop and maintain the program.

2. Assign a single senior manager who reports directly to the CEO to oversee day-to-day aspects of the ethics program. This person also should be familiar to the board.

3. Commission an independent assessment of the organization's current ethical climate. Confidential personal interviews, focus groups, and an anonymous written survey will answer the following questions:

* What types of ethical dilemmas do staff and volunteers commonly face?

* How are these dilemmas resolved?

* Has unethical or unlawful conduct ever occurred?

* What was the nature of that conduct, and why did it occur?

* How frequent was it, and does it still occur?

* What are staff perceptions about the organization's ethical climate?

4. Next, commission an independent ethics audit to compare the organization's existing ethics program to state-of-the-art possibilities and determine program effectiveness.

5. Create an ethics task force to receive assessment and audit findings. With this information, the task force develops recommendations for an ethics initiative, incorporating United States Sentencing Guidelines suggestions.

6. Include in the ethics program a strong training component focused on common ethical dilemmas faced by staff and volunteers, reasons for unethical conduct, the process of ethical reasoning, and the organization's ethical values.

7. Have each supervisor develop an action plan addressing how he or she will promote ethical conduct.

8. Create an ethics advisory hotline so that employees and volunteers can seek guidance confidentially.

9. Institute a reporting system that encourages staff to come forward with ethical concerns or violation reports. Prompt resolutions can avert full-scale crises.

10. Publicize the ethics program throughout the organization using media such as e-mail, brochures, videos, posters, and newsletters.

11. Ensure that the governing board reviews the ethics program at least quarterly.

Employee and volunteer misconduct, fraud, scandal, corruption, and litigation are real threats to every association. But you can take an affirmative, active approach that will greatly minimize these threats. Don't be complacent about your organization's code. Remember, your ASAE standards of conduct require you to actively promote ethics within your association and industry. Don't wait. Spread the message and take charge. The rewards are substantial.

RELATED ARTICLE: Nine Reasons to Ride the Ethical High Road

1. To demonstrate and reflect your organization's commitment to and expectation of ethical behavior.

2. To encourage ethical decisions and responsible behavior.

3. To preserve the public's confidence in your organization and its products and services.

4. To provide an organizational conscience that helps staff and volunteers responsibly face and overcome the ethical challenges they encounter in the association's service.

5. To improve morale by strengthening your organization's relationship with employees, members, and the governing body.

6. To mitigate possible fines and penalties under the United States Sentencing Guidelines.

7. To provide a framework for resolving ethical dilemmas before they develop into serious litigation, fraud, or corruption.

8. To protect your profitability.

9. To reduce the threat of employee misconduct, fraud, scandal, corruption, and litigation.

Louie V. Larimer is president of The Latimer Center For Ethical Leadership, Inc., a Colorado Springs, Colorado, firm consulting in organizational ethics and compliance issues. E-mail: [e-mail].