Chapter 8

Development of an Effective Ethics Program

Effective Ethical Compliance Programs...

should reduce the possibilities of penalties & negative public reaction to misconduct

must be communicated to all employees-common understanding of organizational values, policies & procedures– companies that act to prevent organizational

misconduct may receive a ‘carrot’ and avoid organizational penalties

– those that do not may receive a ‘stick’-fines & penalties

The Sentencing of Organizations Under the FSGO is Governed by 4 Considerations

the organization must remedy the harm

fines may be set sufficiently high to divest the organization of all assets if it is found to be criminal purpose

fines levied against the organization are based on the seriousness of the offense & the culpability of the organization

probation is deemed appropriate when the organization will work to prevent further misconduct

Effective Ethical Compliance Programs...

must deal effectively with the risk associated with a particular business & has to become part of the corporate culture

can help avoid civil litigation

must exhibit due diligence to prevent misconduct

Codes of Ethics...

are formal statements of what an organization expects in the way of ethical behavior– will not solve every dilemma– provide rules & guidelines– reflects senior management’s desire for compliance

with values, rules & policies in support of an ethical climate

should be specific enough to be reasonably capable of preventing misconduct

Manley’s Six Steps to Implement a Code of Ethics

distribute the code comprehensively: employees, subsidiaries, & associated companies

assist in interpretation & understanding

specify management’s role in implementation

make employees responsible for understanding

establish grievance procedures

provide a conclusion or closing statement

High Level Oversight

ethics officers or committees are responsible for oversight of the ethics/compliance program– coordinates program with top management– develops, revises & disseminates the code– develops effective communication– establishes audits & control systems– provides consistent enforcement of standards– reviews & modifies the program to improve effectiveness

Effective Communication of Ethical Standards...

provides guidance for ethical standards & activities that integrate the functional areas of business

helps employees identify ethical issues & provides a means to address & resolve

can help reduce criminal, civil & administrative consequences including:– fines, penalties, judgements, etc.

Ethics Training Programs Should...

reflect organizational size, culture, values, management style & employee base

improve employee understanding of ethical issues

influence the organizational culture, significant others, & opportunity in the ethical decision making process

overall, provide for recognition of ethical issues, understanding of culture & values, and influence ethical decision making

Monitoring, Auditing, & Enforcing Ethical Standards...

an internal system for employees to report misconduct is an opportunity to register ethical concerns– ethics hot lines– questionnaires may be used to serve as

benchmarks– corrective actions provide standards & punishment– consistent enforcement is critical

Continuous Improvement

if a company has determined that its ethical performance has not been satisfactory, management may want to recognize the way ethical decisions are made:– a decentralized organization may be centralized

(perhaps temporarily) so that top level managers can ensure that ethical decisions are made

– a centralized organization may be decentralized (perhaps temporarily) so that lower level managers can make more decisions

“Bad Apple-Bad Barrel” Theory

“bad apple”-the notion that blame for unethical behavior rests with a few unsavory individuals (difficult for organizations to influence ethical decision making)

“bad barrel”-views that people are not inherently ethical or unethical, but are influenced by the corporate culture surrounding them (more organizational control)

Ethical Compliance Audit

a systematic evaluation of an organization’s ethics program and/or performance to determine its effectiveness– can help in establishing codes & program– should provide a systematic & objective approach to

surveying the ethical condition of the organization

– may be more effective if performed by an external entity (organizations should participate in ethics audit instrument development)