Copyright © 2009 by the Center for Ethical Business Cultures · •Sanlu •Morgan Stanley...


SCCE Conference for Effective Compliance Systems in Higher Education

SCCE Conference for Effective Compliance Systems in Higher Education

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Ron JamesPresident and CEO

Center for Ethical Business Cultures

01 June 2009

Copyright © 2009 by the Center for Ethical Business Cultures®3

Enron

WorldCom

Arthur Anderson

Adelphia

Tyco

Navigating …


… Turbulent Ethical Waters

Ponzi Schemes

Double Digit Unemployment

Funding Sources Dry Up

Endowments Shrink

Global Economies Falter

National Deficits GrowStock Market Plummets

Financial Sector Meltdown


About the Center for Ethical Business CulturesMission

To assist business leaders in creating ethical and profitable business cultures at

the enterprise, community and global levels

Background– 30 year old nonprofit organization

– Began partnering in 1988 with University of St. Thomas – Member of the Advisory Group to the US Sentencing Commission

– Advises Boards and Executive Leaders on “Tone at the Top”


Organizations that build an ethical culture:

– Do it because it’s the right thing to do

– Outperform organizations that don’t

– Reduce their exposure to ethical lapses that cause breakdowns

Why is it Important


Scanning the Environment:The More Things Change the More

They Stay the Same

Scanning the Environment:The More Things Change the More

They Stay the Same


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Defense Industry Initiative1970s

$700 hammer; $640 toilet seat$7600 coffee pot that would withstand 40 times the force of gravity$1,118.25 plastic cap for the leg of a navigator’s stoolDefense contractors inflated charges (1980 $s):

$281 million – Lockheed$130 million – McDonnell Douglas (including billing for appearances at Boy Scouts of America events)7

$700 hammer; $640 toilet seat$7600 coffee pot that would withstand 40 times the force of gravity$1,118.25 plastic cap for the leg of a navigator’s stoolDefense contractors inflated charges (1980 $s):

$281 million – Lockheed$130 million – McDonnell Douglas (including billing for appearances at Boy Scouts of America events)7


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The Savings and Loans Crisis1980s

Economist John Kenneth Galbraith: “the largest and costliest venture in public misfeasance, malfeasance, and larceny of all time.”Over 1000 S & L’s failed at a cost of $160.1 billion $124.6 billion paid by the US Government…taxpayers - 3300 of 3800 S & L’s lose moneyLincoln S & L and the Keating Five: Three Senators see political careers cut short; and two are rebuked by the Senate Ethics Committee for exercising poor judgmentSiverado S & L: Director and son of leading politician, pays $50,000 to settle civil actions alleging “breaches of fiduciary duty and multiple conflicts of interests.”

Economist John Kenneth Galbraith: “the largest and costliest venture in public misfeasance, malfeasance, and larceny of all time.”Over 1000 S & L’s failed at a cost of $160.1 billion $124.6 billion paid by the US Government…taxpayers - 3300 of 3800 S & L’s lose moneyLincoln S & L and the Keating Five: Three Senators see political careers cut short; and two are rebuked by the Senate Ethics Committee for exercising poor judgmentSiverado S & L: Director and son of leading politician, pays $50,000 to settle civil actions alleging “breaches of fiduciary duty and multiple conflicts of interests.”


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Health Care Fraud1990s

10% of U.S. healthcare costs related to fraud (1992)80% of healthcare fraud caused by medical provider abuse (1998)From an individual’s perspective:

One out of four people say its okay to defraud insurersOne in four say it makes up for premiums they’ve already paid and;One in three rationalize that it makes up for

their deductible$11.9 billion lost to waste, fraud and mistakes in 2000 (2001)

10% of U.S. healthcare costs related to fraud (1992)80% of healthcare fraud caused by medical provider abuse (1998)From an individual’s perspective:

One out of four people say its okay to defraud insurersOne in four say it makes up for premiums they’ve already paid and;One in three rationalize that it makes up for

their deductible$11.9 billion lost to waste, fraud and mistakes in 2000 (2001)


Ethical Breakdowns in the News2000’s

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•Purdue Pharma•Bristol Myers-Squibb•Google & Yahoo (China)•Brocade Communications•Take-Two Interactive Software•Royal Dutch Shell•New England Patriots –Belichick•The McLaren Group•Mattel•Mitchell Report on Baseball•Societe Generale•PetroChina •AGA Medical Co.•Ahold•Bear Stearns•Sanlu

•Purdue Pharma•Bristol Myers-Squibb•Google & Yahoo (China)•Brocade Communications•Take-Two Interactive Software•Royal Dutch Shell•New England Patriots –Belichick•The McLaren Group•Mattel•Mitchell Report on Baseball•Societe Generale•PetroChina •AGA Medical Co.•Ahold•Bear Stearns•Sanlu

•Morgan Stanley•Putnam•Qwest•UnitedHealth Group•BUCA•Siemens•Hewlett Packard•Parmalat•Cendant•Computer Associates•KPMG•Hyundai Motor•Boeing•American Red Cross•Johnson & Johnson

•Morgan Stanley•Putnam•Qwest•UnitedHealth Group•BUCA•Siemens•Hewlett Packard•Parmalat•Cendant•Computer Associates•KPMG•Hyundai Motor•Boeing•American Red Cross•Johnson & Johnson

•Worldcom•Enron•Tyco•HealthSouth•Global Crossing•Arthur Anderson•Adelphia

•Worldcom•Enron•Tyco•HealthSouth•Global Crossing•Arthur Anderson•Adelphia


Thomas Jefferson UniversityThomas Jefferson UniversityMedicare overMedicare over--billingbilling

$12 mil$12 milUniversity of MinnesotaUniversity of MinnesotaMisuse of federal grantsMisuse of federal grants

$32 mil$32 milNew York University Medical CenterNew York University Medical Center

Inflated research grant costsInflated research grant costs$15.5 mil $15.5 mil

Duke UniversityDuke UniversitySexual harassment Sexual harassment

$500,000$500,000University of ChicagoUniversity of Chicago

Research fraud and abuseResearch fraud and abuse$650,000$650,000

Yale Hospital Yale Hospital Mishandling of Mishandling of ““credit balancescredit balances””

$5.6 mil$5.6 mil

Miscellaneous Scientific MisconductMiscellaneous Scientific MisconductJohns HopkinsJohns Hopkins

Harvard (2)Harvard (2)

University of MichiganUniversity of MichiganChief Urologist charged with Chief Urologist charged with

Conflict of InterestConflict of Interest$100,000 penalty$100,000 penalty1 year probation1 year probation

Duke UniversityDuke UniversityMedicare fraudMedicare fraudMillions soughtMillions sought

University of WisconsinUniversity of WisconsinFraud on grant applicationFraud on grant application

Fines and imprisonment for P.I.Fines and imprisonment for P.I.

Columbia UniversityColumbia UniversityHazardous waste violationsHazardous waste violations

$800,000 penalty sought$800,000 penalty sought

Northwestern University Northwestern University ““Effort ReportingEffort Reporting”” fraudfraud

$5.5 mil$5.5 mil

University of South FloridaUniversity of South FloridaImproper research costingImproper research costing

$4.1 mil $4.1 mil

U WashingtonU WashingtonMedicare overMedicare over--billingbillingPhysician convictedPhysician convicted

$35 mil Inst. fine$35 mil Inst. fine

Johns HopkinsJohns HopkinsInflated research costsInflated research costs

$2.6 mil$2.6 mil

HarvardHarvardWrongful grant expensesWrongful grant expenses

$3.2 mil$3.2 mil

U of CaliforniaU of CaliforniaImproper grant chargesImproper grant charges

$3.9 mil$3.9 mil

Texas TechTexas TechMishandling Select AgentsMishandling Select Agents

P.I. jail timeP.I. jail time

Problems in Academia

Stanford UniversityStanford UniversityInflated research overhead costsInflated research overhead costs

$1.2 mil$1.2 mil

U of California at Santa BarbaraU of California at Santa BarbaraChancellor charged with embezzlementChancellor charged with embezzlement

Insurance and tax fraud Insurance and tax fraud

Rockefeller UniversityRockefeller UniversityPresident resigns over allegations President resigns over allegations

of scientific fraudof scientific fraud

U of PhoenixU of PhoenixThe Apollo GroupThe Apollo Group

Fraudulent student recruitmentFraudulent student recruitment$280 mil fine$280 mil fine


Confidence in Leaders


The Cost of Ethical Breakdowns

25% of fraud result in losses of≥US$1 million

27% of fraud cases were corruption46% of cases detected by tips

Typical fraud timeframe (from the time it beganto the time it was discovered): two years

2006: U.S. organizations lose 5% of annual revenues (estimated value ~ US$652 billion)

2008: U.S. organizations lose 7% of annual revenues (estimated value ~ US$994 billion)

Source: ACFE 2008 Report to the Nation on Occupational Fraud & Abuse


The ENDS are what matters

The MEANS are just as important

Two Languages for Success


Top 5 Drivers of Unethical Behavior

Pressure to meet unrealistic business objectivesDesire to further one’s careerDesire to protect one’s livelihoodWorking within a cynical, demoralized environmentIgnorance that the act was unethical

Pressure to meet unrealistic business objectivesDesire to further one’s careerDesire to protect one’s livelihoodWorking within a cynical, demoralized environmentIgnorance that the act was unethical

Source: AMA/HRI The Ethical Enterprise, 2006


Building & Sustaining Ethical CulturesBuilding & Sustaining Ethical Cultures


What is an Ethical Culture?

Based on Integrity

Discerns and chooses right versus wrong

Laws and Regulations

Societal Standards

Reaches for the higher standard in the gray areas when all options seem right


Elements in Building & Sustaining an Ethical CultureEthical Mindsets

Source: Based on Chapter 2 “Mindsets & Culture” in Conscience and Corporate Culture Copyright © Kenneth E. Goodpaster

Self Interest

LawBased

MarketBased

EthicalCultureEvolving EnlightenmentEvolving Enlightenment

LeadershipEffectivenessLeadershipLeadership

EffectivenessEffectiveness

Laying theFoundationLaying theLaying theFoundationFoundation

BalancingStakeholder

Interests

BalancingBalancingStakeholderStakeholder

InterestsInterests

AssessmentAssessment

Process Integrity

Process Process IntegrityIntegrity


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Global Employee Perspectives on Ethics in the Workplace

CEBC Ethics Themes:Able to discuss ethical issues/concerns

Senior management practices ethical conduct

Company serves interest of multiple stakeholders

Co-workers behavior consistent with values

Must demonstrate company values to get ahead

Ethics themes benchmarked through Kenexa’s WorkTrendsTM

with employees around the world

CEBC Ethics Themes:Able to discuss ethical issues/concerns

Senior management practices ethical conduct

Company serves interest of multiple stakeholders

Co-workers behavior consistent with values

Must demonstrate company values to get ahead

Ethics themes benchmarked through Kenexa’s WorkTrendsTM

with employees around the world

Countries Surveyed:United StatesCanadaUnited KingdomAustraliaGermanyChina/Hong KongBrazilThe NetherlandsJapanIndiaMexicoItalyRussiaKingdom of Saudi Arabia

Countries Surveyed:United StatesCanadaUnited KingdomAustraliaGermanyChina/Hong KongBrazilThe NetherlandsJapanIndiaMexicoItalyRussiaKingdom of Saudi Arabia


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Leadership is the key ethical culture factorLeaders must set the tone by “talking the talk” and “walking the talk”Top management is generally perceivedto exert more pressure on “getting the results” and not on “how the results are achieved”This translates into get the results “at all costs.” “The ends will justify the means!”

Leadership is the key ethical culture factorLeaders must set the tone by “talking the talk” and “walking the talk”Top management is generally perceivedto exert more pressure on “getting the results” and not on “how the results are achieved”This translates into get the results “at all costs.” “The ends will justify the means!”

LeadershipEffectiveness

Modeling Ethical Behavior is Crucial


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Data Illustration:Data Illustration:

My senior management supports and practices high standards of ethical conduct.Executive Manager Frontline

78%89%

73%80%

68%67%

The 1nd ElementEffective Leadership

Source: Kenexa WorkTrends™ 2008 Education


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Where I work, ethical issues and concerns can be discussed without negative consequences.Executive Manager Frontline

77%89%

72%76%

62%61%

The 1nd ElementEffective Leadership



Mission Purpose

Vision Image of the future

Values Principles that guide behavior

Ethics & Compliance Codes Legal and regulatory compliance and beyond

Mission Purpose

Vision Image of the future

Values Principles that guide behavior

Ethics & Compliance Codes Legal and regulatory compliance and beyond

Laying the FoundationValues


ValuesThe shared norms and beliefs of the organization that define acceptable behaviorInspirational and directional in natureGives individuals a context to reflect on how their personal values align

Ethics and Compliance Codes of ConductThe standards of behavior established to insure compliance with the law, regulations, and rulesPrescriptive in nature with specific well defined expectations of behavior

ValuesThe shared norms and beliefs of the organization that define acceptable behaviorInspirational and directional in natureGives individuals a context to reflect on how their personal values align

Ethics and Compliance Codes of ConductThe standards of behavior established to insure compliance with the law, regulations, and rulesPrescriptive in nature with specific well defined expectations of behavior

Shaping Organizational CultureValues


The Regulatory Direction

Setting the “Tone at the Top”

Ethical Culture

Codes of Conduct

Conflicts of Interest

Disclosure/ Transparency

Setting the “Tone at the Top”

Ethical Culture

Codes of Conduct

Conflicts of Interest

Disclosure/ Transparency


Separate attention now given to the roles and responsibilities of three types of organizational officials:

Members of the governing authority (i.e., Board)Executives comprising an organization’s managerial leadership (i.e., “high-level personnel”)One or more specific individual(s) having day-to-day operational responsibility for an organization’s compliance and ethics program

Separate attention now given to the roles and responsibilities of three types of organizational officials:

Members of the governing authority (i.e., Board)Executives comprising an organization’s managerial leadership (i.e., “high-level personnel”)One or more specific individual(s) having day-to-day operational responsibility for an organization’s compliance and ethics program

Oversight & ManagementRoles and Responsibilities


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The behavior of the people I work with is consistent with my company’s mission, vision and values.Executive Manager Frontline

75%89%

63%76%

57%57%

The 2st ElementLaying the Foundation



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Stakeholder Reciprocity

Community

Donors

Alumni Suppliers

Your Organization

Competitors

Environment

BalancingStakeholder

Interests

Faculty/StaffStudents

Government


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My company strives to serve the interests of multiple stakeholders not just the shareholders.Executive Manager Frontline

77%83%

72%85%

65%69%

The 3rd ElementBalancing Stakeholder Interests



Aligning Core Functions

Marketing

PurchasingFinance

Human ResourcesAdmissions

KnowledgeTransfer

CommunicationRecognition

IncentivesHiring

Advancement Evaluation

ProcessIntegrity

With Organizational Processes


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Where I work, people do not “get ahead” unless their behavior clearly demonstrates my company’s values.Executive Manager Frontline

67%75%

57%57%

50%47%

The 4th ElementProcess Integrity



Linking & aligning Mission, Vision, Values and Ethics & ComplianceLeadershipEducation & Training:

Governing AuthoritySenior ManagementMid Level ManagersFront Line Employees

Connecting systems & incentives to valuesSurveying for feedback

Linking & aligning Mission, Vision, Values and Ethics & ComplianceLeadershipEducation & Training:

Governing AuthoritySenior ManagementMid Level ManagersFront Line Employees

Connecting systems & incentives to valuesSurveying for feedback

Building the Ethical Culture


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The 5th ElementAssessment

Challenges:What to Measure

How to Measure

When to Measure

How to Use & “Not Use” the Information

Challenges:What to Measure

How to Measure

When to Measure

How to Use & “Not Use” the Information


Impact of Ethics U.S. Employees

Pride Overallsatisfaction

RetentionAdvocacy

Source: Kenexa WorkTrends™ 2008 Note: values represent percent favorable

Reputation improvement

Performance improvement

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