Ethical Culture

8/4/2019 Ethical Culture

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TOWARD AN ETHICAL CULTURECharacteristics of an EthicalOrganization

Kirk O. HansonBusiness and Organizational Ethics Partnership

Markkula Center for Applied Ethics

Santa Clara UniversityApril 5, 2007

(Revised with input from Partnership Members)


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Importance of IdentifyingCharacteristics of an Ethical Organization

Enables us to create most effectiveculture of integrity

Learn where each element can gowrong

Identify items to include in ethical risk

analysis Create checklist to meet expectations of

prosecution and sentencing guidelines


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New Sources of

Ethics Best Practices

Learning by the best companies

Sarbanes Oxley Act (2002) Stock Exchange Standards

(rev.2003)

Sentencing Guidelines (rev. 2004) DOJ Principles of Prosecution (rev.

2006)


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Model Values

Communicate Values

Create Systems

to Embody Values

Continuous Monitoring

of Behaviors

Discuss

Difficult

Ethical

Cases

Compliance:

Audit

Enforce

Discipline

Renew Values

Regularly

Best Practices for a Culture of IntegrityCopyright 1984,2007 Kirk O. Hanson

Clarify Values

GovernanceSystem


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Best Practice Elements

1. Statement of values

2. Code of conduct

3. Example of senior executives4. Training and repeated communication

of values and standards

5. Systems which embody the values


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Best Practice Elements, cont.

6. Continuous evaluation of behaviors7. Effective hotline system

8. Mechanism for resolving toughest

cases9. Compliance enforcement system

10. Periodic renewal process for values

and standards11. Governance system for ethics and

values


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Values Statements

Best Practice Grows out of experience of company

Broad input to identification of values

One pager

Where It Can Go Wrong Words, not values in action

Unrelated to company decisions, actions Deliberate misreading of meaning

Ignores reality of global operations


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Codes of Conduct

Best Practice Organized and comprehensive Applies to all employees Annual signoff

Examples, Q and A

Where It Can Go Wrong Impenetrable, looks like legal wrote it Captures last years trivia

On the shelf and never consulted Exemptions (routinely) granted Deliberate misreading meaning, gaming it Unclear application outside US


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Executive Modeling

Best Practices CEO a walking embodiment of values in both

public and private life CEO talks about the values

CEO tells stories about putting values to work

Where It Can Go Wrong CEO behaves at odds with values

CEO private behavior inconsistent CEO pleasures himself with corporate funds CEO never mentions values CEO demonstrates disdain for employees


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Training and Communication

Best Practices Constant communication about values New hire training in values Regular and engaging training in values Training that focuses on recent issues

Training that emphasizes responsibility of individuals Training that helps employees know how to raise issues

Where It Can Go Wrong Lack of follow-up to assure it is done

Obvious lip service regarding values Snickering references by managers Reductionist approach to training - do the least Dont really expect employees to risk raising issues


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Systems that Embody Values

Best Practices Performance evaluation system has explicit

reference to values Repetitive systems have values categories

Key decisions examined in light of values

Where It Can Go Wrong Fuzzy stuff in performance ignored

Systems exist but ignored Some systems deliberately left out Key decisions made by purely financial criteria Performance pressures drive out values


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Systems that Embody Values

Ernst & Youngs list of systems/operations to beaddressed: People processes

Recruiting Orientation

Performance objectives and measures Global people survey Learning and development

Client-related processes Proposals Engagement planning Client acceptance

Balanced Scorecard Quality and risk management function Corporate social responsibility function


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Continuous evaluation of behaviors

Best Practices Annual survey on peer and boss behavior Identification of problem areas via survey Identification of problem areas via hotline

reports

Identification of problem areas by executiveteam

Explicit discussion of problem areas in ethicsgovernance process and in executive meetings

Where It Can Go Wrong Lack of trust in survey, confidentiality Poorly drawn survey Lack of candidness about problem areas

Failure to engage executives in assessment


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Hotlines and Helplines

Best Practices External and credible reporting

Anonymity possible; no retribution

Effective system for follow-up Effective system for investigation

Where It Can Go Wrong

Lack of employee understanding of function Lack of empathy in those answering phone

Violation of anonymity; retribution

Lack of adequate follow-up


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Way to Discuss Difficult Ethics Cases

Best Practices Transparency exists regarding tough cases Employees confident they can take tough case to boss and

actually get help Top executives take tough ethics cases seriously Mechanism or place exists for vetting cases

Employees confident that they will not be penalized forraising issues, implementing values

Employees believe they may be rewarded for raising issues Executive culture encourages raising issues with CEO

Where It Can Go Wrong Dont ask culture; deniability Fear of negative management reaction Unwillingness of executives/managers to share burden Failure to apply ethics commitments to global operations


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Compliance Enforcement

Best Practices Audit everything that is important Put compliance in context; one dimension of

value commitment

Investigation and enforcement thorough andrespectful Discipline appropriate and just

Where It Can Go Wrong Compliance is the whole of the values message Compliance and discipline easier on executives Compliance system protects only the company


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Periodic Renewal

Best Practices Periodic rolling out of values and standards

usually a 3 year cycle Freshness of message for each renewal

Engagement of organization in fresh message

Where It Can Go Wrong Letting the messages go stale; unchanged

Failure to seek input from organization forrevisions Failure to address recent incidents; new issues Overemphasis on recent incidents


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Governance of Ethics and Values

Best Practices Senior executive overseeing ethics effort Qualified and motivated Ethics officer Active audit or ethics committee of board Periodic reporting to board

Real and deliberate learning from experience Continuous adjustments to ethics and values systems

Where It Can Go Wrong Assignment to lower level executive

Ethics officer not respected Audit committee not really interested Reporting is perfunctory Failure to apply to global operations No real expectation that reports will lead to improving

system

Ethical Culture

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