Newly released research from Deloitte & Touche LLP, finds that while most companies have taken the initial steps toward establishing a code of ethics, a limited number are actively monitoring adherence to the programs. In a detailed questionnaire sent to 5,000 directors of the top 4,000 publicly traded companies, Deloitte determined that 83 percent of the firms responding have established formal codes of ethics and conduct, but 25 percent are not actively monitoring compliance.
Further slippage can be seen in the allocation of resources to ethics activities. When asked if their company had an ethics officer (either full- or part-time), only 55 percent answered in the affirmative. However, positive data also emerged from the survey, with progress being made on several fronts. For example, more than 95 percent of companies said their code of ethics applied to every member of their organization, including senior management and board members.
"Our data shows that there are several business and operational challenges facing many companies who are working towards implementing ethics and compliance programs," said Sherrie McAvoy, National Director of Corporate Compliance and Ethics Consulting at Deloitte. "We believe that these challenges are not insurmountable and that corporate ethics initiatives will continue to gain momentum."
According to the survey, the following issues are among those impacting the implementation and sustainability of successful ethics and compliance programs:
- Communication - Slightly more than half of the respondents address ethics and compliance issues with their board only when failure happens. At that point, the board is forced to react to failures rather than mitigate or prevent them. Additionally, 90 percent of the companies include shareholders, suppliers, customers and others in their codes, but only 52 percent of the participants actually distribute the code to these parties.
- Reporting Mechanism - Less than 35 percent of the companies surveyed report that an outside third party manages their reporting mechanism. If a third party does not manage whistleblower help lines, companies may encounter challenges with the anonymity requirements of Sarbanes-Oxley. Deloitte expects that in-house managed help lines may become a thing of the past. Of those organizations that have help lines, regardless of whether they are managed internally or by a third party, only 5.9 percent of the companies surveyed reported receiving calls in excess of one percent of the employee population. This indicates that the help lines may not be promoted effectively, or that people are uncomfortable using them.
- Training - Two-thirds of the respondents indicated that their company supports ethics and compliance programs through ongoing training. While training is essential, it does not have to be expensive or even extensive.
Another key challenge facing U.S. businesses are the tight timetables and multiple obligations defined by Sarbanes-Oxley Section 404, which requires management to file an internal control assessment with its annual report. It also requires the auditor to audit and issue an opinion of management's assessment.
Sarbanes-Oxley, combined with investor pressure, has been an effective catalyst in generating awareness of the critical need for corporate ethics and compliance programs, which are key components of a strong corporate culture," added McAvoy. "In turn, having a strong corporate culture strengthens the control environment which is the foundation for Section 404 compliance. We believe that as deadlines pass and new internal control and corporate governance measures become integrated into the everyday activities of companies, ethics and compliance programs will assume their rightful prominence. Investors and regulators will accept nothing less."
The ethics and compliance survey was jointly conducted by Deloitte and Corporate Board Member magazine and had a response rate of 7.5 percent, with 373 questionnaires returned. The survey report is available via Deloitte's web site at www.deloitte.com/us/ethicssurvey