By, Bruce A. Hamm

HOW NOT TO END UP LIKE ENRON

Recent reports about accounting practices, conflicts of interest, document shredding and retaliation against employees at Enron heighten interest in business ethics. Many of us are asking, "What about the ethics in my company?" The reaction from many executives might be "Nothing wrong with my company. I hired good people and can trust their judgment." Others might think, "OK, we’ve had a few minor problems but nothing to get excited about, only ordinary problems and we terminated employment when we needed to." Typically, they are correct in their opinion of their employees. However, today’s complex workplace issues call for digging a little deeper. As Carter McNamara states in his Complete Guide to Ethics Management: An Ethics Toolkit for Managers, "ethics is always ‘managed’ -- but, too often, indirectly." How does a company think and operate as an organization? What is the underlying culture of a company compared to the visible one? What surprises has the company had and how many more lay in waiting? What would it mean to a company, if its image were one associated with values; values such as honesty, respect, hard work and especially meeting the customer’s needs?

Company officials want to ensure they meet the requirements demanded by regulators and the public. Many companies have established formal business ethics programs to address these issues but why should other companies do so? Businesses devote resources to elements that create some sort of return on investment. They build production facilities; obtain human resources; market their products or services; and educate and train the workforce. Why not invest in the environment where people work, the culture that allows these diverse areas to function together?

Business ethics are about the morally functional nature of our business relationships. Because these relationships are such an important part of daily life, as many current and former Enron employees can now attest, giving them the attention and care they deserve is crucial to an organization’s success. Business Ethics concerns itself with how well we perform our responsibilities to others both inside and outside the company.

There are six major benefits to establishing a Business Ethics program:

1. Public Image - Companies build their image by acting in accordance with their values, whatever they might be. Creating a positive public image comes from demonstrating appropriate values. Publicizing and following a company’s values allows stakeholders to understand what the company stands for, that it takes its conduct as an organization seriously.
   
   
2. Prevention and Reduction of Criminal Penalties - The United States Sentencing Commission Guidelines state that to receive a 40% reduction in federal penalties, a company must have "an effective program to detect and prevent violations of the law". Executives cannot always be aware of everything done in a company's name. Jeffrey Kaplan in his article The Sentencing Guidelines: The First Ten Years points out that recent cases also show that prosecutors are electing not to pursue some actions because the companies in question have sound programs in place. This is a tremendous asset to companies under regulatory scrutiny.

3. Preventing civil lawsuits - Many times employees that experience issues in the workplace first try to resolve these issues internally. If their complaints are ignored, employees feel compelled to go to an outside advocate. That could be a private attorney, government regulator or news agency. Giving employees an internal outlet can solve problems without the event becoming public knowledge or an issue for the courts. Having the values permeate the company culture enhances the staff’s trust in senior management. Why? Because with an effective program, the staff recognizes that management also operates within these appropriate values.

4. Employee Retention - One of the major costs in business is inappropriate turnover. The loss of valuable experience and development of new personnel is a cost companies can control. Seldom is pay the primary factor in losing an employee. What would a company give to retain valuable employees? With a successful program, the employees work with managers and supervisors in making decisions based on the company’s values. A successful Business Ethics program establishes a culture that rewards making the right decision.

5. Market Leadership - When a company fully integrates its values into its culture, quality rises due to the employee’s focus on the values. Customers see that the employees care about the customer’s concerns. Employees reflect appropriate values in their attitude and conduct. Roy Koerner in his article What More Profit? Try Ethical Business Practices points out that businesses demonstrating the highest ethical standards are also the most profitable and successful.

6. Setting the example - By setting the example in the community and market, the entire industry has a new standard. That allows the community and the market to recognize the company as a leader. When the word gets out, competitors will have to answer questions about why they are not establishing values as essential.

Comments from presenters at the Managing Ethics in Organizations course by the Ethics Officer Association and the Center for Business Ethics 2001 suggest that the most successful programs are those based on values rather than on compliance with a set of rules. In order to be effective, these values must be an integral part of how the company operates. Enron reportedly had good statements of values but it is questionable whether they really lived the values they expressed. One example is the well-known case of Sherron Watkins, the executive at Enron who internally brought attention to questionable accounting practices. The senior executive allegedly responsible for those practices reportedly wanted to have her employment terminated and almost succeeded.

Adhering to an organization’s values sets the tone for daily operations and establishes the company’s culture. By acting consistently within its values, a business demonstrates its concern with all the relationships it develops and maintains. A successful business conveys these values in its activities and reaps the reward for doing the right thing.

HOW DOES MY COMPANY CREATE AN ETHICAL ENVIRONMENT?

The following information will offer general guidance on how a company actually goes about developing an effective business ethics initiative. This information is general because each company requires a unique set of practices to ensure its own success. To create the kind of culture company officials desire, first determine the appropriate values. Then, communicate those values to everyone concerned. Other aspects of a successful program are training people in the selected values; documenting program development, implementation and execution; resolving any reported incidents; and verifying the results. Properly executed, these elements ensure that authorities will recognize the program as an effective one.

There are five phases to developing an ethical corporate culture and specifically a business ethics program:

• Assessment - Determine the company’s position on its ethical culture. Figure out what the values need to be. Business leaders know what kind of product or market they want to be in and they know how to achieve their financial goals. How many know what kind of company they want to have? What about giving the company the character it deserves? Look at Johnson & Johnson’s response to the Tylenol scare as a successful instance of demonstrating organizational values or look at Enron for a questionable example. With management oversight, ask company personnel to establish appropriate value statements. Determine where the greatest risks are in conducting the business and prepare to seal those holes. Review any past problems and develop ways to prevent them in the future. Appointing a senior executive to manage the entire program is a key to its success and a condition of acceptance by the US Sentencing Commission. The size of the company and the resources it plans to expend can influence how to organize the ethics department. Determine whether the company needs a full or part-time ethics department.

• Program Development - Once the company determines where it stands on its selected values, decide how to make progress toward them. Create a "Code of Conduct" that represents the ethical values established during assessment. Keep the code as simple as possible, based directly on the selected values. Codes cannot cover every circumstance or event, principles can. That is where your value statements come in. Establish a training plan for getting the required information to everyone working with the company. Employees are not the only ones to introduce to the new effort. Do not forget about vendors and contracted staff, though the company may introduce them to the program after its successful internal launch. Each of these other stakeholders needs training based on their role in the business. Separating this effort from internal staff also avoids creating any possible implied contracts.

• Program Implementation - Communicating the program effectively throughout the organization is an essential element to a successful program. Communicating the program frequently is another important success factor. Distribute the "Code of Conduct" and train people so they understand it. Verify that all levels of staff are getting the desired message. Establish an anonymous reporting system to raise questions about the values and any suspected lapses. Investigate any alleged incidents. Take each report seriously and give it the attention it deserves. If the company is successful with investigations, several things can happen. First, giving each incident the appropriate investigation will establish the credibility of the program. Second, seemingly frivolous reports might uncover problems that are more serious. In other words, sometimes investigations can "open a can of worms". Third and most importantly, this "can of worms" is one company executives get to address internally, before it gets to news agencies or regulatory systems.

• Re-assessment and Modification - After the initial implementation of the program’s major elements, review it again. What went right? Can the ethics committee copy or apply the elements that worked in one aspect to other aspects of the program? Whom can the company publicly recognize for substantial support in getting the program off the ground? Whom can it publicly recognize for making the right or ethical decision? Never reprimand in public. Maintaining everyone’s dignity, even those found to have violated ethical principles, is essential for program credibility and success. What elements need adjustment? Are the communications effective in getting the right message to all levels of staff? Does the company need to abandon any of the early functions? Remember though, "if it ain’t broke, don’t fix it", but one had better know if it’s broke.

• Evaluation - This process is more comprehensive than the re-assessment. It comes on a less frequent basis, usually annually. Consider adding questions about the ethics program to your annual employee questionnaire. This will not only help the evaluation process but can also moderate the costs of gathering such information. Consider getting outside help to evaluate the program in your particular environment and against industry standards. Re-evaluating the program and keeping it relevant are essential to its continued health.

  Remember that ethics are about people and how they interact. This program is not just for line employees. It is for all staff from entry level to senior executives. Another element of the US Sentencing Guidelines is that the company disciplines everyone in a like manner. The program is about building a culture that supports sound decision-making based on respect for all stakeholders. With the right people involved and keeping the focus on the positive, you can develop a corporate culture that will provide a continuing asset to the company. That asset is a way to draw concerned parties into the company culture and create an environment where they all can be productive.

HOW DOES MY COMPANY MAINTAIN THE ETHICAL EDGE?

How do executives keep up the ethical edge at their company? First, determine the amount of resources the company needs to expend on the ethics initiative. Is the company investing the right amount of resources for a sound ethical environment? Is it training the staff enough and on the right subjects? Is it over training, making the information tedious? Does the staff have accessible methods of contacting the ethics department? Providing employees with anonymity makes it much more likely, that people will use this new resource and is a condition of acceptance from the US Sentencing Commission.

How well do the components of the ethics department work with the rest of the company? Does the company have an ethics committee responsible for determining company values and program success? Having a team work together to monitor the ethics initiative assures that the program will continue to receive the attention it needs to succeed. Who is on the ethics or values committee? Are there appropriate levels of senior management represented? Consider having the senior ethics officer, the senior human resources manager and the chief legal council on the committee. (One area where some companies are increasing exposure is by having the Board of Directors create and maintain an ethics committee responsible for program review and effectiveness.) Does the company allow lower level staff representation? Do they have an equal voice in the decisions of the committee? Are they encouraged to voice their opinion? Lower level staff representation provides all personnel with the knowledge that the program is not simply a mandate from senior management. It is a company wide initiative.

How often does the company perform training and who is conducting that training? Training on ethical issues at the right interval allows the staff to keep the concepts of the program fresh in their minds. Staff typically will accept as important only those items of the work environment that their immediate supervisor makes important. Thus, having the supervisors and managers conduct frequent informal ethics training keeps the program on everyone’s mind. After providing them with appropriate training, send the supervisors and managers a case study suitable for their level. Make the studies brief to allow for a 15 to 20 minute review during a regular staff meeting. Conducting the sessions once a month allows the program to stay fresh in the employee’s minds. Using case studies makes the subject matter interesting. Discussions can become vigorous and will make an impression.

Another area of concern is investigating reports of ethical misconduct. These investigations can be serious affairs requiring thoroughness and tact. Investigate all reports. Even if initial incidents appear to be frivolous, investigations can uncover serious ethical lapses. As much as possible, maintain the confidentiality of involved parties. It is important, however, that no one offers an absolute guarantee of confidentiality. In many cases, this is not possible.

It is important to protect the initial caller and witnesses from retaliation. This enhances program credibility. The nature of business ethics warrants a strong statement of protection against retaliation. Example, "Retaliation against persons using the reporting system will not be tolerated. Any incident of retaliation will result in discipline up to and including termination of employment." In some cases, it might even be appropriate to turn the matter over to law enforcement or prosecutors when retaliation includes such things as physical threats.

Any substantiated example of retaliation against someone using the reporting mechanism must result in appropriate discipline to maintain program credibility. However, there are two cautions. First, in no circumstance, deride any person publicly for their ethical lapses. This can reduce program credibility and possibly subject the company to legal liability. Second, do not allow anyone to use the ethics program as a tool for revenge. Protect parties that initiate reports in good faith, prohibit falsely reporting items only to cause others harm.

Once an investigation substantiates an incident, what does the company do? First, appropriately discipline the responsible parties. Behavior change is the goal. Additional training requirements, more supervision, placing a letter of reprimand in personnel files, moving the person or persons to other departments or functions, suspending their employment, demoting them to a lower position or termination of employment in the most severe cases can be appropriate, depending on the circumstances. (In some cases, it might be appropriate to turn the matter over to law enforcement or prosecutors when the incident includes such things as sexual abuse or drug sales.) Disciplining all persons in a like manner is one of the conditions of the US Sentencing Guidelines for an effective program. (For example, a senior vice president cannot receive a token punishment for a serious infraction while an entry-level employee receives termination of employment for something trivial.)

Should the company report the results of incidents back to the initial caller or make the investigation public? That depends on the circumstances of the incident. Giving some message to the initial caller tells them that the company took their report seriously and investigated it thoroughly. Something like the following is usually sufficient, "Our ethics code requires that we maintain the privacy of all persons concerned with any report. While we cannot provide you with details, we investigated your report and have taken any appropriate actions warranted by its results." This statement will satisfy most people but even if they are not satisfied, it will lend the program further credibility.

The next task upon substantiating an incident is to plug the holes that allowed the incident to occur. Modify policies, procedures, access to information or facilities, physical features or whatever is necessary to prevent similar lapses in the future. Find ways to fill the cracks and then communicate those corrective measures.

Another recommendation is to associate with local and national organizations that share best practices in ethics management. Two examples are the Ethics Officer Association (www.eoa.org [1]) and the Greater Houston Business Ethics Roundtable (www.ghber.org [2]). These organizations offer a way to bring ethics practitioners together to learn how to improve the ethical climate at their organizations. They frequently review current industry standards. Keeping current in ethics management is another element of meeting the requirements of the US Sentencing Commission.

If the program is successful, the reporting system will transform over time. It will develop into a resource about decision-making. The ethics department will also develop into a guide on which people can rely. It will become a valuable resource to encourage the proper decision is made during all work efforts. There are many benefits to creating and maintaining an ethical environment in any company or group. The most important reason to establish ethics and maintain an ethical environment is that it is the right thing to do. Everyone benefits from working in that kind of healthy environment.

Bruce Hamm studied for the Catholic priesthood obtaining a BA in philosophy with an emphasis on ethics. His background includes experience as a volunteer police officer. He has over eight years in US Navy combat operations, coordinating a tactical data link between various battle group elements, controlling combat aircraft and instructing combat operations. Then entering corporate management, he conducted numerous investigations into workplace issues and developed a Business Ethics program for his employer. In June 2001, he completed the "Managing Ethics in Organizations" course presented by the Center for Business Ethics at Bentley College and the Ethics Officer Association. Combining his practical understanding of how organizations work with his desire to create healthy corporate cultures, he is currently completing his MBA in Organizational Effectiveness at Marylhurst University. Contact Bruce Hamm at hamm_ethics@hotmail.com.

Article originally published in The CEO Refresher and reprinted with permission.