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Part Four:Implementing Business Ethics ina Global EconomyPart Four:Implementing Business Ethics ina Global Economy

Part Four:Implementing Business Ethics ina Global EconomyPart Four:Implementing Business Ethics ina Global Economy

Chapter 9:Chapter 9:

Managing and ControllingEthics ProgramsManaging and ControllingEthics Programs

Chapter 9:Chapter 9:

Managing and ControllingEthics ProgramsManaging and ControllingEthics Programs

Implementing Ethics ProgramsImplementing Ethics Programs

Five factors can impact success of ethicsprograms

1.The content of the code of ethics

2.The frequency of communication regarding theethics program

3.The quality of communication

4.Senior management’s ability to incorporate ethicsinto the organization

5.Local management’s ability to do the same

Organizations must focus on implementationand planning an ethics program

•Should be part of strategic planning and managementactivities

Process Controls for EthicsProgramsProcess Controls for EthicsPrograms

Proper selection of employees

Ethics training

Structural and communication systems

Ethics assistance line

Help desk

Management’s commitment to the program

Comparing standards against actual behavior

Ethics audit

The Ethics AuditThe Ethics Audit

A systematic evaluation of an organization’s ethicsprogram and performance to determine whether itis effective

Regular, complete, and documented measurements ofcompliance with policies and procedures

Can be a precursor to establishing an ethics program

Should be the most important part of an ethicsprogram

Primary purpose is to identify risks and problems inactivities and plan steps to adjust/correct/eliminate concerns

•Recent legislation encourages greater ethics auditing

The Social AuditThe Social Audit

The process of accessing and reporting abusiness’s performance in fulfilling itseconomic, legal, ethical, and philanthropicresponsibilities expected by stakeholders

Broader in scope than an ethics audit

An ethics audit might be a component

Benefits of an Ethics AuditBenefits of an Ethics Audit

Detect misconduct before it becomes a majorproblem

Identify potential ethical issues and improvelegal compliance

Improve organizational performance

Improve relationships with stakeholders whodemand greater transparency

Sets goals against which to measure actualperformance

Top Challenges for CEOsTop Challenges for CEOs

Ethical Crisis ManagementEthical Crisis Management

Plans to respond to and recover fromdisasters that can disrupt operations,destroy organizational reputation, anderode shareholder confidence

Involves

Contingency planning

Assessing organizational risks

Planning for potential occurrences

Providing tools to respond

Stages of an Ethical DisasterStages of an Ethical Disaster

Ethical misconduct disasters progress instages

Ethical issue recognition

The decision to act unethically

Organization’s discovery of and response to theact

Anticipation of and intervention can staveoff organizational disasters

•Formal mechanisms in place to detect risk

How Do Corporations Management Risk?How Do Corporations Management Risk?

Measuring Nonfinancial EthicalPerformanceMeasuring Nonfinancial EthicalPerformance

Nonfinancial performance measures are crucialto a firm’s health

Measure wholeness and soundness of a company

“Return on integrity”

Many organizations and regulatory frameworksoffer a means of capturing ethical performance

Structural

Behavioral

Measuring Nonfinancial EthicalPerformanceMeasuring Nonfinancial EthicalPerformance

Six Sigma

Balanced Scorecard

Triple Bottom Line

Global Reporting Initiative

AccountAbility AA1000 framework

Open Compliance Ethics Group

Roles and Functions of Risk, Management,and ComplianceRoles and Functions of Risk, Management,and Compliance

Risks in Ethics AuditingRisks in Ethics Auditing

May uncover ethical problems a company doesnot wish to disclose

May reveal a problem that cannot be remedied

Stakeholders may be dissatisfied with theinformation

Conducting ethics audits requires financial andrecord keeping resources

No guarantee that auditing is the solution

Lack of standardization in auditing

The Auditing ProcessThe Auditing Process

Audits should be unique to each company

The following steps provide a generalframework

Secure management and board commitment

Establish an ethics audit committee

Define the scope of the audit

Review organizational mission, goals, and values

Collect and analyze relevant information

Verify the results through an outside agent

Report the findings

Secure Commitment of TopManagement and the BoardSecure Commitment of TopManagement and the Board

The first step in the auditing process

Sarbanes-Oxley requires that boards ofdirectors provide oversight

The board may initiate audits

Managers may request an ethics audit toimprove confidence in a firm’s reportingprocesses

Model Corporate Social ResponsibilityStructureModel Corporate Social ResponsibilityStructure

Establish an Ethics OversightCommitteeEstablish an Ethics OversightCommittee

The second step in the auditing process

Boards of directors financial audit committeeshould oversee the audit

Managers or ethics officers conduct it in most firms

Internal and external parties should beinvolved

External auditors should not have other consultingor conflict-of-interest relationships with topmanagers or board members

Define the Scope of the AuditDefine the Scope of the Audit

The ethics audit committee should establishthe scope of the audit and monitor itsprogress

Scope is determined by the type ofbusiness, risks faced, and the opportunitiesto manage ethics

Review Organizational Mission,Values, Goals, and PoliciesReview Organizational Mission,Values, Goals, and Policies

An ethics audit should

Include a review of the current missionstatement and strategic objectives

Examine all formal and informal documentsthat make commitments with regard to ethical,legal, or social responsibility

A firm should define its ethical priorities atthis time

Collect and Analyze InformationCollect and Analyze Information

Identify tools for measuring progress in improvingemployees’ ethical decisions

Collect relevant subject matter

Internal and external documents

Determine a baseline level of compliance

Determine all commitments

Stakeholders yield insights

Integrating stakeholder feedback is crucial in an audit

Audits should compare organizationalperformance to other comparable organizations

Correlation Between Retaliation and EthicalCultureCorrelation Between Retaliation and EthicalCulture

Source: Retaliation: The Cost to Your Company and Its Employees, (Arlington, VA: Ethics Resource Center, 2010), p. 10.

Verify the ResultsVerify the Results

Have an independent party verify the results ofthe analysis

Companies often have results independentlyaudited

Verification is an assessment of the quality,accuracy, and completeness of a company’ssocial report

Should involve standard procedures to controlreliability and validity of information

Report the FindingsReport the Findings

The final step in the auditing process

Spells out the purpose and scope of the audit,methods used, role of the auditor, and auditingand reporting guidelines

May be disseminated internally or externally

Ethics audits are similar to financial audits, butforms are different

•Unqualified opinion

•Qualified opinion

•Adverse opinion

•Disclaimer of opinion

Strategic Importance of EthicsAuditingStrategic Importance of EthicsAuditing

Should be conducted regularly

Provides a benchmark of overall effectivenessof ethics initiatives

Can be important in asset allocation and programdevelopment

Can demonstrate the positive impact of ethicalconduct and social responsibility initiatives onthe firm’s bottom line