Following the recently well-publicized corporate ethical meltdowns (Enron, Tyco, WorldCom, etc.), no company should seriously question the necessity of having a meaningful ethics policy.
In fact, many companies, both public and private, have ethics policies in place, approved by boards of directors, adopted by corporate executives, and enshrined in employee human resource handbooks.
Yet, while most private companies might believe that their present policies are "effective," they don't seem to work very well.
Employees in nearly every company face ethical crossroads every day, and too often we read in the media of incorrect decisions made at these crossroads. This is despite the existence and emphasis of ethics policies, and the increased ethics training and workshops at university business schools and company training programs.
Why is this? In my experience most such private company policies are paper policies only, lacking in the enforcement and other provisions that the courts and regulatory authorities now require in order to establish effectiveness.
In order to satisfy the heightened demand for a "corporate culture of compliance" and appropriate "tone at the top," it is essential that boards of directors and senior management change the way they approach corporate ethics.
Who's In Charge?
Most effective ethics policies include statements indicating that a senior executive is in charge of ethics compliance, and that the board of directors assumes an active oversight role in ethics compliance. But it's a wispy trail of accountability in practice. Where does an employee go if they suspect ethical lapses?
The CEO is rarely accessible in larger organizations, nor is it acceptable for an employee to simply pick up the phone for a chat with the CEO about a co-worker's suspected unethical conduct.
The board is certainly out of reach for most employees. Instead, companies must go beyond merely adopting ethics compliance programs. They need to go further and create equally clear and accessible reporting structures that make these programs work.
A senior executive who is known to have the trust and confidence of the CEO and board should be placed in charge of ethics compliance. The program must ensure that information concerning legal, regulatory or reputation risks and issues is promptly surfaced to this executive by establishing internal channels for reporting concerns, such as hotlines, ombudsmen and employee surveys. It's vitally important that these reporting structures be easily accessible, lacking in any intimidation, and, most importantly, anonymous.
Who's at Fault?
A search for applying blame is not the point. It's important that company executives understand that attempts to find fault, place blame or retaliate against "whistleblowers" not only squelch the effectiveness of the policy in the first place, but are also illegal. Make managers aware that retaliation against those who report ethics violations, whether internal or external, is a violation of the Sarbanes-Oxley Act. This applies to both public as well as private companies.
We tend to think of ethics as clear, black-and-white decisions, but in reality, ethics are a bit of a moving target. Ethical issues and concerns change over time as new regulations take place and markets shift.
As part of their duties in ensuring ethical compliance, your staff should identify the legal, regulatory and reputation risks to which the company is exposed due to the unique nature of its business and markets. Then, they should establish an "early warning system" to identify emerging areas of legal and regulatory focus within the company's industry or markets.
Private Companies at Risk, Too!
While ethical collapses in the headlines tend to focus on large, public corporations, don't think as a smaller, private company that you shouldn't be concerned.
While the onus of such policies falls most heavily on public companies due to requirements of SEC reporting, Sarbanes-Oxley certification, and stock exchange listings, there should be little question as to their desirability for private companies as well.
For example, if criminal conduct is involved, the presence of an "effective compliance and ethics program" has an effect on jail time: Federal prosecuting and sentencing guidelines emphasize that consideration should be given to the existence, or not, of effective compliance policies when making charging or sentencing decisions. Lenders; bonding and rating agencies; insurers; and other third parties are also beginning to expect modern governance norms as a demonstration of corporate best practices.
In the final analysis, an effective compliance and ethics program depends on an active board and management of integrity operating in a corporate culture which encourages and recognizes high ethical standards of conduct by all its employees.
James L. Rench is a partner and manager of the Corporate Practice Group for Stark & Knoll Co. LPA in Akron.