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Chapter9.ManagingandControllingEthicsPrograms.pptx

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Part Four Implementing Business Ethics in a Global Economy

Chapter 9 Managing and Controlling Ethics Programs

Learning Objectives

Define ethics auditing

Identify the benefits and limitations of ethics auditing

Examine the challenges of measuring nonfinancial performance

Explore the stages of the ethics-auditing process

Understand the strategic role of the ethics audit

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Implementing Ethics Programs

Success of an ethics program depends on:

Content of the company’s code of ethics.

Frequency and quality of communication regarding the ethical code and program.

Quality of communication.

Senior and local management’s ability to successfully incorporate ethics into the organization.

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Controls in Business Ethics

Formal controls: Include input controls such as proper selection of employees, effective ethics training, and strong structural systems.

Process controls: Management’s commitment to the ethics program and the methods or system for ethics evaluation.

Output controls: Comparing standards with actual behaviour.

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Ethics Audit

Systematic evaluation of an organization’s ethics program and performance to determine effectiveness.

Social audit: Assessing and reporting on a business’s performance in fulfilling the economic, legal, ethical, and philanthropic responsibilities expected of it by its stakeholders.

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Benefits of Ethics Auditing (1 of 2)

Detects misconduct before it becomes a major problem.

Helps understand the ethical culture in an organization.

Highlights trends, improves organizational learning, and facilitates communication and working relationships.

Improves relationships with stakeholders.

Helps companies assess the effectiveness of their programs and policies, which improves their operating efficiencies and reduces costs.

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Benefits of Ethics Auditing (2 of 2)

Information derived from audits is used to ensure maximum impact with available resources.

Identifies potential risks and liabilities and improves an organization’s compliance with the law.

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TABLE 9-1 Top Challenges for CEOs

1.	Political uncertainty
2.	Increased regulation
3.	Technological change
4.	Cybersecurity
5.	Management diversity
6.	Shareholder activism
7.	Competition
8.	Conflict management
9.	Reputation management
10.	Finding capital

Source: Joann S. Lublin and John Simons, “One Thing Is Certain: 2017 Will Be Year of Uncertainty for CEOs,” The Wall Street Journal, December 27, 2016, https://www.wsj.com/articles/one-thing-is-certain-2017-will-be-year-of-uncertainty-for-ceos-1482858001 (accessed April 22, 2017); Jeff Boss, “The Top Leadership Challenges for 2016,” Forbes, February 2, 2016, https://www.forbes.com/sites/jeffboss/2016/02/02/the-top-leadership-challenges-for-2016/#7736059719e0 (accessed April 22, 2017); Jennifer Post, “The 10 Biggest Challenges for CEOs in 2017,” Business News Daily, January 26, 2017, http://www.businessnewsdaily.com/3625-new-year-challenges.html#sthash.jPJgJroi.dpuf (accessed April 22, 2017); PwC, “20 Years Inside the Mind of the CEO… What’s Next?” http://www.pwc.com/gx/en/ceo-agenda/ceosurvey/2017/us (accessed April 22, 2017).

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Ethical Disasters

Follow recognizable phases of escalation.

Ethical issue recognition.

Decision to act unethically.

Organization’s discovery of and response to the act.

Process of ethical disaster-recovery planning.

Assess an organization’s values and develop an ethics program.

Perform an ethics audit and develop contingency plans.

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TABLE 9-2 Improving Organizational Risk Management

Review the nature and scope of the risk management function.

Develop a risk and compliance plan at the beginning of major projects.

Improve performance by applying risk measures and dashboards.

Maintain a recovery plan for an ethical or compliance crisis.

Communicate risk frameworks and the effectiveness of internal and external controls.

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Measurement Tools

The Balanced Scorecard: Uses elements that contribute to organizational performance and success (financial, customer, market, and internal processes).

Triple Bottom Line: Takes into account social, environmental, and financial impacts of decisions made within an organization.

Global Reporting Initiative (GRI): Mainstreaming of disclosure on environmental, social, and governance performance.

Six Sigma: To reduce defects in products and strive for continual improvement.

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TABLE 9-3 Description of Measurement Tools

Measurement Systems	Descriptions
Balanced Scorecard	Developed by Drs. Robert Kaplan and David Norton, the Balanced Scorecard incorporates nonfinancial performance indicators into the evaluation system to provide a more “balanced” view of organizational performance. The system uses four metrics—financial, internal business processes, learning and growth, and customer—to measure the overall performance of the firm.
Six Sigma	Six Sigma focuses on improving existing processes that do not meet quality specifications or that need to be improved, as well as developing new processes that meet Six Sigma standards. The goal of Six Sigma is to reduce defects in products and strive for continual improvement.
Triple Bottom Line	This approach to measuring social, financial, and environmental factors (or people, places, and planet) recognizes that business has a responsibility to positively influence a variety of stakeholders, including customers, employees, shareholders, community, and the natural environment. The challenge is how to evaluate a business’s social and environmental impacts, since there are no universally standard forms of measuring these criteria.

Source: “Balanced Scorecard Basics,” Balanced Scorecard Institute, http://www.balancedscorecard.org/BSCResources/AbouttheBalancedScorecard/tabid/55/Default.aspx (accessed November 1, 2017); “What is Six Sigma?” iSix Sigma, http://www.isixsigrna.corn/index.php?option=com_k2&view=itern &id=1463:what-is-six-sigma?&lternid=155 (accessed May 14, 2013); “Triple Bottom Line,” The Economist, November 17, 2009, http://www.economist.eom/node/l4301663?story_id=14301663 (accessed May 14, 2013).

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Implementing an Ethics Program: Shared Values is the Glue of Successful Management

Check the content of the company’s code of ethics.

The frequency of communication on the ethical code and program.

Quality of communication.

Senior management’s ability to successfully incorporate ethics into the organization.

Local management’s ability to do the same.

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The Ethics Audit (1 of 3)

Identify risks and problems in outgoing activities and plan the necessary steps to adjust, correct, or eliminate ethical concerns.

Systematic evaluation of an organizations ethics program and performance to determine effectiveness.

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The Ethics Audit (2 of 3)

Formal controls: Input controls [Proper selection of employees, effective ethics training, and strong structural systems (including communication systems)].

Process controls: Management’s commitment to the program and the methods or system for ethics evaluation.

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The Ethics Audit (3 of 3)

Output controls: Comparing standards with actual behavior. One of the most popular methods of evaluating ethical performance is an ethics audit.

Social audit: Process of assessing and reporting a business’s performance in fulfilling the economic, legal, ethical, and philanthropic responsibilities expected of it by its stakeholders.

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TABLE 9-4 Framework for an Ethics Audit

Secure the commitment of top managers and board of directors.

Establish a committee to oversee the ethics audit.

Define the scope of the audit process, including subject matter areas important to the ethics audit.

Review the organization’s mission, policies, goals, and objectives and define its ethical priorities.

Collect and analyze relevant information in each designated subject matter area.

Have the results verified by an independent agent.

Report the findings to the audit committee and, if approved, to managers and stakeholders.

Sources: These steps are compatible with the social auditing methods prescribed by Warren Down and Roy Crowe in What Social Auditing Can Do for Voluntary Organizations (Vancouver, WA: Volunteer 39), and Sandra Waddock and Neil Smith in “Corporate Responsibility Audits Doing Well by Doing Good,” Sioan Management Review 4L (2000): 79.

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Figure 9-4 Misconduct Declines as Ethics Culture Improves

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Strategic Importance of Ethics Auditing

Ethics audit is not a control process to be used during a crisis.

Should be conducted regularly.

May be comprehensive or specific.

Provides an assessment of a company’s overall ethical performance.

Audit reports identify and define a company’s impact and facilitate important improvements.

Helps companies boost profits and reduce risks.

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