business ethics unit V reflection paper
nasarb
ensuring.pdf
Ensuring an ethical organization
The collapse of Enron and the resulting enactment of Sarbanes-Oxley brought renewed focus to the importance of business organizations having a formally established Code of Conduct.
By Doug Archer
T o be effective in creating andsustaining an ethicalbusiness environment, aCode of Conduct must be more than a set of rules laid
out in a glossy company brochure. The International Federation of
Accountants (IFAC) defines a Code of (Conduct as the: ""Principles, values, standards, or rules of behaviour that guide the decisiom, procedures and syste?m of an organization in a ivay that contrihuTes to the welfare of its key stakeholders and respects the rights of all constituents affected by its operations. " '
The challenge is embedding these principles, values and standards into an organization's culture so that its employees and representatives truly intemahze them. To achieve this, a company's Code of C^onduct must be supported by a program that promotes And, more importantly, reinforces standards of ethical behaviour on a daily basis. This article outlines the essential elements of such a program (a graphic representation of these elements is presented in Exhibit 1).
Tone at the top
An organization's ethical atmosphere begins witb the "tone at the top." Leaders who are seen to be fair and
completely supportive of a company's values and principles are the cornerstone of any Code of Conduct program. Starting with the CEO, senior managers must continually demonstrate the company's core values
and reinforce standards of behaviour. They must foster a culture ot open disclosure and fair treannent, and take an active role in overseeing and continually enhancing tbe Code of C>)nduct program.
Exhibit 1 — Elements of a Code of Conduct program
Sanctions for Coc Conduct non-compliance
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Establishing standards of conduct
A C>ode of Conduct program must start with the establishment of niles of heha\nour. If the niemhers of an organization do not clearly understand what standards of behaviour are expected of them, they cannot be held accountable to those standards.
Many companies choose to produce a general handbook that provides an overview of the company's values and the standards of behaviour required from employees, directors, aiul (idler stakehoUicrs to support those values. The handbook nonnally provides references to relevant supporting policies or procedures where more detailed information can be ol)tained. WTiile the senior executives of a company must oversee its development, a Code of Conduct is best written by a cross-fiinctional. inulti-discipHnary team made up of bodi employees and managers. Using sueh an approach fosters buy-in and ownership of the Code of Conduct across all areas ot the organization and supports the identification of a wide spectrum ot etiiical issues and risks tor inclusion in die Code. The composition of the team can also be extended to include representation from employee unions and external suppliers.
F.very Code of Conduct is somewhat imique, reflecting an organization's specific culture, operating environment and workforce. Norwithstanding this, a company's values should be specifically identified in the Code, as these form the basis of any standards of bebaviours. The duties of employees, contractors, directors and other affected stakeholders should also be identified, including die requirement dial diey always be fit for duty, adhere to the policies and proeedures of the company, and work in such a way that the interests (jf the company, its stakeholders, and tlie environment are safeguarded (additional .suggested content for a typical Code of Conduct is shown in Schedule I).
Schedule I
Suggested content for a typical Code of Conduct
This list presents suggested content for a Code of Conduct. I t is
intended to be illustrative only.
• The organization
' Requirpment to comply with applicable taws.
o Commitment to professional conduct,
o Use of company assets,
o Use of company time.
o Use of confidential information.
' Requirement to comply with policies and procedures.
• Employees
> Obligation regarding fitness for duly.
•3 Disclosure of private interests. !
^ Acceptance of gifts and favours.
o Hiring ijf relatives and associates.
o Obligation regarding healtti and safety.
• Human rights
^ Right to work in an environment free of discrimination.
o Right tJ work in an environment free of harassment.
> Right ti3 privacy.
• Customers / suppliers
' Confidf ntiality of customer information.
» Obligation for fair dealing.
' Avoidance/disclosure of conflicts of interest.
• Financial
^ Fraud.
'̂ Insider trading.
' Disclos.ire of information.
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Communication and awareness
Communicate. Communicate. Communicate.
Tbe rollout and reinforcement of a company's standards of behaviour must be continuous and multi-faceted for it to be effective. Tn addition to company websites and newsletters for Code of C^onduct messaging, leadership at all levels within an organization should use every opportunity to remind employees of the company's ethical standards and to confinn their personal comniitinent to tliose standards. Effective forums for such discussion may be business plan review meetings, safety meetings, or company performance reviews.
A comprehensive Code of Conduct communication plan must also include circulation of the written Code to all employees, as well as a formal rollout oí die Code on a periodic basis. The rollout may be done in a classroom setting, but ideally it is carried out face-to-face by managers with their direct reports. In large companies, it can be done tlirough computer-based training. Whatever the means, ever\> employee should be required to acknowledge tbat they understand their responsibility to comply with die standards of behaviour delineated within the Code.
Sanctions for wrongful behaviour
Establishing standards of behaviour without being prepared to discipline for wrongful behaviour will not promote compliance. In his book. The Tipping Point, Malcolm Gladwell talks about the impact of the "control environment" on determining people's bebaviour. In a study of students writing school exams, he found that some students will never cheat and a small percentage will always look for a dishonest edge, but the largest section of the bell ciu^e of students will cheat or not cheat as tbe control environment allows. Minimal supervision and no perceived punisliinent resulted in higher rates of cheating tben when a strict control environment was in place. Disciplinary measures for Code of Conduct violations should be fonnally
Leaders who are seen to be fair and completely supportive of a company's values and principles are, the cornerstone of any Code of Conduct program.
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documented as part of the Code of Conduct program. To be effective and fair, sucb measures should be graduated to retlect that there are different levels of significance with respect to violations and, most importantly, be openly coninuinicated to all employees, executives, and otber stakeholders.
Code of Conduct officer
An ombuilsnian or compliance officer should be appointed to maintain the Code of Conduct program and help foster an ethical culture within the organization. This position should have the authority and responsihility for overseeing compliance with the C ôde of Clonduct and for working with management and employees on addressing conduct issues faciiiü; the company. To effectively execute this mandate, the compliance olficcr should not only be independent and neutral, but be seen to be so. To this end, the position
should report directly to the company General Cotinsel to the ("EO, regardless of their seniority within the corporation.
or
A comprehensive Code of Conduct comnnunication plan must also include circulation of the written Code to all employees, as well as a formal rollout of the Code on a periodic basis.
Process for addressing violations
All (^ode of (Conduct programs must have a formal process that allows for the reporting, investigation and resolution of
Exhibit 2 — Code of Conduct response process
Employee/stakeholder identifies potential Code of Conduct issues
Code of Conduct officer/ helpline
Supervisor Security Human
resources
Other (union/
employees / IT/ etc.)
1 •
Code of Conduct officer 1. Informs senior management legal department and
other relevant stakeholders. 2. Assigns case to an investigator.
T Investigator 1. Conducts fact finding. 2. Reports results to Code of Conduct officer.
Code of Conduct officer • Informs Line management and stakeholders
as appropriate.
Investigator • Conducts investigation. • Complies report.
I Code of Conduct officer • Reviews report and assesses findings. • Supports HR & line management in
developing remedial actions if required.
Close out case and inform relevant stakeholders.
Code of Conduct ofñcer • Monitors status of actions. • Provides trend and status
information to oversight committee.
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potential code violations (refer to Exhibit 2). Many avenues should be made available to employees who wish to ask questions about ethics issues or report potential Code of Conduct breaches. They should be advised that they can talk to their super\ isor or manager, report to security or human resources personnel, or contact the Code of Conduct officer. But hest practice also includes providing a confidential ethics hotline. A 2006 study by the Association of Cxrtified Fraud Examiners noted that business fraud was more likely to l)e deterred by hotline tips than by any other means, including internal and external audits. The hotline should be accessible at all times to employees, customers and other stakeholders and must allow for anonymity if it is desired by the caller. Many companies are now using external supphers to provide such service round-the-clock.
Establishing standards of behaviour without being prepared to discipline for wrongful behaviour will not promote compliance.
Regardless of how they are raised, a!l Code issues should ultimately be communicated to the Code of Conduct officer. Working with appropri;ite levels of mimagement.
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the Code of Conduct officer, or assigned investigator, should carry out fact-finding into the allegation to determine if it warrants full investigation. If an investigation is required, this is co-ordinated by the Code of Conduct officer and may be carried out internally or through an external, third-partj' investigator. A report detailing the investigation, its results, and any disciplinary measures taken should be written and retained as an official company record. The importance of maintaining a system of appropriate records to support potential legal challenge cannot be understated.
Program monitonng
Part of maintaining a sound Code of Conduct program is conducting regular assessments of the program and then taking action to address identified issues. Evaluating data on the frequency and nature of reported Code of Conduct violatii)ns can provide insight into ethical problems facing the company. Trends should be identified and monitored to determine if follow-up communication and/or additional training is required in specific areas.
Periodic audits of the Code of ('onduct program by an external specialist are also recommended. This brings industry best practice to bear on the program and promotes continuous improvement.
Oversight of the program
Many couipanies establish a compliance committee to provide ongoing overeight ot tbe Code of Conduct program, Such committees provide a cold-body review of Code of Conduct issues and investigations, help to ensure consistency of disciplinar}' measures, and provide advice for tbe continuous improvement of the Code of Conduct and its underlying program. Such committees are often made up of senior managers, may include stakeholder representatives, and can be supplemented by external advisory experts as required. The Code of Conduct or compliance officer should also l)e a member of the committee.
Governance
CxHporate ethics and standards of conduct are matters of governance. The chair of the compliance committee or the Code of Conduct officer should periodically update the company's audit Committee or board of directors on tbe health of the Code of Conduct program, the results of significant investigations and any systematic patterns in company conduct that might be emerging. This report should also address initiatives under\vay to improve the company's control environment.
Adopting a Code of Conduct reflects a company's commitmeni to high standards of employee and stakeholder conduct. Senior management needs to view the Code as an integral part of tlie company's operations and continually promote, reinforce, and oversee it to help ensure an ethical organization, •
Doug Archer is a manager, corporate risk oversight and audit di\rision with Bruce Power, a nuclear utility in Tiverton, Ont.
CMA MANAGEMENT 3 6 November 2008
