an Ethical Culture
2006 - Managers focused primarily on the bottom line tend
to marginalize the discussion of ethics by shrugging their
shoulders and insisting that “you can’t teach
ethics.” What they really mean is that you can’t
teach values. Although each individual’s moral compass
is shaped by countless experiences over a lifetime—family,
culture, friends, education, and religion—many organizations
have established a code of conduct to guide their employees
regarding their ethical responsibilities. An employee who
departs from this guidance may have the burden of justifying
such a departure in a disciplinary or legal proceeding.
More Than Just a Warm, Fuzzy Feeling
of the many recent widely publicized corporate scandals,
an entire generation has lost trust in the business community.
But ethical business conduct is critical to every business’
well-being. Corporate culture must include a commitment
to embracing ethical values, not simply to avoid scandals
but to regain the public’s trust.
online survey of more than 1,100 participants conducted
by the American Management Association in 2005 found that
the number-one reason cited for compromising one’s
ethical standards is “pressure to meet unrealistic
business objectives/deadlines.” The second response
was “a desire to further one’s career,”
and the number-three answer was “a desire to protect
one’s livelihood.” I found it both surprising
and unsettling that furthering one’s career placed
higher in the pecking order than protecting one’s
livelihood. It’s a sad and telling commentary on the
values of our society that the reason many individuals compromise
their ethical standards is less for economic necessity than
at the Top
professional ethics is discussed, the “tone at the
top” of an organization is usually part of that discussion.
This concept entails a comprehensive program that goes beyond
“setting a good example” and “doing the
right thing”; it requires an organization’s
management to act on the principles embodied in its formal
an ethics policy. Developing a strong, detailed
ethics policy is a good beginning, but only that—a
beginning. Contradictions between the values reflected in
a written policy and management’s actions are glaringly
apparent to an organization’s employees. When faced
with choosing between adhering to official guidelines in
a manual that’s dusted off once a year or following
the lead of their supervisor’s actions, employees
will generally take the latter route.
controls. Developing and implementing controls
to detect violations of established policies is another
integral step in the ethics compliance process. Because
many ethics policies reflect legal and regulatory requirements,
violating these laws and regulations can create significant
liability for the organization, its directors, officers,
and other employees. One of the best detection methods for
unethical or illegal conduct is through tips from employees,
vendors, or anonymous sources. Proactive procedures should
be established to encourage open lines of communication
for reporting violations, such as an anonymous (whistleblower)
hotline. Retaliation of any kind against an employee who
reports a violation or assists in an investigation of such
violation should be prohibited.
penalties and rewards. I learned everything
I needed to know about corporate governance as a parent.
An effective disciplinary process is essential to engender
a culture of compliance. Procedures to ensure fairness and
due process should be established and well communicated.
In addition, appropriate penalties to “fit the crime,”
as well as rewards for positive reinforcement of ethical
behavior, should be unambiguous.
policies and procedures. Although establishing
an ethics policy within an organization is necessary to
define clear accountabilities and responsibilities, how
the policy is communicated throughout the organization is
equally important. Common (official) methods of communicating
policies include a combination of management meetings, training
sessions, e-mail messages, employee orientation, and the
organization’s general manual. Although not generally
thought of as a method of communication, the expectations
of a company’s culture are most effectively communicated
through the actions of its management.
policies consistently. The enforcement of
an organization’s disciplinary process will determine
the extent to which its policies are followed. If employees
are not convinced that corrective action will be taken upon
detection of a violation of company policy, future compliance
is less likely.
Violations Are Not ‘Victimless Crimes’
purpose of an ethics policy is to support a culture of openness,
trust, and integrity in a company’s management and
business practices. Unless employees, managers, and directors
understand that a violation of ethical standards is not
a victimless crime, they are more likely to expose the company
to significant business risk. When an organization breaches
its ethical standards, someone—customers, investors,
or employees—always gets hurt.
always, I welcome your comments on these and other issues.
Kranacher, MBA, CPA, CFE