CHAPTER 8: DEVELOPING AN EFFECTIVE ETHICS PROGRAM

The Responsibility of the Corporation as a Moral Agent

A corporation can be considered a societal moral agent that is created to perform specific functions in society
and is therefore responsible to society for its actions. Because corporations have the characteristics of agents,
responsibility for ethical behaviour is assigned to them as legal entities as well as to individuals or work groups they
employ. A corporate culture without values and appropriate communications about ethics can facilitate individual
misconduct. As such, companies may be punished for wrongdoing and rewarded for good business ethics. The FSGO
holds corporations responsible for conduct they engage in as entity. Some corporate outcomes cannot be tied to one
individual or even a group, and misconduct can be the result of a collective pattern of decisions supported by a
corporate culture. Therefore, corporations can be held accountable, fined, and even receive the death penalty when
they are operating in a manner inconsistent with major legal requirements.

The Need for Organizational Ethics Programs

 One reason why ethics programs are required in one form or another is to help sensitize employees to the
potential legal and ethical issues within their work environments.
 Fostering ethical decision making within an organization requires terminating unethical persons and improving
the firm’s ethical standards. Consider the “bad apple-bad barrel” analogy:
o Some people are simply “bad apples” who will always do things in their own self-interest regardless of
their organization’s goals or accepted standards of conduct.
o Organizations can also become “bad barrels,” not because the individuals within them are bad, but
because the pressures to succeed create opportunities that reward unethical decisions.
 To promote legal and ethical conduct, an organization should develop an organizational ethics program by
establishing, communicating, and monitoring the ethical values and legal requirements that characterize its
history, culture, industry, and operating environment. Without such programs, uniform standards, and policies
of conduct, it is difficult for employees to determine what behaviours are acceptable within a company.

An Effective Ethics Program

 A company must have an effective ethics program to ensure that all employees understand its values and
comply with the policies and codes of conduct that create its ethical culture. Because we come from diverse
business, educational, and family backgrounds, it cannot be assumed that we know how to behave
appropriately when we enter a new organization or job.
 An ethics program can avoid legal problems – companies that act to prevent misconduct by establishing and
enforcing ethical and legal compliance programs may receive a “carrot” and avoid penalties should a violation
occur. The ultimate “stick” is the possibility of being fined or put on probation if convicted of a crime.
 Values versus compliance programs – no matter what their goals, ethics programs are developed as
organizational control systems, the aim of which Is to create predictability in employee behaviour. Two types of
control systems can be created:
o Compliance orientation – creates order by requiring that employees identify with and commit to specific
required conduct. It uses legal terms, statutes, and contracts that teach employees the rules and
penalties for noncompliance.
o Values orientation – strives to develop shared values. Although penalties are attached, the focus is more
on an abstract core of ideals such as accountability and commitment.

Codes of Conduct
Most companies begin the process of establishing organizational ethics programs by developing codes of
conduct, which are formal statements that describe what an organization expects of its employees. Such statements
may take three different forms:
 Code of Ethics – the most comprehensive and consists of general statements, sometimes altruistic or
inspirational, that serve as principles and the basis for rules of conduct. It generally specifies methods for
reporting violations, disciplinary action for violation, and a structure of due process.
 Code of Conduct – a written document that may contain some inspirational statements but usually specifies
acceptable or unacceptable types of behaviour. A code of conduct is more akin to a regulatory set of rules and,
as such, tends to elicit less debate about specific actions. Some of the key reasons that code of ethics fail are
that:
1. The code is not promoted and employees do not read;
2. The code is not easily accessible;
3. The code is written to legalistically and therefore is not understandable by average employees;
4. The code is written to vaguely, providing no accurate direction; and
5. Top management never refers to the code in body or spirit.
 Statement of Values – serves the general public and also addresses distinct groups such as stakeholders. Values
statements are conceived by management and are fully developed with input from all stakeholders.
Ethics Officers
Ethics officers are the persons responsible for managing the organization’s ethics and legal compliance
programs. They are usually responsible for:
1. Assessing the needs and risks that an organization-wide ethics program must address;
2. Developing and distributing a code of conduct or ethics;
3. Conducting training programs for employees;
4. Establishing and maintaining a confidential service to answer employees’ questions about ethical issues;
5. Making sure that the company is in compliance with government regulation;
6. Monitoring and auditing ethical conduct;
7. Taking action on possible violations of the company code; and
8. Reviewing and updating the code.

Ethics Training and Communication

 Training can educate employees about the firm’s policies and expectations, relevant laws and regulations, and
general social standards.
 Training programs can make employees aware of available resources, support systems, and designated
personnel who can assist them with ethical and legal advice.
 They can also empower employees to ask tough questions and make ethical decisions.
 Key Goals of Successful Ethics Training Programs
1. Identify key risk areas that employees will face.
2. Provide experience in dealing with hypothetical or disguised ethical issues within the industry through mini-
cases, online challenges, CD-ROMS, or other experiential learning opportunities.
3. Let your employees know that wrongdoing will never be supported in the organization and that employee
evaluations will take their conduct in this are into consideration.
4. Let employees know that they are individually accountable for their behaviour.
5. Align employee conduct with organizational reputation and branding.
6. Provide ongoing examples through communication with employees of how employees are handling ethical
issues appropriately.
7. Allow a mechanism for employees to voice their concerns that are anonymous, but allows for the provision
of feedback to key questions (24 hour hotlines).
8. Provide a hierarchy of leadership for employees to contact when they are faced with an ethical dilemma
that they do not know how to resolve.

Systems to Monitor and Enforce Ethical Standards

An effective ethics program employs a variety of resources to monitor ethical conduct and measure the
program’s effectiveness. Observing employees, internal audits, surveys, reporting systems, and investigations can assess
compliance with the company’s ethical code and standards. An external audit and review of company activities may
sometimes be helpful in developing benchmarks of compliance.
 Continuous Improvement of the Ethics Program
Improving the system that encourages employees to make more ethical decisions differs little from
implementing any other type of business strategy. Implementation requires designing activities to achieve
organizational objectives using available resources and given existing constraints. Implementation translates a
plan for action into operational terms and establishes a means by which an organization’s ethical performance
will be monitored, controlled, and improved.
 Common Mistakes in Designing and Implementing an Ethics Program
1. Failure to understand the goals of an ethics program.
2. Not setting realistic and measurable program objectives.
3. The senior management’s failure to take ownership of the ethics program.
4. Developing program materials that do not address the needs of the average employee.
5. Transferring an “American” program to a firm’s international operations.
6. Designing an ethics program that is little more than a series of lectures.

REPORTED BY: RUBIE PEARL D. GUINTU

MARK DANIEL G. CRUZ