Business & Society ETLW 302 Tara Ceranic Salinas, PhD

Implementing Ethics in Organizations

Sarbanes-Oxley Act 2002 A Public Company Accounting Oversight Board is established. The firms are not permitted to offer loans to its executive officers or board of directors. SEC rules will create guidelines for internal controls and financial reporting procedures. ERISA penalties are increased from $5,000 to $100,000 and one year in prison to $100,000 to $500,000 and up to 10 years in prison.

Sarbanes-Oxley Act 2002 The firm’s audit committee is entrusted with auditor oversight and with all independent directors on the committee Certain nonaudit services by auditors to clients are banned, nonaudit services must be preapproved by the audit committee, the lead auditor must be rotated every five years, and auditors report to the audit committee. The CEO and CFO must sign off on financial statements as accurate and fair and must repay bonuses if a restatement of financials is undertaken.

SOX 404 Publish information in their annual reports concerning the scope and adequacy of the internal control structure and procedures for financial reporting. Assess the effectiveness of such internal controls and procedures. The registered accounting firm shall, in the same report, attest to and report on the assessment on the effectiveness of the internal control structure and procedures for financial reporting. The corporate equivalent of a root canal

SOX 404 Big public companies spent thousands of hours and an average of $4.4 million apiece (2004) to make sure that someone was looking over the shoulder of key accounting personnel at every step of every business process. Turns out that taking stock of internal controls can help beyond just unmasking accounting problems! By forcing executives to dig deep into how their companies get work done, Section 404 is enabling businesses to cut costs and boost productivity.

Corporate Sentencing Guidelines Establish standards and procedures to reduce criminal conduct Assign high-level officer(s) responsibility for compliance Not assign discretionary authority to “risky” individuals Enforce standards and procedures through disciplinary mechanisms Following direction of offense, respond appropriately and prevent reoccurrence

Corporate Sentencing Guidelines Effectively communicate standards and procedures through training Take reasonable steps to ensure compliance-monitor and audit systems, maintain and publicize reporting systems

“The Commission wanted to provide organizations with a clear incentive to take actions that should reduce the likelihood of criminal conduct. The Commission’s review of past cases made clear that few organizations that find their way into the federal courts have effective compliance programs. The Commission also learned through public comment that there is a need even among organizations that have never been convicted of crime for increased attention to and strengthening of internal mechanisms to prevent and detect unlawful conduct.” (See ethikos, July/Aug. 1991.) 

Report from Ethics Resource Center: 20 years later The guidelines have led to the broad adoption of a compliance program  and a profession of compliance and ethics managers However, Federal government isn’t giving companies adequate credit for compliance programs: Need to more clearly spell out the need for compliance programs to include incentives, and for managers, upper and middle, to take responsibly for promoting ethics and compliance.

Proactive Make discussions of ethics part of culture: Set the right example Framing ethics to highlight prevention Stress the importance of means

Why have an ethics code? Positive impact on culture Improve business relationships (internally and externally) Holds people accountable Deals with inappropriate behavior

Codes of ethics exist in each of your chosen fields: -Accounting (AICPA, IFAC, Code of Ethics for Professional Accountants) -Finance (FPA, NAPFA) -Marketing (AMA, BMA) -Information Technology (Association of IT Professionals)

You can’t find an ethics code for your organization… Compliance Conduct Governance Mission Vision Values Practices

Ethics Codes/Policies in Organizations The code is about corporate culture -What lines can’t be crossed? Get input -From ALL levels Don’t be too specific or too vague

Ethics Codes/Policies in Organizations Watch out for pitfalls (things not being addressed) -Nepotism, harassment, discrimination Ask experts (HR, ethicist, lawyer) Put someone in charge -Who applies and updates?

What do some actual codes look like? Break into groups Find the code for any organization you are NOT doing your project on What do you think?

Writing your Ethics Analysis paper DO NOT USE the SHRM template (or any other template)

Other ways to implement ethics in the organization Ethics committees Ethics officers/ombudspersons Hot lines Ethics audits Corporate ethics awards Show ethics video