1. Copyright © Houghton Mifflin Company. All rights reserved.8-1 Chapter 8 Developing an Effective Ethics Program

2. Copyright © Houghton Mifflin Company. All rights reserved.8-2 The Responsibility of the Corporation as a Moral Agent Increasingly, corporations are viewed not merely as profit-making entities but also as moral agents that are accountable for their conduct to their employees, investors, suppliers, and customers.

3. Copyright © Houghton Mifflin Company. All rights reserved.8-3 The Need for Organizational Ethics Programs Scandals (newspaper) in corporate America have lowered the public’s trust of business. Understanding the factors that influence ethical decision-making can help companies encourage ethical behavior. Employees are not legal experts and therefore need guidance with legal issues impacting their jobs.

4. Copyright © Houghton Mifflin Company. All rights reserved.8-4 The Need for Organizational Ethics Programs One reason why ethics programs are required is to help sensitize employees to the potential legal and ethical issues within their work environments Five top recommendations to CEO’s for rebuilding trust and confidence in American firms –Making customers the top priority –Assuming personal responsibility and accountability –Communicating openly and frequently with customers –Handling crises more honestly –Sticking to the code of business ethics no matter what

5. Copyright © Houghton Mifflin Company. All rights reserved.8-5 An Effective Ethics Program Helps ensure that all employees understand the organization’s values and comply with the policies and codes of conduct that create its ethical climate – Diverse employee backgrounds (education, experience, family) make organizational socialization more critical.

6. Copyright © Houghton Mifflin Company. All rights reserved.8-6 Values Versus Compliance Programs Compliance orientation –Creates order by requiring that employees identif y with and commit to specified conduct –Uses legal terms, statutes and contracts that teach employees the rules and penalties for noncompliance Values orientation –Attempts to develop shared values –Focuses more on an abstract core of ideals such as respect and responsibility, although there are penalties for misconduct

7. Copyright © Houghton Mifflin Company. All rights reserved.8-7 Ethics Programs Can Help Avoid Legal Problems The Federal Sentencing Guidelines for Organizations encourage companies to assess their key risks and customize a program to address these risks. The program must be communicated to all employees— providing a common understanding of organizational values, policies, and procedures. –Companies that act to prevent organizational misconduct may receive a “carrot ” and avoid organizational penalties. –Those that do not may receive a “stick”— fines and penalties.

8. Copyright © Houghton Mifflin Company. All rights reserved.8-8 Minimum Requirements for Ethical Compliance Programs 1.Standards and procedures, such as code of ethics, that are reasonably capable of detecting and preventing misconduct 2.High-level personnel who are responsible for an ethics and compliance program 3.No substantial discretionary authority given to individuals with a propensity for misconduct 4.Standards and procedures communicated effectively via ethics training programs 5.Establishment of systems to monitor, audit, and report misconduct 6.Consistent enforcement of standards, codes, and punishment 7.Continuous improvement of the ethical compliance program Source: Adapted from U.S. Sentencing Commission, Federal Sentencing Guidelines Manual (St. Paul : West, 1994), Chapter 8.

9. Copyright © Houghton Mifflin Company. All rights reserved.8-9 Codes of Conduct Codes of conduct –Formal statements that describe what an organization expects of its employees Codes of ethics –Most comprehensive document consisting of general statements that serve as principles and the basis for the rules of conduct Statement of values –Serves the general public and addresses stakeholder interests

10. Copyright © Houghton Mifflin Company. All rights reserved.8-10 Ethics Officers Ethics officers or committees are responsible for oversight of the ethics/compliance program: –Assess the needs and risks that an organization-wide ethics program must address –Develop, revise, and disseminate the code –Conduct training programs for employees –Develop effective communication –Make sure the company is in compliance with government regulation –Establish audits and control systems –Take action on possible violations of the code –Review and modify the program to improve effectiveness

11. Copyright © Houghton Mifflin Company. All rights reserved.8-11 Systems to Monitor and Enforce Ethical Standards An internal system for employees to report misconduct is an opportunity to register ethical concerns: –Ethics hot lines –Questionnaires used to serve as benchmarks Enforcement is also important: –Corrective actions to provide standards and punishment –Consistent enforcement critical

12. Copyright © Houghton Mifflin Company. All rights reserved.8-12 Continuous Improvement of the Ethics Program Always improve Revisions are needed

13. Copyright © Houghton Mifflin Company. All rights reserved.8-13 Common Mistakes in Designing/ Implementing an Ethics Program Not having a clear understanding of the goals of the program from the beginning Not setting realistic and measurable program objectives Senior management’s failure to take ownership of the ethics program Developing program materials that do not address the needs of the average employee Transferring a domestic program internationally Designing a program as a series of lectures