1. Loescher & Associates Pro-Active Solutions www.loescherandassociates.com Credit Unions with a Conscience: Creating an Ethical Work Environment Presented for the Michigan Credit Union League by Barbara A. Loescher Loescher & Associates

2. Pro-Active Solutions www.loescherandassociates.com Session Objectives Discuss the current state of business ethics Discuss the importance of a code of ethics and how it differs from a code of conduct Discuss situations that can occur and appropriate responses Discuss how to develop and implement an ethics program Discuss the role of the Board in shaping a credit union’s culture

3. Loescher & Associates Pro-Active Solutions www.loescherandassociates.com A Renewed Emphasis on Ethics Factors –Number of high- profile ethical scandals & trials –Sarbanes-Oxley legislation –New federal sentencing guidelines

4. Loescher & Associates Pro-Active Solutions www.loescherandassociates.com What Are Ethics? Basic definition: –Learning what is right and wrong –Doing the “right thing” Are based on values which guide how we ought to behave –Respect, honesty, fairness, social responsibility Ethical principles are statements on how values are applied

5. Loescher & Associates Pro-Active Solutions www.loescherandassociates.com What Are Business Ethics? Basic definition –Knowing what is right or wrong in the workplace –Doing what’s right –Proper behavior may be translated to law Includes –How services and products are delivered –Relationships with internal & external entities (stakeholders)

6. Loescher & Associates Pro-Active Solutions www.loescherandassociates.com Areas of Business Ethics Managerial mischief –Illegal acts –Unethical practices –Questionable behavior –Mishandling of ethical situations when they arise Moral mazes –“Gray areas” –Includes: Conflict of interest Kickbacks Personal use of resources

7. Loescher & Associates Pro-Active Solutions www.loescherandassociates.com Ethics Case Studies

8. Loescher & Associates Pro-Active Solutions www.loescherandassociates.com Myths About Business Ethics Ethics is a matter of religion, not management Our employees are ethical so we don’t need an ethics policy Ethics is better handled by philosophers and theologians than MBAs An ethics policy is redundant – we all know that we should do what’s right! Ethics is no more than good guys preaching to the bad guys

9. Loescher & Associates Pro-Active Solutions www.loescherandassociates.com Myths About Business Ethics Ethics is just the latest fad – the latest policeman on the block Ethics can’t be managed Ethics and social responsibility are the same thing Our credit union is not in trouble, so we must be ethical Managing ethics has no practical value

10. Loescher & Associates Pro-Active Solutions www.loescherandassociates.com Benefits of Managing Ethics Business ethics have substantially improved society Ethics programs help maintain a moral compass in turbulent times Ethics programs promote strong teamwork and productivity Ethics programs support employee growth and meaning Ethics programs ensure that policies are legal

11. Loescher & Associates Pro-Active Solutions www.loescherandassociates.com Benefits of Managing Ethics Ethics programs help avoid criminal acts and can lower fines or damages Ethics programs help manage values Ethics programs promote a strong public image Ethics programs can ultimately impact the bottom line Ethics programs are the right thing to do!

12. Loescher & Associates Pro-Active Solutions www.loescherandassociates.com Board Responsibility An ethics programs starts at the top Board commitment sets the tone for the entire credit union Board involvement makes it more likely that other employees will commit Board sets an example

13. Loescher & Associates Pro-Active Solutions www.loescherandassociates.com Management Responsibility The CEO must fully support the program –Announcement –Development –Implementation –Monitoring The CEO must lead by ethical example

14. Loescher & Associates Pro-Active Solutions www.loescherandassociates.com Employee Responsibility Support the policies and guidelines Participate in developing and operating the program Report violations if noted

15. Loescher & Associates Pro-Active Solutions www.loescherandassociates.com Managing Ethics in the Workplace Recognize that managing ethics is a process The most important outcome is achieving desired behaviors The best way to handle ethics problems is to avoid their occurrence in the first place Make ethics decision in groups and publicize them, as appropriate

16. Loescher & Associates Pro-Active Solutions www.loescherandassociates.com Managing Ethics in the Workplace Integrate ethics management with other management practices Use cross-functional teams to develop and implement the program Value forgiveness Remember that trying to operate ethically and making a few mistakes is better than not trying at all

17. Loescher & Associates Pro-Active Solutions www.loescherandassociates.com Components of an Ethics Program Ethics codes Codes of conduct Ethics officers Ethics committees Policies and procedures Guidelines and decision models for handling ethical situations Employee training

18. Loescher & Associates Pro-Active Solutions www.loescherandassociates.com Code of Ethics Definition: –A code of ethics specifies the ethical rules of operation –It includes a list of “thou shalt nots” Codes should be developed by top-level management with involvement from staff A large organization may develop codes for specific areas of operations

19. Loescher & Associates Pro-Active Solutions www.loescherandassociates.com Steps in Developing A Code of Ethics Identify areas subject to laws & regs Identify values that produce the top three or four traits important to the success of your credit union Identify values needed to address current issues at your credit union Consider values prized by “stakeholders” Narrow the list down to 5-10

20. Loescher & Associates Pro-Active Solutions www.loescherandassociates.com Steps in Developing A Code of Ethics Compose your code, including example behaviors that reflect each value Include wording that all employees are expected to conform Review with key members Review with your attorney Announce and distribute the new code Update at least once a year

21. Loescher & Associates Pro-Active Solutions www.loescherandassociates.com Code of Conduct Definition: –Specifies actions which are needed to adhere to the ethical values proclaimed in the ethics code Includes: –Dress, drugs, insubordination, confidentiality, gifts, discrimination, conflict of interest, compliance with laws

22. Loescher & Associates Pro-Active Solutions www.loescherandassociates.com Code of Conduct Proper dress Avoiding drugs Following instructions Being reliable/prompt Confidentiality Not accepting gifts Avoiding discrimination Avoiding conflict of interest Compliance with laws Not using resources for personal use Not discriminating because of age, sex or race or religion Proper treatment of members Reporting illegal or questionable activity

23. Loescher & Associates Pro-Active Solutions www.loescherandassociates.com Other Considerations Policies and procedures should also be reviewed to ensure that they don’t conflict Appoint an ethics officer Establish a hotline or reporting structure Give rewards for ethical behavior and impose consequences for unethical behavior Include a grievance procedure

24. Loescher & Associates Pro-Active Solutions www.loescherandassociates.com Ethical Dilemmas Dilemmas result when: –Real alternatives are equally justifiable –Value conflicts arise –There are significant consequences on the “stakeholders” Employees should be provided with examples of complex ethical problems

25. Loescher & Associates Pro-Active Solutions www.loescherandassociates.com Resolving Dilemmas Appoint a committee comprised of board members, management and staff Develop procedures for handling ethical dilemmas Define a methodology –Checklist with weighted values –Decision-making models –Questionnaires –“The Golden Rule”

26. Loescher & Associates Pro-Active Solutions www.loescherandassociates.com Questions to Ask Have you defined the problem accurately? How does it appear from the other side? Whom could the decision injure? Where do your loyalties lie? Can you disclose your decision without qualms? What is the potential if action is misunderstood? Does it stand the test of time? What would I tell my child to do?

27. Loescher & Associates Pro-Active Solutions www.loescherandassociates.com Employee Training An ethics program is useless unless all staff members are trained Training suggestions: –Include in new employee orientation –Include in management training –Involve staff in policy and code reviews –Use real-life examples as a training tool –Include ethical performance in evaluations The best training is the behavior of your credit union’s leaders

28. Loescher & Associates Pro-Active Solutions www.loescherandassociates.com Ethical Warning Signs “Well, maybe this once…” “No one will ever know” “It doesn’t matter how it gets done, as long as it gets done” “This sounds too good to be true” “What’s in it for me?” “What they don’t know, won’t hurt them.”

29. Loescher & Associates Pro-Active Solutions www.loescherandassociates.com More Ethical Warning Signs “Everyone does it.” “Shred that document.” “We can hide it.” “No one will get hurt.” “This will destroy the competition.” “We didn’t have this conversation.” “You want me to WHAT?”

30. Loescher & Associates Pro-Active Solutions www.loescherandassociates.com Handling Violations Treat the employee with dignity & respect Protect the confidentiality of the information Allow for anonymity Assign an investigator Inform the person who reported the violation of the outcome

31. Loescher & Associates Pro-Active Solutions www.loescherandassociates.com Some Final Thoughts An ethics code is unique to each credit union. There are no boilerplate solutions. Employees in times of crisis, confusion or change need the moral compass that an ethics policy provides

32. Loescher & Associates Pro-Active Solutions www.loescherandassociates.com Thank You!! Barbara A. Loescher Loescher & Associates 6666 Odana Road, #136 Madison, WI 53719 Phone: (608) 278-0465 Barbara@loescherandassociates.com