Corporate Ethics Programs

Building an efficacious corporate ethics program requires leadership, commitment, planning, and execution. According to Navran (1997), companies need to have clear statements of their vision and values. They should have an organizational code of ethics. Creating an ethics officer position and forming an ethics committee helps communicate the company's ethics strategy, coordinate employee training, maintain a help line to offer confidential advice as needed under specific circumstances, monitor and track activities with ethics implications, and take action to reward good and punish unethical practices.

More than 90% of all Fortune 500 companies have codes of ethics, and 70% have statements of vision. Companies such as Procter & Gamble, IBM, Johnson & Johnson, Texas Instruments, John Deere, Cummins Engine, Eaton, and Dow Corning publish codes of ethics online. The Center for the Study of Ethics in the Professions at the Illinois Institute of Technology received a grant from the National Science Foundation to design and maintain a website, The site stores 850 codes of ethics online, including those issued by engineering associations (Section 11.2.1) and corporations.

A corporation's statement of ethics serves as a behavioral compass for the employees. Kinni (2003) recommends a set of guidelines to formulate a code of ethics. Companies must first establish their values and direction. To be relevant, a statement of ethics must be connected to the core direction in which the organization is going. The code of ethics should be centered on such values as integrity and trustworthiness, instead of being merely a compliance document. It should include specifics unique to the business under consideration or details about the company philosophy. The company should then go public with the code of ethics so that all employees, customers, suppliers, and any other stakeholders are fully informed of it. The code of ethics must be updated regularly to help guide the day-to-day behavior and decision-making of the employees. The overall effectiveness of a statement of ethics depends on the company leaders' commitment to its disciplined enforcement. (Examples of ethics statements can be found in Murphy, 1997.)

It is useful to issue guidelines to handle potentially unethical situations and to set clear standards of conduct applicable to daily responsibilities. Employees are advised to (1) analyze carefully the situation at hand; (2) list all possible failings and downsides of the potentially unethical practice in question; (3) compile all possible benefits that could accrue if the practice in question ceases and is admitted now, rather than being discovered by someone else later; (4) issue a memo; and (5) attempt to make a full disclosure to coworkers, the superior, the superior's superior, the company president, the customers, the public, and the press.

Besides defining what the employees are expected to do, it is equally important to spell out what they should not do. Of specific value is the description of actions that are deemed unethical. Setting such lower bounds ensures that there is no ambiguity in interpreting what is not allowed. As sample unethical cases from both internal and external sources are continuously added to the code of ethics, the resulting casebook will become an increasingly important benchmark reference.

Honeywell has put teeth into its ethical principles by making it mandatory for all employees to adhere to the company's code of conduct. Starbucks introduced its Framework for a Code of Conduct for coffee-producing countries to standardize ethics practices among coffee retailers, exporters, and growers.

Some people believe that it is ineffective for companies to self-police their own codes. Instead, there should be an independent monitoring of ethical practices. To deter wrongdoing, the penalties must be high and the enforcement disciplined. Among examples of such penalties are dismissal with charges and forfeiture of all pension rights, a jail term with no opportunities for parole, severe financial penalties, and denial of reentry to industries involved.

There should probably also be more recognition from society for good actions taken by companies or individuals. Making ethically sound decisions may have been taken for granted by many people for a long time. In 1998, Deloitte/Management Magazine created a

Business Ethics Award program in New Zealand, and it has recognized the following companies with best practices in ethics since that time: Norske Skog Tasman in 2002, Methanex NZ in 2001, New Zealand Post in 2000, and 3M New Zealand in 1999. More awards of this type should be established to honor such people and to reflect society's appreciation of these exemplary ethical behaviors!

In managing corporate ethics programs, the key is to make sure that everyone is honest and will disclose fully all of the details of every situation in question. A well-known publisher suggests a single question as the basis for assessing an ethical situation: "If what I just said or neglected to say, did or neglected to do, saw and failed to report, or heard and failed to mention, were disclosed openly by someone else in reputable communications channels, would it embarrass me, my organization, or my family?" If the answer is "yes," then the action or inaction in question is unethical. This question is likely to be useful for honest people with self-respect. However, embarrassment is a personal perception based on value. It may not be as useful to white-collar crooks who are driven by greed and who are willing and able to circumvent the laws to act unethically. Generally speaking, individuals who offer a full disclosure to all concerned are usually ethical (Johnson and Phillips 2003).

The commitment of top management to the corporate ethics program is of critical importance to its success. A case in point is Johnson & Johnson. The company is known for its Credo Challenges sessions, in which employees and managers talk about ethics related to current business problems and offer criticisms of existing policies and ideas for improvement. The company achieved excellent business results by using this industrial best practice in the field of ethics.

An opposite case in point is Enron, which had a 65-page code of ethics. Yet, some top Enron managers allegedly entered into special business deals with off-balance-sheet financing that resulted in a falsely inflated corporate profitability that permitted selected management personnel to cash out stock options while siphoning out special bonus payments to individuals, all eventually at the expense of the company shareholders. Reports from internal whistleblowers were simply ignored by Enron top managers, who elected to take no corrective action. It was clear to everyone involved that these were unethical and illegal management actions. Allegedly acting as its partner in crime, the auditing firm Arthur Andersen was also accused of committing the criminal offense of willfully destroying Enron papers relevant to the case.

No ethics program will be efficacious unless company top management supports its implementation.

Example 11.2

A global job migration trend is starting to develop. Significant numbers of jobs are being exported from the United States and other developed countries to such emerging- economy countries as Mexico, China, India, the Philippines, Ireland, Thailand, and Bangladesh. Typical jobs are related to software programming, call center services, financial accounting, tax preparation, selected R&D, claims processing, and contract production. Other types of jobs may be involved in the future. The principal driving force behind the job migration trend is cost: a comparable quality of workmanship may be accomplished in emerging economy countries at about one-third the cost of paying workers in developed countries.

Does Corporate America display an apparent indifference to its workforce at home? Is it unethical for American companies to outsource work in search of cost-effectiveness at the expense of American workers?

Answer 11.2

Corporate America is legally empowered to seek cost-effectiveness in creating and marketing products and services, as long as it is doing so in compliance with laws and commonly accepted ethics standards. Because of the free market system the United States practices, Corporate America does not have the obligation to guarantee jobs for any sector of American workers, be they engineers, software programmers, accountants, claims-processing clerks, call center service personnel, or factory workers. If certain sectors of employment appear to be declining because of global competition, the workers in these affected sectors must be able to learn new skills quickly to keep themselves competitive in the job market. Past cases with textile, steel, and agriculture workers are typical examples of sector-specific decline due to globalization.

The job protection concept may be appropriate in a socialist system, wherein the government exercises control over the economy, but it is not appropriate in a free market economy. By outsourcing, Corporate America does not display an apparent indifference to its workforce at home. It is not unethical for American companies to outsource work.

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