Ethics Resource Center

Published: December 30, 2008

Column
By Patricia J. Harned, Ph.D., President, ERC

Tough Times. Tough Actions.

As author Doris Kearns Goodwin said about an earlier upheaval in American life, this is “no ordinary time.”  The same is true for us now as we close out 2008 and look forward to the new year.  And like FDR’s wartime challenges, we will be really fortunate if courage and leadership can bring us back to safety and sanity, given our present economic and business circumstances.

December has been a big month for financial fraud.  First a prominent New York attorney was arrested by Toronto police for allegedly bilking investors out of at least $380 million. “Lawyer Seen as Bold Enough to Cheat the Best,” said the New York Times headline.  What an accolade.

Then a legendary Wall Street money manager was found to be producing excellent returns on a fund that didn’t exist.  The loss to investors is said to be $50 billion. In a twist, it reportedly was his sons who alerted authorities, which might deserve a place in the annals of whistleblowers.  At the very least, it is evidence of the widespread harm that misconduct can cause.

At least these were publicly recognized scandals.  According to many in financial services and banking circles, the global economic meltdown is in a different category of conduct.  The attitude on Wall Street is that no one did anything wrong and that investors know, or should know, that markets go up and markets go down.  Deutsche Bank, to cite one example, recently suffered a $1 billion loss in legitimate trades by a young, well-regarded employee. When the new Congress gets going in January and a new Administration is in place, expect a fierce battle will begin to determine the extent to which our present economic state is the result of wrongdoing.  The discussion will take place between, on the one hand, the bankers, traders, lenders and fund managers and, on the other, the forces of legislation, regulation and compliance.

And finally, there is workplace ethics in the office of Illinois’ governor, who faces charges of corruption alleging that he planned to sell the state’s vacant U.S. Senate seat.. 
For ethics and compliance professionals, this is a lot to think about as 2008 winds down.  Yes, corruption, fraud and lesser misconduct will always be with us. But it seems fair to ask, in these times of economic distress and irresponsible financial risk-taking, whether ethics officers are doing enough, or is there more to be done for the cause? Do our efforts make a difference, or have we merely been putting lipstick on the corporate pig?  Maybe unusual times call for unusual action.

From years of collecting client data, ERC knows that ethics programs work and that a strong ethical culture in an organization cuts “observed misconduct” drastically. But the truth is that most substantive types of ethics issues are handled outside of the ethics office in most organizations.  Further, the ethics officer typically is not in the room when top executives are discussing business development, risk, financial obligations, stock price, investor relations, maximizing efficiency and containing costs – many of the the larger strategic business issues. 

So in the spirit of the season, I’d like to suggest nine steps that bear consideration as we all wait to see what 2009 will bring:

• Step Up.  Get bolder about your advocacy for ethical conduct within your organization. This will take some courage, especially where it is necessary to make the case to leaders at higher levels than you. In the worst case, your responsibility to “hold the line” for organizational standards could mean walking out the door.  That is certainly not an easy choice; to hear the experiences of three whistleblowers whose lives and careers were turned upside down, go to www.ethics.org and listen to ERC’s recent webcast on this subject.
• Do Your Homework.  “We’re not given a seat at the table” is a familiar complaint among ethics practitioners (and HR professionals).  If the CEO suddenly were to say, “Good news, Harned.  I’m giving you a seat at the table,” would you really be ready?  How familiar are you with business practices so that you could make meaningful contributions about the ethical dimension of strategic discussions?  Have you read deeply on finance, debt, auditing practices?  Have you done all you can to prepare professionally?
• Support the Board.  Recommend your directors appoint an independent ethics expert as a board member.  Suggest more frequent reports from the chief ethics and compliance officer.  Ask them to devote time on the agenda to discuss realistic transparency initiatives and assess corporate culture.
• Meet with the Compensation Committee.  Recommend that the board set performance goals for the CEO on setting an ethical “tone at the top.”  Ask them to consider requiring a report from the chief ethics and compliance officer on the CEO’s progress.
• Meet with the Audit Committee.  Recommend that the board review the ethics programs of audit firm candidates; if there is bad news to raise about financial fraud risk in your company, you want to be sure that your auditor will not be making a career ending decision by blowing the whistle.  Advise them to pay attention to upcoming rule changes from the Public Company Accounting Oversight Board on valuation, going concern and risk.  Suggest they assess pressures on employees, particularly in finance and internal audit.
• Request an Audience with the CEO.  Suggest he or she set performance goals on ethical conduct for senior management, and commit to discussing tone at the top at senior management meetings.  Recommend more coaching and explanation of ethics matters.  Be humble; don’t preach.
• Communicate with Shareholders.  Describe your organization’s ethics and compliance program.  Inform or remind them that e-learning courses are available on codes of conduct.  Establish a connection in their minds between ethics/compliance and their own transparency and accountability focus.
• Watch Out for High-Risk Employees.  Especially in tough times, keep your eye on finance, internal audit, sales and procurement.  Stay alert for hints of management overrides of the routine, side agreements being made at the top; build-up of workplace pressures, mischaracterizations on balance sheets and word of discomfort among employees with the decisions being made by managers.

Most of all, have hope.  You can and will make a difference, even during these economic times, if you continue to keep ethics on the forefront of the agenda in your organization.
Happy holidays.

In This Issue

• The Policy Report By Paula J. Desio, ERC Chair on Ethics Policy:
  Ethics and Compliance Programs May Get Their Day in Court. Will they soon provide a legal defense to criminal liability?
• ERC Vice-Chair Scott Harshbarger: Working to Change the Rules of the Game
• Tough Times. Tough Actions.
  Column By Patricia J. Harned, Ph.D. President, ERC.
• ERC's Government Roundtable Takes the Long View