Specific Points for a Director to Examine In Determining The Effectiveness Of An Ethics Program

Ethics Resource Center 2003
Frank Navran
Directors have a responsibility to carefully attend to the ethics, not just of the Board, but of the organization they govern. There are several things Directors in general should be aware of, and some that those with audit committee or ethics committee responsibilities should be especially attentive to. In general terms we can divide these points into two sets: process issues and culture issues.

Process Issues:
The FSGO and Sarbanes-Oxley lay out recommendations and requirements that must be complied with if an ethics program is to be judged effective. Compliance with these standards is reasonably well understood and, while they bear mention, there is little need to go into great detail here.
 
The FSGO lay out seven characteristics of an effective program. These characteristics suggest a set of questions the concerned Director might ask to be reasonably confident that the organization is in compliance with these minimum requirements of an effective compliance-oriented ethics program. These requirements have come to be viewed as a standard set of criteria for an effective ethics program and have evolved somewhat from the initial descriptions outlined in the FSGO. One interpretation of the original set of criteria and the resultant questions includes:

Clear standards and procedures

• Has the organization clearly articulated ethical standards and the procedures to follow in order to meet those standards
• Have those standards been codified - committed to document form - as a code of conduct or code of ethics?

High-level personnel responsible
 

• Is there a person(s) sufficiently high in the organizational structure who has been assigned overall responsibility to oversee compliance with those standards and procedures?
• What specific roles and responsibilities have been assigned that person(s)?
• Are those roles and responsibilities appropriate and adequate?

Due care in assignments

• Does the organization have the systems for, and do their actions reflect, due care in the delegation of significant discretionary authority such that they can be reasonably confident that those so authorized will meet the standards and procedures?
• Who makes those determinations of "fitness"?
• Are there adequate safeguards so those decisions are not compromised by possible conflicts of interest?

Communication standards and procedures

• Has the organization taken appropriate steps to ensure the effective communication of the standards and procedures to all employees, agents and other appropriate stakeholders?
• Are those communications sufficiently "routinized" so that employees and others are not likely to perceive them as "checking off a box"?

Monitoring, auditing and reporting systems

• Has the organization implemented effective systems for monitoring and overseeing the actions of the organization, its employees, agents and other critical stakeholders, reasonably designed to detect and prevent unethical and/or illegal activities?
• Has the organization developed means of gathering relevant data and reporting it on a regular (minimally annually) to those charged with ethical oversight?
• Has the organization created safe and effective processes whereby employees, agents and other key stakeholders can either seek guidance on the application of the standards and procedures and/or report suspected violations of those standards and procedures?

Enforce the standards through appropriate mechanisms

• Are the standards consistently enforced and has that enforcement included the consistent application of reasonable discipline?
• Is that discipline consistently based on the nature of the offense rather than the level/function/position of the offender (in other words has the organization created disciplinary systems which do not create a "double standard")?

Respond appropriately to the offense

• After an offence has been detected has the organization taken all the appropriate steps to respond to the event and to prevent similar offences - including necessary modifications to the standards and procedures?
• Had the organization created systems whereby it can identify patterns and trends to prevent recurrences of unacceptable actions and decisions?

Self-disclosure

• While not always articulated as one of the official components of an effective program there is an underlying assumption that the ethical organization, once discovering an instance of unethical or illegal activity, will voluntarily disclose that activity, in a timely manner, to the appropriate authorities. This assumption is based on the understanding that failing self-disclosure will undo much of the mitigating benefits derived from have an effective ethics program in place.

Culture Issues:

Operational values

• What are the operational values - the values that define "how things really work around here" - as differentiated from those articulated in a values statement or code of conduct?
• How has the organization determined those operational values?
• Are they sufficiently close to the articulated values (standards and procedures) to be essentially congruent?

Perceived pressure to commit misconduct

• To what extent do employees and other key stakeholders believe that they are being pressured from within the organization to commit ethical misconduct?
• How has management determined the extent to which pressure to commit misconduct is present?

Observed misconduct

• How common is it for employees to observe others (peers, supervisors, senior management, external agents/stakeholders) engage in ethical misconduct in pursuit of organizational goals?
• How common is it for employees to observe others (peers, supervisors, senior management, external agents/stakeholders) engage in ethical misconduct in pursuit of personal goals?
• How has management determined the extent to which misconduct is observed?

Job satisfaction
 

• How satisfied are employees with their individual jobs?
• How satisfied are employees with their employers?
• How has management determined the extent to which employees are satisfied?

NOTE: Perceived pressure to perform, observed misconduct and job dissatisfaction are demonstrated predictors of increased probability for ethical misconduct.

Perceived safety of the guidance / reporting mechanisms

• Do employees trust that seeking guidance in regards to an ethical question is free from retaliation and retribution?
• Do employees trust that repprti8ng observed unethical conduct to the designated organizational authorities (ethics office, hotline, supervisor…) is free from retaliation and retribution?
• How has management determined the extent to which employees feel that reporting mechanisms are free from retaliation and retribution?

Perceptions of a double standard

• Do employees believe that the same ethical standards apply to all employees regardless of level, position or connections?
• How has management determined the extent to which employees are confident that there is not a double standard regarding ethics?

Ethics as a "legitimate" business issue

• To what extent do employees believe that ethics is as legitimate a topic of business conversation as: safety, quality, customer satisfaction, cost control or profit?
• How often is ethics a topic of conversation at routine staff meetings, as part of performance appraisals/reviews, as part of employee training (including new How has management determined the extent to which employees believe that ethics is a legitimate business topic?

Mutual trust

• To what extent do employee trust that their management is telling them the truth, will support them if they are in the right, will appropriately allot credit for significant successes, will recognize extra effort and / or otherwise keep their promises?
• How has management determined the extent to which employees trust their leadership?

Presence of a common language, common ethical reasoning process and a "common sense" of what constitutes the right thing to do.

• Is there a common language used throughout the organization to facilitate discussion of core values/principles, ethical issues and how ethical decision are to be made?
• How has management determined the extent to which there is a common language for the discussion of ethics issues/decisions?

Confidence that leadership is committed to the highest ethical standards for the long term - that ethics is not the latest "Programme du Jur".

• How confident are employees that senior leadership is committed to ethical standards as fundamental to the business (versus belief that it is a current fad, easily ignored)?
• How has management determined the extent to which employees are confident the commitment to ethics is real and end