Ethikos - Society of Corporate Compliance and Ethics

A publication of the Society of Corporate Compliance & Ethics
JANUARY/FEBRUARY 2014 Examining Business Ethics Since 1987
www.EthikosPublication.com
VOL. 28, NO. 1
Ethikos will keep focus on
business ethics
By Roy Snell
We are very excited to be involved in Ethikos. We will continue
its long tradition of helping people and organizations through the
sharing of ideas that help build ethical business cultures. With
more than 13,000 compliance and ethics professionals as members,
we will be able to bring a wide variety of diverse opinions and
experience to the publication. With our 70,000-plus points of
contact in the compliance and ethics community we hope to bring
Ethikos to a wide audience.
Our focus will be on business ethics. Many ethics publicaRoy Snell
tions, blogs, and LinkedIn groups begin with business ethics as a
primary focus. However, they drift into political and social ethics.
Although political and social ethics are important, they already have a plethora of coverage.
Business ethics and building an ethical culture gets lost in the weeds. We will stay focused.
We want to thank Andy Singer, Joe Murphy, Jeff Kaplan, and the countless other
people who have worked for over a quarter century on this publication.
With our
70,000-plus
points of
contact in the
compliance
and ethics
community
we hope to
bring Ethikos
to a wide
audience.
Sincerely,
oy Snell, CEO
R
Society of Corporate Compliance and Ethics (SCCE)®
Health Care Compliance Association (HCCA)®
In This Issue:
Ethikos will keep focus on business ethics................................ 1
Law and ethics: Is it as simple as they say?.............................. 2
The CCO as Ethical Culture Leader ........................................... 4
The ethics of downsizing............................................................ 6
Blurred lines: Using social responsibility to make money......... 9
Gray areas: When ethics problems
are not exactly black or white................................................... 10
Ethics in the workplace:
The Dominican Republic perspective...................................... 12
History of the Integrity, Ethics, and Compliance Movement:
A cautionary tale for CEOs and corporate directors .............. 13
New publisher for Ethikos......................................................... 16
1 / ETHIKOS
January/February 2014
Law and ethics: Is it as simple as they say?
By Joe Murphy, JD, CCEP, CCEP‑I
Do we focus on law and “mere compliance,” or should
we “go beyond” law to ethics? My entire career I have heard
this question. Always the message is that ethics and values
represent higher pursuits and that it is unwise to address
mere legal compliance. But this has never left me with a
satisfactory feeling.
I start with this point. If one views law as simply a technical set of restrictions then this means there is no actual
understanding of what the law is. To obtain compliance
with the law is it essential to understand the values behind
the law. To do this it is important to envision and feel the
harm that is caused by violations of the law.
For example, when I think of
laws prohibiting corruption, I do
not think of rulebooks issued by
faceless bureaucrats. Instead, I
remember a dramatic video presentation by the World Bank unit
that fights corruption, showing
the poverty associated with a road
construction project that scarcely
cleared a useless path through the
Joe Murphy
jungle, and came nowhere near
being a help for the local poor. Bribes and corruption had
enabled contractors to make their money without doing
any real work. I picture contractors and local government
thugs stealing from the poor to line their own pockets. I do
not experience the dry sense of reading rules; I feel the full
anger of seeing innocent victims robbed by thugs. We too
easily dismiss law as if it were some minimalist technicality
that can easily be eliminated from our consideration while
we pursue some higher values; it is not.
On the other side, “values” can lead us dangerously
astray. We tend to forget that there are many values that
guide human conduct and that these values frequently
conflict with one another. Loyalty, for example, is one of
2 / ETHIKOS
these. It can instill in us great courage to protect those we
love and value; it can lead us to be truly noble. But it also
can enable the worst offenses. How many terrible business
crimes remained hidden because of the misguided loyalty
of fellow workers who witnessed these crimes but remained
quiet out of loyalty? Their loyalty increased the loss and
suffering of innocent victims of this corporate crime.
Publisher: Society of Corporate Compliance
& Ethics (SCCE)®
Managing & Copy Editor: Kortney Nordrum
Design & Layout: Sarah Anondson
Business Manager: Adam Turteltaub
***
Contributing Editors: Lee Essrig, Roy Snell,
Brook Matthiesen
Ethikos (ISSN 0895-5026) is published bimonthly,
copyright © 2014 by the Society of Corporate Compliance
and Ethics, 6500 Barrie Road, Suite 250, Minneapolis,
MN 55435-2358, United States. Editorial comments,
questions, article proposals, and reprint requests should
be directed to the editor, Kortney Nordrum, via email at
[email protected] or phone at
+1 952 405 7928.
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Go online to www.corporatecompliance.org/ethikos to sign up
for Ethikos’ weekly business email newsletter.
January/February 2014
Fairness is another value that rings true to our ears,
but can mark the path to great wrongdoing. Take a simple
example. I compete with two other salespeople in my market. We have been fighting for every customer, cutting our
costs as much as possible, and trying to do more for each
customer to win them over. Yet one of these salespersons is
suffering at home with a sick spouse and is unable to match
our efforts. Another is a minority provider struggling to
enter the market. Fairness tells me to meet with them and
work-out something that is fair. This way we can each earn
our living yet live our lives in peace. We each get our fair
share of the market. I agree to let one keep the customers
she already has, and divide up the market with the second
competitor. What could be fairer? And we are honest as
well; we do not poach on each other’s customers. We are
generous with each other, rather than being greedy.
But we have just committed a very serious crime. How
did this happen? We followed important values and were
truly ethical to each other. But we have ignored another
set of values: Those of free markets and competition. We
have violated the antitrust laws. We have not simply ignored
some technical regulation; rather, we have violated society’s
direction that the greatest good for all comes from rigorous
competition. Competition increases supply, reduces the costs
to society, and produces innovations that better the lives of
all. This means more goods and services are available to
more people. So the poor may have more food and better
places to live.
Fairness is another value that
rings true to our ears, but
can mark the path to great
wrongdoing.
If one is imbued with this value, then what one sees in
these facts is the image of the thugs, conspiring to be lazy
and not work hard. These thugs steal from the public by
raising prices and taking what is not theirs.
So we have heard the breezy aphorism, “law is about
what you have a right to do, but ethics is about what is right
to do.” Catchy, yes. Simple, yes. Cool and snappy, yes. But
3 / ETHIKOS
So we have heard the breezy
aphorism, “law is about what
you have a right to do, but ethics
is about what is right to do.”
Catchy, yes. Simple, yes. Cool
and snappy, yes. But correct in
its message? Not so much. The
simplistic idea that there is some
“right” course that is better than
the law is seriously misguided.
correct in its message? Not so much. The simplistic idea
that there is some “right” course that is better than the law
is seriously misguided.
Certainly laws can be technical and even tiresome
to figure out. It is also true that people will look for ways
around the law. But the study of behavioral economics is
increasingly informing us that people are at least as active
and creative in “adjusting” their values in pursuit of their
own self-interests.
Law calls for us to think about what is right for our
fellow citizens. It is recognizing that we are not just individuals but are part of a larger society. It is seeing the
reality that there are a variety of values. Mostly they will
lead us in the right direction, but sometimes they will not.
There will always be value in asking ourselves whether
possible conduct is right. But including the law in that
calculation is no more of a formality than is considering
one’s personal values.
Law, it turns out, is actually a system of values. It tells
us that in certain important areas society has set a priority among values. Your loyalty to a boss who has always
treated you fairly may be strong, but when that same boss
asks you to lie to an OSHA inspector, the law tells you how
to prioritize your system of values. Every day you should
try to do what is right. Consider the consequences of your
business actions and decisions. But give the law its due. Do
not simply read the list of do’s and don’ts, but develop a
sense of the victims the law protects and the values society
holds inviolate. It is the right thing to do. ❏
January/February 2014
The CCO as Ethical Culture Leader
By Donna C. Boehme
“Tone at the Top”—I’m over it.
At one point, circa 2002, following the scandals of Enron, Worldcom, Tyco, and the
rest of the corporate accounting fraudsters, the idea of the CEO and other senior leaders
setting “tone at the top” as workplace role models sounded ground-breaking, even inspirational. What better way to demonstrate the behavior expected of every employee in the
organization, from C-suite on down, than leaders who lived the stated values—through
words and action—of the company? But now, after CEOs have
spent well over a decade hearing governance and ethics commentators tout “tone at the top” as the magic cure-all for a multitude
of corporate sins, the phrase has become nearly meaningless. It’s
up to the chief compliance officer (CCO) to change that.
Earlier this year, Michael Volkov, former federal prosecutor
and good friend to the compliance profession, committed an act of
near blasphemy in his column “The CCO—not the CEO—Creates
an Ethical Culture.”1 The words “bloviating,” “hot air,” and “KoolAid” jumped off the page. It was enough to get all the corporate
Donna C. Boehme
governance experts’ collective knickers in a wad.
I guess that makes at least two of us politically incorrect, since in my column on
this topic “Tone at the top: The movie”2 I put the phrase “tone at the top” on my official
Banned Phrases List. That’s because, as Joe Murphy has observed, “tone at the top” has
been conveniently interpreted by many in senior management as “tone from my mouth.”
For too many boards and C-suites, creating an ethical culture seemed as simple as joining
hands and singing Kumbaya.3 Words are easy. Meaningful, visible acts of ethical leadership across the organization are hard.
So what’s the answer? Every smart CEO knows that nothing important happens in
business without empowered, visible leadership who have the right mandate and resources
to get the job done. When was the last time you heard a Fortune 100 CEO announce a
major change or product rollout in the company by saying “So everyone, just go for it!”?
That would be…never. I’m all for ethical leadership and management acting as role models,
but boards and C-suites are dreaming if they think that happens without the leadership
of an experienced, senior-level CCO who has been empowered and positioned to lead the
way—as the organization’s “subject-matter expert” of ethical culture.
The important corollary to senior management understanding the role of the CCO as
the Ethical Culture Leader is for CCOs themselves to embrace that function with daily
awareness and perseverance. Just as essential as the business of building, implementing,
and overseeing the more tangible compliance program elements (e.g. training, monitoring,
4 / ETHIKOS
Words
are easy.
Meaningful,
visible acts
of ethical
leadership
across the
organization
are hard.
January/February 2014
and the confidential reporting line), is the task of helping
the CEO and his team deliver on the promise of “tone from
my mouth the top.” Otherwise, no one has their eye on the
ball and the company has created a classic case of “When
everyone is responsible for feeding the dog, the dog starves.”
Ethical culture in an organization doesn’t happen by singing
Kumbaya. It is truly the big dog that needs to be fed, and
on a daily basis. As Volkov observes: “Every CCO knows
that an ethical culture is developed in the trenches, through
hard work and commitment.” 4
What is so different about a CCO who embraces their
role as Ethical Culture Leader? The possibilities are endless.
Here are a few ideas for starters.
1. Facilitating candid conversations at board
and C-suite level
Whenever I see companies in trouble drag out the tired
old “rogue employee” excuse within hours of a scandal hitting
the media (long before any real internal investigation can be
even started), it makes me wonder whether leadership has
ever had a meaningful conversation about management’s role
in developing a culture of accountability and transparency.5
Leaders who really want credit for “tone at the top” should
understand the difference between “talk” and “walk”; and the
CCO must use every opportunity, whether during board briefings, hallway chats, or other leadership training, to underscore
this. CCOs should get beyond mere helpline stats and survey
results to present the larger ethical culture “ask” to leadership.
2. Developing ethical leaders
Good parents look for “teaching opportunities,” even
amidst the endless daily demands of raising children in a
challenging world. The CCO as Ethical Culture Leader should
do the same. Leadership training and “What Is Expected of
Leaders” brochures can only go so far, and attention spans are
short. When a leader does “walk the talk,” the CCO should
call them, or better, stop by to praise them in person. Before
long, the CCO may find the “push” turning into a “pull” as
good leaders reach out to them for advice or as a sounding
board. Those leaders should be developed as part of the CCO’s
network for supporting, and giving real-world input on, the
compliance program. Many companies now have vehicles to
recognize ethical heroes in the organization. Why not start
at the top? And it goes without saying: Good news stories
have a place in the board briefing, along with the bad ones.
5 / ETHIKOS
Leaders who really want credit
for “tone at the top” should
understand the difference
between “talk” and “walk”; and the
CCO must use every opportunity,
whether during board briefings,
hallway chats, or other leadership
training, to underscore this.
3. Building ethical leadership incentives
I know I’m preaching to the converted, because experienced CCOs understand that tying ethical leadership criteria
to the way managers are hired, evaluated, compensated,
and promoted is the key to driving “walk-the-talk” culture.
Without incentives, ethical leadership behaviors fall into the
“nice to have” rather than the “impacts me” category. For
instance, I’m a big proponent of including ethical leadership
behaviors in a 360-degree performance review, because most
smart managers are experts at “managing up,” but it’s how
they lead their teams that really matters to a compliance
program. Simple rule: What gets measured is what gets
done. This is an important conversation to have with the
board and C-suite. If that conversation is daunting, help can
be found in Joe Murphy’s white paper on why incentives
matter to a compliance program.6
4. Integrating culture as a key aspect of all
compliance program elements
In addition to incentives, the CCO should be looking at
all elements of the compliance program through the lens of
ethical culture. You’ve just refreshed your compliance training matrix, but do the modules adequately reflect notions of
accountability, transparency, and ethical leadership? Does
the risk assessment process integrate issues of culture? Do
the investigation guidelines and training make reference
to how leaders should be supporting the process? Is there
an effective retaliation monitoring mechanism? The CCO
who embraces the role of Ethical Culture Leader takes time
to reflect on how each element and part of the compliance
program supports and encourages ethical leadership in the
organization.
January/February 2014
5. Having an independent voice of ethical
culture in the C-suite
Over the past few years, CCOs have gained independence
and stature in the organization and more are being heard
as an independent voice in the C-suite.7 The list of companies dealing with the fallout of high-profile compliance
scandals—that would have benefitted from an independent
CCO voice in the C-suite—is long indeed. Perhaps CCOs
have limited control over the final decision whether to give
Compliance a seat at the table (other than voting with their
feet),8 but they can be smart about what they say when they
get there. CCOs need to be more than a human playback of
training and hotline statistics; they need to be the subjectmatter expert on ethical culture and the role of managers to
develop, promote, and sustain it in the organization. These
are messages leadership needs to hear often, and with reallife examples. If not from the CCO as the Ethical Culture
Leader, then from whom?
I’ve written elsewhere about the enormous challenges
facing CCOs just trying to do their jobs well. Some of you
may be familiar with my “hot air balloon” analogy.9 But
challenges and perils aside, the CCO that embraces the
role of Ethical Culture Leader does exponentially more to
advance compliance and ethics in the organization than one
who does not. Ultimately, a company can have on paper all
the building blocks of a robust compliance program, but
the glue that binds it together and makes it work is the sum
of ethical leadership acts that occur on a daily basis. The
CCO should view the nurturing of that ethical leadership
as Job No. 1. ❏
Endnotes
1 Michael Volkov: “The CCO—not the CEO—Creates an Ethical
Culture,” CorruptionCrimeCompliance blog, http://bit.ly/volkov-cco
2 Donna Boehme: “Tone at the top: The movie,” Compliance & Ethics
Professional, July/August 2012, http://bit.ly/boehme-0712
3 Donna Boehme: “Kumbaya Compliance is not good
enough,” Compliance & Ethics Professional, May/June 2013,
http://bit.ly/boehme-0513
4 See Volkov endnote 1.
5 Donna Boehme: “The ‘Rogue Employee’ and Dogs
That Eat Homework,” Corporate Counsel, May 3, 2013,
http://bit.ly/boehme-rogue-ee (archived, for subscribers only).
6 Joe Murphy: Using Incentives in Your Compliance and
Ethics Program. Society of Corporate Compliance & Ethics,
http://bit.ly/murphy-incentives
7 “2013’s 10 Big Moments for Chief Compliance Officers,”
Corporate Counsel, http://bit.ly/1aSUgLP
8 Donna Boehme: “There’s no crying in Compliance”
Compliance & Ethics Professional, September/October 2013,
http://bit.ly/boehme-crying
9 Donna Boehme: “Evolution of a Global Profession,” keynote
speech at Compliance Week Europe 2013 Conference,
http://bit.ly/boehme-compliance-wk
The ethics of downsizing
By Paul E. Fiorelli, JD, MBA
Loyalty in business isn’t what it used to be. My father
worked for Sears Roebuck & Co. for almost 40 years and
retired as a senior executive in the mid-1980s. He was part
of the “Greatest Generation” of World War II veterans,
staking their claim to the American Dream. They worked
under a social contract: If you work hard and take care
of the company, it will take care of you. You could retire
comfortably with an engraved watch and a pension plan to
carry you and your spouse through the golden years.
About the same time my father retired, this “womb to
tomb” or “cradle to grave” pact began changing. This US
6 / ETHIKOS
adjustment was facilitated by a set of laws known as “atwill employment.” That means in many states, a company
can get rid of the employee at any time for good cause,
bad cause, or no cause at all. Likewise, an employee could
leave the company at any time, for any reason. In theory,
at-will employment was considered fair due to this “doctrine of mutuality.” In practice, what the doctrine doesn’t
take into account is the impact layoffs have on individuals,
families, and their communities is far greater than the
impact on the company for an employee working with a
new organization.
January/February 2014
While it’s not difficult for US companies to lay off workers, in Europe and Japan, a job is seen more as a property
right. It’s not as easily taken away.1
The US arrangement may appear economically sound,
at first. Both sides—employers and employees—are free to
do what they want. It’s the free market in action. You can
argue we have one of the most productive work forces in the
world. But there are some problems with this arrangement.
Sometimes we work scared. As Americans, we tend to define
ourselves by our jobs, our titles, and the companies we work
for. The downside of that is, if we lose our jobs, we lose the
status we’ve built. Our prestige vanishes, and along with it,
our identity. That makes Americans more desperate to keep
their jobs. We “live to work”, while Europeans “work to
live.” We feel lucky if we have a job that allows us to work
43 to 45 hours a week (or more). On the other hand, some
Europeans consider the company lucky that they’re allowing
their employer to have 35 hours of their time each week.
This “new work order” was highlighted in Oliver Stone’s
original Wall Street movie. In Gordon Gekko’s famous
“Greed is good” soliloquy during that 1987 movie, he doesn’t
think of himself a destroyer of companies. He liberated them.
Gekko considered this unleashing the company’s potential
and unshackling it from past inefficiencies, like paying 33
different vice presidents $200,000 a year (which was a lot
back then) to do who knows what.
Gekko, symbolized the new breed of entrepreneur/corporate raider. He represented the person who was willing
to buy a company, and then tear it apart. This “liberated”
company could now be sold off in pieces, generating enough
profits to pay off the debt used to buy the company in the
first place. Then he’d pocket the difference, and live happily
ever after. Or at least until the next deal. This was addition
(to his wealth) by subtraction (jobs from the community),
leading to “excess for success.”
Nothing stopped Gekko, until his Faustian apprentice,
Bud Fox, failed his final test in selling his soul to Gekko’s
Mephistopheles. Fox put a halt to the planned “asset liberation program,” only when it involved his father’s company,
Bluestar Airlines.
That concept, whether from Gekko and “Wall Street” or
the real-life corporate raiders of the time, caused management teams at companies across the country to wake from
their slumber that had been filled with dreams of lifetime
7 / ETHIKOS
employment. They realized it was
better for them to be the ones “cutting heads,” rather than leaving it up
to the Gekkos of the world.
Managers did this under the
banner of “maximizing shareholder
value.” Their view was that this was
their fiduciary duty. If they were to
act in the best interest of shareholders,
Paul E. Fiorelli
they had to “rightsize” the company
by selling off divisions, and get the
most value out of the pieces of their company. But these moves
also conveniently lined the pockets of executives who were
compensated based on short-term results. That set up an inherent conflict of interest—short-term profits v. long-term value.
Visionary corporate stewards ask themselves, “How
can I grow the business and leave it better than I found it?”
That’s a completely different mentality from the Gekko’s
of this world. With that bunch, the concept of “legacy” has
been replaced by “immediacy.” They calculated the easiest
way push the stock price to new heights. If it took schemes
and scams, so be it. Even if the price was built on a house of
cards, once the stack of stock got high enough, they’d cash
in their options, and retire comfortably. Who couldn’t sleep
soundly with this new American dream? It didn’t matter what
happened to the company and its employees after that. They
justified their short-sighted actions using the John Maynard
Keynes line, “In the long run, we are all dead.”2 Then they
thought, “Who am I to argue with Keynes?” They figured
everyone else should try to get theirs, as long as it didn’t
interfere with my ability to get mine.
Skilled employees learned the new rules to the game, then
started playing the cards they were dealt. In Studs Terkel’s
classic book, Working, one of the people he interviewed
was Larry Ross. Ross (not his real name) told Terkel, “The
most stupid phrase in business is loyalty…The shnook is
the loyal guy because he can’t get a job anywhere else.”3
Loyalty has changed from “40 years and a gold watch” to
“if you’re not doing anything for me, I’m not staying.” I had
one student who was approached by her company for an
18-month assignment. It looked like the job was designed
for her and that she was the ideal candidate for the project.
Even though the company would have benefited had she
taken the assignment, she turned it down. She rationalized
January/February 2014
Layoffs can’t always be avoided.
But managers should take a long,
hard look at their other options
before taking that difficult step.
her decision because the job didn’t “improve her skill set.”
That’s the mentality people have now. They want to know
“what’s in it for me?” and “what have you done for me
lately?” These employees think, “I’ll see your John Maynard
Keynes, and raise you a Studs Terkel!”
The best-case scenario might be a “new normal” for
the employer-employee relationship. Instead of staying with
a company until retirement, loyalty means that employees:
(1) work hard while they’re with the company, (2) they do
well by the company, and (3) they speak well of it when they
leave. It’s a different dynamic than it used to be.
Layoffs can end up causing bigger problems over time,
whether we’re dead in the long run or not. And they result
in other costs. Employee engagement can suffer when a
company has a tendency to lay off people as a first resort,
instead of a last resort. Employees who are “not engaged”
exert the minimum amount of effort. They do just enough
to not get fired. “Actively disengaged” employees have an
even greater impact on a company. They try to “poison the
well,” making a miserable work environment for everyone
else (think about the movie Office Space). It seems hard to
expend your discretionary energy—the definition of actively
engaged employees—to advance the company’s interest, if
you think they might get rid of you, or your friends, any day.
This isn’t to say that companies shouldn’t lay off employees or, for that matter, that employees shouldn’t leave
their employers. The point is that employers should be aware
of the significance of layoffs and, more importantly, that
a “more just” way of doing it may exist. Companies may
be forced to lay off workers, but they should do it with an
ethical, compassionate approach.
In the movie Company Men, Phil Woodward, played by
Chris Cooper, plays a “rags to riches” senior executive for
the fictional GTX Corp. From his hard-scrabble beginnings,
Woodword likes his new life of privilege. Unfortunately
he’s part of the latest round of downsizing, as part of GTX’s
strategy to cut expenses and raise the stock price. Woodward
8 / ETHIKOS
throws rocks at GTX’s headquarter as he screams that his
life has been ruined, while everyone else’s life keeps moving
along smoothly. Why didn’t the rest of the world stop when
his did? This character died by suicide shortly thereafter. It
raises the question of whether companies should do more
than offer outplacement consulting to help employees with
their transition to another job.
There are ethical ways to cut positions. You might want to
have an exit interview with a person other than the one who
fired the employee. Or use an exit questionnaire in addition
to the interview. Some employees will feel more comfortable
expressing thoughts that way. If fired employees seem to
take it overly hard or cause concern, refer them to the company’s Employee Assistance Program. And if the problem
seems bigger than that, the company could even contact the
employee’s friends and family. Tap into the person’s support
network to make sure things are okay. Encourage former
coworkers to stay in touch with the laid-off ex-employee.
Layoffs can’t always be avoided. But managers should
take a long, hard look at their other options before taking that
difficult step. Maybe it means putting employees on furlough
or job-sharing to save money. This could be an opportunity
to train employees in new technologies, which could give
the company a competitive edge in the future. It might mean
finding another place to cut costs. Maybe the executives don’t
need those huge expense accounts. Perhaps only flying business class, instead of using private Gulfstream G4 jets will
suffice? Or maybe you don’t need to spend as much on off-site
meetings in sunny locations. Videoconferencing might work
just as well. You could even wear Hawaiian shirts, and place
sunlamps around the conference room, if you wanted. And
if a company does need to lay off employees, it can pay to
retrain them so they can quickly get back into the work force.
Ultimately, company leaders should look for alternatives
to laying off employees. And if they don’t have any other
options, they should look for ethical ways to reduce their
workforce. If they want to become an “employer of choice,”
they can’t afford to do it any other way. ❏
Endnotes
1 Donald C. Dowling, Jr.: “Global HR Hot Topic—January 2014:
Employment Contracts Outside the United States,” White & Case,
http://bit.ly/atwill-emp
2 John Maynard Keynes: “The Theory of Money and the Foreign
Exchanges,” 1924.
3 Working, Studs Terkel, “Larry Ross,” p. 409.
January/February 2014
Blurred lines: Using social responsibility
to make money
By Kortney Nordrum
We know that corporate directors and officers hold
fiduciary responsibilities. One of these responsibilities is
the duty to maximize profits for their shareholders. While
making money is great, companies must do so within the
bounds of ethics. For some companies these ethics follow
the letter of the law—nothing more,
nothing less. Other companies take
a more nebulous view. In either
case, business ethics generally
don’t require corporations to take
any particular social or political
stance. Recently, however, many
companies are voluntarily adding
social responsibilities to their codes
of ethics—and reaping the rewards.
Kortney Nordrum
This poses an interesting question:
If becoming socially responsible will substantially increase
profits, is there a duty to do it? The answer is likely no, but
the case is compelling.
Benefit Corporations or “B Corps” are an emerging
trend on the corporate landscape.1 B Corps are one of two
things: A for-profit business certified by the non-profit B
Lab to meet “rigorous standards of social and environmental
performance, accountability, and transparency,” or a legal
entity formed as a “benefit corporation” under state law
(available in 20 states, including Delaware, as a result of B
Lab’s zealous legislative efforts).2 Both B Corp designations
carry with them the promise that the designated company has
volunteered to be held to higher standards than everyone else.
As a result of the movement, many B Corp companies
have seen a wave of positive attention, as well as financial
gain. A prime example is BlueAvocado, an Austin-based
company that sells products made from recycled plastic
bottles. At the time BlueAvocado became B Corp certified in
9 / ETHIKOS
March of 2013, its products were available in approximately
300 Target stores. Post-certification, the company reports that
its products are now available in more than 1,000 Targets,
and 2,500 new stores, including Kohl’s, QVC, and Duane
Reade. BlueAvocado’s CEO, Amy George, attributes the
growth to the B Corp certification.3 King Arthur’s Flour
and eyeglasses innovator Warby Parker saw similar positive
results following their certifications.
Business experts muse that B Corps have what many
in the marketplace are lacking—trust. Not only trust from
consumers, but trust from investors and potential employees.
This trust will allow B Corps to prosper where others have
and will fail, and they have numbers to prove it. According to B Labs, companies with B Corp designation were
63 percent more likely to survive the Great Recession than
similarly-sized companies without it.4
Consumer expectations also play a role. A startling 54
percent of global consumers say they don’t trust brands in
general, with 55 percent saying they’ve boycotted a company
because of irresponsible business practices. This is in addition to the 68 million US consumers who prefer to buy from
socially and environmentally responsible businesses. In its
distilled form it’s a simple idea: Social responsibility sells.
Dealing with stiff competition and slow economic recovery,
businesses are struggling to differentiate themselves, and
searching for any advantage over the competition.5 B Corp
designation may be that advantage.
Additionally, B Corps attract investors. With the number
of self-designated “socially responsible investors” (SRI)
growing, the market needs a way to filter truly progressive
companies from the riff raff—and the B Corp designation
seems to fill that void. With JPMorgan Chase & Co. estimating the size of the SRI market to be between $400 billion
and $1 trillion, this is a resource begging to be tapped.6
January/February 2014
Dealing with stiff competition
and slow economic recovery,
businesses are struggling to
differentiate themselves, and
searching for any advantage
over the competition. B Corp
designation may be that advantage.
B Corp status may also broaden the talent pool, so
says Wall Street Journal. In its article, “Social Seal of Approval Lures Talent,” the WSJ highlighted how the B Corp
designation has helped companies attract more qualified
candidates.7 This was especially true for candidates between
the ages of 21 and 32 (aka “Millennials”). It’s probably not
a coincidence that more than 80 percent of job seekers in
that age group want to work for a company that is socially
and environmentally responsible. However, even if we remove the fresh-out-of-college-no-idea-how-the-real-worldworks-hippie-crusader Millenials from the mix, there’s still
something there; enough, in fact, that several top business
schools offer student-loan assistance programs for graduates
who go on to work for B Corps.
If the above information holds true, then becoming
a B Corp has the potential to become a viable source of
profit, increase customers, increase market share, and help
businesses hire more competent workers. The mounting
evidence begs the question: At what point does having some
sort of social responsibility designation become a profitbased business decision, instead of a philosophical one—a
business strategy instead of a moral standard? If and when
there becomes a solid business case for becoming a B Corp,
many in the traditional business world may be faced with
the choice of following suit or losing money. ❏
Endnotes
1 “What are B Corps?,” Certified B Corporation,
http://bit.ly/what-bcorps
2 “Passing Legislation,” Certified B Corporation,
http://bit.ly/leg-bcorp
3 “Why ‘do good’ businesses are blowing up,” CNN Money,
http://bit.ly/bcorps-blueavocado
4 “B Corps: A higher purpose than profit,” philly.com,
http://bit.ly/1kGx3pz
5 “The Fastest Way to Kill Your Brand: Inauthenticity,” We Blog First,
http://bit.ly/1dBxJHj
6 JPMorgan Chase & Co.: Impact Investing Offers Trillion Dollar
Opportunity,” Business Ethics, http://bit.ly/1drVjW1
7 “Social Seal of Approval Lures Talent,” Wall Street Journal,
http://on.wsj.com/1j8kQG4
Gray areas: When ethics problems
are not exactly black or white
By Frank C. Bucaro
Ethics problems are not always transgressions that are
either black or white. Detailed codes of conduct that are
targeted at what is acceptable and what is not can make
life easier when it comes to enforcement. But what about
potential ethics problems that land on our doorstep, but are
not covered by the code, not obviously black or white, but
more like gray? Situations that do not fall neatly into one
category or the other I call “gray area” problems.
The way forward with such situations may not be immediately clear, and can require time and effort for satisfactory
10 / ETHIKOS
resolution. The good news is that gray area problems can
provide valuable information and may also help to avoid
bigger problems down the road.
I came face to face with a gray area issue some years
ago, when I found myself being suggested as the keynote speaker for a large corporate event by two different
representatives of two different organizations. For those
who do speaking presentations, it is not uncommon to
work with a variety of bureaus, meeting planners, or talent agencies on a regular basis. In my experience, most
January/February 2014
are ethical and adhere to commonly accepted industry
practices.
On my end everything initially looked good, although
a bit unusual, with two different reps in the mix trying to
pin down a speaker for the same program. Both confirmed
the same fee with my office, which was my current fee for
a keynote. I would not have become aware that something
was a little off at that point, but one of the representatives
called, obviously upset, and asked if I had allowed the other
rep to quote a different fee, which I had not. I was confused
about what was going on. Bottom line, even though I had
no contact with the client at that preliminary stage, I was
in the middle of a messy situation that I did not cause, and
it did not cast me in a positive light with the client.
I tried to probe further about the situation with the rep
in question, but things ended unsatisfactorily. His behavior
may not have seemed unethical from his perspective, but I
could not say that it was fair or in line with accepted practices. We did not work together and I am sure it cost me
that booking with the client. The experience had a benefit
however. We soon initiated a more comprehensive policy
in my office to help avoid a similar situation in the future.
Heading off potential gray area headaches
What are the situations that employees encounter in
your industry that might lead to a gray area? Once possible
situations are identified, you can take a proactive approach.
TIP: Highlight situations in
training sessions or ethics
meetings where there could be
a potential problem and work
through possible options in these
sessions for the best resolution.
Being proactive might prevent
development of an all-out ethics
problem down the road.
When ethics problems surface in a public way, we
sometimes hear in media interviews with a former or
11 / ETHIKOS
current employee that “everybody
knew what was going on.” Ideally,
everyone in the organization should
know what the process is, and who
the “go to” person, department, or
committee is for questions, raising
concerns, or reporting problems. If
there is an elephant in the room, it
is good if everyone at least knows
Frank C. Bucaro
what to do about it.
Don’t assume everyone understands the process or the path for raising concerns just
because they read the employee handbook once. Periodically
I get calls or emails from someone dealing with an ethics
issue that is a real concern in their workplace. I try to offer
some general ideas about what they might do, what resources
might be available to them at work, etc. Sometimes I find
myself wondering why they can’t or don’t feel comfortable
working this through with someone on the inside. If you
have an ethics officer, ombudsperson, or ethics committee,
let employees know what resources are available for them
and how to access theses resources.
Don’t assume everyone possesses a highly developed
sense of ethics. (Let’s hope, yes, but don’t assume.) Educate,
restate, and reiterate on a regular basis the importance of
integrity, values, and ethical behavior to reduce risk.
Gray areas can be a testing ground, and can also provide
opportunities for intervention and education before things
get too far along. They can also be a resource to identify
gaps in training programs. Gray area situations can also be a
great opportunity for leaders to do what they do best—lead!
Is it always right vs. wrong?
All of us come face to face with gray area issues, and
some are close to home. Gray area issues can be a testing
ground for our own values. The issue might not always be
right vs. wrong; maybe it will be right vs. right, or possibly,
right vs. “more right.”
Therefore, in learning to recognize, analyze, and resolve
these gray areas, what changes do you need to make to your
approach to these areas? This means examining the specific
type of training, techniques, or tool that focuses on gray
areas, and then finding the indicators of how effective the
resolution of these areas have been. ❏
January/February 2014
Ethics in the workplace:
The Dominican Republic perspective
By Laura Serra Nova
Compliance is an untapped concept in the Dominican Republic, mainly due to the
confusion this innovative area of expertise supposes. Companies usually interlink the legal
functions with the tasks that ought to be the responsibility of a compliance professional,
thus resulting in the incorrect allocation of positions and resources, and overlooking those
with experience in the field.
The concerns and conflicts within the hiring process are one thing; another is the
infrequently discussed area of compliance management and how it affects employment
ethics in everyday life. The Labor Code and regulations relating to the rights of employees
are used to reflect some sort of corporate environment that eludes
the written values and ethics manuals, previously considered
almost a norm. Intrinsically linked are the failed national efforts
of a few to amend and built a stronger change to ignite a growing society towards adapting to a globalized economic crisis of
human values. It is evident in the internal challenges faced both
by employees who manage their personal assets and employers
in the management of their assets.
The current legislation in the Dominican Republic allows
Laura Serra Nova
companies to establish internal manuals and procedures or a code
of ethics where ethical values are promoted to employees. The
manuals can be registered with the Ministry of Labor for its approval (under articles 129
to 134 of the Dominican Code of Labor) before the Institutional Ethics Committee that
functions under the supervision of the Dirección General de Ética e Integridad Gubernamental (General Directorate of Ethics and Government Integrity). As respectable as this
is, the future of compliance in the Dominican Republic should include a set of rules that
make it mandatory to establish a code of compliance and ethics, approved by the Ministry,
that furthers real consequences for violations.
So far, procedural justice would step in to establish the ethical standards that guide
the practice of everyday tasks, but it is people’s perception of what is to be considered
the correct approach for a given situation that tends to prevail. When the questionable
activity by an employer or employee involves professional incompetence that affects performance, it directly affects the company and may constitute a serious risk that cannot
be left for tribunes to resolve after the business has demised. The most important aspect
of conflict resolution, aside from protecting the parties’ rights, is respecting dignity and
valuing the individual in the process of aiming for a preventive method, as opposed to a
12 / ETHIKOS
So far,
procedural
justice would
step in to
establish
the ethical
standards
that guide
the practice
of everyday
tasks, but it
is people’s
perception of
what is to be
considered
the correct
approach for a
given situation
that tends to
prevail.
January/February 2014
defense mechanism, that preserves dignity and creates an
atmosphere of trust and mutual respect.
The key inference here is respect towards the parties
involved and the role that the State plays when establishing
the rules that must be followed. I would say that the same
values that are presented there should encourage employers
in their interaction with their employees. I can proudly say
that the President elected has taken matters in his own hands
to set an example, making it mandatory for all ministers to
sign a Code of Ethics and Conduct.1
Further analysis must be made in order to have a more
accurate data in this regard, nonetheless experience states
that whether a company acts in an ethical manner or not is
not a significant factor at the moment for the average Dominican’s willingness to work for an employer. Jobseekers
have other priorities, such as the need to work and provide
for their families. Hopefully, this is about to change with the
new measures being held at all levels. There is a considerable
percentage of people who aspire to gain experience from
a leading provider of governance, ethics, and compliance
management and have conducted themselves in such a way
throughout their professional life.
Regardless of the challenges that we face, great efforts have been made by both public and private entities to
The most important aspect of
conflict resolution, aside from
protecting the parties’ rights, is
respecting dignity and valuing
the individual in the process of
aiming for a preventive method,
as opposed to a defense
mechanism, that preserves dignity
and creates an atmosphere of
trust and mutual respect.
move towards a greater ethical “well being.” And despite
the culture imbalance of roles and duties, privileges, and
responsibilities latent in what is socially approved, (described
in Robert Lowie’s book Culture and Ethnology2) it is my
opinion that our ethical future is bright. ❏
Endnotes
1 “Presidente y la Vice firman Còdigo `Etica,” Listin Diario,
August 23, 2012, http://bit.ly/KabMUT
2 Robert H. Lowie: Extreme Culture Relativism. Basic Books Inc., 1967.
History of the Integrity, Ethics and Compliance
Movement: A cautionary tale for CEOs and
corporate directors
by Michael Josephson, JD
Although the concept of imposing responsibility on
companies to establish internal controls to prevent corporate
wrongdoing was introduced in 1977 through the Foreign
Corrupt Practices Act (prompted by more than 400 U.S.
companies admitting to paying bribes or making other
illegal or questionable payments to foreign governments),1
American business did not make any significant efforts to
establish systematic controls until the collective impact of
five brutal years of unremitting scandal (1985–1990).
13 / ETHIKOS
The scandals started with a variety of Defense IndustryPentagon misconduct and mismanagement, resulting in the
appointment of a Blue Ribbon Presidential Commission
to study the problem. The major impetus for this was the
“spare parts scandal” that erupted in 1985. Congress and
the public were outraged to discover that the Pentagon
was paying ridiculous prices for “spare parts,” including
a $7,622 coffee brewer, a $435 hammer, and the infamous
$600 toilet seat. According to a Government Accountabil-
January/February 2014
ity Office (GAO) report, the Department of Defense spent
nearly $37 billion purchasing spare parts at highly inflated
prices. What is significant is that this was not a compliance issue; no one was convicted of a crime. Nevertheless,
both the price gouging by the sellers and the irresponsible,
unaccountable overpaying by Department of Defense were
widely regarded as unethical.2
The Blue Ribbon Commission echoed and expanded
on the 1977 FCPA provisions demanding internal controls
to prevent illegal and unethical conduct. They also recommended that defense contractors voluntarily improve the
acquisition process through greater self-governance:
“To assure that their houses are in order, defense contractors must promulgate and vigilantly enforce codes of
ethics that address the unique problems and procedures
incident to defense procurement. They must also develop
and implement internal controls to monitor these codes
of ethics and sensitive aspects of contract compliance”
(emphasis added).3
Within months of the recommendations, Jack Welch,
CEO of General Electric (a company involved in several
bribery and misconduct scandals), along with the CEOs and
senior officials from 17 other defense contractors, met to
form a voluntary organization called the Defense Industry
Initiative on Business Ethics and Conduct (DII). The purpose
of the DII was to create a “heightened standard of ethical
conduct…in the defense industry,” promote self-policing
to ensure compliance with ethical standards even when
they exceed legal requirements,” and create a forum to
“share best practices in dealing with ethics and business
conduct” (emphasis added).4 It is crystal clear that at least
the rhetoric was about ethics, a concept that clearly embraces
but goes well beyond compliance.
By July 1986, 32 major defense contractors had pledged
to adopt these six principles, including promulgation and
adherence to a written code of conduct, employee training,
encouragement of employee accountability, and procedures
for voluntary disclosure to the Government.5
America’s disgust with the ethics of business was further heightened by the Savings and Loan Crisis just a few
years later. The crisis, a preview of the massive mortgage
meltdown 20 years later, started not with criminality, but
reckless lending practices resulting in major losses, many
14 / ETHIKOS
of which were covered up by frauds.
About 750 S&Ls collapsed, resulting in a General Accounting Office
estimated total cost of $370 billion,
including $341 billion of taxpayer
money. The Savings and Loan
Crisis created the greatest banking
collapse since the Great Depression of 1929. By 1989, over half of
Michael Josephson
the Savings and Loans had failed,
and the federally funded Federal
Savings and Loan Insurance Corporation (FSLIC) went
bankrupt. Nearly 1,000 people were charged with crimes
(often lower level employees); of those, 580 were convicted,
and 451 were sentenced to prison with an average sentence
under two years.
The 1980s closed with more financial shenanigans by
a large investment banking firm, Drexel Burnham, led by
the “junk bond king” Michael Milken. After months of
claiming innocence, Milken pleaded guilty to six technical felonies and agreed to pay $600 million in fines and
restitution, by far the biggest fraud case in the history of
the securities industry. Everyone was shocked when Milken
was sentenced to prison for ten years, but not so shocked
when the sentence was reduced to two years. In the end,
he served 22 months.
This is the context in which the Federal Sentencing
Guidelines for Organizations (FSGO) were adopted in 1991.
Though the sentencing guidelines do not require companies to establish effective compliance and ethics programs
to prevent, detect, and self-report illegal and unethical
conduct, they do offer hefty incentives to do so in the form
of great leniency (reducing penalties by as much as 90
percent) if a company is convicted of a federal crime. The
Guidelines also specified core elements (the “Seven Steps”)
of a program that would qualify.
In order to meet the requirements to be eligible for
reduced sentences, many companies, especially those in
highly regulated industries, began creating multi-faceted
programs to include the seven elements specified by the
guidelines. This including revising or drafting new codes
of conduct, policies and procedures, training programs,
risk assessments, and hotlines. To meet the need to design,
January/February 2014
administer, and oversee the development and implementation of this new program, a new job (later to be treated as
a profession) was born—the chief compliance officer.
Almost immediately, about 30 ethics officers, mostly
from the defense industry, formed the Ethics Officers Association (EOA). At the first meeting, Tom Phillips, chairman emeritus from Raytheon, referred to the moment as
the beginning of “a new profession in American industry”
and expressed his belief that an ethics officer position was
essential to the ethical health of a company. In 1992, just
one year after the FSGO was introduced, the organization
had 22 sponsoring partners. In 2005, the organization added
the word compliance to their name and became the Ethics
and Compliance Organization (ECOA).
In 2004, a second nonprofit association serving the
ethics/compliance profession, the Society of Corporate Compliance and Ethics (SCCE)® was formed. SCCE (publishers
of this magazine) have about 4,000 members worldwide and
have added a new dimension of professional status to the
ethics/compliance field by creating a certification program.
More than 6,000 individuals have been actively certified
through the Compliance Certification Board (CCB)®.
So, Tom Phillips’ prediction came true. Today there is
a very large and growing army of professionals who go by
different names—Ethics Officer, Compliance Officer, Ethics
and Compliance Officer—all working toward the same goal.
As the position has grown in stature and responsibility, most
organizations have dedicated a whole department of folks
committed to keeping their organization out of trouble, and
their leader is called the “Chief.”
Despite the rhetoric about the importance of ethics and
integrity, and a clear intent to induce companies to establish
comprehensive internal controls and educational programs,
and the expenditure of millions of dollars by companies
seeking to create qualifying compliance and ethics programs, few companies actually developed programs that
went beyond the compliance dimension of the challenge.
What’s more, many of the programs were more show than
go. They had all the elements prescribed by the FSGO, but
had little chance of affecting the root causes of unethical
and illegal conduct.
The inadequacy of the first generation of corporate compliance and ethics programs became evident as the nation
15 / ETHIKOS
In essence, a really effective
program must embed ethics
(not just compliance) into the
DNA of the organization.
was rocked by a parade of multi-billion dollar accounting
frauds and private looting at Enron,6 WorldCom, Adelphia,
Health South, Global Crossing, and Tyco in 2000–2002. In
2002, Congress responded to the evident hole in the corporate
moral ozone by passing the Sarbanes-Oxley Act, imposing
very rigorous internal control requirements on corporations.
In 2004,7 the Uniform Sentencing Commission responded
by augmenting the FSGO criteria to explicitly insist on more
than superficial “check-the-box” programs that look good
on paper but don’t truly inspire ethical commitment. To
underline this point, the new guidelines made it clear that
a program will not qualify as effective unless it is capable
of creating an ethical culture. In essence, a really effective
program must embed ethics (not just compliance) into the
DNA of the organization.
Unfortunately, even these efforts didn’t prevent the
rampant irresponsibility of hundreds of financial institutions
in the mortgage industry that led to massive bankruptcies
and bailouts. These scandals involved Wall Street’s most
prestigious investment banks and brokerages (Lehman
Brothers, Bear Stearns, Merrill Lynch, etc.), one of the nation’s largest insurance companies (AIG), and two iconic
government sponsored entities (Freddie Mac and Fannie
Mae). Between June 2007 and November 2008, Americans
lost more than a quarter of their net worth.8
This historical review should make it clear that Boards
of Directors that have allowed their companies to confine their concerns to compliance are vulnerable under
the Caremark doctrine9 because these programs fail to
achieve the goals and demands of the government: that
corporations establish robust, integrated programs that
promote ethics and integrity as well as prevent and detect
illegal conduct. ❏
Continued on page 16
January/February 2014
New publisher for Ethikos
Dear Ethikos Subscribers:
On January 1, 2014, Ethikos began a new era when
the Society of Corporate Compliance and Ethics (SCCE)®
became its new publisher. SCCE is a non-profit association
of approximately 4,000 compliance
and ethics professionals from more
than 55 countries. It is the sister association of the Health Care Compliance Association (HCCA)®, which
has approximately 9,000 members
of its own.
The move of Ethikos to SCCE
is a very positive one for the publication and subscribers. SCCE is
Adam Turteltaub
already deeply involved with the
ethics and compliance community
and is the publisher of Compliance & Ethics Professional,
a magazine exclusive for its members, and eCorporate
Compliance News, a weekly email newsletter.
In addition, during 2014 SCCE will offer thirty ethics
and compliance conferences, six of which will take place
outside of the US: Brussels, London, São Paulo, Shanghai,
Dubai, and Vancouver. This deep commitment to serving
the community gives SCCE unique insight into the needs
of ethics and compliance professionals, insights that will
be brought to the pages of Ethikos.
To learn more about SCCE visit www.corporate
compliance.org. We look forward to serving Ethikos readers
and furthering the cause of business ethics.
Sincerely,
Adam Turteltaub
Vice President of Membership Development
Society of Corporate Compliance and Ethics
History of the Integrity, Ethics and Compliance
Movement…continued from page 15
Endnotes
1
2
3
4
5
The headline in this group of scandals was provided by
Congressional testimony by a Lockheed executive in 1976 admitting
his company paid $22 million in bribes to Japanese government
officials in an effort to sell its planes to Japan. This testimony was
especially embarrassing since the U.S. Government had recently
provided Lockheed with a $250 million emergency loan guarantee.
7
8
As a result of this scandal Congress imposed an unprecedented one
year freeze on the Department of Defense Budget.
See the full report at http://1.usa.gov/1ekAyJr
Origins and Development of the Defense Industry Initiative,
in 2000 DEF. INDUS. INITIATIVE ANN. REP. 4-10 available at
http://bit.ly/1e2gfEu
The DII Principles: 1) Have and adhere to written Codes of Conduct;
2) Train employees in those Codes; 3) Encourage internal reporting
of violations of the Code, within an atmosphere free of fear of
16 / ETHIKOS
9
retribution; 4) Practice self-governance through the implementation
of systems to monitor compliance with federal procurement laws
and the adoption of procedures for voluntary disclosure of violations
to the appropriate authorities; 5) Share with other firms their best
practices in implementing the principles, and participate annually in
“Best Practices Forums;” and 6) Be accountable to the public.
Less dramatic, but significant additional guidance stressing ethical
culture was added in a 2010 amendment to the FSGO.
The virus of irresponsible mortgage lending and the buying and
selling mortgagees and derivative products turned into a financial
pandemic that undermined the world economy, but in the U.S. alone
the stock value of major financial institutions dropped so drastically
that retirement funds held by millions of Americans dropped by
more than 20% from 2006-2008 (losing $2.3 trillion). Housing
prices dropped by 20% from their 2006 peak and home equity
values dropped by a staggering $4.2 trillion. “The Great Crash, 2008
by Roger C. Altman” in Foreign Affairs.
See The Duty to Monitor under Delaware Law: from Caremark
to Citigroup, by Eric J. Pan, Director Notes, The Conference
Board (February 2010), http://bit.ly/1e2fOd8 (restricted content,
requires subscription).
January/February 2014