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TOWARD AN ETHICAL CULTURE Characteristics of an Ethical Organization Kirk O. Hanson Business and Organizational Ethics Partnership Markkula Center for.

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Presentation on theme: "TOWARD AN ETHICAL CULTURE Characteristics of an Ethical Organization Kirk O. Hanson Business and Organizational Ethics Partnership Markkula Center for."— Presentation transcript:

1 TOWARD AN ETHICAL CULTURE Characteristics of an Ethical Organization Kirk O. Hanson Business and Organizational Ethics Partnership Markkula Center for Applied Ethics Santa Clara University April 5, 2007 (Revised with input from Partnership Members)

2 Importance of Identifying Characteristics of an Ethical Organization Enables us to create most effective culture of integrity Enables us to create most effective culture of integrity Learn where each element can go wrong Learn where each element can go wrong Identify items to include in ethical risk analysis Identify items to include in ethical risk analysis Create checklist to meet expectations of prosecution and sentencing guidelines Create checklist to meet expectations of prosecution and sentencing guidelines

3 New Sources of Ethics Best Practices Learning by the best companies Learning by the best companies Sarbanes Oxley Act (2002) Sarbanes Oxley Act (2002) Stock Exchange Standards (rev.2003) Stock Exchange Standards (rev.2003) Sentencing Guidelines (rev. 2004) Sentencing Guidelines (rev. 2004) DOJ Principles of Prosecution (rev. 2006) DOJ Principles of Prosecution (rev. 2006)

4 Model Values Communicate Values Create Systems to Embody Values Continuous Monitoring of Behaviors Discuss Difficult Ethical Cases Compliance: Audit Enforce Discipline Renew Values Regularly Best Practices for a Culture of Integrity Copyright 1984,2007 Kirk O. Hanson Clarify Values Governance System

5 Best Practice Elements 1. Statement of values 2. Code of conduct 3. Example of senior executives 4. Training and repeated communication of values and standards 5. Systems which embody the values

6 Best Practice Elements, cont. 6. Continuous evaluation of behaviors 7. Effective hotline system 8. Mechanism for resolving toughest cases 9. Compliance enforcement system 10. Periodic renewal process for values and standards 11. Governance system for ethics and values

7 Values Statements Best Practice Best Practice Grows out of experience of companyGrows out of experience of company Broad input to identification of valuesBroad input to identification of values One pagerOne pager Where It Can Go Wrong Where It Can Go Wrong Words, not values “in action”Words, not values “in action” Unrelated to company decisions, actionsUnrelated to company decisions, actions Deliberate misreading of meaningDeliberate misreading of meaning Ignores reality of global operationsIgnores reality of global operations

8 Codes of Conduct Best Practice Best Practice Organized and comprehensiveOrganized and comprehensive Applies to all employeesApplies to all employees Annual signoffAnnual signoff Examples, Q and AExamples, Q and A Where It Can Go Wrong Where It Can Go Wrong Impenetrable, looks like legal wrote itImpenetrable, looks like legal wrote it Captures last year’s triviaCaptures last year’s trivia On the shelf and never consultedOn the shelf and never consulted Exemptions (routinely) grantedExemptions (routinely) granted Deliberate misreading meaning, gaming itDeliberate misreading meaning, gaming it Unclear application outside USUnclear application outside US

9 Executive Modeling Best Practices Best Practices CEO a walking embodiment of values – in both public and private lifeCEO a walking embodiment of values – in both public and private life CEO talks about the valuesCEO talks about the values CEO tells stories about putting values to workCEO tells stories about putting values to work Where It Can Go Wrong Where It Can Go Wrong CEO behaves at odds with valuesCEO behaves at odds with values CEO private behavior inconsistentCEO private behavior inconsistent CEO ‘pleasures’ himself with corporate fundsCEO ‘pleasures’ himself with corporate funds CEO never mentions valuesCEO never mentions values CEO demonstrates disdain for employeesCEO demonstrates disdain for employees

10 Training and Communication Best Practices Best Practices Constant communication about valuesConstant communication about values New hire training in valuesNew hire training in values Regular and engaging training in valuesRegular and engaging training in values Training that focuses on recent issuesTraining that focuses on recent issues Training that emphasizes responsibility of individualsTraining that emphasizes responsibility of individuals Training that helps employees know how to raise issuesTraining that helps employees know how to raise issues Where It Can Go Wrong Where It Can Go Wrong Lack of follow-up to assure it is doneLack of follow-up to assure it is done Obvious lip service regarding valuesObvious lip service regarding values Snickering references by managersSnickering references by managers Reductionist approach to training - do the leastReductionist approach to training - do the least Don’t really expect employees to risk raising issuesDon’t really expect employees to risk raising issues

11 Systems that Embody Values Best Practices Best Practices Performance evaluation system has explicit reference to valuesPerformance evaluation system has explicit reference to values Repetitive systems have values categoriesRepetitive systems have values categories Key decisions examined in light of valuesKey decisions examined in light of values Where It Can Go Wrong Where It Can Go Wrong “Fuzzy stuff” in performance ignored“Fuzzy stuff” in performance ignored Systems exist but ignoredSystems exist but ignored Some systems deliberately left outSome systems deliberately left out Key decisions made by purely financial criteriaKey decisions made by purely financial criteria Performance pressures drive out valuesPerformance pressures drive out values

12 Systems that Embody Values Ernst & Young’s list of systems/operations to be addressed: Ernst & Young’s list of systems/operations to be addressed: People processesPeople processes Recruiting Recruiting Orientation Orientation Performance objectives and measures Performance objectives and measures Global people survey Global people survey Learning and development Learning and development Client-related processesClient-related processes Proposals Proposals Engagement planning Engagement planning Client acceptance Client acceptance Balanced ScorecardBalanced Scorecard Quality and risk management functionQuality and risk management function Corporate social responsibility functionCorporate social responsibility function

13 Continuous evaluation of behaviors Best Practices Best Practices Annual survey on peer and boss behaviorAnnual survey on peer and boss behavior Identification of problem areas via surveyIdentification of problem areas via survey Identification of problem areas via hotline reportsIdentification of problem areas via hotline reports Identification of problem areas by executive teamIdentification of problem areas by executive team Explicit discussion of problem areas in ethics governance process and in executive meetingsExplicit discussion of problem areas in ethics governance process and in executive meetings Where It Can Go Wrong Where It Can Go Wrong Lack of trust in survey, confidentialityLack of trust in survey, confidentiality Poorly drawn surveyPoorly drawn survey Lack of candidness about problem areasLack of candidness about problem areas Failure to engage executives in assessmentFailure to engage executives in assessment

14 Hotlines and Helplines Best Practices Best Practices External and credible reportingExternal and credible reporting Anonymity possible; no retributionAnonymity possible; no retribution Effective system for follow-upEffective system for follow-up Effective system for investigationEffective system for investigation Where It Can Go Wrong Where It Can Go Wrong Lack of employee understanding of functionLack of employee understanding of function Lack of empathy in those answering phoneLack of empathy in those answering phone Violation of anonymity; retributionViolation of anonymity; retribution Lack of adequate follow-upLack of adequate follow-up

15 Way to Discuss Difficult Ethics Cases Best Practices Best Practices Transparency exists regarding tough casesTransparency exists regarding tough cases Employees confident they can take tough case to boss and actually get helpEmployees confident they can take tough case to boss and actually get help Top executives take tough ethics cases seriouslyTop executives take tough ethics cases seriously Mechanism or place exists for vetting casesMechanism or place exists for vetting cases Employees confident that they will not be penalized for raising issues, implementing valuesEmployees confident that they will not be penalized for raising issues, implementing values Employees believe they may be rewarded for raising issuesEmployees believe they may be rewarded for raising issues Executive culture encourages raising issues with CEOExecutive culture encourages raising issues with CEO Where It Can Go Wrong Where It Can Go Wrong “Don’t ask” culture; deniability“Don’t ask” culture; deniability Fear of negative management reactionFear of negative management reaction Unwillingness of executives/managers to share burdenUnwillingness of executives/managers to share burden Failure to apply ethics commitments to global operationsFailure to apply ethics commitments to global operations

16 Compliance Enforcement Best Practices Best Practices Audit everything that is importantAudit everything that is important Put compliance in context; one dimension of value commitmentPut compliance in context; one dimension of value commitment Investigation and enforcement thorough and respectfulInvestigation and enforcement thorough and respectful Discipline appropriate and justDiscipline appropriate and just Where It Can Go Wrong Where It Can Go Wrong Compliance is the whole of the values messageCompliance is the whole of the values message Compliance and discipline easier on executivesCompliance and discipline easier on executives Compliance system protects only the companyCompliance system protects only the company

17 Periodic Renewal Best Practices Best Practices Periodic “rolling out” of values and standards – usually a 3 year cyclePeriodic “rolling out” of values and standards – usually a 3 year cycle Freshness of message for each renewalFreshness of message for each renewal Engagement of organization in fresh messageEngagement of organization in fresh message Where It Can Go Wrong Where It Can Go Wrong Letting the messages go stale; unchangedLetting the messages go stale; unchanged Failure to seek input from organization for revisionsFailure to seek input from organization for revisions Failure to address recent incidents; new issuesFailure to address recent incidents; new issues Overemphasis on recent incidentsOveremphasis on recent incidents

18 Governance of Ethics and Values Best Practices Best Practices Senior executive overseeing ethics effortSenior executive overseeing ethics effort Qualified and motivated Ethics officerQualified and motivated Ethics officer Active audit or ethics committee of boardActive audit or ethics committee of board Periodic reporting to boardPeriodic reporting to board Real and deliberate learning from experienceReal and deliberate learning from experience Continuous adjustments to ethics and values systemsContinuous adjustments to ethics and values systems Where It Can Go Wrong Where It Can Go Wrong Assignment to lower level executiveAssignment to lower level executive Ethics officer not respectedEthics officer not respected Audit committee not really interestedAudit committee not really interested Reporting is perfunctoryReporting is perfunctory Failure to apply to global operationsFailure to apply to global operations No real expectation that reports will lead to improving systemNo real expectation that reports will lead to improving system


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