1. Implementing and Auditing Ethics Programs
C H A P T E R 9
Implementing and Auditing Ethics Programs

2. The Ethics Audit
Systematic evaluation of an organization’s ethics program and performance to determine whether it is effective
Regular, complete, and documented measurements of compliance with policies and procedures
Can be a precursor to establishing an ethics program
Helps to identify the firm’s current ethical standards, policies, and risk areas
Source: Digital Vision

3. The Social Audit
Process of accessing and reporting a business’s performance in fulfilling the economic, legal, ethical, and philanthropic responsibilities expected by its stakeholders
Broader in scope than an ethics audit
An ethics audit might be a component of a social audit

4. Benefits of an Ethics Audit
Identify potential risks and liabilities and improve legal compliance
Can be key in improving organizational performance
Improved relationships with stakeholders
Pressure to account for actions in areas including corporate governance, ethics programs, customer relationships, employee relations, environmental policies, and community involvement

5. Top Business Issues Over the Next Five Years
Notice that environmental issues and climate change is far and away the greatest topic of concern, followed by privacy issues and data security and demand for safer products

6. Ethical Crisis Management
Plans to respond to and recover from disasters that can disrupt operations, destroy organizational reputation and erode shareholder confidence
Involves contingency planning, assessing organizational risks, planning for potential occurrences and providing tools to respond

7. Crisis Management and Recovery
U.S. companies are failing to identify and manage ethical, social, economic, and environmental concerns
Ethical disasters follow recognizable phases of escalation
Anticipation of problems and intervention can stave off organizational disaster
Source: Triangle Images

8. Where U.S. Has Lost Competitiveness
A growing number of people fear the U.S. is losing ground
in business ethics and corporate governance.

9. Measuring Non-financial Performance
Non-financial measures of performance are crucial to a firm’s health
Measure wholeness and soundness of a company (“return on integrity”)
The Sarbanes–Oxley Act
Six Sigma
Balanced Scorecard
The Triple Bottom Line

10. Risks in Ethics Auditing
Ethics audits may uncover ethical problems that a company cannot remedy
Stakeholders may be dissatisfied with the information
Conducting the audits is a financial and record keeping burden
No guarantee that auditing is the solution to ethics concerns

11. The Auditing Process Secure top management and board commitment
Establish an ethics audit committee
Define the scope of the audit
Review the organizational mission, goals, and values
Collect and analyze relevant information
Verify the results through an outside agent
Report the findings to
Audit committee, managers, and stakeholders

12. Secure Commitment of Top Management and the Board
The first step in the auditing process
Top management may want a way to benchmark their ethical performance
The board may
Initiate audits based on stakeholder concerns or in response to corporate governance reform
Have been held responsible for the ethical and legal compliance programs of the company’s they oversee

13. Establish an Ethics Oversight Committee
Ideally, the board of directors’ financial audit committee would oversee the audit
In most companies, managers or ethics officers conduct it
Individuals within the firm and external auditors should be involved
An external auditor should not have other consulting or conflict-of-interest relationships with top managers or board members

14. Define the Scope of the Audit
Scope is determined by the type of business, risks faced, and the opportunities to manage ethics
Includes defining the key subject matter or risk areas that are important to the ethics audit as well as the bases on which they should be assessed
Source: Triangle Images

15. Review Organizational Mission and Goals
Should include a review of the current mission statement and strategic objectives
Should examine all formal and informal documents that make commitments with regard to ethical, legal, or social responsibility
Define the firm’s ethical priorities

16. Collect and Analyze Information
Identify tools for measuring progress in improving employee’s ethical decisions
Collect internal and external documents
Determine a baseline level of compliance
Determine all commitments
Source: Digital Vision

17. Employee-Preferred Channels for Reporting Misconduct
While fewer people preferred to report to management in 2009, it is still by far the most popular channel for reporting misconduct
Source: 2009 National Business Ethics Survey, Ethics Resource Center, p. 35

18. Verify the Results
Have an independent party verify the results of the data analysis
Increasing numbers of companies having results independently audited
Verification is an assessment of the quality, accuracy, and completeness of a company’s social report

19. Report the Findings The final step: Issue the ethics audit report
Should spell out the purpose and scope of the audit, the methods used in the audit process
Although the ethics audit may be similar to a financial audit, their forms are different
Source: Stockbyte

20. Strategic Importance of Ethics Auditing
Should be conducted regularly
Provide a benchmark of overall effectiveness of ethics initiatives
Can be important in asset allocation and program development
Can demonstrate the positive impact of ethical conduct and social responsibility initiatives on the firm’s bottom line
Ethics audits have drawbacks as well:
They can be expensive, can disrupt employees’ routines, and can be difficult to find qualified auditors