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May 2004 An employee files a complaint and corrective action is administered. The same employee then files new complaints on every action he believes is in violation of company policies. Coworkers are frustrated of being subjected to constant investigations. What is the best way to handle this situation to bring order back into the work environment?
In this post-Enron environment most organizations are doing all they can to encourage employees to use the help lines and report activity that may violate company policies. Most ethics and compliance officers cite concern over what is not being reported as their biggest risk factor. Instilling a sense of personal accountability and responsibility among employees for the actions of others is a major challenge.
But what happens when the pendulum swings too far in the other direction? Crying wolf too often can jeopardize the integrity of the entire internal controls process.
The first question for the manager to ask is: Are the complaints valid?
If they aren't, then your vigilante employee needs to know the extent of the damage he or she is causing, both as to his or her individual reputation, as well as to the people with whom he or she works. Respect is likely a value at the organization that needs to be enforced. If current HR policies don't provide a remedy, they should be changed promptly.
But what if the complaints are valid? Are there in fact ongoing violations of company policy? Or at least legitimate perceptions of ongoing violations? If so, then why are the coworkers complaining?
In many instances, the trouble is that the technical policy doesn't conform to day-to-day practices. In such cases, the coworkers may be reacting to a policy that should be changed. Or perhaps your outraged coworkers may be reacting to inconsistent enforcement of the policies throughout the company.
Imagine if your lone ranger were sitting on the side of an interstate highway reporting the license plate numbers of all of the cars going over the speed limit. The public would be outraged, and yet each of the cars would in fact be violating the law.
Policies and rules are the foundation of a compliance program. But they are not worth the paper they are written on if they are not taken seriously. Bringing "order back into the work environment" requires a careful look not only at the policies workers are being asked to follow, but the reasons behind any lack of respect for following those policies day-to-day.
June 2004 In late April the United States Sentencing Commission sent to Congress significant changes to the federal sentencing guidelines for organizations. According to the Commission, "the amendment to the guidelines strengthens the criteria an organization must follow in order to create an effective compliance and ethics program."
The U.S. Sentencing Commission, an independent agency in the judicial branch of the federal government, was organized in 1985 to develop a national sentencing policy for the federal courts. The resulting sentencing guidelines structure the courts sentencing discretion to ensure that similar offenders who commit similar offenses receive similar sentences.
The organizational sentencing guidelines first went into effect November 1, 1991. The guidelines provide incentives for organizations to create meaningful compliance and ethics programs, report violations, cooperate in criminal investigations, discipline responsible employees, and take the steps needed to prevent and detect criminal conduct by their agents.
An "effective compliance" program has been a fundamental component of the organizational sentencing guidelines since the Commission first promulgated them in 1991. Under the guidelines, an organizations punishment is adjusted according to several factors, one of which is whether the organization has in place an effective program to prevent and detect violations of law. For such a program to be considered effective, the Commission articulated seven minimum requirements. In 1991, these seven requirements represented the federal governments first attempt to articulate such broad-based standards, and they quickly became the benchmark against which most organizations measured their compliance programs.
The Commissions focus on ethical corporate behavior in this amendment reflects a shift in the legal landscape since the guidelines went into effect. Good corporate citizens have been incorporating ethical standards into their compliance programs for a number of years, and recent legislation, such as the Sarbanes-Oxley Act of 2002, has adopted ethics as a guiding principle.
For organizations that have been working for the past 13 years to determine what is an "effective compliance" program, the challenge now will be to determine what is an "organizational culture that encourages ethical conduct and a commitment to compliance with the law."
Mere knowledge of the rules is not enough. Organizations must take affirmative steps to create an environment where doing the right thing is the norm and the standard. To achieve these goals, organizations must begin to look at what environmental factors influence behavior and encourage or inhibit individual employees and managers from doing the right thing, even when they know what the rules are.
More specifically, companies must work towards developing high levels of personal accountability among all its employees. Ethics and compliance officers need to work closely with partners from employee communications and Human Resources to analyze how to create that positive environment where everyone sees that following the standards is good for them and good for the business.
Difficult? Perhaps more than merely publishing a code or compliance training. However, the good news is that the same behaviors that are critical for business success are now in fact the legal norm.
July 2004 Recent statements by Enron's former CEO Kenneth Lay highlight in stark terms the role leaders need to play in integrity based organizations.
In July 2004, as charges were finally filed against Lay, he laid out the basis of his defense by pleading ignorance of the illegal activities that led to the collapse of the energy giant. While "taking responsibility" for Enron's collapse, Lay denied knowing what went on at the company. In interviews given after the indictments were made public, Lay said that taking responsibility does not mean that he knew everything that went on at Enron. Lay will be able to sustain his defense, the very premise of pleading ignorance flies in the face of the responsibilities demanded of today's corporate leaders. "Taking responsibility" needs to mean more than a stoic statement of leadership. All of a company's stakeholders, from investors, regulators, the public, and line employees, need to be able to count on senior leadership's active engagement in the operations of the organization.
While court watchers ponder whether nd aside from being just good business practice, it's now the law.
Legislated largely as a result of Enron's collapse, the certification requirements of Sarbanes-Oxley Section 302 demand the CEO and the CFO take personal responsibility for the financial statements of the organization. Not only are the CEO and CFO verifying the reliability of the financial statements of the organization, they are also verifying that the system of controls used to derive that information is valid.
In addition, pending revisions to the U.S. Federal Sentencing Guidelines for organizations provide additional requirements for senior leaders to be engaged.
According to the guidelines, a company must "promote an organizational culture that encourages ethical conduct and a commitment to compliance with the law." Top level executives and a governing authority, such as the board of directors, must monitor and "ensure that the organization has an effective compliance and ethics program." They cannot delegate these duties to powerless junior managers, according to the guidelines.
While these legal requirements in and of themselves are major commitments of leadership and responsibility, the public commitment of company leaders to be responsible for all of the activities within the organization is a vital foundation for the entire integrity effort within an organization.
Thankfully, the majority of corporate leaders maintain high levels of personal integrity. However, many of those leaders have not developed skills to model that integrity in ways that managers and line employees can rely on to build and sustain integrity-based work environments at the local level.
In many organizations, there is a distinct gap between the lofty principles espoused by leaders and the reality faced in the trenches at the end of the quarter.
There are three traits of leaders of integrity-based organizations that help close that gap by demonstrating integrity at all levels of the organization.
Such leaders help guide their companies through ethical challenges and create expectations throughout the organization of ethical standards.
For such a leader, pleading ignorance of unethical activity with his or her organization would be a pretty weak defense. They rightfully know too much.
August 2004 Developers of ethics training programs, as with developers of all employee training programs, are always being asked by clients to develop programs that employees will take seriously. However, the challenge is often misdirected.
Like the adage "you can lead a horse to water but you can't make it drink," it's one thing to develop engaging training programs that are interactive, fun and full of energy. It's another to expect that a fun program in and of itself is going to draw the attention of busy employees and managers that have too much on their plates already.
The challenge of getting employees to take ethics training more seriously must be directed to the company's leadership. Employees and managers will take ethics training seriously only when they see that the lessons to be learned are expected of them by their supervisors, and that failure to not only attend, but embody the learning, will have negative consequences.
Ethics training is different than many other types of training. Ethics training is less skill-based and more focused on setting expectations of behavior that virtually all employees already know, but don't necessarily follow. Therefore, getting employees to take the training seriously is more a matter of understanding behavior change than a narrow application of adult learning theory.
There are two key factors that determine whether ethics training will be taken seriously: the level of support from the participants' direct supervisor and the support of peers in accepting the new behaviors.
Effective role modeling of expected behavior by managers is critical to getting employees to take their training seriously. What better way to get someone on board than by having a supervisor demonstrate expectations of how things need to get done.
But as social animals, we are greatly influenced by our peer group, however that may be defined in our work environment. No one likes to stick out, even if doing the right thing makes someone the "odd man out." Therefore, care must be taken to ensure that acting in accordance to the norms being conveyed in the ethics training becomes the expected standard. Through messaging in both formal and informal channels, organizations can shape peer support of desired behaviors. Once it becomes clear that not acting in accordance with the behavioral norm will make employees stand out, and that the lessons to be learned in the ethics training will help employees be part of the mainstream, they will certainly take ethics training more seriously.
December 2004 How can a successful leader recruit honest and talented employees?
A leader looking to hire honest and talented employees will only be successful if he or she successfully projects a model of how talent and honesty can work together in the company.
While we increasingly expect our leaders to be honest, that alone is not enough to attract the most talented employees. Honest employees will of course gravitate to companies with reputations for integrity. But how do companies attract top performers?
Depending on the industry, the most talented employees want to join high performance organizations: those companies that are at the forefront of their industry, either in terms of market innovation or market share.
But these "top-guns" want to be sure that they arent joining the next Enron. Remember that Enron was an organization that prided itself on hiring only the best of the best to engage in the most challenging and "cutting-edge" work.
So what do these employees look for? They want to see how the leadership balances performance with ethics. Successful leaders that attract the best are those that demand performance and integrity at the same time. One leader I have worked with prides himself as always being on the edge, always pushing his team to achieve more and push the envelope. But while he urges his team on, he is also as vociferous in demanding scrupulous compliance with the companys standards. Any thoughtful leader in this era will be cognizant of the risks inherent in "high performance."
And this point is not lost on employees and recruits.
In data compiled by Business for Social Responsibility, a U.S. employee survey carried out in 2001 by Walker Information found that only 6 percent of employees who thought their senior management was unethical were inclined to stay with their companies, while 40 percent who believed their leaders were ethical wanted to stay. Another study of U.S. workers carried out by the Aon Loyalty Institute in 2000 found that when employees do not feel they can trust management, giving them additional benefits has no significant effect on their commitment. Another Aon survey in 2002 showed worker confidence in management had dropped to its lowest level since the survey began in 1997. Extensive anecdotal evidence suggests that employees have more positive feelings about themselves and their work -- and demonstrate greater loyalty -- when they work for a company they view as having good values and ethical practices.
February/March 2005 A recent opinion column in the Wall Street Journal criticized CEOs who have been "distracted" by the demands of management experts and government officials to do "'what's right' rather than what good business sense suggests is best." The columnist fears that all of the talk of corporate responsibility is distracting companies from their core mission of serving customers and beating competitors.
Where is it written that being ethical means that a company can't be aggressive in pursuing its business goals? Does corporate responsibility require leaders to lose their focus and take their eye off winning?
The question assumes that ethics and competitiveness is an either/or proposition. Instead, ethics and integrity are part of the foundation that permits leadership to be aggressive.
A vivid example of this relationship is the job our armed forces ask of fighter pilots. Fighter pilots need to be aggressive and fearless in combat. They need to be singularly focused on meeting their objective and defeating their enemy. Yet no matter how aggressive and competitive our "top-gun" is, behind him or her is a team that is ensuring that the plane is operating at its peak performance and that the parachute has been carefully and correctly packed. The skills and performance of the team back at the base requires the highest levels of integrity and compliance.
The impact of this relationship was recently shared by the CEO of a Fortune 500 company who in fact had served in the US Air Force as a fighter pilot. He wants his business development team to be very aggressive. They need to be as singularly focused on winning market share as the fighter pilot is in meeting the mission plan. Yet this CEO understands that having an integrity-based culture assures that his "top-guns" won't be putting the company at risk every time they make a deal. This leader makes sure that his business people work alongside the compliance team, whether from legal or finance. He wants to be certain that he is tied at the hip with someone who will be sure that critical lines aren't crossed.
The intent behind Sarbanes-Oxley and the resulting regulations is not to restrict competitive business tactics. The message is that every company must understand the unique sets of risks it must take to succeed and know how to manage them to ensure that the company doesn't damage its ability to play in its desire to win.
April/May 2005 As a result of Sarbanes-Oxley legislation, organizations have been rushing to deploy anonymous reporting systems, such as hotlines, as a highly visible component of the company's ethics and compliance program.
According to Dave Slovin, Vice President of The Network, one of the largest providers of hotline services, the field has become crowded with new entrants clamoring to provide services to companies. However, while installing a hotline may seem like a very tangible and easy to deploy solution that will meet regulatory requirements, companies are well advised to be sure that the solution maps well with their culture.
As with any compliance strategy, success of a hotline is as dependent on how the tool is integrated into the company's overall compliance strategy as it is on the qualifications of the service provider or the technology used internally to support it.
In the recent trial of former HealthSouth CEO Richard Scrushy, the former CFO Weston Smith was quoted as saying that reporting an accounting fraud to its hotline "would have done no good. According to Smith, the employees taking calls on the hotline reported directly to Scrushy. Smith said "the hotline was a joke."
It is imperative that the hotline be positioned as an important tool that benefits the entire organization. Careful thought must be given to how the hotline is publicized and what cultural barriers may exist that will prevent employees from feeling safe in making a very difficult and emotional call.
And creating the environment where employees feel comfortable making that call couldn't be more important.
According to the American Institute of Certified Public Accountants, hotlines play one of the most important roles in preventing fraud, especially the most common and damaging fraud caused by managers overriding a company's internal controls.
A recent white paper issued by the AICPA noted that a key defense against management override of internal controls is a whistleblowing process that typically incorporates a telephone hotline. "Respondents to a 2004 survey by the Association of Certified Fraud Examiners (ACFE) revealed that various forms of fraud are detected 40 percent of the time by tips, which made this the leading method for detecting fraud."
The report goes on to say that "the audit committee can assist in creating strong antifraud controls by encouraging the development of a culture in which employees view whistleblowing as a valuable contribution to an attractive workplace of integrity and their own futures. The reporting mechanisms must demonstrate confidentiality so potential whistleblowers are assured that their concerns will be properly considered and that they will not be subjected to retribution. Successful whistleblowing procedures require strong leadership from the audit committee, the board of directors, and management."
One of the key success factors for organizations deploying ethics and compliance programs is in how well the various components fit together. For example, merely publicizing the hotline's number is not enough. Leadership must understand how employees feel about the hotline. Is it perceived as a snitch line? Would employees use it if they didn't feel intimidated by managers? Do they trust that the hotline is truly confidential?
These issues must be factored into an overall training and communication program to support the hotline as part of the company's overall ethics and compliance program. Many communication efforts are nothing more than announcements the company is meeting a regulatory requirement to provide a reporting capability. Without going further to understand the questions on employees' minds that might be keeping them from using the hotline, the employees just might agree with Weston Smith, that the company's well-intended efforts are "a joke."
May/June 2005 The law requires it. The regulators demand it and the prosecutors look for it. Sarbanes requires a positive "tone at the top" as part of 404 implementation. The Department of Justice is examining the environment in which decisions are being made. The revised Federal Sentencing Guidelines now talk of the need for a culture of ethics and compliance.
And yet two years after passage of Sarbanes, companies are still struggling to come to grips with defining the characteristics of an ethical culture that will truly reduce the risk of fraud and scandal.
Why is it so hard?
An insight is offered from a recent speech by Lori A. Richards, the SEC's Director of the Office of Compliance Inspections and Examinations. Ms. Richards said "[i]t's not enough to have policies. It's not enough to have procedures. It's not enough to have good intentions. All of these can help. But to be successful, compliance must be an embedded part of your firm's culture."
"It's not enough." An ethical culture does not automatically result from implementation of new processes and procedures. Organizations have been taking this piece-meal approach of adding new processes and programs without taking a broader look at what kind of culture they are and they aspire to be.
Many organizations are attempting to build an ethical culture by assembling various processes and programs: new controls, new codes of conduct, new compliance training. It's true that it's easier to deploy a "solution" that is objective and self-contained. But pulling together various components is not enough to address culture, especially if the various components do not address the range of issues that impact an organization's behavior.
To get there organizations have to take a broader look at how the multitude of skills and qualities of its people need to fit together to create a sustainable whole. Organizations, like people, have multiple dimensions, each of which need to be developed and shaped. At the foundation there are the fundamental qualities needed to make a profit and maintain high performance. These attributes are critical for the organization to survive. Also, there are aspects that address basic relationships among the people that support the organization.
But, to their detriment, many organizations stop there. Their view is not broad enough to see that there are other aspects and qualities needed to create a "full-spectrum" organization, one that creates a positive sense of engagement and purpose, aspects necessary to drive ethical behavior.
An ethical culture requires engaged employees and managers who understand why doing the right thing is important for the organizations long-term viability; and they have the determination to see that in fact the right thing does get done.
What are some of the key attributes needed for an organization to be fully integrity-based?
These attributes touch other aspects of the organization that go beyond the fundamental abilities of making a profit and maintaining high levels of quality and productivity: how well the organization adapts to change, or encourages employees to be engaged in decision making, how well the organization creates a collective sense of purpose around shared values. It is these broader set of skills and qualities that create the foundation needed to support an ethical culture. These higher-level behaviors are no longer "nice to haves." These are the behaviors now demanded by the SEC and the DOJ.
Therefore, the key question is whether the current processes and programs within an organization get at these kinds of behaviors.
It's often hard for organizations to make the leap to an ethical culture because they are unsure of where to start.
The best place to start is by conducting an assessment of the current culture. Where is the organization doing a good job in managing risks and encouraging ethical behavior? Where is it falling short? Organizations have to build a framework broad enough to allow these questions to be asked. It is not enough to merely ask whether controls are in place or if everyone has attended a class or signed a code. The organization has to understand what the drivers of behavior are and how well those drivers align those behaviors to its integrity goals.
It's hard for an organization to create an ethical culture if it isn't looking at full range of key factors that will sustain it for the long-term. Therefore, developing a broad set of assessment capabilities that go beyond the current metrics of 404 and code certification is the first critical step in meeting the need to create, and maintain, an ethical culture.