copyright © 2007 by the center for ethical business cultures
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22 Copyright © 2007 by the Center for Ethical Business Cultures®
Creating an Ethical Business CultureCreating an Ethical Business Culture
Ron JamesRon JamesPresident and CEOPresident and CEO
Center for Ethical Business CulturesCenter for Ethical Business Cultures
11 February 200811 February 2008
33 Copyright © 2007 by the Center for Ethical Business Cultures®
Center for Ethical Business CulturesCenter for Ethical Business Cultures
Mission:Mission:
Assisting business Assisting business leaders in creating leaders in creating ethical business ethical business cultures….cultures….
EnterpriseEnterprise
CommunityCommunity
GlobalGlobal
44 Copyright © 2007 by the Center for Ethical Business Cultures®
Why is it Important?Why is it Important?
Organizations that build an ethical cultureOrganizations that build an ethical culture::
Do it because it’s the right thing to doDo it because it’s the right thing to do
Outperform organizations that don’tOutperform organizations that don’t
Reduce their exposure to ethical lapses Reduce their exposure to ethical lapses
that cause breakdownsthat cause breakdowns
55 Copyright © 2007 by the Center for Ethical Business Cultures®
Why Should the Board Be InterestedWhy Should the Board Be InterestedIn An Ethical CultureIn An Ethical Culture
66 Copyright © 2007 by the Center for Ethical Business Cultures®
Confidence in LeadersConfidence in Leaders
2000
2001
2002
2003
2004
2005
2006
2007
Military
Universit
ies
Justice S
ystem
Medicine
Religion
Public Sch
ools
Major C
ompanies
Small Com
panies
Congress
Wall Stre
et
Law Firms
0%
10%
20%
30%
40%
50%
60%
70%
80%
Source: The Harris Poll #19, March 2007
77 Copyright © 2007 by the Center for Ethical Business Cultures®
Are Ethical Breakdowns a Are Ethical Breakdowns a Thing of the Past ?Thing of the Past ?
WorldcomWorldcom
EnronEnron
TycoTyco
HealthSouthHealthSouth
Global CrossingGlobal Crossing
Morgan StanleyMorgan Stanley
Arthur AndersonArthur Anderson
AdelphiaAdelphia
PutnamPutnam
88 Copyright © 2007 by the Center for Ethical Business Cultures®
WorldcomWorldcom
EnronEnron
TycoTyco
HealthSouthHealthSouth
Global CrossingGlobal Crossing
Morgan StanleyMorgan Stanley
Arthur AndersonArthur Anderson
AdelphiaAdelphia
PutnamPutnam
UnitedHealth GroupUnitedHealth Group
SiemensSiemens
Hewlett PackardHewlett Packard
Tenet HealthcareTenet Healthcare
Purdue Purdue PharmaPharma
KPMGKPMG
MerckMerck
BoeingBoeing
Johnson & JohnsonJohnson & Johnson
Ethical Breakdowns in the NewsEthical Breakdowns in the NewsContinue!Continue!
99 Copyright © 2007 by the Center for Ethical Business Cultures®
The Cost of Ethical BreakdownsThe Cost of Ethical Breakdowns
$$ U.S. organizations loss 5% of annual revenues U.S. organizations loss 5% of annual revenues
through fraud (estimated value ~ through fraud (estimated value ~ $652 billion$652 billion))
$$ Nearly 25% of fraud resulted in at least $1 million Nearly 25% of fraud resulted in at least $1 million lossloss
$$ Fraud more likely detected by tip rather than internal Fraud more likely detected by tip rather than internal or external audits or internal controlsor external audits or internal controls
$$ Size of loss proportional to position of offenderSize of loss proportional to position of offender
$$ Most schemes involved accounting department or Most schemes involved accounting department or upper managementupper management
ACFE Report to the Nation on Occupational Fraud & Abuse, 2006
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1010
Misconduct at WorkMisconduct at Work
55%
46%52%
56%
0%
10%
20%
30%
40%
50%
60%
2000 2003 2005 2007
Observed MisconductObserved Misconduct
Source: Ethics Resource Center's 2007 National Business Ethics Survey
1111 Copyright © 2007 by the Center for Ethical Business Cultures®
1111
Reporting MisconductReporting Misconduct
56%
64%
53%58%
0%
10%
20%
30%
40%
50%
60%
70%
2000 2003 2005 2007
Report Misconduct to ManagementReport Misconduct to Management
Source: Ethics Resource Center's 2007 National Business Ethics Survey
1212 Copyright © 2007 by the Center for Ethical Business Cultures®
Cheating Among MBA StudentsCheating Among MBA Students
56%56% of MBA candidates surveyed of MBA candidates surveyed admitted they had cheated at least onceadmitted they had cheated at least once
“culture of greed within MBA schools”“culture of greed within MBA schools”
“get it done at all costs”“get it done at all costs”
“shifting priorities from meeting customers’ needs to “shifting priorities from meeting customers’ needs to protecting shareholders profits”protecting shareholders profits”
Over 16 years, on every study of cheating, Over 16 years, on every study of cheating, except one, business students led the wayexcept one, business students led the way
Source: McCabe, Butterfield & Trevino, September 2006
1313 Copyright © 2007 by the Center for Ethical Business Cultures®
42%
33%
25%
44%
31%
25%
55%
22% 22%
59%
41%
0%
10%
20%
30%
40%
50%
60%
2003 2004 2005 2006
No Yes Not Sure
Knowing you would never be caught, would you Knowing you would never be caught, would you act unethically to make more money to get act unethically to make more money to get ahead?ahead?
Source: Junior Achievement/Deloitte Poll December 2006
*
* Yes and Not Sure combined
1414 Copyright © 2007 by the Center for Ethical Business Cultures®
Top 5 Drivers of Unethical BehaviorTop 5 Drivers of Unethical Behavior
Pressure to meet unrealistic business Pressure to meet unrealistic business objectivesobjectivesDesire to further one’s careerDesire to further one’s careerDesire to protect one’s livelihoodDesire to protect one’s livelihoodWorking within a cynical, demoralized Working within a cynical, demoralized environmentenvironmentIgnorance that the act was unethicalIgnorance that the act was unethical
Source: AMA/HRI The Ethical Enterprise, 2006
1515 Copyright © 2007 by the Center for Ethical Business Cultures®
1515
Driving Ethical Culture:Driving Ethical Culture:The Regulatory ResponseThe Regulatory Response
SarbanesSarbanes--Oxley Act of 2002Oxley Act of 2002
Public Company Listing Exchanges Public Company Listing Exchanges
United States Sentencing CommissionUnited States Sentencing Commission
“…requirement that an organization shall “…requirement that an organization shall --promote an organizational culture that promote an organizational culture that
encourages ethical conduct and a commitment encourages ethical conduct and a commitment to compliance with the law.”to compliance with the law.”
Source: Amendments to the Sentencing Guidelines; May 10, 2004Source: Amendments to the Sentencing Guidelines; May 10, 2004
1616 Copyright © 2007 by the Center for Ethical Business Cultures®
A Collective View:A Collective View:The Regulatory ResponseThe Regulatory Response
Setting the Setting the “Tone at the Top”“Tone at the Top”
Ethical CultureEthical Culture
Codes of ConductCodes of Conduct
Conflicts of InterestConflicts of Interest
Disclosure/ Disclosure/ TransparencyTransparency
Board IndependenceBoard Independence
AuditAudit
CompensationCompensation
NominatingNominating--GovernanceGovernance
Auditor IndependenceAuditor Independence
ConsultingConsulting
Audit and TaxAudit and Tax
1717 Copyright © 2007 by the Center for Ethical Business Cultures®
Oversight & ManagementOversight & ManagementRoles and ResponsibilitiesRoles and Responsibilities
Separate attention now given to the roles and Separate attention now given to the roles and responsibilities of three types of responsibilities of three types of organizational officials:organizational officials:
Members of the governing authority (i.e., Board)Members of the governing authority (i.e., Board)
Executives comprising an organization’s Executives comprising an organization’s managerial leadership (i.e., “highmanagerial leadership (i.e., “high--level level personnel”)personnel”)
One or more specific individual(s) having dayOne or more specific individual(s) having day--toto--day operational responsibility for an day operational responsibility for an
organization’s compliance and ethics programorganization’s compliance and ethics program
1818 Copyright © 2007 by the Center for Ethical Business Cultures®
Board of Directors/Governance:Board of Directors/Governance:
Must be knowledgeable about content and Must be knowledgeable about content and operation of Compliance & Ethics Programoperation of Compliance & Ethics Program
Must exercise reasonable oversight of Must exercise reasonable oversight of implementation and effectiveness of implementation and effectiveness of Compliance & Ethics ProgramCompliance & Ethics Program
Must receive training that is practical, Must receive training that is practical, effective and is appropriate to their roles and effective and is appropriate to their roles and responsibilities as Board membersresponsibilities as Board members
Oversight & ManagementOversight & ManagementBoard of Directors/GovernanceBoard of Directors/Governance
1919 Copyright © 2007 by the Center for Ethical Business Cultures®
The Seven Minimum Steps
4. Provide communication and training4. Provide communication and training
5.5. Utilize monitoring, auditing, and reportingUtilize monitoring, auditing, and reporting
6.6. Consistently enforce through disciplineConsistently enforce through discipline
7.7. Take appropriate corrective actionTake appropriate corrective action
1.1. Establish standards and proceduresEstablish standards and procedures
2.2. Make highMake high--level individuals responsiblelevel individuals responsible
3.3. Exercise due care in delegating Exercise due care in delegating authorityauthority
2020 Copyright © 2007 by the Center for Ethical Business Cultures®
Building & Sustaining an Ethical Building & Sustaining an Ethical CultureCulture
2121 Copyright © 2007 by the Center for Ethical Business Cultures®
Ethical MindsetsEthical Mindsets
Source: Based on Chapter 2 “Mindsets & Culture” in Conscience and Corporate Culture Copyright © Kenneth E. Goodpaster
Self Interest
LawBased
MarketBased
EthicalCulture
Evolving EnlightenmentEvolving Enlightenment
Elements in Building & Elements in Building & Sustaining an Ethical CultureSustaining an Ethical Culture
Laying the FoundationLaying the Laying the FoundationFoundation
LeadershipEffectivenessLeadershipLeadershipEffectivenessEffectiveness
BalancingStakeholderInterests
BalancingBalancingStakeholderStakeholderInterestsInterests
AssessmentAssessment
Process IntegrityProcess Process IntegrityIntegrity
2222 Copyright © 2007 by the Center for Ethical Business Cultures®
The 1The 1stst ElementElementLaying the FoundationLaying the Foundation
Challenges:Challenges:
Aligning Aligning Mission/Vision/ValuesMission/Vision/Values
Creating a High Performance CultureCreating a High Performance Culture
Establishing Behavior StandardsEstablishing Behavior Standards
Reinforcing Through CommunicationReinforcing Through Communication
2323 Copyright © 2007 by the Center for Ethical Business Cultures®
Shaping Organizational CultureShaping Organizational Culture
ValuesValuesThe shared norms and beliefs of the organization The shared norms and beliefs of the organization that define acceptable behaviorthat define acceptable behaviorInspirational and directional in natureInspirational and directional in natureGives individuals a context to reflect on how their Gives individuals a context to reflect on how their personal values alignpersonal values align
Ethics and Compliance Codes of ConductEthics and Compliance Codes of ConductThe standards of behavior established to insure The standards of behavior established to insure compliance with the law, regulations, and rulescompliance with the law, regulations, and rulesPrescriptive in nature with specific well defined Prescriptive in nature with specific well defined expectations of behavior expectations of behavior
ProcessProcessIntegrityIntegrity
2424 Copyright © 2007 by the Center for Ethical Business Cultures®
Data Illustration:Data Illustration:
FrontlineFrontlineManagerManagerManager/Manager/ProfessionalProfessional
ExecutiveExecutive
35%35%48%48%
63%63%67%67%//58%58%
72%72%70%70%
The behavior of the people I work with is The behavior of the people I work with is consistent with my company’s mission, consistent with my company’s mission, vision and values.vision and values.
The 1The 1stst ElementElementLaying the FoundationLaying the Foundation
Source: Gantz Wiley Research WorkTrends 2005Healthcare
2525 Copyright © 2007 by the Center for Ethical Business Cultures®
The 2The 2ndnd ElementElementEffective LeadershipEffective Leadership
Challenges:Development Through Education
- Examining Ethical Approaches- Reflecting on Personal & Organizational Values- Encouraging Constructive Dissent- Examining Organizational Systems
“Walking the Talk” Immersion
2626 Copyright © 2007 by the Center for Ethical Business Cultures®
Data Illustration:Data Illustration:
FrontlineFrontlineManagerManagerManager/Manager/ProfessionalProfessional
ExecutiveExecutive
49%49%
58%58%
72%72%
83%83%//63%63%
78%78%
82%82%
My senior management supports and My senior management supports and practices high standards of ethical conduct.practices high standards of ethical conduct.
The 2The 2ndnd ElementElementEffective LeadershipEffective Leadership
Source: Gantz Wiley Research WorkTrends 2005Healthcare
2727 Copyright © 2007 by the Center for Ethical Business Cultures®
Data Illustration:Data Illustration:
FrontlineFrontlineManagerManagerManager/Manager/ProfessionalProfessional
ExecutiveExecutive
41%41%
42%42%
64%64%
67%67%//57%57%
75%75%
85%85%
Where I work, ethical issues and concerns Where I work, ethical issues and concerns can be discussed without negative can be discussed without negative consequences.consequences.
The 2The 2ndnd ElementElementEffective LeadershipEffective Leadership
Source: Gantz Wiley Research WorkTrends 2005Healthcare
2828 Copyright © 2007 by the Center for Ethical Business Cultures®
Source: Ethics Resource Center 2005 National Business Ethics Survey:
Management’s Actions CountManagement’s Actions CountPercent Observed MisconductPercent Observed Misconduct
37%
87%
Walking the TalkWalking the Talk
Not Walking the TalkNot Walking the Talk
LeadershipLeadershipEffectivenessEffectiveness
2929 Copyright © 2007 by the Center for Ethical Business Cultures®
The 3The 3rdrd ElementElementBalancing Stakeholder InterestsBalancing Stakeholder Interests
Challenges:Challenges:
Recognizing Other Recognizing Other StakeholdersStakeholders
Capturing Stakeholders Expectations & Capturing Stakeholders Expectations & PerceptionsPerceptions
Balancing the Interests of Multiple StakeholdersBalancing the Interests of Multiple Stakeholders
3030 Copyright © 2007 by the Center for Ethical Business Cultures®
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Stakeholder ReciprocityStakeholder ReciprocityPatients & Patients & FamiliesFamilies
Payers/InsurersPayers/Insurers
CompetitorsCompetitorsSuppliersSuppliers
Your Organization
Care GiversCare Givers
EmployeesEmployeesCommunityCommunity
Regulators/Regulators/LegislatorsLegislators
BalancingBalancingStakeholderStakeholder
InterestsInterests
3131 Copyright © 2007 by the Center for Ethical Business Cultures®
Data Illustration:Data Illustration:
FrontlineFrontlineManagerManagerManager/Manager/ProfessionalProfessional
ExecutiveExecutive
52%52%
56%56%
71%71%
74%74%//64%64%
77%77%
84%84%
My company strives to serve the interests My company strives to serve the interests of multiple stakeholders not just the of multiple stakeholders not just the shareholders (financial performance).shareholders (financial performance).
The 3The 3rdrd ElementElementBalancing Stakeholder InterestsBalancing Stakeholder Interests
Source: Gantz Wiley Research WorkTrends 2005Healthcare
3232 Copyright © 2007 by the Center for Ethical Business Cultures®
The 4The 4thth ElementElementProcess IntegrityProcess Integrity
Challenges:Challenges:
Identifying Key Organizational SystemsIdentifying Key Organizational Systems
Establishing Desired Behavior StandardsEstablishing Desired Behavior Standards
Aligning Systems to Encourage BehaviorAligning Systems to Encourage Behavior
Monitoring Monitoring BehaviorBehavior
3333 Copyright © 2007 by the Center for Ethical Business Cultures®
Linking & aligning Mission, Vision, Values Linking & aligning Mission, Vision, Values and Ethics & Complianceand Ethics & Compliance
Education & Training:Education & Training:Governing AuthorityGoverning AuthoritySenior ManagementSenior ManagementMid Level ManagersMid Level ManagersFront Line EmployeesFront Line Employees
Connecting systems and incentives to valuesConnecting systems and incentives to values
Surveying for feedbackSurveying for feedback
Building the Ethical Culture
3434 Copyright © 2007 by the Center for Ethical Business Cultures®
Data Illustration:Data Illustration:
FrontlineFrontlineManagerManagerManager/Manager/ProfessionalProfessional
ExecutiveExecutive
31%31%
37%37%
46%46%
51%51%//34%34%
52%52%
48%48%
Where I work, people do not “get ahead” Where I work, people do not “get ahead” unless their behavior clearly demonstrates unless their behavior clearly demonstrates my company’s values.my company’s values.
The 4The 4thth ElementElementProcess IntegrityProcess Integrity
Source: Gantz Wiley Research WorkTrends 2005Healthcare
3535 Copyright © 2007 by the Center for Ethical Business Cultures®
The 5The 5thth ElementElementAssessmentAssessment
Challenges:Challenges:
What to MeasureWhat to Measure
How to MeasureHow to Measure
When to Measure When to Measure
How to Use & How to Use & “Not Use”“Not Use” the Informationthe Information
3636 Copyright © 2007 by the Center for Ethical Business Cultures®
CEBC Integrity Measurement ToolsCEBC Integrity Measurement Tools
CEBC Integrity CEBC Integrity SurveySurveyTMTM: 28: 28--itemsitems
CEBC Integrity QuickCheckCEBC Integrity QuickCheckTMTM: 5: 5--item index item index
Company serves interest of multiple stakeholdersCompany serves interest of multiple stakeholders
Senior management practices ethical conductSenior management practices ethical conduct
CoCo--workers behavior consistent with valuesworkers behavior consistent with values
Able to discuss ethical issues/concerns Able to discuss ethical issues/concerns
Must demonstrate company values to get aheadMust demonstrate company values to get ahead
Index benchmarked against Index benchmarked against WorkTrendsWorkTrendsTMTM
normative datanormative data
3737 Copyright © 2007 by the Center for Ethical Business Cultures®
Elements of an Ethical CultureElements of an Ethical Culture
BalancingBalancingStakeholderStakeholder
InterestsInterests ProcessProcessIntegrityIntegrity
LeadershipLeadershipEffectivenessEffectiveness
ValuesValues
Assessment
Assessment
3838 Copyright © 2007 by the Center for Ethical Business Cultures®
Questions? Questions?
Copyright © 2007 by the Center for Ethical Business Cultures®
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