kpmg ethics survey–2000 - toronto · q of the organizations responding to our survey, 39% provide...

K P M G E T H I C S S U R V E Y – 2 0 0 0M A N A G I N G F O R E T H I C A L P R A C T I C E

F i n a n c i a l A d v i s o r y S e r v i c e s

C O N T E N T S

2 Executive Summary

3 Initiatives in Managing for Ethical Practice

11 A View to the Future

14 About Our Research

18 About KPMG

K P M G E T H I C S S U R V E Y – 2 0 0 0M a n a g i n g f o r E t h i c a l P r a c t i c e

E X E C U T I V E S U M M A R YC a n a d a F e b r u a r y 2 0 0 0

In September 1999, KPMG sent a questionnaire to the Chief Executive Officers of 1,000

Canadian corporations. We aimed to survey the largest Canadian corporations. The

corporations were selected by size in terms of number of employees, with size in terms

of revenues as a secondary selection criterion. The questionnaire was also sent to more

than 300 public sector organizations in response to senior executives’increasing level of

support for applied ethics in the public sector.

To summarize our key findings:

Q 86.4% of respondents have a document that outlines their values and principles,and 72.7% have some kind of program or initiatives focused on promoting ethicalvalues and practices.

Q 41.6% of respondents have a senior level manager whose role specifically includesimplementation, monitoring, or assurance of ethics initiatives.

Q Although 86.4% of respondents believe that their corporate culture allows for open communications without fear of reprisal, only 20.8% have a confidentialreporting mechanism, such as a confidential telephone line.

Q Of the organizations responding to our survey, 39% provide some form of training in ethics. Half of these provide training in the application of the code ofethics, ethical decision making, and integrating ethics into everyday activities.Only 10.4% of total respondents limit their training to the application of the codeof ethics.

Q Of the organizations surveyed that provide ethics training to managers and seniormanagers, less than 10.0% provide more than eight hours per year, and almostone-third provide one hour or less of ethics training per year. For employees otherthan management who receive ethics training, 42.1% receive one hour or less peryear, although almost as many receive one to four hours.

Q For 88.5% of organizations surveyed that regularly conduct organizational riskassessments, ethics is included to some extent in those assessments.

Q The most prevalent emerging issues for surveyed organizations were security ofinformation (23.4%), employee and client privacy (16.9%), environmental issues(13.6%), governance (13%), and conflicts of interest (12.3%).

P A G E T W O

I N I T I A T I V E S I N M A N A G I N G F O R E T H I C A L P R A C T I C E

The first section of this year’s survey focused on specific programs or initiatives aimed

at promoting certain values and ethical practices in day-to-day activities. Significant

integration of ethics in the workplace cannot be achieved through a Values Statement or

Code of Ethics alone; specific initiatives are necessary to make ethics integral to day-

to-day practices.

Initiatives to promote ethical practices are most effective when aligned with

management policies, reporting structures, and reward and promotion systems. Most

successful programs have common elements: a commitment from the top, a Values

Statement or Code of Ethics that is reflected in both policy and process design, ongoing

education and awareness programs, and effective communications, all in a supportive

environment. Some organizations combine a value-based and a compliance-based

approach to ethics, whereas many are still mostly compliance-based.

The questions in this section were aimed at discovering what initiatives, if any,

organizations have taken to promote certain values and ethical practices. There were

also questions regarding whether respondents have evaluated aspects of their

organizational culture related to ethics and measured their ethical performance.

E t h i c s D o c u m e n t s

While 86.4% of respondents have a written document that outlines their values and principles,72.7% have some kind of program or initiatives focused explicitly on promoting ethical valuesand practices.

Respondents identified the elements most frequently included in this document to be values andprinciples (73.4%), mission statement (64.9%), specific rules of conduct (53.2%), and guidelinesfor practice (51.9%). Although clear commitment from the top is generally considered animportant factor for the credibility and success of ethics initiatives, only 36.4% of respondentshave a letter from the CEO outlining the organization’s values and principles in the document.

The ethics document is distributed internally to all levels in 84.4% of organizations that have sucha document and also distributed externally in 20.1% of cases. This external distribution mayreflect the growing concern we have noted in some organizations to ensure ethical conduct fromtheir suppliers and distributors, since it may impact on their own efficiency or reputation. Someorganizations even conduct monitoring of their vendors’ or suppliers’ practices.

P A G E T H R E E

The document was created within the last five years in 70.0% of organizations that have such adocument, and 74.5% have reviewed and updated it during the last two years. This might indicatea growing trend towards adopting and periodically reviewing such documents. Considering therapid pace of change in the external and internal environment of organizations, and heightenedpublic expectations, a regular review of such documents will likely be beneficial. Exhibits 1a and1b below show when the document was created and when it was last updated (respectively) forthese organizations.

Exhibit 1a C r e a t i o n o f Va l u e s a n d P r i n c i p l e s D o c u m e n t

Exhibit 1b R e v i e w a n d U p d a t e o f Va l u e s a n d P r i n c i p l e s D o c u m e n t

P r o g r a m R e v i e w

The effectiveness of ethics initiatives can be enhanced by considering the organizational culture,striving to align ethical principles and existing policies and practices, and regularly evaluating theorganization’s ethical performance. We questioned participants on these aspects of theirinitiatives. Responses show that a few organizations have achieved such a comprehensiveperspective of their ethics initiatives. A breakdown of these evaluations and when they werecompleted is shown in Exhibit 2 on the following page.

P A G E F O U R

0 5 10 15 20 25 30 35 40 45 50

11.3%

21.1%

14.3%

15.0%

0.7%

37.6%

CU R R E N T Y E A R

LA S T Y E A R

2–5 Y E A R S A G O

6–10 Y E A R S A G O

OV E R 10 Y E A R S A G O

NO R E S P O N S E/DO N’T K N O W

D A T E D O C U M E N T C R E A T E D

0 5 10 15 20 25 30 35 40 45 50

44.4%

17.3%

16.5%

12.8%

9.0%

CU R R E N T Y E A R

LA S T Y E A R

2 Y E A R S A G O

MO R E T H A N 3 Y E A R S A G O

NO R E S P O N S E

D O C U M E N T R E V I E W E D / U P D A T E D

P E R C E N T A G E O F R E S P O N D E N T S ( % ) ( N = 1 3 3 )


Of all the organizations surveyed, only 41 (26.6%) had performed a formal evaluation of aspectsof their organizational culture related to ethics. Only 22 respondents (14.3%) had performed anevaluation of their ethics-related performance to date, a surprisingly low rate if organizationswish to effectively manage their ethical risks and know if their initiatives are successful inenhancing ethics in the workplace.

Participants were also asked if their organization had ever undertaken a formal evaluation of theirethics-related documents and policies. Such an evaluation can help ensure there is alignmentbetween ethical principles set forward and policies and practices. Lack of such alignment willtend to foster cynicism and uncertainty as to what the organization really expects. Of theorganizations surveyed, 42 respondents (27.3%) had undertaken a formal evaluation of theirethics-related statements and policies.

Exhibit 2 D a t e o f C o m p l e t i o n o f F o r m a l E t h i c s - R e l a t e d E v a l u a t i o n s

R e s p o n s i b i l i t y f o r E t h i c s F u n c t i o n

As with any project, a key factor of success in integrating ethics in day-to-day operations ishaving someone clearly responsible for implementing, monitoring, and evaluating different ethicsinitiatives. Notwithstanding the fact that “ethics is everyone’s business,” someone must makesure that things get done and specific issues are addressed. Of the total number of respondents,41.6% stated they had a senior level manager whose role specifically includes implementation,monitoring, or assurance of ethics initiatives.

This responsibility is part of another position in all but two cases that were reported. When askedthe percentage of time spent on ethics responsibilities in this part-time role, 31.3% ofrespondents who have such a designated position indicated the percentage of time spent onethics responsibilities was 5% of their time or less (approximately 3 to 12 working days per year).Another 17.2% said the percentage of time spent was 6% to 10% (approximately 12 to 24 daysper year). Slightly more than 30% of respondents who stated they had a senior manager withspecific responsibilities related to ethics, could not or did not give an answer to this question.

It is difficult to determine how much of an impact this has on organizational effectiveness inethics. The absence of a specifically designated senior manager for ethics responsibilities in over58% of respondent organizations, and the low percentage of time spent by designated seniormanagers on this issue, may partially explain why most respondents have not made significantinroads as to specific initiatives promoting ethical values and practices. Only one respondentindicated that the senior manager specifically designated was the leader of ethics services. Theresponsibility for implementing, monitoring, and/or ensuring ethics initiatives are taken appearsto lie generally with one of the following:

Q Manager/Director/Vice-President of Human Resources

Q General Counsel or Corporate Secretary

Q Head of Internal Audit

P A G E F I V E

ETHICS-RELATED EVALUATION n CURRENT YEAR LAST YEAR 2 YEARS AGO OVER 3 YEARS AGO

EVALUATION COMPLETED

Organizat ional culture 41 24.4% 31.7% 12.2% 31.7%

Performance 22 50.0% 13.6% 9.1% 27.3%

Documents and pol ic ies 42 45.2% 23.8% 11.9% 19.1%

Of the organizations that have a senior manager responsible for ethics, 62.5% indicated that thisposition was established three or more years ago. For the remainder, this position wasestablished two years ago (15.6%), last year (12.5%) or in the current year (6.3%). A smallproportion (3.1%) gave no response or did not know.

When asked to identify the ethics-related education/training these senior managers had undertaken,participants responded that most had relied on informal or self-taught ethics training, such asarticles, (59.4%), and/or had attended conferences, seminars, or workshops on the subject (35.9%).As to formal education, some had a university or college diploma in Ethics (1.6%), or in other fieldssuch as Philosophy, Theology, or Law (29.7%). Others had attended various university or collegeclasses in business ethics (14.1%). These percentages seem to indicate a willingness to undertake atleast some training in ethics. Lack of formal training may be due in part to the absence of ethicstraining programs in Canada that respond to the needs of these managers.

U p w a r d C o m m u n i c a t i o n

Communication is an integral part of managing for ethical practice. What is communicated, howit is communicated, and when it is communicated must be carefully managed. Ongoing upwardcommunication is also essential. Less than 40% of respondents have a position with specificresponsibility for enabling “upward communication” and equitable resolution of ethics problems.This responsibility lies, in the majority of cases, with the Vice-President, Director or Manager ofHuman Resources. Only seven respondents indicated they have an ombudsman or an ethicsofficer/advisor for such a purpose.

The position was established three or more years ago for 62.3% of the organizations that havesuch a designated position. For the remainder, this position was established two years ago(13.1%), last year (8.2%) or in the current year (13.1%). A small proportion (3.3%) gave noresponse or did not know.

C o n f i d e n t i a l R e p o r t i n g M e c h a n i s m

Of the 154 organizations surveyed, 86.4% believe that their corporate culture allows for opencommunications without fear of reprisal. However, only 20.8% of all respondents indicated thattheir organization had a confidential reporting mechanism, such as a confidential telephone line.The result may be that, although managers responding to the survey feel the culture allows foropen ethics-related communications, lack of confidential reporting mechanisms inhibitsemployees from openly communicating.

A formal policy to protect employees who report ethical or legal violations is present in 29.2% oforganizations, but a more general policy to protect employees from retribution, which includescases where such violations were reported, is present in 44.8% of organizations.

E t h i c s Tr a i n i n g

Respondents were asked to identify the type of ethics training they provide to managers andemployees, the amount of time spent on it, and who received such training. For the purposes ofthe survey, training was divided into three categories: application of the code of ethics, ethicaldecision making, and integrating ethics into everyday activities.

Even though 72.7% of respondents reported having programs or initiatives specifically focusedon promoting ethical values and practices, ethics training is not yet the rule in more than half oforganizations surveyed.

P A G E S I X

Of the organizations responding to our survey, 39% provide some form of training in ethics. Halfof them (19.5% of total respondents) provide all three types of training listed in our question, withanother 6.5% providing two of the three types listed. Only 10.4% of total respondents limit theirtraining to the application of the code of ethics.

Exhibit 3a Ty p e s o f E t h i c s Tr a i n i n g R e c e i v e d

Exhibits 3b and 3c show the proportions of various employee groups receiving training in ethicsand the amount of time per year spent by various groups in ethics-related training, respectively.

Exhibit 3b D i s t r i b u t i o n o f E t h i c s Tr a i n i n g i n t h e O r g a n i z a t i o n s S u r v e y e d

As Exhibit 3b above shows, more than half of organizations providing ethics training inintegrating ethics into everyday activities and ethical decision making offer such training to bothmanagers and staff.

Other groups identified to receive training included those in “sensitive” positions such aspurchasing/supply management and overseas staff, as well as sales, marketing, and HRspecialists. Such specifically targeted training can be important, since some positions can have ahigher level of temptation or a higher degree of ethics-related risks.

Exhibit 3c A m o u n t o f Ti m e S p e n t p e r Ye a r o n E t h i c s Tr a i n i n g b y Va r i o u s E m p l o y e e G r o u p s

A study of the amount of time actually spent on such training every year gives a differentperspective. Exhibit 3c above shows that of the organizations surveyed that provide ethicstraining to managers and senior managers, less than 10.0% provide more than eight hours peryear, and almost one-third provide one hour or less of ethics training per year. For employeesother than management who receive ethics training, 42.1% receive one hour or less per year,although almost as many receive one to four hours.

P A G E S E V E N

n 1 HOUR OR LESS 1–4 HOURS 4–8 HOURS 8 HOURS OR MORE

TIME SPENT ON ETHICS TRAINING

Senior management 61 27.9% 42.6% 19.7% 9.8%

Management 60 28.3% 46.7% 16.7% 8.3%

Other employees 57 42.1% 40.4% 7.0% 10.5%

n NEW HIRES ALL STAFF MANAGERS OTHER

GROUPS “RECEIVING TRAINING”

Application of code of ethics 58 48.3% 60.3% 48.3% 6.9%

Ethical decision making 38 28.9% 55.3% 57.9% 7.9%

Integrating ethics into everyday activities 44 34.1% 52.3% 56.8% 13.6%

TYPES OF ETHICS TRAINING NUMBER OF RESPONDENTS (n) % OF RESPONDENTS

No ethics training 94 61.0%

Application of code of ethics only 16 10.4%

Ethical decision making only 0 0.0%

Integrating ethics into everyday activities only 4 2.6%

Application of code of ethics and Ethical decision making 2 1.3%

Application of code of ethics and Integrating ethics into 5 3.3%

everyday activities

Ethical decision making and Integrating ethics into 3 1.9%

everyday activities

All three types of training 30 19.5%

Total 154 100.0%

Considering the number of ethical issues resulting from managerial decisions, it seems surprisingthat such a large percentage of respondents provide less than an hour annually helping theirmanagement staff develop ethical decision-making abilities.

In order to effectively integrate ethics into day-to-day operations, educating the workforce is critical.Employees must not only learn the “right way of doing things,” but also must be able to apply thislearning to their own reality, incorporating the values into how they do their jobs and how theymanage people. Developing abilities in ethical decision making also requires in-depth training.Providing more time for ethics education could be beneficial for most organizations.

For approximately 50% of the respondents that provide ethics-related training, such training hasbeen in place for three or more years. Up to 30% have had such training in place for one year or less.

P r e - E m p l o y m e n t S c r e e n i n g

Recruiting policies and techniques should be aligned with the organization’s ethics-relatedobjectives to maximize efficiency. Pre-employment screening and personal integrity analyses aresome of the tools that can be used. When respondent organizations hire a new employee, orpromote an employee to a sensitive or management position, pre-employment screening takesplace in 77.3% of these organizations. Of these, 47.9% carry out a general personal integrity analysisas part of the pre-employment screening, while 24.4% carry out a more specific one, based on therisks the person may encounter in the new position. Formal personal integrity analyses may includecriminal records and referral checks, security clearance, and background checks.

P e r f o r m a n c e E v a l u a t i o n

Alignment of different reward systems, including bonuses and promotions, with the valuespromoted by the organization is crucial to the credibility and effectiveness of ethics-relatedmeasures; employees tend to focus on things that are rewarded by the organization. Clearlylisting ethics as a performance criterion also sends out a clear message as to its importancewithin the organization. Close to one-third (29.9%) of respondents reported that theirperformance evaluation criteria for managers include a specific item related to ethical behaviour,and 21.4% have such performance evaluation criteria for other personnel. Ethical behaviour isdirectly linked to reward and promotion criteria for only 27.9% of respondents in the case ofmanagers and 15.6% in the case of personnel.

R i s k A s s e s s m e n t

Proper risk management that encompasses all aspects of the organization, including ethical risks,is critical in today’s world. Management practices at all levels should include sound risk analysesand appropriate ethical decision-making. Due diligence should include compliance with the law,corporate oversight, care in delegation of authority, effective communication, and managementof risks, including ethical risks.

Ethics initiatives aim to avoid ethical incidents and ensure decisions and actions are not onlycompliant, but are also aligned with the organization’s mission and values. Effective ethicsinitiatives address the practical realities of management: assessing and managingvulnerabilities, preventing loss and ineffectiveness, and realizing the benefits that flow from afoundation of trust and integrity.

P A G E E I G H T

More organizations are taking risk management seriously; organizational risk assessments areregularly conducted for 46.1% of respondents. We asked participants to identify which elements,listed in Exhibit 4 below, were included in their risk assessment and to what extent. For 88.5% oforganizations surveyed that regularly conduct organizational risk assessments, ethics is includedto some extent in those assessments as shown in Exhibit 4.

Exhibit 4 M e a n R a t i n g s f o r L e v e l o f I n c l u s i o n o f Va r i o u s E l e m e n t s i n O r g a n i z a t i o n a l R i s k A s s e s s m e n t s

In order to identify some of the ethical risks they faced, participants were asked to identifysituations for which they had ever had a lawsuit, media coverage, or a significant problem.

As Exhibit 5 below demonstrates, close to one-third of respondents have had a lawsuit, mediacoverage, or significant problem related to downsizing, fraud and theft, and discrimination.Approximately one-quarter have also had significant problems with sexual harassment, conflictsof interest, environmental issues, and workplace safety. Other issues such as security ofinformation, governance, executive salaries and perks, employee and client privacy, and gifts andentertainment also have represented a risk for 11.0% to 16.2% of respondents.

In contrast, the areas in which the organizations surveyed experienced the fewest problems wereinternational operations (4.5%), safety of products developed (5.8%), and financial managementprocedures/competitive practices (9.7% for both). These results may be partially explained by thefact that less than one-third of respondents have significant involvement outside Canada and theUnited States (see following section) and that 37.7% of respondents are from the publicsector/government services.

P A G E N I N E

0 1 2 3 4 5

4.25

3.96

3.76

2.952.95

3.82

LE G A L

EN V I R O N M E N TA L

TE C H N O L O G I C A L

HU M A N R E S O U R C E S

ET H I C S

C O M P O N E N T O F R I S K A S S E S S M E N T

L E V E L O F I N C L U S I O N

(“1” = “not included at all” to “5” = “integral part of assessment”)

Exhibit 5 I n c i d e n c e o f L a w s u i t , M e d i a C o v e r a g e , o r S i g n i f i c a n t P r o b l e m w i t h Va r i o u s S i t u a t i o n s

Responses to this first part of our survey indicate that many organizations in both the private andthe public sector are implementing initiatives to promote organizational values and ethicalpractice. The level of intensity of the ethics initiatives varies, but the thrust towards managing forethical practice is undeniable. Ethics initiatives should make it easier for employees tounderstand, commit to, and implement core organizational values and ethical principles into day-to-day actions, and discourage misconduct.

P A G E T E N

0 5 10 15 20 25 30 35 40

24.7%

23.4%

16.2%

14.3%

12.3%

22.7%

32.5%

31.2%

27.3%

29.2%

9.7%

9.7%

5.8%

4.5%

11.0%

12.3%

DO W N S I Z I N G

FR A U D A N D T H E F T

DI S C R I M I N AT I O N

SE X U A L H A R A S S M E N T

CO N F L I C T S O F I N T E R E S T

EN V I R O N M E N T I S S U E S

WO R K P L A C E S A F E T Y

SE C U R I T Y O F I N F O R M AT I O N

EX E C U T I V E S A L A R I E S A N D P E R K S

GO V E R N A N C E

EM P L O Y E E A N D C L I E N T P R I VA C Y

GI F T S A N D E N T E RTA I N M E N T

CO M P E T I T I V E P R A C T I C E S

F I N A N C I A L M A N A G E M E N T P R O C E D U R E S

PR O D U C T S A F E T Y (P R O D U C T S D E V E L O P E D)

IN T E R N AT I O N A L O P E R AT I O N S


A V I E W T O T H E F U T U R E

The complex environment in which organizations operate and the speed of change

demand an assessment of the organization’s risks, including ethical risks, with a

proper view to the future. The questions in this section were aimed at determining, for

certain ethical issues that are gaining public interest, if participants were aware of

these issues and if they had adopted policies and/or were monitoring them. Questions

were also included for those organizations that had significant involvement outside

Canada and the United States, since ethical issues in international operations are

becoming more important.

M a n a g e m e n t P r i o r i t i e s

Sexual harassment, discrimination, security of information, workplace safety, conflicts of interest,and financial management procedures ranked highest in respondents’ priorities for having both aformal policy and being actively monitored, as shown in Exhibit 6 below.

Gifts and entertainment were also given a high priority by having a formal policy (64.9%), andfraud and theft for being actively monitored (42.9%).

Issues most frequently reported to the Board were identified to be executive salaries and perks(37%), financial management procedures (31.2%), governance (24.7%), environmental issues(24%), and conflicts of interest (22.7%).

Respondents were also asked if these issues would be of greater concern in three to five yearstime. The most prevalent emerging issues were identified to be security of information (23.4%),employee and client privacy (16.9%), environmental issues (13.6%), governance (13%) andconflicts of interest (12.3%).

Exhibit 6 M a n a g e m e n t P r i o r i t i e s

(Note: All percentages are based on 154 respondents.)

P A G E E L E V E N

ISSUES % % % % % %

a) Conflicts of interest 6.5 51.9 40.9 22.7 12.3 5.2

b) Gifts and entertainment 3.9 64.9 30.5 7.1 6.5 8.4

c) Sexual harassment 2.6 65.6 37.0 9.7 10.4 7.8

d) Discrimination 3.9 62.3 37.0 9.7 9.1 7.8

e) Employee and client privacy 10.4 45.5 31.2 6.5 16.9 14.3

f) Environmental issues 16.9 32.5 35.1 24.0 13.6 18.8

g) Fraud and theft 3.2 52.6 42.9 17.5 3.2 10.4

h) Security of information 0.6 61.0 39.0 11.0 23.4 5.8

i) Workplace safety 2.6 54.5 54.5 18.2 7.1 6.5

j) Product safety 37.7 22.1 22.1 7.1 4.5 20.1

k) Governance 15.6 29.9 27.9 24.7 13.0 20.1

l) International operations 37.7 10.4 22.7 11.7 9.7 24.7

m) Downsizing 22.1 21.4 30.5 18.2 9.1 21.4

n) Financial management procedures 1.9 48.7 52.6 31.2 7.1 11.0

o) Competitive practices 28.6 21.4 33.1 9.1 6.5 20.1

p) Executive salaries and perks 11.0 44.2 31.8 37.0 7.8 9.7

DOES NOT FORMAL ACTIVELY REPORTED EMERGING NO

APPLY POLICY MONITORED TO BOARD ISSUE RESPONSE

I n t e r n a t i o n a l I s s u e s

Almost one-third (31.2%) of organizations surveyed have significant involvement outside Canadaand the United States. We first asked participants to identify whether different practices of theirinternational suppliers, concerning labour practices, environment, and bribery and corruption,were monitored, reported to the board, or the subject of a policy. We then asked the samequestion, for the same list of issues, of their own organization’s overseas practices, to which weadded equitable distribution of benefits and human rights status of the host country.

It is worthwhile to note that the first eight issues listed in our next two exhibits are issues thathave gained public interest in the last few years. These are the issues considered in SocialAccountability 8000 audits of international business practices. SA 8000 has been developed bythe U.S.-based Council on Economic Priorities Accreditation Agency, as a standard similar to theISO standards for environment and quality. The SA 8000 standards focus on certain labourpractices. As for bribery and corruption, legislation prohibiting both now exists both in Canada(Corruption of Foreign Public Officials Act) and the United States (Foreign Corrupt Practices Act).

Bribery and corruption by suppliers were the most significant issues for the 48 organizations thatanswered this question. A fairly substantial proportion (37.5%) of respondents have formalpolicies and/or are actively monitoring the issue. Considering both Canada and the United Stateshave legislation regarding corruption of public officials, it is not surprising that this issue wouldbe actively monitored and the subject of a specific policy.

Other significant issues for which respondents have a formal policy and/or active monitoring ofsuppliers’ practices include compensation, working hours, health and safety, and discrimination.Surprisingly enough, although the issue of child labour has been a major public interest issue inrecent years, many respondents operating internationally do not have a formal policy and do notmonitor their suppliers’ practices in this matter.

Practices of suppliers are not frequently reported to the Board. The most notable issues reportedwere identified as bribery and corruption (16.7%), environmental impact on host countries(12.5%), and health and safety (10.4%). These and other results are shown in Exhibit 7 below.

Exhibit 7 H o w Va r i o u s I s s u e s R e l a t e d t o P r a c t i c e s o f S u p p l i e r s A r e A d d r e s s e d W i t h i n O r g a n i z a t i o n s

(Note: Percentages are based on 48 respondents who indicated having operations outside Canada and theUnited States. Percentages may not add up to 100% as a result of multiple responses.)

P A G E T W E L V E

ISSUES N % N % N % N %

DOES NOT FORMAL ACTIVELY REPORTED

APPLY POLICY MONITORED TO BOARD

Child labour 31 64.6% 7 14.6% 7 14.6% 1 2.1%

Forced labour 32 66.7% 7 14.6% 6 12.5% 1 2.1%

Compensation 20 41.7% 12 25.0% 10 20.8% 2 4.2%

Working hours 20 41.7% 10 20.8% 9 18.8% 2 4.2%

Disciplinary practices 22 45.8% 9 18.8% 8 16.7% 1 2.1%

Freedom of association/25 52.1% 8 16.7% 3 6.3% 1 2.1%

right to collective bargaining

Health and safety 18 37.5% 9 18.8% 15 31.3% 5 10.4%

Discrimination 20 41.7% 12 25.0% 9 18.8% 2 4.2%

Environmental impact on host countries 20 41.7% 9 18.8% 12 25.0% 6 12.5%

Bribery and corruption 11 22.9% 18 37.5% 18 37.5% 8 16.7%

For respondents’ overseas practices, formal policies and monitoring are in place most frequentlyfor bribery and corruption, environmental impact, discrimination, health and safety, disciplinarypractices, working hours, and compensation. Bribery and corruption are the issues most oftenreported to the Board. These and other results are reported in Exhibit 8 below.

Exhibit 8 H o w Va r i o u s I s s u e s R e l a t e d t o a n O r g a n i z a t i o n ’s O v e r s e a s P r a c t i c e s A r e A d d r e s s e d

(Note: Percentages are based on 48 respondents who indicated having operations outside Canada and theUnited States. Percentages may not add up to 100% as a result of multiple responses.)

As might have been expected, organizations seem more preoccupied with controlling the issuesregarding their own overseas operations than the operations of their suppliers. However, many ofthe labour practices included in the SA 8000 standards are being monitored and are subject topolicy in a significant number of organizations. Although child labour has gained a lot ofattention from media and interest groups in the last few years, many organizations operatingoverseas still lack a formal policy to this effect and have not started monitoring their ownpractices or those of their suppliers.

P A G E T H I R T E E N

ISSUES N % N % N % N %

DOES NOT FORMAL ACTIVELY REPORTED

APPLY POLICY MONITORED TO BOARD

Child labour 30 62.5% 8 16.7% 6 12.5% 1 2.1%

Forced labour 30 62.5% 8 16.7% 5 10.4% 1 2.1%

Compensation 9 18.8% 21 43.8% 15 31.3% 1 2.1%

Working hours 9 18.8% 22 45.8% 13 27.1% 1 2.1%

Disciplinary practices 14 29.2% 18 37.5% 14 29.2% 0 0.0%

Freedom of association/20 41.7% 15 31.3% 8 16.7% 1 2.1%

right to collective bargaining

Health and safety 12 25.0% 17 35.4% 16 33.3% 7 14.6%

Discrimination 11 22.9% 20 41.7% 14 29.2% 2 4.2%

Environmental impact on host countries 15 31.3% 17 35.4% 15 31.3% 8 16.7%

Bribery and corruption 7 14.6% 23 47.9% 16 33.3% 11 22.9%

Equitable distribution of benefits to16 33.3% 10 20.8% 10 20.8% 1 2.1%

host countries

Human rights status of host countries 12 25.0% 14 29.2% 15 31.3% 5 10.4%

A B O U T O U R R E S E A R C H

In September 1999, KPMG sent a questionnaire to the Chief Executive Officers of 1,000

Canadian corporations. We aimed to survey the largest Canadian corporations. These

companies were selected by size in terms of number of employees. Size in terms of

revenues was a secondary selection criterion. The questionnaire was also sent to more

than 300 public sector organizations in response to senior executives’increasing level of

support for applied ethics in the public sector.

The survey was designed to establish a snapshot of current ethics practices in organizationsacross Canada, as well as ethics trends now and into the millennium. The questionnaire had twomajor sections: the first dealing with Initiatives in Managing for Ethical Practice, and the secondpart looking for A View to the Future.

I n i t i a t i v e s i n M a n a g i n g f o r E t h i c a l P r a c t i c e

This first section asked participants to report on the specific experience of their organizations withrespect to initiatives explicitly focused on promoting certain values and ethical practice. Thequestions addressed the major elements of effective and sustainable ethics programs/initiatives inorganizations.

A V i e w t o t h e F u t u r e

This second section meant to identify the level of attention given by participants to differentissues related to ethics, and to determine which issues they thought would become of greaterconcern in the next few years.

The remainder of the section focused on issues arising from international operations.Organizations operating outside of Canada and the United States were asked to describe whatactions the organization had taken regarding different issues related to ethics, both for their ownoverseas practices and those of their suppliers.

R e s p o n d e n t P r o f i l e

As of the cut-off date, we received 154 completed questionnaires, 77 from the private sector and76 from the public sector (and one with no response to this question). Given that more than threetimes the number of questionnaires were sent to private sector organizations compared to publicsector organizations, and that we received an almost even distribution of responses from bothgroups, this might suggest that the public sector is paying greater attention to ethics than theprivate sector.

Organizations responding to the survey were primarily in the following sectors: Publicsector/government (37.7%), Manufacturing (14.9%), Retail and Wholesale (7.1%), Transportation(6.5%), and Natural Resources (6.5%). The breakdown of respondents by primary activity isshown in Exhibit 9 on the following page.

P A G E F O U R T E E N

Exhibit 9 B r e a k d o w n o f R e s p o n d e n t s b y P r i m a r y B u s i n e s s A c t i v i t y

(Note: Breakdown does not total 100% because there were multiple responses. Also, some public sectorrespondents did not identify themselves as government services, but rather according to their sector ofactivity, which explains the discrepancy with the fact that 76 out of 154 were from the public sector.)

To determine the financial size of the organization we asked for an indication of revenues forprivate sector organizations and a budget for those in the public sector. The largest proportion oforganizations (25.3%) surveyed had worldwide revenues/budget of $1 billion to $4.99 billion, andover 50% had revenues/budget over $250 million. The breakdown of revenues/budget oforganizations responding to the survey is shown in Exhibit 10 on the following page.

P A G E F I F T E E N

0 5 10 15 20 25 30 35 40 45

7.1%

6.5%

3.9%

3.2%

3.2%

6.5%

37.7%

10.4%

14.9%

2.6%

2.6%

1.3%

0.6%

2.6%

2.6%

P E R C E N T A G E O F R E S P O N D E N T S ( % ) (n=154)

PU B L I C S E C T O R/G O V E R N M E N T S E RV I C E S

MA N U FA C T U R I N G

OT H E R

RE TA I L A N D W H O L E S A L E

TR A N S P O RTAT I O N

NAT U R A L R E S O U R C E S

F I N A N C I A L I N S T I T U T I O N S

UT I L I T I E S

CO N S T R U C T I O N/E N G I N E E R I N G

HO S P I TA L I T Y A N D T O U R I S M

IN S U R A N C E

HE A LT H C A R E

EN E R G Y/P E T R O L E U M

CO M M U N I C AT I O N I N F O R M AT I O N

RE A L E S TAT E D E V E L O P M E N T

O R G A N I Z A T I O N S P R I M A R Y A C T I V I T Y

Exhibit 10 B r e a k d o w n o f R e s p o n d e n t s b y Wo r l d w i d e R e v e n u e s / B u d g e t

Of the 66 private sector organizations that responded, almost 60% indicated that their primaryownership was Canadian, followed by 28.8% indicating U.S. primary ownership. This distributionis shown in Exhibit 11 below.

Exhibit 11 D i s t r i b u t i o n o f P r i m a r y O w n e r s h i p o f O r g a n i z a t i o n s R e s p o n d i n g t o t h e S u r v e y

Exhibit 12 shows the number of employees in Canada for organizations responding to the survey.The largest group comprises organizations with over 5,000 employees.

P A G E S I X T E E N

2.7% NO RE S P O N S E

19.5% UN D E R $100 MI L L I O N

14.3% $100 MI L L I O N T O $249 MI L L I O N



25.3% $1 BI L L I O N T O $4.9 B I L L I O N

11.0% $5 BI L L I O N O R G R E AT E R

( N = 1 5 4 )

3 .0% EU R O P E A N3.0% AS I A N

6.1% OT H E R

28.8% U.S.

59.1% CA N A D I A N

( N = 6 6 )

Exhibit 12 D i s t r i b u t i o n o f t h e N u m b e r o f E m p l o y e e s i n C a n a d a

Respondents to the survey were most frequently in the position of Chief Executive Officer/DeputyMinister (35.7%), followed by Head of Human Resources (22.1%). The distribution of therespondents to the survey is shown in Exhibit 13 below. Those in the “other” category includedCorporate Secretary, Investor Relations, Public Affairs, and Vice-President.

Exhibit 13 P o s i t i o n o f I n d i v i d u a l R e s p o n d i n g t o S u r v e y

(Note: Percentages may not add up to 100% because respondents may have indicated more than one position.)

P A G E S E V E N T E E N

2.6% NO RE S P O N S E

18.2% 1-499

11.7% 500-999

22.7% 1000-1999

20.8% 2000-4999

24.0% 5000+

( N = 1 5 4 )

0 5 10 15 20 25 30 35 40

6.5%

6.5%

3.9%

3.2%

1.9%

3.9%

35.7%

22.1%

7.1%

12.3%

0.6%

P E R C E N T A G E O F R E S P O N D E N T S (n=154)

CH I E F E X E C U T I V E O F F I C E R/D E P U T Y M I N I S T E R

HE A D O F H U M A N R E S O U R C E S

OT H E R

LE G A L O F F I C E R

ET H I C S O F F I C E R

HE A D O F C O R P O R AT E A D M I N I S T R AT I O N

CH I E F F I N A N C I A L O F F I C E R

GE N E R A L M A N A G E R

CO M P L I A N C E O F F I C E R

HE A D O F I N T E R N A L A U D I T

CO N T R O L L E R

A B O U T K P M G

The KPMG Ethics Survey 2000: Managing for Ethical Practice, and other KPMG publications areavailable on KPMG’s World Wide Web site at www.kpmg.ca/ethics.

KPMG Ethics & Integrity Services focuses on managing for ethical practice—establishing effectiveprograms, developing ethical awareness within the workforce, and addressing ethical riskthrough a managed process.

A Solid Baseline—An ethics program must be custom-designed to be effective. We use surveys,focus groups, and other tools to obtain:

Q a better understanding of how people view the organization’s current policiesand practices;

Q insight into how well existing policies and initiatives address the ethical risks;

Q an analysis of reporting structures, ethical risks, and the incidence of wrongdoingwithin the organization; and

Q a comparison between the messages being sent to employees with thosebeing received.

Alignment—A strong ethics program is one that is aligned with policies, governance and reportingstructures, reward and bonus systems, and other relevant aspects of the organization. A baselinereview can identify areas where current practice may be encouraging unintended results.

Communication & Management—An effective ethics program requires clear ongoingcommunication, both up and down the line. Clarity and accountability are just as important forsuccessful management here as anywhere else in the organization. An evaluation of currentpractices can identify areas where action is required.

Codes & Standards—Ethics, ethical practice, and proper conduct need guidance and a great dealof support. The process of drafting or reviewing a code can be valuable in itself; values andprinciples are challenged, buy-in and consensus developed, and the goals of an ethics programare clarified. A code should:

Q communicate the core principles and values of the organization;

Q reflect current issues and best practices; and

Q suit the purposes and goals for which it is designed.

For further information on our Ethics & Integrity Services, please contact:

Q Greater Toronto Area Jim Hunter (416) 777-3193

Q Montreal Diane Girard (514) 840-2277

Q Ottawa Marc Terreau (613) 560-2869

P A G E E I G H T E E N

KPMG LLP is the Canadian member firm of KPMG International. In Canada KPMG partners andprofessionals provide a wide range of accounting, tax and consulting services. As a providerof information-based services, KPMG delivers understandable business advice — helpingclients analyze their businesses with true clarity, raise their level of performance, achievegrowth and enhance shareholder value. KPMG International’s member firms have more than100,000 professionals, including 6,800 partners, in 160 countries. KPMG’s Canadian Web siteis www.kpmg.ca.

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K P M G O F F I C E S A C R O S S C A N A D A

All information provided here is of a general nature and is not intended to be an opinion of thefirm on any subject. Although we endeavour to ensure its accuracy and timeliness, no one shouldact upon it without appropriate professional advice after a thorough examination of the facts ofthe particular situation. Information in this publication is current to September 1999.

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