Ethics in Action

By Henricks, Mark | Management Review, January 1995 | Go to article overview

Ethics in Action


Henricks, Mark, Management Review


Since the mid-1980s a potpourri of regulatory pressure, mounting liability lawsuits and public focus on ethics have prompted many businesses to draw up ethical codes of conduct. But relatively few have given anyone the job of making ethics ideas real.

By the early 1990s more than 80 percent of large companies had such documents, according to a Conference Board study. But only about one-third of major U.S. companies have an ethics officer, estimates Michael Hoffman, executive director of the Center for Business Ethics at Bentley College in Waltham, Mass. A 1992 Center for Business Ethics survey also showed that most corporations balk at creating an ethics officer because either they had no ethics problems or the job was being handled part time by employees with other full-time positions.

Overall, people are unsure what the ethics function is. They may know what to do about ethics--draw up and disseminate their code, train employees in making ethical decisions, and monitor and investigate allegations of wrongdoing. But they aren't convinced it requires a dedicated executive.

"It's the same problem business schools face introducing an ethics curriculum," notes Ronald Berenbeim, a Conference Board researcher and author of a 1992 report on corporate ethics practices. "Do you want an ethics program, or do you want to infuse the disciplines such as sales, marketing and finance with some sort of ethics material?

In addition, doing the right things can be expensive. The budget for an ethics office, including staff and overhead, can run $1 million a year, says Craig Dreilinger, a consultant with the Dreiford Group, a Bethesda, Md., firm specializing in ethics. To add to the problem, ethics officers are in short supply. The 100 members of the Ethics Officer Association, a professional group headed by Hoffman, represent a sizable fraction of experienced candidates--and even they are relatively new to their jobs. To fill these positions, many companies look to human resources since many of the issues would traditionally be fielded by that department. The legal, accounting or security departments are also good training grounds, as long as candidates have good communication skills, a solid reputation for integrity and some experience with the company. From there, says Dreilinger, "He or she has to figure it out."

Once the policies are in place, not all employees are satisfied. "Just about every company that has introduced a program like this has found it generates a fair amount of cynicism and anger," says Berenbeim. "Number one, 'Haven't we been ethical all along; what do we need this for?' Number two, 'Of course we're not ethical; we never have been and senior management isn't serious about this."

Despite the difficulties, expect ethics officers to become more common. In fact, about 70 percent of companies in the Center for Business Ethics study that have developed an ethics officer position have done so in the past six years. This is due, in part, to new governmental regulations. The 1986 Packard Commission report, authorized by President Reagan to recommend defense industry improvements, required contractors to have formal ethics processes. And 1991 federal sentencing guidelines, which set up stiff penalties for corporate law-breakers, also made the prior existence of a formal ethics effort a key mitigating factor for judges handing out sentences.

"It would be too cynical to say that's the only reason [companies have policies!," says Hoffman. "But certainly the federal sentencing guidelines have had an impact." And as the following case studies show, there are a variety of ways companies are handling that impact.

THE BEST TEACHER

In 1989, Northrop Corp. and 11 employees were indicted on 189 counts of fraud and corruption for improperly testing cruise missile parts three years earlier. In 1990, the Los Angeles aerospace company pleaded guilty and paid a $17 million fine. …

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