Copyright © 2007 by the Center for Ethical Business Cultures

1

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


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


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


Why Should the Board Be InterestedWhy Should the Board Be InterestedIn An Ethical CultureIn An Ethical Culture


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


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


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!


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


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

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


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


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


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

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


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


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


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


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


Building & Sustaining an Ethical Building & Sustaining an Ethical CultureCulture


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


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


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


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


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




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.






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.




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


The 3The 3rdrd ElementElementBalancing Stakeholder InterestsBalancing Stakeholder Interests


Recognizing Other Recognizing Other StakeholdersStakeholders

Capturing Stakeholders Expectations & Capturing Stakeholders Expectations & PerceptionsPerceptions

Balancing the Interests of Multiple StakeholdersBalancing the Interests of Multiple Stakeholders


3030

Stakeholder ReciprocityStakeholder ReciprocityPatients & Patients & FamiliesFamilies

Payers/InsurersPayers/Insurers

CompetitorsCompetitorsSuppliersSuppliers

Your Organization

Care GiversCare Givers

EmployeesEmployeesCommunityCommunity

Regulators/Regulators/LegislatorsLegislators

BalancingBalancingStakeholderStakeholder

InterestsInterests




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



The 4The 4thth ElementElementProcess IntegrityProcess Integrity


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


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




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



The 5The 5thth ElementElementAssessmentAssessment


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


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


Elements of an Ethical CultureElements of an Ethical Culture

BalancingBalancingStakeholderStakeholder

InterestsInterests ProcessProcessIntegrityIntegrity

LeadershipLeadershipEffectivenessEffectiveness

ValuesValues

Assessment

Assessment


Questions? Questions?

Copyright © 2007 by the Center for Ethical Business Cultures®

For Further Information on CEBCFor Further Information on CEBC

Phone the Center:Phone the Center: 651651--962962--41204120

Fax the Center:Fax the Center: 651651--962962--40424042

Email the Center:Email the Center: [email protected]@cebcglobal.org

Visit the Web:Visit the Web: www.cebcglobal.orgwww.cebcglobal.org

Write the Center:Write the Center: 1000 LaSalle Avenue, TMH 1000 LaSalle Avenue, TMH 331331

Minneapolis MN 55403Minneapolis MN 55403--2005 2005

USA USA

40

®

®

Documents

Copyright © 2007 by the Center for Ethical Business Cultures