November 19, 2013
"Adelphia Founder, Son Convicted of Fraud"
"Fraud Cases Focus on Top Executives: Trial of WorldCom's Ebbers Starts Tomorrow"
"Radio One CEO Repays Loan Used for Stock"
"Stock Sales by Lay's Wife Investigated: Shares Were Sold Shortly Before Enron's Collapse"
"Enron Fraud Trial Ends in 5 Convictions"
In the past few years, we've grown familiar, even indifferent, to these headlines. But the reality is, too few leaders today can be relied on to do what is right when given the choice. In fact, the rampant dishonesty and criminal acts of leaders like the ones at Enron and WorldCom have not only toppled industries, destroyed innocent people's careers and retirement, but necessitated a whole new standard of auditing manifested in the Sarbanes Oxley Act.
The truth is, your organization will (hopefully) never face the tidal wave that Enron did. However, unethical practices occur every day and the results can be just as devastating for your organization. Take these recent incidents for example:
Ethical Issues Facing Employers Today
The Director of Human Resources at a Texas based company with five thousand employees receives a bad performance review and subsequently resigns. Upon her departure it is discovered that she directed the IT Department to erase her entire hard drive - which they did, no questions asked. Her hard drive contained all allegations, complaints and subsequent responses made by the company for the past six years. Now the company's ability to successfully launch a Faragher/Ellerth defense in any of the complaints made in the last six years is severely compromised. A top manager in a New York based company has had shortfalls in his budget. The losses are small, a few hundred dollars here and there every few weeks. However, an audit reveals that these shortfalls have cumulated in over $200,000 in losses over the past three years. Upon investigation, it is discovered that employees under this manager have been told to hide money and compromise business policies in money handling.
A manager whose bonus is reduced by damages occurring to company property discovers that lightning has hit the building. Upon calling the insurance adjustor, the manager discovers that if lightning hit the roof, the damages are covered under the policy. If lightning hit the spouting, the damages are not covered by insurance. The manager gets on the roof himself to inspect and discovers there is no damage to the roof. The insurance adjustor is out of state and is relying on what the manager tells him to determine if there is coverage or not. To tell the truth means the company will have to cover the damages and the manager will lose a significant portion of his bonus that quarter. What does the manager do?
Ethical Dilemmas: Preference vs. Policy
As reported in an article from California Management Review entitled "Business Ethics: A View from the Trenches," Joe Badaraco and Allen Webb conducted a national survey of managers. In their findings they reported that many young managers resolve ethical dilemmas they face by relying on personal preferences and individual values. Is that what your managers are doing? If so, these managers, as agents of your organization, are exposing the employer to untold risk. Decisions based on personal preference without regard to policy creates at best, an unpredictable environment for employees and at worst, leads to disparate treatment and subsequent claims of discrimination.
Sarbanes Oxley Act
The Sarbanes Oxley Act was passed in 2002 to strengthen corporate governance and restore investor confidence. The Act was passed in response to a number of major corporate and accounting scandals involving prominent companies in the U.S. These scandals resulted in a loss of public trust in accounting and reporting procedures. Legislation is wide ranging and establishes new standards for all U.S. public companies, boards, management and public accounting firms. Currently, only publicly traded companies have Sarbanes Oxley requirements under the law. However, companies who find themselves in court arguing over issues of document retention and policy violations may soon find themselves held to the standards set forth in Sarbanes Oxley. It benefits every organization to have policies in place that are written in such a way that they can be easily understood and followed. Managers must be expected to know and understand company policies and ensure that their employees do as well.
In the incident mentioned above regarding the manager and the insurance adjuster, the manager had this to say. "It was tempting to tell that adjuster that the lightning hit the roof. I mean, that adjuster was out of state and he would never have known. But I knew. And even though it meant several thousand dollars off my bonus that quarter, I had to do the right thing. What it comes down to is this, my yes has to mean yes, and my no, no. No matter the cost." He's right. But how many people, in his same circumstance, would have made his choice? An environment that encourages the highest level of integrity from its members is critical to your organization. Therefore, executive officers, managers and employees should adhere to clear standards of ethical conduct.
In the article "Ethics in the Workplace" written for Executive Update Online, the authors wrote, "In corporate America, ethics is defined as the set of formal and informal standards of conduct that people use to guide their behavior at work. These standards are partly based on core values such as honesty, respect, and trust, but they can also be learned directly from the actions of others. For example, what people see their organizational leaders, managers, and co-workers do on the job can influence their own views of what is acceptable or unacceptable behavior." How true. What do the employees in your organization see from their leaders?
The Ethics Resource Center conducted a National Business Ethics Survey several years ago by speaking to 1500 U.S. employees from all different industries. This survey found that more than two in five employees who observe misconduct at work do not report it. Fear of retaliation is often the number one reason given for not reporting misconduct. How can employers communicate to employees the importance of reporting policy violations and ethical dilemmas?
Solutions at Work
Many organizations are now focusing on ethical training initiatives to answer this question. These training courses are designed to affect how people interpret and address ethical issues that arise on the job. Each training course conducted on ethics opens up dialogue for managers and employees on a myriad of issues that arise on a day to day basis and how best to handle them. In addition, training such as this enables the organization to educate its members on employer policies and focus on how ethics effect those policies. For instance, ethics plays a key role in code of conduct, conflicts of interest, records retention, discipline and termination and responsible use of electronic communications policies, and anti harassment policies, just to name a few.
Crafting policies that incorporate ethical issues is imperative to any communication initiative on ethics in the workplace. Think of creative distribution practices to ensure all members of the organization obtain and understand the policies. Posting the polices on the organization's intranet or through hard copy delivery is always important; however, these policies may make a bigger impact by trying a new delivery system: create novel posters, hold town meetings, create a video, undertake to focus announcements on one part of a policy at a time to focus all the attention on specific areas, create a clever email using real life examples of how an employee can follow the policy, etc. Catching the employee's attention is often the hardest part of ensuring they understand and will follow a policy.
When introducing these policies to new hires, or republishing them to current employees, managers and executives, it should be with the commitment that all policies are to be maintained with the highest standard of ethical conduct. Employees at every level should be trained that when in doubt as to what to do, they should consult their Human Resources or Legal department, or an immediate supervisor. Address issues with employees and explain to them that if they are asked to do something they think is wrong, they are to report it without fear of retaliation. And then make sure you have the means in place for them to do that. Employee hotlines are often a key way for members of the organization to report concerns of wrongdoing anonymously. When you provide an environment of trust and integrity your employees will not be afraid to come forward if and when issues arise.
In summary, there are four key things you can do to ensure ethical integrity in your organization.
* Have policies in place that are well written and available to employees at every level.
* Provide training annually to discuss key policies and how they should be applied in the workplace.
* Make sure every member of the organization knows they can go to HR or Legal with concerns - without fear of retaliation.
* Provide strong leadership from the top of the organization down that embodies honesty, respect and trust. In other words, make your "Yes" mean "Yes."
About the Author:Julie Innmon is a consultant with Employment Practices Solutions Dallas/Ft. Worth office. EPS provides consulting services to assist employers in preventing and correcting employment claims. Ms. Innmon conducts training courses on a variety of employment practice topics, including hiring and retention, harassment, discrimination, diversity, union avoidance and workplace violence. She also conducts investigations into employee complaints.
Prior to her work with Employment Practice Solutions, Ms. Innmon was in-house counsel with Albertson's Inc., a fortune 500 company with over 100,000 employees. During her tenure with Albertson's, she supervised numerous employment law cases involving sexual harassment, worker's compensation retaliation, the American with Disabilities Act, the Age Discrimination in Employment act, the Fair Labor Standards Act, and the Family and Medical Leave Act. She can be reached