Chicago, Illinois 26 April 2004

Chicago, Illinois 26 April 2004 Copyright © 2004 by the Center for Ethical Business Cultures ® 1 Ethics and Professionalism Ron James President an...
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Chicago, Illinois 26 April 2004

Copyright © 2004 by the Center for Ethical Business Cultures ®

1

Ethics and Professionalism Ron James President and CEO Center for Ethical Business Cultures 26 April 2004

Copyright © 2004 by the Center for Ethical Business Cultures ®

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Who Do You Trust?

Trust No

Yes

Net Rating

Armed Forces

26%

69%

+43

Education Health System Government

36%

62%

+26

40%

57%

+17

47%

50%

+3

Legal System

49%

47%

-2

Large National Companies

52%

42%

-10

Source: World Economic Forum Survey on Trust 7 November 2002

Copyright © 2004 by the Center for Ethical Business Cultures ®

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Organizations in the News § § § § §

Enron Worldcom Tyco Putnam HealthSouth

§ § § § §

Qwest Freddie Mac Martha Stewart Adelphia Katum Corp.

Copyright © 2004 by the Center for Ethical Business Cultures ®

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Concern About Workplace Ethics Surveys report misconduct at work: § ERC 2003 Survey: § Observed misconduct: § Pressure to compromise: § Reporting of misconduct:

2000 31% 13% 57%

2003 22% 10% 65%

§ Walker Loyalty Report for Ethics in the Workplace: § Respondents comfortable reporting violations: § Respondents who knew about a violation but didn’t report it:

2003 41%

2001 48%

1999 34%

60%

65%

60%

Copyright © 2004 by the Center for Ethical Business Cultures ®

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“Are You the Next

?”

What Corporate Ethics Officers Say: § 69% report fear of retaliation is of great concern in their companies. § 73% never engage board of directors. § 55% feel directors are not engaged enough. § 5% promote “great performers” who do not follow company values. § 22% tolerate ethical lapses. § 8% of companies fire violators of corporate wrong doing. Source: The Conference Board 17 June 2003

Copyright © 2004 by the Center for Ethical Business Cultures ®

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WorkTrends 2003 & Ethics Favorable Response Reported: § 62% - my manager supports and practices high standards of ethical conduct. § 57% - my company’s senior management supports and practices high standards of ethical conduct. § 51% - where I work, ethical issues and concerns can be discussed without negative consequences. § 57% - senior management has clearly communicated our company’s values. Source: Gantz Wiley Research WorkTrends 2003

Copyright © 2004 by the Center for Ethical Business Cultures ®

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The Disconnect Senior Mgmt Supervisor

Laborer

Senior mgmt supports & practices high standards ethical conduct

76%

61%

44%

Where I work, ethical issues discussed w/o neg consequences

72%

55%

36%

Senior mgmt has clearly communicated our company’s values

77%

59%

47%

Source: Gantz Wiley Research WorkTrends 2003

Copyright © 2004 by the Center for Ethical Business Cultures ®

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Effects of Organizational Breakdowns § Loss of trust and reputation. § Lost customers and market share. § Employees lose jobs & retirement savings. § Stock market losses for investors. § Negative effects on suppliers, business partners and communities. § Fines, jail time and civil penalties. Copyright © 2004 by the Center for Ethical Business Cultures ®

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Regulating Corporations § Sarbanes-Oxley Act of 2002 § New York Stock Exchange Corporate Accountability and Listing Standards § NASDAQ Corporate Governance Proposal § Conference Board Report on Executive Compensation, Corporate Governance & Audit and Accounting § Security and Exchange Commission’s rules Copyright © 2004 by the Center for Ethical Business Cultures ®

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A Collective View § Board Independence § Audit § Compensation § Nominating § Auditor Independence § Consulting § Audit and Tax § Conflicts of Interest § Codes of Conduct § Stiffer Penalties

Copyright © 2004 by the Center for Ethical Business Cultures ®

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Shifts in Business Legacy Motivation Ownership Leadership Common Good

Self Interest

Values

Incentives Corporate Goals

Family

Family

Family

Individual Investors

Professional Managers

Multiple Stakeholders

Institutional Investors

Corporate Executives

Shareholders Stock Price

Copyright © 2004 by the Center for Ethical Business Cultures ®

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About the Center for Ethical Business Cultures Mission

To assist business leaders in creating ethical and profitable business cultures at the enterprise, community and global levels.

Adding Value § Ethical Leadership, Management and Culture § Work/Life and Critical Employer-Employee Relationships § Corporate Citizenship

CEBC Partners University of St. Thomas College of Business University of Minnesota Carlson School of Management Copyright © 2004 by the Center for Ethical Business Cultures ®

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The Center’s Premise Organizations that build an ethical culture: § Outperform organizations that don’t. § Reduce their exposure to ethical lapses that cause breakdowns.

Copyright © 2004 by the Center for Ethical Business Cultures ®

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What is an Ethical Culture? § Based on Integrity. § Discerns and chooses right versus wrong. § Laws and Regulations. § Societal Standards.

§ Reaches for the higher standard in the gray areas when all options seem right.

Copyright © 2004 by the Center for Ethical Business Cultures ®

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Characteristics of an Ethical Culture § Balances the interests of all stakeholders. § Effective leadership. § Process integrity.

Copyright © 2004 by the Center for Ethical Business Cultures ®

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The Tree Metaphor Branches and leaves: § Lagging indicators of overall health of tree. § Above the ground, easy to see and measure.

Roots: § The stronger the roots, the more stable the tree. § Underground, hard to see and measure. Copyright © 2004 by the Center for Ethical Business Cultures ®

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Stakeholder Reciprocity Customers

Competitors

Employees

Community

Your Company

Suppliers

Investors/ Owners

Copyright © 2004 by the Center for Ethical Business Cultures ®

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Benefits of an Ethical Corporate Culture § § § §

Revenue increased 682% versus 166%. Work force increased 282% versus 36%. Stock prices increased 901% versus 74%. Net income increased 756% versus 1%.

Source: Kotter and Heskett, Corporate Culture and Performance.

Copyright © 2004 by the Center for Ethical Business Cultures ®

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Modeling Ethical Behavior is Crucial § Leadership is a key ethical culture factor. § Top management is generally perceived to exert more pressure on others to engage in unethical conduct. § Leaders modeling ethical behavior reduce misconduct in the workplace. Copyright © 2004 by the Center for Ethical Business Cultures ®

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Management’s Actions Count No Walking the Talk Written Walk the Talk Standards Plus Written Standards Plus 0%

10%

20%

30%

40%

50%

60%

% Reporting Misconduct Source: Ethics Resource Center 2003 National Business Ethics Survey:

Copyright © 2004 by the Center for Ethical Business Cultures ®

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The Gap in the View From the Top § Leaders tend to have a more favorable view of their organization’s ethics than do others in the organization. § This difference may lead to overconfidence in the system, a confidence not shared by the rank-and-file. Copyright © 2004 by the Center for Ethical Business Cultures ®

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Integrity Through Leadership Integrity at Work Relates to Employee Commitment and Loyalty: § Employees are “truly loyal” (appreciative and planning to stay) when they believe their workplace has ethical practices. § 44% (vs. 40% in 2001) say when their employer has high integrity they are also “truly loyal” versus 5% (vs. 6% in 2001) when they do not believe in their organization’s integrity. Source: Walker Loyalty Report for Ethics in the Workplace Sept 2003

Copyright © 2004 by the Center for Ethical Business Cultures ®

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Laying the Foundation § Mission – What is our purpose? § Vision – What is our image of the future? § Values – What are the principles that guide our behavior as we accomplish our mission and pursue vision? § Ethics & Compliance Codes – How do we comply with laws and regulations? Copyright © 2004 by the Center for Ethical Business Cultures ®

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The Guidelines § Established by the United States Sentencing Commission (USSC) in 1991. § Imposes fines, sentencing to probation, orders of restitution and public notices of conviction. § Offers incentives for organizations to “do the right thing”. Copyright © 2004 by the Center for Ethical Business Cultures ®

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The

Minimum Steps:

1. Establish standards and procedures. 2. Make high-level individuals responsible. 3. Exercise due care in delegating authority. 4. Provide communication and training. 5. Utilize monitoring, auditing, and reporting. 6. Consistently enforce through discipline. 7. Take appropriate corrective action. Copyright © 2004 by the Center for Ethical Business Cultures ®

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AGOG/USSC Recommendations § Stand-alone guideline for compliance programs. § Organizational culture and leadership. § Risk assessment. § Define “compliance standards and procedures.” § Monitoring, auditing and evaluation. § Training requirement. § Reporting mechanism.

§ Cooperation, substantial assistance and privileges. Copyright © 2004 by the Center for Ethical Business Cultures ®

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Ethics Programs Make a Difference None Written Standards Only Written Standards Plus AllStandards Four Standards In Place Written Plus 0%

20%

40%

60%

80%

% Reporting Misconduct Source: Ethics Resource Center 2003 National Business Ethics Survey:

Copyright © 2004 by the Center for Ethical Business Cultures ®

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Organizational Levers

§ § § §

Rewards Recognition Advancement Hires

§ Training/Education § Compensation § Communication

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Nurturing an Ethical and Profitable Culture § Linking & aligning Mission, Vision and Values. § Education & Training: § § § §

Board of Directors Senior Management Mid Level Managers Front Line Employees

§ Connecting systems and incentives to values. § Surveying for feedback.

Copyright © 2004 by the Center for Ethical Business Cultures ®

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CEBC Integrity Survey

TM

Integrity Index § Five Themes: § Trust, Integrity and Honesty § Mission, Vision and Values § Leadership § Stakeholders § Process Integrity

Copyright © 2004 by the Center for Ethical Business Cultures ®

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Leadership Development Program

§ Norms & Behaviors in Defining an Ethical Culture § Ethical Scenario

§ Examining Underlying Themes in Breakdowns § The Business Environment

§ Reflecting on Lessons Learned § Case Studies

§ Turning the Lens Inward § Survey

§ Top Leadership Perspective § Application Copyright © 2004 by the Center for Ethical Business Cultures ®

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What Are You Doing About It? A Self Examination § How do you think about your stakeholders? § How engaged are you with your stakeholders? § What are you doing to encourage an ethical culture? § Have you built in organizational processes that reinforce the culture you want? Copyright © 2004 by the Center for Ethical Business Cultures ®

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For Further Information on CEBC § § § § §

Phone the Center: Fax the Center: Email the Center: Visit the Web: Write the Center:

651-962-4120 651-962-4042 [email protected] www.cebcglobal.org 1000 LaSalle Avenue, MJH 300 Minneapolis MN 55403-2005 USA

Copyright © 2004 by the Center for Ethical Business Cultures ®

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®

®

Copyright © 2004 by the Center for Ethical Business Cultures ®

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