Opinion: Directors, managers set company's ethical tone

The business scandals of the 1990s and early 2000s revealed ignorance by business leaders and employees about ethical and legal behavior.

Congress responded by passing the Sarbanes-Oxley Act of 2002, which all but mandates corporate codes of conduct for the top managers of publicly traded corporations. The New York Stock Exchange and Nasdaq require those same corporations to create corporate codes applicable to all employees.

To encourage compliance and ethics training, Congress amended Section 8B2.1(B)(4) of the federal sentencing guidelines.

All organizations are to take reasonable steps periodically to communicate their standards and procedures to employees, high-level personnel and members of the governing body.

Compliance with the guidelines is valuable to organizations. Effective compliance and ethics programs impact employee behavior and often prevent illegal and unethical actions. If wrongdoing occurs, compliance with the guidelines can lessen penalties by 95 percent.

Heart of the matter

Training is the heart of a compliance and ethics program. Training helps create a healthy corporate culture in which legal conduct is a given and ethical conduct is expected. Most employees adapt their conduct to the company leadership’s expectations, and training tells employees about those expectations. The evidence, however, on whether companies are providing effective compliance and ethics training is contradictory.

The results of a 2006 survey of 225 companies by the Conference Board and Corpedia Inc. about such programs were positive.

According to the survey, 96 percent of corporate boards are involved in compliance and ethics programs. Two-thirds of the survey participants reported training more than 90 percent of employees.

Another 2006 survey, however, had different results.

Employment Law Training Inc. surveyed nearly 2,000 legal, ethics and human resources professionals and found more than 70 percent of the respondents were unaware of the training requirements. Almost 60 percent of the respondents said their employers were not offering ethics training. Of those conducting training, 26 percent used informal sessions, such as giving out and briefly discussing the corporate code of conduct during staff meetings. Forty-seven percent of companies conducting compliance and ethics training did not track and archive training completion records.

Sham program vs. effective training

The differences in the two surveys can be explained by how some companies view compliance and training programs.

Too many company leaders take a lackadaisical view of compliance and ethics training.

They merely tell employees about the company’s program. Company leaders mistakenly believe that “some kind” or “any kind” of program will suffice. But such weak compliance and ethics programs do not meet the federal sentencing guideline requirements.

They are “sham” programs for which penalties can be increased when wrongdoing occurs.

Compliance and ethics training must be rigorous, interactive and repetitive to be effective. Present employees with difficulties that can arise in business. Challenge them to resolve the difficulties legally and ethically. Explain to employees why some answers are better than others.

Training also must include management and the board of directors.

Management practices and inattentive directors led to the spectacular business scandals of the 1990s and early 2000s.

The Sarbanes-Oxley Act of 2002 obligates corporate directors and high-level managers to set the ethical tone for their companies. Effective compliance and ethics training is critical to creating and preserving that tone.

John D. Copeland, J.D., LL.M., Ed.D., is an executive in residence at The Soderquist Center for Leadership and Ethics and professor of business at John Brown University in Arkansas.