Ethics of... Change

By Eric Krell

Some things never change. Like the ups and downs of economic cycles. Like the appearance of ethical pressure when difficult decisions arise. Like the presence of change in the business world.

Although the existence of those forces remains constant, their fluid nature and constant interaction create a steady stream of new challenges for corporate ethics officers and their organizations. The opposing pressures of an uncertain economic recovery and stricter regulatory requirements mean that many ethics and compliance departments must do more with fewer resources. New amendments to the Federal Sentencing Guidelines encourage ethics officers to foster an ethical culture – an undertaking that requires stronger partnerships with human resources, legal, security, internal audit and other corporate functions that often compete with ethics departments for funding and compliance authority. The importance of corporate ethics departments in the post-Sarbanes-Oxley world is soaring, but so, too, are the challenges they face.

Effective ethics officers diffuse turf battles, extend their reach by partnering with a broad collection of corporate functions, strive to communicate their mandate in plain English and take an active role in change-management efforts. They also tend to wholeheartedly embrace their mission, no matter how formidable it may be.

“I’ll take on any issue that even smells or sounds like ethics,” says David Reid, vice president and director of ethics and compliance for Dallas-based Texas Instruments.

Change ? Stress ? Ethical Stretches

Reid and ethics officers who share his enthusiasm are much busier during times of change, a phrase that captures the past five years in corporate America and likely defines the next five years as well.

“Clearly, when there is change, there is additional stress,” notes Tony Boswell, the Dallas-based senior vice president for ethics and compliance of AMEC plc, an international project management and services company headquartered in London. “When there is additional stress, people are forced to think in new ways and consider new approaches. Organizational ethics, safety, financial reporting protocol, and other areas are at risk to be stretched or interpreted differently during periods of change.”

The stress associated with periods of significant change often result in higher call volumes on corporate help lines devoted to ethical issues.

Waste Management experienced a series of major changes in the late 1990s. In 1999, the board of directors cleaned house and replaced a majority of the senior management team. When Chairman of the Board Maurice Myers was named president, CEO and chairman in 1999, one of the first moves he made was to create an ethics department.

And one of the first moves the ethics department made was to make an integrity help line available to all employees. During the first year of the help line’s operation, call volume represented about 6 percent of the company’s employee population. The average annual ethics help line call volume typically represents between 1.5 percent and 3 percent of the employee population – a range that Waste Management has occupied for the past several years thanks to the Myers’ leadership and a successful ethics program.

Time and Management Matter

The volume and nature of ethical issues that arise in times of change also depend on what the change involves, how it is managed and who is managing it.

“Nobody likes change, we’ve all heard that,” notes Linda Lipps, director, corporate ethics, for Waste Management. “But if there is a change that people don’t particularly like, you can expect a bit of a spike in calls.”

Reid notes that different managers take different approaches to introducing new initiatives to their employees. There tends to be fewer ethical complaints from employees when managers seek their input early in the process and court their buy-in.
Speed also matters. “To some extent, if we allow people to work change out at a comfortable pace when it is possible to do so,” Reid says, “we actually increase loyalty and tend to work through issues with less resistance. When the time in which change needs to occur is compressed, there are often cultural implications.”

Ethics Departments Evolve

Sorting through those implications and determining which ones are ethical issues, which ones are human resources issues and which ones qualify as both has grown more complicated due to new regulations, a widespread push to cultivate an ethical culture and ongoing economic and performance pressures.

New rules force many companies to make “tough decisions about ethics programs in light of economic indicators,” says Boswell. “The compliance and ethics group has to be relevant, exciting, even sexy, but it has to do so on less and less money.”

Other ethics officers say that the accounting scandals and Sarbanes-Oxley have somewhat lessened the budgetary pressures their department previously confronted, although turf battles for compliance and ethics funding still flare up.

Shell Oil regularly benchmarks its ethics and compliance activities against those at other large companies. “We have noticed that turf wars often exist in other organizations,” notes Danna Walton, senior counsel in Shell’s legal services U.S. – regulatory and compliance department. “We have made sure they don’t exist here.”

Shell’s ethics and compliance managers meet quarterly with the heads of corporate security, internal audit, human resources and the corporate controller’s organization to identify trends and areas where problems exist or might one day exist. Each year, Shell’s internal audit team also includes one ethics issue on the action list that guides its regular audit reviews.

Reid notes that change and the ways in which it affects the workforce play a central role in his job. That’s possible, he explains, because his department and company emphasize an easily memorized set of organizational values (integrity, innovation and commitment), make available a reader-friendly code of conduct and constantly reinforce the corporate values and the code of conduct through communications.

Lipps, who was instrumental in developing a new code of conduct when she joined the company, emphasizes the importance of avoiding “legalese” in the document. “We really wanted all of our employees to be able to read and understand the document,” she notes.

That makes sense considering the fact that employees far outnumber lawyers in most corporations. Rewriting corporate codes of conduct from corporate speak into layman’s terms also increases the likelihood that employees will refer to the resource when making decisions under stress. As that practice grows more common, ethics officers believe that ethical considerations will become as automatic as the change that continually confronts employees at all levels of the organization.