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Copyright © 2009 by the Center for Ethical Business Cultures®
Copyright © 2009 by the Center for Ethical Business Cultures®
SCCE Conference for Effective Compliance Systems in Higher Education
SCCE Conference for Effective Compliance Systems in Higher Education
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Ron JamesPresident and CEO
Center for Ethical Business Cultures
01 June 2009
Copyright © 2009 by the Center for Ethical Business Cultures®3
Enron
WorldCom
Arthur Anderson
Adelphia
Tyco
Navigating …
Copyright © 2009 by the Center for Ethical Business Cultures®4
… Turbulent Ethical Waters
Ponzi Schemes
Double Digit Unemployment
Funding Sources Dry Up
Endowments Shrink
Global Economies Falter
National Deficits GrowStock Market Plummets
Financial Sector Meltdown
Copyright © 2009 by the Center for Ethical Business Cultures®
About the Center for Ethical Business CulturesMission
To assist business leaders in creating ethical and profitable business cultures at
the enterprise, community and global levels
Background– 30 year old nonprofit organization
– Began partnering in 1988 with University of St. Thomas – Member of the Advisory Group to the US Sentencing Commission
– Advises Boards and Executive Leaders on “Tone at the Top”
Copyright © 2009 by the Center for Ethical Business Cultures®
Organizations that build an ethical culture:
– Do it because it’s the right thing to do
– Outperform organizations that don’t
– Reduce their exposure to ethical lapses that cause breakdowns
Why is it Important
Copyright © 2009 by the Center for Ethical Business Cultures®
Scanning the Environment:The More Things Change the More
They Stay the Same
Scanning the Environment:The More Things Change the More
They Stay the Same
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Defense Industry Initiative1970s
$700 hammer; $640 toilet seat$7600 coffee pot that would withstand 40 times the force of gravity$1,118.25 plastic cap for the leg of a navigator’s stoolDefense contractors inflated charges (1980 $s):
$281 million – Lockheed$130 million – McDonnell Douglas (including billing for appearances at Boy Scouts of America events)7
$700 hammer; $640 toilet seat$7600 coffee pot that would withstand 40 times the force of gravity$1,118.25 plastic cap for the leg of a navigator’s stoolDefense contractors inflated charges (1980 $s):
$281 million – Lockheed$130 million – McDonnell Douglas (including billing for appearances at Boy Scouts of America events)7
Copyright © 2009 by the Center for Ethical Business Cultures®
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The Savings and Loans Crisis1980s
Economist John Kenneth Galbraith: “the largest and costliest venture in public misfeasance, malfeasance, and larceny of all time.”Over 1000 S & L’s failed at a cost of $160.1 billion $124.6 billion paid by the US Government…taxpayers - 3300 of 3800 S & L’s lose moneyLincoln S & L and the Keating Five: Three Senators see political careers cut short; and two are rebuked by the Senate Ethics Committee for exercising poor judgmentSiverado S & L: Director and son of leading politician, pays $50,000 to settle civil actions alleging “breaches of fiduciary duty and multiple conflicts of interests.”
Economist John Kenneth Galbraith: “the largest and costliest venture in public misfeasance, malfeasance, and larceny of all time.”Over 1000 S & L’s failed at a cost of $160.1 billion $124.6 billion paid by the US Government…taxpayers - 3300 of 3800 S & L’s lose moneyLincoln S & L and the Keating Five: Three Senators see political careers cut short; and two are rebuked by the Senate Ethics Committee for exercising poor judgmentSiverado S & L: Director and son of leading politician, pays $50,000 to settle civil actions alleging “breaches of fiduciary duty and multiple conflicts of interests.”
Copyright © 2009 by the Center for Ethical Business Cultures®
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Health Care Fraud1990s
10% of U.S. healthcare costs related to fraud (1992)80% of healthcare fraud caused by medical provider abuse (1998)From an individual’s perspective:
One out of four people say its okay to defraud insurersOne in four say it makes up for premiums they’ve already paid and;One in three rationalize that it makes up for
their deductible$11.9 billion lost to waste, fraud and mistakes in 2000 (2001)
10% of U.S. healthcare costs related to fraud (1992)80% of healthcare fraud caused by medical provider abuse (1998)From an individual’s perspective:
One out of four people say its okay to defraud insurersOne in four say it makes up for premiums they’ve already paid and;One in three rationalize that it makes up for
their deductible$11.9 billion lost to waste, fraud and mistakes in 2000 (2001)
Copyright © 2009 by the Center for Ethical Business Cultures®
Ethical Breakdowns in the News2000’s
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•Purdue Pharma•Bristol Myers-Squibb•Google & Yahoo (China)•Brocade Communications•Take-Two Interactive Software•Royal Dutch Shell•New England Patriots –Belichick•The McLaren Group•Mattel•Mitchell Report on Baseball•Societe Generale•PetroChina •AGA Medical Co.•Ahold•Bear Stearns•Sanlu
•Purdue Pharma•Bristol Myers-Squibb•Google & Yahoo (China)•Brocade Communications•Take-Two Interactive Software•Royal Dutch Shell•New England Patriots –Belichick•The McLaren Group•Mattel•Mitchell Report on Baseball•Societe Generale•PetroChina •AGA Medical Co.•Ahold•Bear Stearns•Sanlu
•Morgan Stanley•Putnam•Qwest•UnitedHealth Group•BUCA•Siemens•Hewlett Packard•Parmalat•Cendant•Computer Associates•KPMG•Hyundai Motor•Boeing•American Red Cross•Johnson & Johnson
•Morgan Stanley•Putnam•Qwest•UnitedHealth Group•BUCA•Siemens•Hewlett Packard•Parmalat•Cendant•Computer Associates•KPMG•Hyundai Motor•Boeing•American Red Cross•Johnson & Johnson
•Worldcom•Enron•Tyco•HealthSouth•Global Crossing•Arthur Anderson•Adelphia
•Worldcom•Enron•Tyco•HealthSouth•Global Crossing•Arthur Anderson•Adelphia
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Thomas Jefferson UniversityThomas Jefferson UniversityMedicare overMedicare over--billingbilling
$12 mil$12 milUniversity of MinnesotaUniversity of MinnesotaMisuse of federal grantsMisuse of federal grants
$32 mil$32 milNew York University Medical CenterNew York University Medical Center
Inflated research grant costsInflated research grant costs$15.5 mil $15.5 mil
Duke UniversityDuke UniversitySexual harassment Sexual harassment
$500,000$500,000University of ChicagoUniversity of Chicago
Research fraud and abuseResearch fraud and abuse$650,000$650,000
Yale Hospital Yale Hospital Mishandling of Mishandling of ““credit balancescredit balances””
$5.6 mil$5.6 mil
Miscellaneous Scientific MisconductMiscellaneous Scientific MisconductJohns HopkinsJohns Hopkins
Harvard (2)Harvard (2)
University of MichiganUniversity of MichiganChief Urologist charged with Chief Urologist charged with
Conflict of InterestConflict of Interest$100,000 penalty$100,000 penalty1 year probation1 year probation
Duke UniversityDuke UniversityMedicare fraudMedicare fraudMillions soughtMillions sought
University of WisconsinUniversity of WisconsinFraud on grant applicationFraud on grant application
Fines and imprisonment for P.I.Fines and imprisonment for P.I.
Columbia UniversityColumbia UniversityHazardous waste violationsHazardous waste violations
$800,000 penalty sought$800,000 penalty sought
Northwestern University Northwestern University ““Effort ReportingEffort Reporting”” fraudfraud
$5.5 mil$5.5 mil
University of South FloridaUniversity of South FloridaImproper research costingImproper research costing
$4.1 mil $4.1 mil
U WashingtonU WashingtonMedicare overMedicare over--billingbillingPhysician convictedPhysician convicted
$35 mil Inst. fine$35 mil Inst. fine
Johns HopkinsJohns HopkinsInflated research costsInflated research costs
$2.6 mil$2.6 mil
HarvardHarvardWrongful grant expensesWrongful grant expenses
$3.2 mil$3.2 mil
U of CaliforniaU of CaliforniaImproper grant chargesImproper grant charges
$3.9 mil$3.9 mil
Texas TechTexas TechMishandling Select AgentsMishandling Select Agents
P.I. jail timeP.I. jail time
Problems in Academia
Stanford UniversityStanford UniversityInflated research overhead costsInflated research overhead costs
$1.2 mil$1.2 mil
U of California at Santa BarbaraU of California at Santa BarbaraChancellor charged with embezzlementChancellor charged with embezzlement
Insurance and tax fraud Insurance and tax fraud
Rockefeller UniversityRockefeller UniversityPresident resigns over allegations President resigns over allegations
of scientific fraudof scientific fraud
U of PhoenixU of PhoenixThe Apollo GroupThe Apollo Group
Fraudulent student recruitmentFraudulent student recruitment$280 mil fine$280 mil fine
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Confidence in Leaders
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The Cost of Ethical Breakdowns
25% of fraud result in losses of≥US$1 million
27% of fraud cases were corruption46% of cases detected by tips
Typical fraud timeframe (from the time it beganto the time it was discovered): two years
2006: U.S. organizations lose 5% of annual revenues (estimated value ~ US$652 billion)
2008: U.S. organizations lose 7% of annual revenues (estimated value ~ US$994 billion)
Source: ACFE 2008 Report to the Nation on Occupational Fraud & Abuse
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The ENDS are what matters
The MEANS are just as important
Two Languages for Success
Copyright © 2009 by the Center for Ethical Business Cultures®
Top 5 Drivers of Unethical Behavior
Pressure to meet unrealistic business objectivesDesire to further one’s careerDesire to protect one’s livelihoodWorking within a cynical, demoralized environmentIgnorance that the act was unethical
Pressure to meet unrealistic business objectivesDesire to further one’s careerDesire to protect one’s livelihoodWorking within a cynical, demoralized environmentIgnorance that the act was unethical
Source: AMA/HRI The Ethical Enterprise, 2006
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Building & Sustaining Ethical CulturesBuilding & Sustaining Ethical Cultures
Copyright © 2009 by the Center for Ethical Business Cultures®
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 © 2009 by the Center for Ethical Business Cultures®
Elements in Building & Sustaining an Ethical CultureEthical Mindsets
Source: Based on Chapter 2 “Mindsets & Culture” in Conscience and Corporate Culture Copyright © Kenneth E. Goodpaster
Self Interest
LawBased
MarketBased
EthicalCultureEvolving EnlightenmentEvolving Enlightenment
LeadershipEffectivenessLeadershipLeadership
EffectivenessEffectiveness
Laying theFoundationLaying theLaying theFoundationFoundation
BalancingStakeholder
Interests
BalancingBalancingStakeholderStakeholder
InterestsInterests
AssessmentAssessment
Process Integrity
Process Process IntegrityIntegrity
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Global Employee Perspectives on Ethics in the Workplace
CEBC Ethics Themes:Able to discuss ethical issues/concerns
Senior management practices ethical conduct
Company serves interest of multiple stakeholders
Co-workers behavior consistent with values
Must demonstrate company values to get ahead
Ethics themes benchmarked through Kenexa’s WorkTrendsTM
with employees around the world
CEBC Ethics Themes:Able to discuss ethical issues/concerns
Senior management practices ethical conduct
Company serves interest of multiple stakeholders
Co-workers behavior consistent with values
Must demonstrate company values to get ahead
Ethics themes benchmarked through Kenexa’s WorkTrendsTM
with employees around the world
Countries Surveyed:United StatesCanadaUnited KingdomAustraliaGermanyChina/Hong KongBrazilThe NetherlandsJapanIndiaMexicoItalyRussiaKingdom of Saudi Arabia
Countries Surveyed:United StatesCanadaUnited KingdomAustraliaGermanyChina/Hong KongBrazilThe NetherlandsJapanIndiaMexicoItalyRussiaKingdom of Saudi Arabia
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Leadership is the key ethical culture factorLeaders must set the tone by “talking the talk” and “walking the talk”Top management is generally perceivedto exert more pressure on “getting the results” and not on “how the results are achieved”This translates into get the results “at all costs.” “The ends will justify the means!”
Leadership is the key ethical culture factorLeaders must set the tone by “talking the talk” and “walking the talk”Top management is generally perceivedto exert more pressure on “getting the results” and not on “how the results are achieved”This translates into get the results “at all costs.” “The ends will justify the means!”
LeadershipEffectiveness
Modeling Ethical Behavior is Crucial
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Data Illustration:Data Illustration:
My senior management supports and practices high standards of ethical conduct.Executive Manager Frontline
78%89%
73%80%
68%67%
The 1nd ElementEffective Leadership
Source: Kenexa WorkTrends™ 2008 Education
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Data Illustration:Data Illustration:
Where I work, ethical issues and concerns can be discussed without negative consequences.Executive Manager Frontline
77%89%
72%76%
62%61%
The 1nd ElementEffective Leadership
Source: Kenexa WorkTrends™ 2008 Education
Copyright © 2009 by the Center for Ethical Business Cultures®
Mission Purpose
Vision Image of the future
Values Principles that guide behavior
Ethics & Compliance Codes Legal and regulatory compliance and beyond
Mission Purpose
Vision Image of the future
Values Principles that guide behavior
Ethics & Compliance Codes Legal and regulatory compliance and beyond
Laying the FoundationValues
Copyright © 2009 by the Center for Ethical Business Cultures®
ValuesThe shared norms and beliefs of the organization that define acceptable behaviorInspirational and directional in natureGives individuals a context to reflect on how their personal values align
Ethics and Compliance Codes of ConductThe standards of behavior established to insure compliance with the law, regulations, and rulesPrescriptive in nature with specific well defined expectations of behavior
ValuesThe shared norms and beliefs of the organization that define acceptable behaviorInspirational and directional in natureGives individuals a context to reflect on how their personal values align
Ethics and Compliance Codes of ConductThe standards of behavior established to insure compliance with the law, regulations, and rulesPrescriptive in nature with specific well defined expectations of behavior
Shaping Organizational CultureValues
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The Regulatory Direction
Setting the “Tone at the Top”
Ethical Culture
Codes of Conduct
Conflicts of Interest
Disclosure/ Transparency
Setting the “Tone at the Top”
Ethical Culture
Codes of Conduct
Conflicts of Interest
Disclosure/ Transparency
Copyright © 2009 by the Center for Ethical Business Cultures®
Separate attention now given to the roles and responsibilities of three types of organizational officials:
Members of the governing authority (i.e., Board)Executives comprising an organization’s managerial leadership (i.e., “high-level personnel”)One or more specific individual(s) having day-to-day operational responsibility for an organization’s compliance and ethics program
Separate attention now given to the roles and responsibilities of three types of organizational officials:
Members of the governing authority (i.e., Board)Executives comprising an organization’s managerial leadership (i.e., “high-level personnel”)One or more specific individual(s) having day-to-day operational responsibility for an organization’s compliance and ethics program
Oversight & ManagementRoles and Responsibilities
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Data Illustration:Data Illustration:
The behavior of the people I work with is consistent with my company’s mission, vision and values.Executive Manager Frontline
75%89%
63%76%
57%57%
The 2st ElementLaying the Foundation
Source: Kenexa WorkTrends™ 2008 Education
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Stakeholder Reciprocity
Community
Donors
Alumni Suppliers
Your Organization
Competitors
Environment
BalancingStakeholder
Interests
Faculty/StaffStudents
Government
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Data Illustration:Data Illustration:
My company strives to serve the interests of multiple stakeholders not just the shareholders.Executive Manager Frontline
77%83%
72%85%
65%69%
The 3rd ElementBalancing Stakeholder Interests
Source: Kenexa WorkTrends™ 2008 Education
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Aligning Core Functions
Marketing
PurchasingFinance
Human ResourcesAdmissions
KnowledgeTransfer
CommunicationRecognition
IncentivesHiring
Advancement Evaluation
ProcessIntegrity
With Organizational Processes
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Data Illustration:Data Illustration:
Where I work, people do not “get ahead” unless their behavior clearly demonstrates my company’s values.Executive Manager Frontline
67%75%
57%57%
50%47%
The 4th ElementProcess Integrity
Source: Kenexa WorkTrends™ 2008 Education
Copyright © 2009 by the Center for Ethical Business Cultures®
Linking & aligning Mission, Vision, Values and Ethics & ComplianceLeadershipEducation & Training:
Governing AuthoritySenior ManagementMid Level ManagersFront Line Employees
Connecting systems & incentives to valuesSurveying for feedback
Linking & aligning Mission, Vision, Values and Ethics & ComplianceLeadershipEducation & Training:
Governing AuthoritySenior ManagementMid Level ManagersFront Line Employees
Connecting systems & incentives to valuesSurveying for feedback
Building the Ethical Culture
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The 5th ElementAssessment
Challenges:What to Measure
How to Measure
When to Measure
How to Use & “Not Use” the Information
Challenges:What to Measure
How to Measure
When to Measure
How to Use & “Not Use” the Information
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Impact of Ethics U.S. Employees
Pride Overallsatisfaction
RetentionAdvocacy
Source: Kenexa WorkTrends™ 2008 Note: values represent percent favorable
Reputation improvement
Performance improvement
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