copyright © 2012 by the center for ethical business cultures ® 1

Copyright © 2012 by the Center for Ethical Business Cultures®

1


Celebrating over 34 years of business commitment to ethical cultures.

Keys to Building and Sustaining Ethical Cultures

Ron JamesRon JamesPresident and CEOPresident and CEO

Center for Ethical Business CulturesCenter for Ethical Business Cultures

7 March 20127 March 2012


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

Background34 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”

Building a Bridge Between Thought and Practice Leadership


Why is it Important?

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



Scanning the Environment

Copyright © 2012 by the Center for Ethical Business Cultures®66

Who Do You TRUST?

How much do you TRUST each institution to do what is right?

PercentAmerica’

sUS/Canada/

Brazil

EuropeFrance/Germany/

Russia

AsiaChina/Japan/

India

Business 2009 36/45/67 30/34/52 62/63/71

Business 2010 54/na/62 36/40/42 62/57/67

Business 2011 46/50/81 48/52/41 61/53/70

Business 2012 50/56/63 28/34/41 71/47/69

Govt. 2009 30/51/51 34/36/48 72/45/42

Govt. 2010 46/na/39 43/43/38 74/42/43

Govt. 2011 40/52/85 49/33/39 88/51/44

Govt. 2012 43/56/32 31/33/26 75/25/53Source: 2012 Annual Edelman Trust Barometer


Who Do You TRUST?

PercentAmerica’

sUS/Canada/Brazil

EuropeFrance/Germany/

UK

AsiaChina/Japan/S.

Korea

NGOs 2007 57/55/57 60/39/41 56/55/46

NGOs 2008 61/49/n.a. 57/47/29 55/47/61

NGOs 2011 55/72/80 58/55/51 63/51/62

NGOs 2012 58/66/49 60/49/54 79/30/67

Media 2007 43/34/62 27/29/19 68/41/44

Media 2008 45/48/64 26/38/28 63/53/65

Media 2011 27/45/79 45/37/22 80/49/53

Media 2012 45/54/61 41/42/37 79/36/45

How much do you TRUST each institution to do what is right?

Source: 2012 Annual Edelman Trust Barometer


Source: Harris Poll May 18, 2011

Confidence in Confidence in LeadersLeaders


Ethical Breakdowns in the News

99

•Purdue Pharma

•Bristol Myers-Squibb

•Google & Yahoo (China)

•Toyota Safety Recalls

•Financial Services Sector

Meltdown

•Royal Dutch Shell

•BP Amoco Oil Spill

•Denny Hecker

•Tom Petters

•Bernie Madoff

•Societe Generale

•PetroChina

•AGA Medical Co.

•Ahold

•Bear Stearns

•Sanlu

•Purdue Pharma

•Bristol Myers-Squibb

•Google & Yahoo (China)

•Toyota Safety Recalls

•Financial Services Sector

Meltdown

•Royal Dutch Shell

•BP Amoco Oil Spill

•Denny Hecker

•Tom Petters

•Bernie Madoff

•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


How Do You Measure-Up?

Rating the honesty and ethical standards of people and professions (very high/high):

Nurses 84%Medical Doctors 70%Policeman 54%Clergy 52%Building Contractors 26%Bankers 25%Lawyers 19%Business Executives 18%Congressman7%Car Salesmen7%

Source: Gallup Poll. December 2011 Honesty and Ethics


Financial Performance

Behavioral Performance

Two Languages of BusinessTwo Languages of Business


Misconduct at Misconduct at WorkWork

Source: Ethics Resource Center's 20011 National Business Ethics Survey


Reporting Reporting MisconductMisconduct

Source: Ethics Resource Center's 20011 National Business Ethics Survey


Cheating Among College Students

56% of MBA candidates surveyed admitted they had cheated at least once*

“culture of greed within MBA schools” “get it done at all costs” “shifting priorities from meeting customers’ needs to

protecting shareholders profits” Over 16 years, on every study of cheating, except one,

business students led the way

Versus 45% of law students surveyed*

54% of accounting majors report cheating in college**

Of this group, 82% report cheating in high school 52% of non-accounting majors report cheating in

college**

* Source: McCabe, Butterfield & Trevino, September 2006** Source: Morris & Kilian 2006 Do Accounting Students Cheat?** Source: Morris & Kilian 2006 Do Accounting Students Cheat?


42%

33%

25%

44%

31%25%

55%

22%22%

59%

41%

62%

38%

0%

10%

20%

30%

40%

50%

60%

70%

2003 2004 2005 2006 2007

No Yes Not Sure

Knowing you would never be caught, would you act unethically to make

more money or get ahead?

Source: Junior Achievement/Deloitte Poll December 2007

*

* Yes and Not Sure combined

*


Ethics of American Youth

Josephson Institute's 2010 Report Card on the Ethics of American Youth

One or More

• Bullied, teased or taunted someone

49.8%

Been bullied, teased or taunted

47.2%

• Lied to Parent about something significant

80.3%

…to Teacher… 61.1%• Cheated during a test at school 59.4%• Stole from Parent or relative 21.2%

…from Friend 17.6%

…from Store 27.5%


$$The Cost of Ethical The Cost of Ethical

BreakdownsBreakdowns

27% of fraud cases were corruption46% of cases detected by tips

Typical fraud timeframe (from the time it began to 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)

2010: typical organization loses 5% of annual revenues

(estimated value ~ $2.9 trillion worldwide)

Source: ACFE 2010 Report to the Nation on Occupational Fraud & Abuse


18181818

Driving Ethical Driving Ethical Culture:Culture:

The Legislative/Regulatory The Legislative/Regulatory ResponseResponse

Sarbanes-Oxley Act of 2002Sarbanes-Oxley Act of 2002

Public Company Listing Exchanges Public Company Listing Exchanges

United States Sentencing CommissionUnited States Sentencing Commission

Dodd-Frank Act of 2010Dodd-Frank Act of 2010

SEC Rule Making (2011-2012)SEC Rule Making (2011-2012)


A Collective A Collective View:View:

The The Legislative/Regulatory Legislative/Regulatory

ResponseResponse Setting the Setting the

““Tone at the Top”Tone at the Top”

Ethical CultureEthical Culture

Codes of ConductCodes of Conduct

Conflicts of InterestConflicts of Interest

Disclosure/ Disclosure/ TransparencyTransparency

Whistleblower RewardsWhistleblower Rewards

Board Board IndependenceIndependence

AuditAudit

CompensationCompensation

Nominating-Nominating-GovernanceGovernance

Consultant Consultant IndependenceIndependence

Audit and TaxAudit and Tax


Shareholder AccessShareholder Access Executive Executive



Legislative/Regulatory Legislative/Regulatory ThemeTheme

“…“…requirement that an requirement that an organization shall - promote an organization shall - promote an

organizational culture that organizational culture that encourages ethical conduct and a encourages ethical conduct and a

commitment to compliance commitment to compliance with the law.”with the law.”

But you can’t legislate But you can’t legislate integrity!integrity!



Building & Sustaining Ethical Cultures


2222

What is an Ethical What is an Ethical Culture?Culture?

Based on IntegrityBased on Integrity

Discerns and chooses right Discerns and chooses right

versus wrongversus wrong

Laws and RegulationsLaws and Regulations

Societal StandardsSocietal Standards

Reaches for the higher standard Reaches for the higher standard

in the gray areas when all in the gray areas when all

options seem rightoptions seem right


Source: Based on Chapter 2 “Mindsets & Culture” in Conscience and Corporate Culture Copyright © Kenneth E. Goodpaster

Self Interest

LawBased

MarketBased

Evolving EnlightenmentEvolving Enlightenment

ValuesValuesDrivenDrivenValuesValuesDrivenDriven

LeadershipLeadershipEffectivenessEffectivenessLeadershipLeadership

EffectivenessEffectiveness

BalancingBalancingStakeholderStakeholder

InterestsInterests


InterestsInterests

AssessmentAssessment

Process Process IntegrityIntegrityProcess Process IntegrityIntegrity

Long-term Long-term PerspectivePerspectiveLong-term Long-term PerspectivePerspective

Corporate Conscience

EthicalCulture

Ethical MindsetsEthical MindsetsCharacteristics in Building Characteristics in Building & Sustaining an Ethical & Sustaining an Ethical

CultureCulture


Global Employee Global Employee Perspectives: Perspectives:

The Ethics IndexThe Ethics Index

Ethics themes benchmarked Ethics themes benchmarked through Kenexa’s through Kenexa’s WorkTrendsWorkTrendsTMTM with employees with employees around the worldaround the world

CEBC Ethics Themes:CEBC Ethics Themes: Senior management Senior management

practices ethical conductpractices ethical conduct Company serves interest of Company serves interest of

multiple stakeholdersmultiple stakeholders Co-workers behavior Co-workers behavior

consistent with values consistent with values Able to discuss ethical Able to discuss ethical

issues/concerns issues/concerns Must demonstrate company Must demonstrate company

values to get aheadvalues to get ahead

The Ethics Themes: Integrated to form an Ethics Index

Globally By Country

U.S. Multi year trends

By Industry

By Job Type

Correlated to business performance and employee engagement indicators


Mission Mission PurposePurpose

Vision Vision Image of the futureImage of the future

Values Values Principles that guide behavior Principles that guide behavior

Ethics & Compliance Codes Ethics & Compliance Codes Legal and regulatory compliance and beyondLegal and regulatory compliance and beyond

Laying the Laying the FoundationFoundation

Values Values


Shaping Organizational Shaping Organizational CultureCulture

ValuesValuesThe shared norms and beliefs of the The shared norms and beliefs of the

organization that define acceptable organization that define acceptable behaviorbehavior

Inspirational and directional in natureInspirational and directional in natureGives individuals a context to reflect on Gives individuals a context to reflect on

how their personal values alignhow their personal values alignEthics and Compliance Codes of ConductEthics and Compliance Codes of Conduct

The standards of behavior established to The standards of behavior established to insure compliance with the law, insure compliance with the law, regulations, and rulesregulations, and rules

Prescriptive in nature with specific well Prescriptive in nature with specific well defined expectations of behavior defined expectations of behavior

Values Values


Collaboration

Communication

Conscientiousness

Excellence

Innovation

Integrity

IFMA Core ValuesIFMA Core Values

Knowledge Sharing

Leadership

Professional Development

Recognition

Stewardship


Professionalism

Confidentiality

Conflicts of Interests

Compliance with Laws

IFMA Code of EthicsIFMA Code of Ethics

Responsibility to the Profession

Protection of Assets

Fair Dealing

Reporting of any Illegal or Unethical Behavior


Data Data Illustration:Illustration:

The behavior of the people I The behavior of the people I work with is consistent with my work with is consistent with my company’s mission, vision and company’s mission, vision and values.values.

ExecutiveExecutive ManagerManager FrontlineFrontline

75%75% 63%63% 57%57%

The 1The 1stst Element ElementLaying the FoundationLaying the Foundation

Source: Kenexa WorkTrends 2008


LeadershipLeadership is the key ethical culture factor is the key ethical culture factor

Leaders must set the tone by “talking the talk” Leaders must set the tone by “talking the talk” and and “walking the talk”“walking the talk”

Top management is generally Top management is generally perceivedperceived to exert to exert more pressure on “getting the results” and not more pressure on “getting the results” and not on “how the results are achieved”on “how the results are achieved”

This translates into get the results “at all This translates into get the results “at all costs.” “The ends will justify the means!”costs.” “The ends will justify the means!”

LeadershipLeadershipEffectivenessEffectiveness

Modeling Ethical Behavior Modeling Ethical Behavior is Crucialis Crucial



My senior management My senior management supports and practices high supports and practices high standards of ethical conduct.standards of ethical conduct.


78%78% 73%73% 68%68%

The 2The 2ndnd Element ElementEffective LeadershipEffective Leadership




Where I work, ethical issues Where I work, ethical issues and concerns can be discussed and concerns can be discussed without negative consequences.without negative consequences.


77%77% 72%72% 62%62%

The 2The 2ndnd Element ElementEffective LeadershipEffective Leadership



3333

Stakeholder ReciprocityStakeholder ReciprocityCommunityCommunity

InvestorsInvestors

Government-Government-RegulatoryRegulatory SuppliersSuppliers

Your Organization

CompetitoCompetitorsrs

EmployeesEmployeesCustomersCustomers

EnvironmentEnvironment


InterestsInterests



My company strives to serve My company strives to serve the interests of multiple the interests of multiple stakeholders not just the stakeholders not just the shareholders (financial shareholders (financial performance).performance).


77%77% 72%72% 65%65%

The 3The 3rdrd Element ElementBalancing Stakeholder InterestsBalancing Stakeholder Interests



35353535

MarketingMarketing

PurchasingPurchasingFinanceFinance

Human Human ResourResour

cescesSalesSales

ProductionProduction

CommunicationCommunicationRecognitionRecognition

IncentivesIncentivesHiringHiring

AdvancementAdvancement EvaluationEvaluation

ProcessProcessIntegrityIntegrity

With Organizational With Organizational ProcessesProcesses

Aligning Core Business Aligning Core Business FunctionsFunctions



Where I work, people do not Where I work, people do not “get ahead” unless their “get ahead” unless their behavior clearly demonstrates behavior clearly demonstrates my company’s values.my company’s values.


67%67% 57%57% 50%50%

The 4The 4thth Element ElementProcess IntegrityProcess Integrity



U.S. Integrity/Ethics TrendsU.S. Integrity/Ethics Trends

Multiple stakeholders

Sr. mgmtsupports

ethics

Coworkers

live values

Ethics discussed

freely

Must live values to advance

Note: values represent percent favorable

Source: Kenexa WorkTrends™ 2005-2010


Skilled trades

Operators

Laborers

Service

Sales

Clerical

Technical

Professional

Supervisor

Manager

Executive/senior manager

Source: Kenexa WorkTrends™ 2010

CEBC Integrity CEBC Integrity QuickCheckQuickCheck™™

U.S. Job TypeU.S. Job Type


Source: Kenexa WorkTrends™ 2010

CEBC Integrity CEBC Integrity QuickCheckQuickCheck™™

U.S. IndustryU.S. Industry


Impact of Ethics Impact of Ethics U.S. EmployeesU.S. Employees

Pride

Overallsatisfaction

RetentionConfidence in organization’s

futureSource: Kenexa WorkTrends™ 2010

Note: values represent percent favorable

Reputation improvement

Performance improvement


Observations from the Observations from the WorkforceWorkforce

One third to one half of workers do not believe:One third to one half of workers do not believe: Their leaders and co workers practice the values of the Their leaders and co workers practice the values of the

organizationorganization Their organization balances the interests of multiple Their organization balances the interests of multiple

stakeholdersstakeholders They can surface ethical issues without negative They can surface ethical issues without negative

consequencesconsequences They must live the values to get aheadThey must live the values to get ahead

When it comes to the perception of integrity in the When it comes to the perception of integrity in the organization there is a significant gap between the organization there is a significant gap between the leaders and those on the frontlines leaders and those on the frontlines

There is a link between the perceptions of those who There is a link between the perceptions of those who felt strongly about integrity in their organizations to felt strongly about integrity in their organizations to business performance and employee engagement business performance and employee engagement indicatorsindicators


Linking & Aligning Mission, Vision, Values and Linking & Aligning Mission, Vision, Values and Ethics & ComplianceEthics & Compliance

LeadershipLeadership Education & Training:Education & Training:

Governing AuthorityGoverning Authority Senior ManagementSenior Management Mid Level ManagersMid Level Managers Front Line EmployeesFront Line Employees

Connecting systems & incentives to valuesConnecting systems & incentives to values Surveying for feedbackSurveying for feedback

Building the Ethical Building the Ethical CultureCulture


Questions?Questions?


For Information on CEBCFor Information on CEBC

Phone the Center:Phone the Center: 651-962-4120651-962-4120

Fax the Center:Fax the Center: 651-962-4042651-962-4042

Email the Center:Email the Center: [email protected]@cebcglobal.org

Visit the Web:Visit the Web: www.cebcglobal.orgwww.cebcglobal.org

Write the Center:Write the Center: 1000 LaSalle Avenue, TMH 3311000 LaSalle Avenue, TMH 331

Minneapolis MN 55403-2005 Minneapolis MN 55403-2005

USA USA

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copyright © 2012 by the center for ethical business cultures ® 1

Documents

job types

weak ethical cultures

wider gap

donald mccabe