Ethics in Business

20 February 2012

Bernard Gutierrez & Abbas Al Abbas

Internal Audit/Ethics and Compliance Professionals

The Need to Establish an Ethics & Compliance Program

Objectives

“Ethics”

What is it anyway??

Why it is important in organizations

Importance of leadership and culture

Organizational challenges and safeguards

Roles of ethics and compliance officers

Ethics

A concept of right and wrong conduct beyond legal compliance

Ethical principles are implicit contracts that represent who you are and what you stand for—what your constituents expect to rely on

Michigan Business School Guide to The Ethical Challenge, How to Lead with Unyielding Integrity

Why is Ethics Important in Organizations?

Attendance

Safety

Quality

Productivity

Loyalty

Security

Profitability Reputation

Character and ethical behavior in organizations affects:

Why Should Organizations Behave Ethically? Prevent harm to others, avoid

reputational harm and reduce potential liability

Fulfill public expectations and improve external relations

Protect organization from others (employees, competitors, etc.)

Improve workforce productivity but protect employees if needed from their employers

Promote personal morality

Reasons for Ethical Problems in Organizations

Personal Gain and Selfish Interest

Competitive Pressure on Finances

Organizational Goals vs. Personal Values

Ethics and Compliance Risks in the Company

Cash on hand funds are misused, mishandled, and unrecorded

Online payment facility can edit bank account details

Weak organizational and process structures

Workplace discrimination Disgruntled employees Tone-at-the-top/corporate culture Bribery False financial reporting information Poor communication practices

Impact of the Individual Leader/Manager

“The behavior and ethical attitude of an employee’s boss

is seen as the most important factordetermining whether the

employee will behave unethically on the job” (Liebig, J.E. 1990)

Organizational Safeguards

Leadership/Open door policy Ethics and compliance officers Ethics committee Code of conduct Discussion forums Conflict of interest assessments Periodic risk assessments Ethics and compliance training Help line Recognition effort Corporate citizenship

Best PracticesBest Practices

Organizational Safeguards

When a strong Code of Conduct was in place:The median fraud losses were reduced by 46%*andThe duration of the fraud scheme was reduced on average by 37.5%*

When an anti-fraud policy was in place:The median loss related to fraud was reduced by 40%*andThe average duration of a fraud scheme was reduced by 28%*

Source: 2010 ACFE (Association of Certified Fraud Examiners) Report to the Nations on Occupational Fraud and Abuse

Fraud Prevention - Code and Policy JustificationFraud Prevention - Code and Policy Justification

Ethics and Compliance Program

Do the Right Thing: Principles of Business Conduct

Ethics & Compliance Officers Risk Assessment Continuing Education – Awareness Campaign Integrity Hotline (Confidential and/or

Anonymous) Integrity in Action Awards Organizational Leadership

Corporate Ethics & Compliance Program

Ethics and Compliance Program

We will help establish codes of ethics, and require all employees to read, understand, and sign it.

Examine the stated values, mission, and goals of the organization and determine if the organization’s behavior supports these statements

Conduct anti-fraud, compliance and ethics orientation and awareness trainings.

Assess risks and correct inconsistencies in implementing disciplinary actions.

We will also recommend to reward employees’ ethical conduct.

Implement an anonymous and/or confidential “hotline” as an effective misconduct reporting mechanism. (Occupational frauds are much more likely to be detected by tip than by any other means. – ACFE 2010)

What Will Ethics & Compliance Officers Do?

Ethics and Compliance Program

Establish and communicate a whistleblower protection policy to report misconduct in the workplace.

Create a compliance program based in institutional and personal values

Review and amend the language of the Company policies, communications, training to incorporate ethics & values

Follow through with reports of misconduct and promote effective internal controls.

Undertake investigations into specific employees or activities to confirm that they conform with the Company’s ethical guidelines

Help management create a culture of doing the right thing.

What Will Ethics & Compliance Officers Do? (cont.)

Ethics and Compliance Program

Implementation

Standards

Education

Resources

Thought for the Day

All that is necessary for the triumph of evil is that good men [people] do nothing.

Edmund BurkeIrish orator, philosopher, &

politician (1729 - 1797)