On this page

• Studies Show Trust in Management Can Boost Company's Bottom Line
• Amnesty International - Netherlands and Non-Discrimination Policies
• Managing Corporate Fraud by Employees
• BP Safety Report
• 3 Key Actions that Most Contribute to Employee Compliance
• Understanding Corporate Frauds: A Psychologist's Perspective
• Measuring the Value-Added of Employee Volunteer Programs
• Managing Sexual Harassment Allegations: Toyota Case Study
• Fannie Mae Update: Settlement, OFHEO Report and Recommendations
• Fannie Mae Report
• A Manual for Ethical Management in Emerging Market Economies
• Daniel Terris book on Effective Employee Ethics Programs
  
  
  

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Studies Show Trust in Management Can Boost Company's Bottom Line

Parts of this article were reprinted with the permission of the Society for Human Resource Management

The Society for Human Resource Management (SHRM) offers an important perspective on how human resource managers are integral to creating an ethical culture.  A recent article from the U.S.-based association highlights the connection between employee trust in management and business success.  One academic report cited in the article discusses trust as it pertains to the American employee, while another study is cited for exploring the same issue in Chinese companies. 

According to SHRM, “The researchers attribute increased performance to the decrease of distractions associated with trusting one’s supervisor and the resulting increase in focus on the job.”  In this context, trust was defined as a perception of ability, benevolence and integrity in office management.  A study that was done at an American nonunion manufacturing firm showed that employees that had trust in “multiple levels of management” had a higher employee performance rate and overall better organizational citizenship behavior (OCB), both of which contribute to a company’s bottom line.  If employees see their supervisor, director or CEO as someone who acts in accordance with their own values, is competent and treats them fairly, there will be less cause for distraction at work or unethical behavior.

SHRM cites a different study that observed Chinese workers in both joint-venture firms and state-owned enterprises, the two most common types of companies in China.  The article states “Trust in organization was positively related to OCB in both joint ventures and state-owned enterprises.”   The difference, according to the study, is that joint venture firms tend to be more future-oriented and greater focus is placed on the relationships between superiors and subordinates.  A greater perception of trust within these relationships contributes, at least in part, to these firms’ higher rates of success, according to the study.  Therefore, it is seen across the globe that strong relationships between management and employees is positively correlated to higher employee performance.

Based on these findings, SHRM’s position is that human resource managers, whether in American or foreign companies, should take time to cultivate a relationship with their employees to foster a more open and trusting environment.  This could include better communication and ensuring employees are properly trained for the tasks they are asked to do.

Posted 3/14/08

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Amnesty International - Netherlands Navigates Challenges Companies Face in Creating Non-Discrimination Policies

A report, released by the Dutch section of Amnesty International as part of its Human Rights and Business Pages series, explains the importance of implementing solid non-discrimination policies in the workplace and how to confront the challenges that many companies face in doing so.  More and more companies are trying to refine their policies to meet the rising challenges that come with working internationally.  National laws in many countries allow prosecution of companies for human rights abuses in business practices abroad.  Companies must be much more knowledgeable about the conditions under which they are working in order to comply with proper national, regional, and international laws, the report says.

Amnesty International argues protecting freedom from discrimination in the workplace is part of a country’s duty to uphold human rights.  Therefore, states have a role to play in regulating and monitoring companies.  International law provides for the right to freedom of discrimination in the workplace, United Nations conventions exist to help states better monitor the actions of non-state actors, many regional conventions also exist for the same purpose, and those countries that ratify these conventions are expected to integrate them into their national laws.  This complex network of regulations and legislation which the report outlines provides more challenges for companies to ensure compliance.

The report lists some of the most common challenges companies face, most arising from working internationally, and gives suggestions for best practices.

Filing a complaint – Companies are often caught between recognizing the need for anonymity and having the ability to prosecute the offender if necessary.  Amnesty International emphasizes that an employee who files a complaint must be able to do so without fear of reprisals in the future.  This should be done anonymously if possible, but more importantly, there should be trust that the management will investigate the report and take the matter seriously.  The report cites that most companies do not keep a central record of complaints that were filed.  This action could be helpful if the record is reviewed by senior management in order to evaluate the effectiveness of the company’s non-discrimination policies. 

Who defines “merit”? – Sometimes selection between candidates for positions indirectly excludes certain people.  Amnesty International believes it is important to define the criteria in relation to the skills required for the specific job so that the process is clear and transparent.

Cultural differences – Especially for companies working internationally, sometimes there is internal opposition to non-discrimination policies due to social norms within certain communities.  Amnesty International emphasizes that policies should remain objective, consistent, and transparent throughout the company.  Other ways of overcoming cultural opposition are raising awareness within the company of non-discrimination practices and employee training.  Finally, internal complain mechanisms should also be strong to combat instances of discrimination when they occur, the report says.

Conflicting national laws – When national laws conflict with company policies, companies should seriously consider suspending their practices in the area.

Gender – Gender equality is not treated the same in every country.  Managers should have in-depth knowledge of national laws and the human rights situation on the ground before deciding to operate in the country, Amnesty International believes.

 Ethnic tension – The community “culture” should seriously be considered before agreeing to operate in particular countries because companies could negatively contribute to prejudices that already exist.  The report also points out that depending on the situation and with the right strategies, companies could change negative attitudes in a positive way.

Migrant workers – Amnesty International believes workers performing the same job must be treated equally and paid equally.

Sexual harassment – It is often difficult to tell the difference between what is perceived as sexual harassment and what can be substantiated as sexual harassment, the report explains.  Companies must have a clear policy and anti-harassment training for its employees as part of an effort to create an ethical workplace culture.

In another section of the report, case studies are provided where companies have acted as “forces for good” in otherwise difficult communities.  Cases include migrant workers in China; ethnic discrimination in Bosnia, Herzegovina, and Rwanda; caste discrimination in India; gender discrimination in India; and harassment in Latin America.

Read the full report.

Posted 11/1/07

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The Enemy Within: A Roadmap for Managing Corporate Fraud and the Employee

In a new white paper, The Enemy Within: Corporate Fraud and the Employee - A Roadmap, UK law firm Glovers Solicitors and Privy Council Agents states that over  £40 million is lost every day to fraud in the UK,  that 80% of that fraud involves an employee, and that 90% of fraudulent employees have been with their employer for more than a year – 20% for more than a decade. Arguing that these statistics represent a huge risk to corporations, the guide offers companies directions for three main elements of dealing with insider fraud - deterrence, punishment and protection (Note: While the guide refers to some laws specific to the UK, its suggestions can be useful for all companies).

DETERRENCE

The paper makes several suggestions for deterring corporate fraud -

Use the employment contract as a deterrent against fraud by including a “fraud buster” clause that mandates fraud awareness training and includes:

• a rigorous monitoring policy
• a contractual clawback provision for owed sums
• notice of instant termination for gross misconduct
• notice of possible suspension during investigations
• and noted rather than tape-recorded disciplinary meetings, which, the paper argues, can delay fraud investigations.  
  
  

PUNISHMENT

 

The Disciplinary Process - Investigating Fraud

The paper argues that the best approach to investigating employee fraud is to report the activity to the police, taking legal action to preserve evidence and freeze assets before informing employees of the investigation; make IT-based evidence clear and understandable; get statements from potential witnesses early in the process; and make decisions of guilt based on a balance of probabilities.

The Disciplinary Process - The Letter

The letter should:

• Set out the allegations
• Include witness statements, unless there is a risk to the witness
• Inform the employee of their right to be accompanied by either a trade union representative or a colleague
• Inform the employee that they could be terminated on the grounds of gross misconduct
• Include who will conduct the meeting
• Include a date, time and place.

 

PROTECTION

The paper makes several suggestions for protecting companies legally and in terms of maintaining an ethical corporate culture:

• Involve the Police - Failing to report to the police undermines deterrent. While management may feel that by reporting to the police they will lose control of the process, this rarely happens unless there are money laundering issues, in which cases police involvement is essential to minimize risks to the manager or money laundering officer.  
• Avoid Compromise Agreements - Compromise Agreements, in which the employer and employee agree to settle all employment law claims that an employee may have, can send the wrong signal to other employees (hence damaging corporate culture) and add little to limiting publicity as the fraudulent employee is unlikely to advertise his own fraud.
• Follow all Processes

 

For the full paper visit Glover Solicitors' website.

Posted 3/23/07

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Building A Culture of Safety To Aid Employees

Excerpts from the BP Safety Report
By
The B.P. U.S. Refineries Independent Safety Review Panel
Chaired by James Baker III, former U.S. Secretary of State
January 16, 2007

Few issues are as important in the realm of workplace ethics as the approach of corporate leadership to the safety of employees. The BP tragedy in Texas and the independent report on it provides a vital set of insights that are applicable not only to BP, but to many other companies as well. 

Full Report
BP Reaction - Press Release

Key Excerpts From the Report:

The Panel's Statement

Process safety accidents can be prevented.

On March 23, 2005, the BP Texas City refinery experienced a catastrophic process accident. It was one of the most serious U.S. workplace disasters of the past two decades, resulting in 15 deaths and more than 170 injuries.

In the aftermath of the accident, BP followed the recommendation of the U. S. Chemical Safety and Hazard Investigation Board and formed this independent panel to conduct a thorough review of the company’s corporate safety culture, safety management systems, and corporate safety oversight at its U.S. refineries. We issue our findings and make specific and extensive recommendations. If implemented and sustained, these recommendations can significantly improve BP’s process safety performance.

Although we necessarily direct our report to BP, we intend it for a broader audience. We are under no illusion that deficiencies in process safety culture, management, or corporate oversight are limited to BP. Other companies and their stakeholders can benefit from our work. We urge these companies to regularly and thoroughly evaluate their safety culture, the performance of their process safety management systems, and their corporate safety oversight for possible improvements. We also urge the same companies to review carefully our findings and recommendations for application to their situations.

Preventing process accidents requires vigilance. The passing of time without a process accident is not necessarily an indication that all is well and may contribute to a dangerous and growing sense of complacency. When people lose an appreciation of how their safety systems were intended to work, safety systems and controls can deteriorate, lessons can be forgotten, and hazards and deviations from safe operating procedures can be accepted. Workers and supervisors can increasingly rely on how things were done before, rather than rely on sound engineering principles and other controls. People can forget to be afraid. When systems and controls deteriorate, everything can come together in the worst possible way. Equipment malfunctions and controls fail. An explosion and fire occur. People lose their lives or suffer horrible injuries. Families and communities are devastated.

The Panel focused on deficiencies relating to corporate safety culture, process safety management systems, and performance evaluation, corrective action, and corporate oversight.

The Panel's Findings

Process safety leadership. The Panel believes that leadership from the top of the company, starting with the Board and going down, is essential. In the Panel’s opinion, it is imperative that BP’s leadership set the process safety “tone at the top” of the organization and establish appropriate expectations regarding process safety performance. Based on its review, the Panel believes that BP has not provided effective process safety leadership and has not adequately established process safety as a core value across all its five U.S. refineries. While BP has an aspirational goal of “no accidents, no harm to people,” BP has not provided effective leadership in making certain its management and U.S. refining workforce understand what is expected of them regarding process safety performance.

BP has emphasized personal safety in recent years and has achieved significant improvement in personal safety performance, but BP did not emphasize process safety. BP mistakenly interpreted improving personal injury rates as an indication of acceptable process safety performance at its U.S. refineries. BP’s reliance on this data, combined with an inadequate process safety understanding, created a false sense of confidence that BP was properly addressing process safety risks. The Panel further found that process safety leadership appeared to have suffered as a result of high turnover of refinery plant managers.

Employee empowerment. A good process safety culture requires a positive, trusting, and open environment with effective lines of communication between management and the workforce, including employee representatives. Cherry Point has a very positive, open, and trusting environment. Carson appears to have a generally positive, trusting, and open environment with effective lines of communication between management and the workforce, including employee representatives. At Texas City, Toledo, and Whiting, BP has not established a positive, trusting, and open environment with effective lines of communication between management and the workforce, although the safety culture appears to be improving at Texas City and Whiting.

Incorporation of process safety into management decision-making. The Panel also found that BP did not effectively incorporate process safety into management decision-making. BP tended to have a short-term focus, and its decentralized management system and entrepreneurial culture have delegated substantial discretion to U.S. refinery plant managers without clearly defining process safety expectations, responsibilities, or accountabilities. In addition, while accountability is a core concept in BP’s Management Framework for driving desired conduct, BP has not demonstrated that it has effectively held executive management and refining line managers and supervisors, both at the corporate level and at the refinery level, accountable for process safety performance at its five U.S. refineries. It appears to the Panel that BP now recognizes the need to provide clearer process safety expectations.

Performance Evaluation, Corrective Action, and Corporate Oversight

Maintaining and improving a process safety management system requires the periodic evaluation of performance and the correction of identified deficiencies. As discussed more fully in Section VI.C, significant deficiencies existed in BP’s site and corporate systems for measuring process safety performance, investigating incidents and near misses, auditing system performance, addressing previously identified process safety-related action items, and ensuring sufficient management and board oversight.

BP’s Board of Directors has been monitoring process safety performance of BP’s operations based on information that BP’s corporate management presented to it. A substantial gulf appears to have existed, however, between the actual performance of BP’s process safety management systems and the company’s perception of that performance. Although BP’s executive and refining line management was responsible for ensuring the implementation of an integrated, comprehensive, and effective process safety management system, BP’s Board has not ensured, as a best practice, that management did so. In reviewing the conduct of the Board, the Panel is guided by its chartered purpose to examine and recommend any needed improvements. In the Panel’s judgment, this purpose does not call for an examination of legal compliance, but calls for excellence. It is in this context and in the context of best practices that the Panel believes that BP’s Board can and should do more to improve its oversight of process safety at BP’s five U.S. refineries.

The Panel's Recommendations

RECOMMENDATION # 1 – PROCESS SAFETY LEADERSHIP
The Board of Directors of BP p.l.c, BP’s executive management (including its Group Chief Executive), and other members of BP’s corporate management must provide effective leadership on and establish appropriate goals for process safety. Those individuals must demonstrate their commitment to process safety by articulating a clear message on the importance of process safety and matching that message both with the policies they adopt and the actions they take.

RECOMMENDATION #2 – INTEGRATED AND COMPREHENSIVE PROCESS SAFETY MANAGEMENT SYSTEM
BP should establish and implement an integrated and comprehensive process safety management system that systematically and continuously identifies, reduces, and manages process safety risks at its U.S. refineries.

RECOMMENDATION #3 – PROCESS SAFETY KNOWLEDGE AND EXPERTISE
BP should develop and implement a system to ensure that its executive management, its refining line management above the refinery level, and all U.S. refining personnel, including managers, supervisors, workers, and contractors, possess an appropriate level of process safety knowledge and expertise.

RECOMMENDATION #4 – PROCESS SAFETY CULTURE
BP should involve the relevant stakeholders to develop a positive, trusting, and open process safety culture within each U.S. refinery.

RECOMMENDATION #5 – CLEARLY DEFINED EXPECTATIONS AND ACCOUNTABILITY FOR PROCESS SAFETY
BP should clearly define expectations and strengthen accountability for process safety performance at all levels in executive management and in the refining managerial and supervisory reporting line.

RECOMMENDATION #6 – SUPPORT FOR LINE MANAGEMENT
BP should provide more effective and better coordinated process safety support for the U.S.refining line organization.

RECOMMENDATION #7 – LEADING AND LAGGING PERFORMANCE INDICATORS FOR PROCESS SAFETY
BP should develop, implement, maintain, and periodically update an integrated set of leading and lagging performance indicators for more effectively monitoring the process safety performance of the U.S. refineries by BP’s refining line management, executive management (including the Group Chief Executive), and Board of Directors. In addition, BP should work with the U.S. Chemical Safety and Hazard Investigation Board and with industry, labor organizations, other governmental agencies, and other organizations to develop a consensus set of leading and lagging indicators for process safety performance for use in the refining and chemical processing industries.

RECOMMENDATION #8 – PROCESS SAFETY AUDITING
BP should establish and implement an effective system to audit process safety performance at its U.S. refineries.

RECOMMENDATION #9 – BOARD MONITORING
BP’s Board should monitor the implementation of the recommendations of the Panel (including the related commentary) and the ongoing process safety performance of BP’s U.S. refineries. The Board should, for a period of at least five calendar years, engage an independent monitor to report annually to the Board on BP’s progress in implementing the Panel’s recommendations (including the related commentary). The Board should also report publicly on the progress of such implementation and on BP’s ongoing process safety performance.

RECOMMENDATION #10 – INDUSTRY LEADER
BP should use the lessons learned from the Texas City tragedy and from the Panel’s report to transform the company into a recognized industry leader in process safety management. The Panel believes that these recommendations, together with the related commentary in Section VII, can help bring about sustainable improvements in process safety performance at all BP U.S. refineries.

CONCLUSION:  Finally, the Panel believes that all companies in the refining, chemical, and other process industries should give serious consideration to its recommendations and related commentary. While the Panel made no findings about companies other than BP, the Panel is under no illusion that the deficiencies in process safety culture, management, or corporate oversight identified in the Panel’s report are limited to BP. If other refining and chemical companies understand the Panel’s recommendations and related commentary and apply them to their own safety cultures, process safety management systems, and corporate oversight mechanisms, the Panel sincerely believes that the safety of the world’s refineries, chemical plants, and other process facilities will be improved and lives will be saved.

Posted 1/18/07

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New Research Identifies Three Workplace Actions That Contribute Most to Employees' Ethical Behavior and Compliance

from the Ethics Resource Center

A new research report, by the US-based Ethics Resource Center (ERC) and Working Values, Ltd.,   "Critical Elements of an Organizational Ethical Culture," builds on the ERC's 2005 National Business Ethics Survey® (NBES). This measured ethical culture by asking employees if management and coworkers demonstrated various "ethics-related actions" (ERAs) in the workplace.
The research finds that three ethics-related actions by management and coworkers have the greatest impact on employee ethics and compliance – an influence more profound than formal ethics programs and organized activities.  They are:

• Setting a good example;
• Keeping promises and commitments; and
• Supporting others in adhering to ethics standards.
  
  

The new analysis also finds that ethics training is more useful in helping junior employees feel prepared to handle misconduct than it is for senior employees, indicating that training needs to be tailored to different employee levels. Upper management may need advice about how to demonstrate its commitment through action, while junior employees need instruction about how to handle specific ethics challenges.

Working Values asked the ERC to conduct this research to help organizations better target training to promote a culture committed to ethical conduct in the workplace.  "The findings demonstrate that companies should seriously consider dedicating more resources to encourage leadership to set a good example, establish organizational trustworthiness, and help employees to make ethical decisions, rather than directing all their efforts to communicate about the specifics of a formal program," said David Gebler, President of Working Values.

According to Gebler, Working Values has found that organizations are best able to develop an ethical culture when they know their own cultural strengths and vulnerabilities.  Through the new relationship with ERC, Working Values clients can use ERC's advanced measurement instruments and benchmarks to identify specific risk areas before they implement or change ethics programs.  In return, the ERC gains valuable data to further build its database to inform the public discussion about ethics in organizations.

"Critical Elements of an Organizational Ethical Culture" is available for free download on the ERC and Working Values Websites.

The Ethics Resource Center (ERC) is a private, non-profit organization devoted to independent research and the advancement of high ethical standards and practices in public and private institutions. ERC conducts research to help strengthen the character of business, provides benchmarks for gauging the effectiveness of organizational ethics and compliance programs and creates resources to educate the public about organizational ethics issues across all sectors.

Working Values® Ltd., a SmartPros (AMEX: PED) company, is an industry leading developer of integrated values-based corporate responsibility and ethics awareness and compliance learning programs. Since 1993, Working Values has helped organizations such as America Online, JP Morgan Chase, Coors Brewing Company, Schering Plough and Raytheon align workplace behavior with standards, values and ethical principles.

 

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Understanding Corporate Frauds: A Psychologist's Perspective

By Dr. Oladele Akin-Ogundeji

President, TotalPoise Associates, Nigeria,
A firm of strategic human resources & organization development consultants in Africa

The following is from a detailed set of perspectives from a paper entitled: 'Taming Corporate Frauds from the Root.' The white paper addressed more than twenty behavioral approaches to understanding and managing corporate frauds, including psychometric testing of employees, optimizing rewards systems within organizations, and organizational cultural reorientation. The author cites several key factors which contribute to corporate fraud, including:

1. Socio-cultural Factors:
Values make a social system tick. A breakdown in values is at the heart of lack of respect for the general good, which corporate frauds epitomize. The increasing wave of frauds in the last 15 years is symptomatic of the discontinuity in the value system and ethical commitments of key corporate players -the shareholders, the management, the employees, the customers, and, if you like, the larger society.  In most social circles, particularly in African and many third world societies, the acid test of a person’s worth is how liquid he or she is. How he or she gets the cash is a non-starter! Many employees, members of management, shareholders and customers program themselves to get rich quick, or to catch up with the Jones, in the instinctive fear that patient and honest efforts in the right direction may devastatingly impact on their instinctual drive for pleasure, self gratification and economic security; more so in societies with chronic lack of organized social security. A core corporate inference, with antidotal impact, is the increasing need to create a socially responsible organizational life and a benign, ethical top-management leadership.

2. The Availability Syndrome:
Corporate frauds happen where the funds or resources are available! They take place where the conditions are conducive. Fraudsters tend to exploit the slightest opportunity to perpetrate fraud if the time is ripe. Thus, fraudsters will wait, and even scheme, for the opportunity and for the right moment to act. Like a hot radiator that explodes at the careless handling by a motorist, fraudsters will lie low-perfecting their acts and biding their time where they know the funds or resources are abundant to snap-waiting for any carelessness or imperfection in the system. What conditions- what lapses, what facilities, what machinery- in your organization can potential fraudsters exploit? What surveillance, perhaps of an autopilot nature, is in place to outsmart insider frauds?

Posted 12/15/06

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Measuring the Value-Added Benefits of Employee Volunteering

How Companies Can Determine the Benefits Employee Volunteer Programs Generate for Their Bottom Line

A Synopsis of"Measuring Employee Volunteer Programs: The Human Resources Model," by the Boston Center for Corporate Citizenship and the Points of Light Foundation

Many companies – even those with the most advanced employee volunteer programs – fail to make a strong case for employee volunteer programs because they don't link the benefits of volunteering to business functions.

Sure, volunteer managers can recite the benefits of employee volunteerism: how it boosts employee morale, helps with recruiting and retention, and enhances the company's reputation among investors, consumers, and the community.

Once implemented, however, few volunteer programs are measured to determine if they have generated benefits for the corporate bottom line. Data may be collected about the number of employees who volunteer or for how many hours, but this information is rarely tied back to the value-added benefits to the company.

Commonly cited reasons for this failure to measure include a bias for action, "measure-phobia," and internal skepticism about measurement's results.

This can be a serious mistake that can mean the difference between increased funding and elimination of the program.

As with any corporate investment, senior leadership needs to know the returns their organization receives from their support of volunteering and what benefits can accrue to the business, employees who volunteer, and communities.

Just like other business functions, employee volunteering is important enough to warrant increased scrutiny. The creation of a measurement approach that factors in the company's broader goals will help support the case for continued programming that meets the needs of the company, the employee, and the community.

Building, Testing, and Implementing a Conceptual Framework

"Measuring Employee Volunteer Programs: The Human Resources Model," a joint publication of The Center for Corporate Citizenship at Boston College and the Points of Light Foundation, describes the elements necessary to create and implement a measurement procedure that communicates the business impact of an employee volunteer program.

The publication presents a conceptual framework as a tool to facilitate measurement, and then applies the framework specifically to human resources. However, the framework described is equally applicable to other core business goals in areas such as community relations, public affairs, and marketing.

Five Critical Success Factors

Five success factors are critical when creating and implementing an employee volunteer program measurement process:

Take a strategic approach. Start by clearly identifying the key goals you are trying to deliver. If employee morale and retention are key goals, specify these goals up front, before designing the program. Setting goals and planning to measure them will drive how the program is designed.

Build a conceptual framework for your program. Design a measure that specifically addresses the desired outcome.

Take an inventory of existing metrics. When possible, take advantage of existing measures used inside the company.

Find the metric gaps and modify as necessary. Identify a measurement process for each goal.

Engage key stakeholders. Overcome skepticism by making the process participatory. Engaging key stakeholders in the measurement process, from the identification of data points to data collection methods, will foster buy-in and increase the relevance of the program for the company as a whole.

Building, Testing, and Implementing the Framework

With the five critical success factors as background, companies can follow a simple yet rigorous three-step approach to measurement:

Step 1: Identify the relationship between the volunteer program company goals, stakeholder needs, and potential outcomes of the program.
This involves identifying the key business goals of the program and building the conceptual framework in collaboration with key stakeholders. Then, with the due diligence completed, identifying specific program outcomes linked to relevant business goals will provide the data needed to ensure continued program relevance.

Step 2: Define measurement questions and criteria.
This includes selecting the questions that will determine whether or not the EVP is meeting its goals, determining what metrics would answer those questions, and developing consensus among key stakeholders to commit to these metrics.

Step 3: Implement the measurement process to test the conceptual framework, which helps assess whether current programs support goals.
If existing programs do not lead to the desired effect, then managers must strongly consider modifying the program's goals or developing a new program altogether. In addition, volunteer program managers should look for evidence of effective program communications.

Research for "Measuring Employee Volunteer Programs: The Human Resources Model" included interviews with the human resource and volunteer program administrators from a cross-section of companies with volunteer programs of varying levels of sophistication. The publication also includes insights and examples from such companies as IBM, Deloitte & Touche, and Safeco Insurance. To download the complete publication, click here.

Posted 12/7/06

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How Major Companies Respond to Top-Level Sexual Harassment Allegations: A Toyota Case Study

How companies resolve sexual harassment difficulties and how they publicly communicate their actions is a critical top management issue. Companies are often reluctant to publicly admit wrongdoing or to provide detailed explanations of allegations. They often employ prominent outside public figures to review their procedures in order to lend credibility to their responses. Even here, however, they sometimes turn to people with whom they have long had a relationship, which can yield public skepticism. The recent Toyota situation contains some of these characteristics.

Allegations of sexual harassment in the upper ranks of Toyota Motor North America’s (TMA) management has caused its CEO to resign his position and prompted the company to announce a set of measures to strengthen its “anti-harassment and discrimination” policies and procedures.

Without providing any details of the allegations, TMA issued a press release on May 8, 2006 that prominently noted that it is replacing top executives, launching employee training programs, and creating a “Special Task Force Headed by Former U.S. Secretary of Labor Alexis Herman to Review Its Policies and Practices Against Harassment and Discrimination.”

According to Business Week magazine, as well as other media reports, on May 1, 2006 Sayaka Kobayashi, the former personal assistant for then CEO Hideaki Otaka, filed a law suit against Toyota alleging that Mr. Otaka repeatedly sexually harassed her and that TMA’s management failed to take effective actions to stop the harassment. Indeed, the magazine reported that not only did corporate management ignore her complaints, but also that its general counsel suggested to her that one of her options was to leave the company. The article stated that Toyota replaced Weil Gotshal & Manges, the New York firm that initially advised the company on the matter with another law firm (Weil Gotshal is among the most prominent U.S. law firms advising on corporate governance and business ethics).

According to Ms. Kobayashi’s complaint, for several months she endured the sexual advances of Mr. Otaka. These included inappropriate invitations to lunch, requests that she accompany him on business trips, gifts and flowers, and two forcible attempts to engage her in sexual activity.

TMA’s press release highlights the actions that the company has taken in light of the publicity surrounding the accusations. It noticeably described the special role that Alexis Herman will play in a review of the situation. However, it also quoted Ms. Herman as being positive about the ethics practices at Toyota. She said, “As Chair of the Toyota Diversity Advisory Board since 2002, I've seen first-hand the company's progress in the area of diversity and commitment to treating employees with dignity and respect.”

According to the press release, the task force will “undertake a thorough review to ensure that Toyota's policies, procedures and actions regarding harassment and discrimination are in keeping with best practices.”

Other actions that TMA is taking, include:

- The initiation of a supplemental executive training program which will enable executives to better recognize, prevent and handle any instances of inappropriate behavior.

- As current company policy requires that any allegation of harassment or misconduct be immediately investigated and reported to the executive's superior, the clarification by each Toyota affiliate of its procedures to provide that if the Chairman, CEO or President is involved in an allegation, a report will be made directly to that executive's Board of Directors.

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Fannie Mae Update:
OFHEO Report Blames Board and Executives for Unethical Corporate Culture, Makes Key Recommendations

Two major reports on alleged auditing irregularities at Fannie Mae highlight critical issues for reform. The first report here is from US government authorities. The second report (below) is by an independent expert group headed by former US Senator Warren Rudman.

On May 23, 2006 Fannie Mae reported that it had reached a settlement with US federal regulators under which it will pay a fine of about $400 million for allegedly manipulating accounting rules in ways that helped increase bonuses for executives. It also announced it will comply with recommendations from a report by the Office of Federal Housing Enterprise Oversight (OFHEO) that largely blamed Fannie Mae’s board and executives for fostering a culture that allowed managers to act illegally and manipulate earnings.

According to James B. Lockhart, Acting Director of OFHEO, “The image of Fannie Mae as one of the lowest-risk and ‘best in class’ institutions was a façade. Our examination found an environment where the ends justified the means. Senior management manipulated accounting; reaped maximum, undeserved bonuses; and prevented the rest of the world from knowing. They co-opted their internal auditors. They stonewalled OFHEO…The combination of earnings manipulation, mismanagement and unconstrained growth resulted in an estimated $10.6 billion of losses, well over a billion dollars in expenses to fix the problems, and ill-gotten bonuses in the hundreds of millions of dollars.”

The OFHEO report is the product of more than two years of in-depth review involving nearly 8 million pages of documents. The following are some of the key findings and recommendations of the report:

Findings:

-Fannie Mae senior management promoted an image of the Enterprise as one of the lowest-risk financial institutions in the world and as “best in class” in terms of risk management, financial reporting, internal control, and corporate governance. The findings in this report show that image was false.

-A large number of Fannie Mae’s accounting policies and practices did not comply with Generally Accepted Accounting Principles (GAAP). The Enterprise also had serious problems of internal control, financial reporting, and corporate governance. Those errors resulted in Fannie Mae overstating reported income and capital by a currently estimated $10.6 billion.

-Fannie Mae must strengthen its Board of Directors procedures to enhance Board oversight of Fannie Mae’s management.

-Fannie Mae must undertake a review of individuals currently with the Enterprise that are mentioned in OFHEO’s report.

-Due to Fannie Mae’s current operational and internal control deficiencies and other risks, the Enterprise’s growth should be limited.

-OFHEO should continue to support legislation to provide the powers essential to meeting its mission of assuring safe and sound operations at the Enterprises.

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Fannie Mae: Case Study in Corporate Ethics

UPDATE - May 23, 2006 - Fannie Mae Agrees to Pay $400M Fine For Allegedly Manipulating Accounting Rules, Accepts Recommendations of OFHEO Report. See Above.

Implementing an effective ethics program in a company involves many components. Among other things, it requires promoting the development of a meaningful ethical culture and establishing a model “tone at the top” which influences all employees. It involves the pro-active encouragement across the enterprise of the corporate Code of Ethics and the visible application of the Code when difficult choices have to be made. It involves the senior staff directly responsible for corporate ethics and compliance exerting their influence not only on top management but also on those difficult, but crucial, corporate decisions which carry ethical dimensions.

The new report on Fannie Mae, consisting of more than 2,000 pages, provides detailed insights into each of these issues and thus constitutes a valuable case study. EthicsWorld has sought to summarize the findings from this perspective: 

A “Report to the Special Review Committee of the Board of Directors of
Fannie Mae”

by Warren Rudman, Robert Parker, Alex Young K.Oh, Daniel Kramer of Paul, Weiss, Rifkind, Wharton & Garrison LLP and by George Massaro and Jeffrey Ellis of Huron Consulting Group Inc. The report has become known as the “Rudman Report.”
Published on February 23, 2006.

The Report provides extensive detail suggesting that the senior management failed to communicate effectively with employees and that there was a widespread perception of a “culture of arrogance” coming from the leadership.  Little doubt is left that communication failures were part of a corporate culture that reduced the ability of top management to become aware of serious problems that were developing within the company. Thus, as the report notes, after the accounting scandal broke and the former chief executive officer resigned, new CEO and President Daniel H. Mudd resolved to change the corporate culture. He said in an interview with The Washington Post (June 3, 2005) that he aimed to establish “an attitude of service” towards the company’s investors and customers. In another interview with the same newspaper (November 16, 2005), Mr. Mudd said that the management’s approach to criticism used to be “shut the doors and huddle and navel gaze,” and the approach now is “open the doors and get out and ask people bluntly, right up front…What we have gotten wrong?”

The report notes that Mr. Mudd himself has said that earlier efforts at reforming corporate culture involved a tendency to “make a sport” of hiring consultants. These consultants, he stated, often make reform proposals that are then disregarded. The Rudman Report states that the comments it received from employees, directors and regulators suggest that Mr. Mudd’s reform efforts have led to widespread perceptions that the “tone at the top” has improved. It praises Mr. Mudd for seeking to improve internal and external communications, including a new willingness by the company to admit mistakes.

 

The Report highlights past approaches at Fannie Mae to promote good ethics. The professionals directly engaged in programs in this area are described as dedicated and well-meaning. But, it becomes evident from the Report that the overall corporate culture, as noted above, including the perceived arrogance of top management, severely undermined the success of distinct corporate ethics programs. Moreover, the report details several other significant weaknesses, which are unfortunately commonplace at many major corporations.

To understand the serious weaknesses in Fannie Mae’s approach to corporate ethics it is useful to first see what actions it had been taking. For more than a decade, the company highlighted its Code of Business Conduct to its employees and updated it from time to time in line with standard practice (partly reflecting, for example, the Sarbanes-Oxley Act and New York Stock Exchange requirements).  The core principles of the Code required employees to report any departure from or violation of the Code and prohibited retaliation against employees who made such reports.  The Code required employees to be open and trustworthy. The Code instructed employees to avoid conflicts of interest, and to abide by various laws and regulations that govern the company’s business transactions.

Fannie Mae provided employee Code-related training and it pursued investigations of Code violations and other corporate policies. It had a professional unit dedicated to handling employee complaints.  At the start of 2003 it enhanced the centralization and profile of its ethics and compliance program by:

• pulling together ethics and compliance functions within the Legal Department;
• creating the Office of Corporate Compliance (OCC) to provide central management of ethics and compliance matters;
• appointing a Chief Compliance Officer to oversee the existing investigative unit (the Office of Corporate Justice (OCJ) and the new OCC; and,
• replacing the old Business Conduct Committee (which had been chaired by the head of Human Resources) with a new management-level compliance committee chaired by the General Counsel.

 

The Rudman Report concluded that, despite the above approaches, the ethics and compliance program as of late 2004 suffered from numerous deficiencies. The Report noted that as of late 2004 the Fannie Mae ethics and compliance functions suffered from (direct quotes from the Report):

• unstructured information flow to the Board;
• inadequate commitment of resources;
• inappropriate placement of ethics and compliance functions within the organizations;
• inappropriate placement of the Chief Compliance Officer position; and,
• insufficient cross-enterprise coordination.

 

 
Detailed descriptions in the Rudman Report suggest that reporting ethics and compliance issues to the Board was an ad hoc matter and that there was no systematic written reporting from management to the Board on ethics and compliance issues.  While information was given to the Board from time to time, it does not appear that it was provided in ways that enabled the Board to assess the effectiveness of the company’s ethics and compliance programs. Organizational changes by management in this area were not presented to the Board for review.

There was a constant shortage of resources to manage and develop the ethics and compliance programs at Fannie Mae. At times this resulted, for example, in drawing personnel away from training and guidance activities so that complaints could be better handled. There is an implication in the report that the programs in this area were just another set of tasks for the Legal Department and ones that neither required particular priority nor demanded requests to top management and the Board for enhanced resources.

Inappropriate Placement of Ethics and Compliance Functions.

The Report states bluntly that management’s decisions to place the ethics and compliance offices in a litigation section of the Legal department “was inappropriate in that it appeared to compromise the independence of the ethics and compliance program and limited its status and visibility within the organization.“

Employee confidence in the system was undermined by the possibility that the location of the ethics and compliance officers in the Legal department could be tainted by management’s litigation strategies. This potential conflict of interest was exacerbated, it states, by the fact that the Chief Compliance Officer was also the Deputy General Counsel in charge of the Legal department’s employment practice group, which was responsible for defending Fannie Mae’s interests against claims brought by company employees.

The Report stresses that although it is not unusual for a company to have a chief compliance officer who is situated in the legal department, “it is both unusual and undesirable for a chief compliance officer not to report directly to the company’s board on compliance matters; and it is highly unusual for a chief compliance officer to have responsibility for supervising a company’s employment practice litigation.” 

Insufficient Cross-Enterprise Coordination

The Report noted that an annual ethics and compliance report was not provided to the Board of Directors in 2004 or 2005, that there were not systematic reports to the Board and that this omission, coupled with the low level of resources available for programs, prompts the conclusion that Fannie Mae “lacked an effective mechanism for coordinating compliance matters across the enterprise as of the second half of 2004.”

Conclusion

The Report notes a series of actions that have been taken in recent months at Fannie Mae to address the shortcomings noted above. Resources for the ethics and compliance programs have been sharply increased, a new Chief Compliance Officer has been appointed who reports directly to the CEO and to the Board’s new Compliance Committee. The position is at the Senior Vice President level and located outside of the Legal Department. Noting recent developments, the Rudman Report states that it sees progress now in enabling meaningful Board engagement on ethics and compliance matters. “Going forward, we think it is especially important for management reporting in these areas to provide meaningful risk assessments and discussion of perceived resource or other deficiencies.”

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Business Ethics: A Manual for Managing the Responsible Business Enterprise in Emerging Market Economies

Kenneth W. Johnson, director of the Ethics and Policy Integration Centre, is the principal author. Igor Y. Abramov, Senior Advisor, Market Access and Compliance, International Trade Administration, Department of Commerce, is coauthor. The Manual provides a comprehensive framework of concepts, relationships, and worksheets to help owners and managers of organizations of all sorts and sizes effectively, efficiently, and responsibly engage organizational stakeholders.

The Manual provides a comprehensive framework of concepts, relationships, and worksheets to help owners and managers of organizations of all sorts and sizes effectively, efficiently, and responsibly engage organizational stakeholders to:

• Shape their vision for the organization;
• Identify expected responsibility program outcomes;
• Design and develop implementing strategies, structures, and systems; and
• Align their communications, management practices, business conduct, and organizational learning toward that vision.

Designed as a training tool for enterprises operating in countries that have just recently transitioned to a market economy, Business Ethics will also be useful to decision-makers in any organization that is seeking to design and implement a business ethics program that conforms to global standards.

The 10 chapters of Business Ethics are organized into five sections that answer the questions:

• What is a responsible business enterprise?
• What is the relationship between law, ethics, and responsible business conduct?
• What are the roles of corporate governance and social responsibility in business ethics?
• What constitutes a business ethics program?
• How is a business ethics program structured?
• How is a business ethics program put into practice?
• How can responsible business conduct be achieved?
  

Fully indexed, Business Ethics also contains an extensive bibliography, a glossary that explains the basic terminology of business ethics, and—in its nine appendices—numerous examples of business ethics policies adopted by various countries and organizations.

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Ethics at Work: Creating Virtue at an American Corporation
by Daniel Terris

In her July 4, 2005 review of the book reporter for Barron’s, Susan Witty, writes: “Daniel Terris, director of the International Center for Ethics, Justice and Public Life at Brandeis University in Massachusetts, has written a timely book. With the cooperation of Lockheed Martin, Terris spent two years examining its employee ethics program, a program Lockheed began developing in the late 1980s—before merging with Martin Marietta, and after being caught in overseas-bribery and government-overcharging scandals spanning several decades.”

 

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