Introduction (Case: Putting Teeth into Corporate Ethics Codes)

The advent of globalization has fueled a lucid increase in the intensity of business competition -
one of the captivating factors in the pervading concern over ethics in business in the wake of
globalization. A stark example with respect to this is no other than Enron. Albeit Enrons heyday
has long ended, its lessons will long endure.

Issues in the Stride of Eliciting Business Ethics

Lower Manhattan, March 2 2004: Martha Stewart, WorldComs Scott Sullivan, Tycos Denis
Kozlowski and Mark Swartz and Adelphias John Rigas were prosecuted, all within two blocks
of one another, where Attorney General John Ashcroft appeared at the Forley Square to
announce the indictment of Bernard Ebbers, Chief Executive of WorldCom (William, Harvard
Review 2003). Pursuant to the afore-conferred corporate scandals and wrongdoings, it is a
predicament to argue upon the fact that law enforcement lacked an arsenal of regulatory and
statutory provisions with which to bring justice upon companies and individuals (SLE doctorine
lifting of corporation veil) for alleged corporate misconducts. Withal to that, it was revealed
that most defendants convicted of corporate wrongdoings were aware of applicable regulations
and could distinguish between right and wrong. This is no longer a daunting fact. Wall Street
scandals arose in one of the most intensely regulated industries, which revolved around the
deceptive and unscrupulous practices of finance and accounting (i.e: window dressing). It should
warrant our attention that accounting and finance are predominantly rule-based and axiom-
centric disciplines. In spite that many well-entrenched rules, acclaimed precedence of
prosecution and instances of settlements, the antiphon to corporate scandals have been primarily
rule-based. The aftermath of these corporate scandals across the decades only brought in more
regulatory and statutory oversight mechanisms: (1) Securities and Exchange Commission has
promulgated numerous regulations implementing Sarbanes-Oxley 2002. (2) New York Stock
Exchange and the National Association of Securities Dealers adopted new listing standards and
governances rules. (3) Malaysia has adopted a more stringent and radical approach on
transparency compliance of all public listed companies. Whilst it may be argued that these
mechanisms development is attributed by a greater slant or orientation towards ethics, it is the
stark opposite otherwise. An intriguing perspective towards these newfound ethics mechanism
boils down to the fact that virtually most, if not all, the developments are largely rule-based.

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Resultant of the deliberated post-scandal preoccupation, rules have seemingly emerged as the
proxies in determining the right decision. This has conjured a rift in the distinction between
obeying the rule and acting ethically. Rules by itself inherently however, is constrained by
tendrils of flaws. A stark example visualized under such realm is the scope rules and laws are
response or post-calamity remedy towards disaster precedence and are less likely to be
developed to contend to unanticipated crises. Another example assumes its vantage point on the
content of rule rule mandates acts that are morally reprehensible but does not however, look
into its spirit. In spite of fortification of regulations over the decades, ethical lapses which invoke
corporate scandals suggest that ethics should not be sidelined.

Corporate Code of Ethics

Code of ethics contains open guidelines describing desirable behavior and restrictive language
prohibiting other behaviors such as bribery and conflict of interest (Nijhof, Cludts, Fisscher, &
Laan, 2003). Codes enhance social responsibility and clarify the norms and values the
organization seeks to uphold. Most importantly, they are messages through which the
corporations attempt to shape employee behavior and effect change through explicit statements
of acceptable behavior (Stevens, 1994). Corporate Codes of Ethics have been an enthralling
study subject theoretically and empirically over the last decade (e.g., Gaumnitz and Lere, 2004),
(Kaptein and Schwartz, 2008). The increased interdependencies associated with globalization
dynamics such as environmental crises and revelation of workplace abuses have resulted in new
forms of organizing, novel types of organizational constraints and opportunities, and increased
global interest in corporate social responsibility (CSR) and business ethics (May et al., 2006). No
matter what their structure or physical location, organizations must accommodate to the
complexities of operating within a multicultural communicative, legal, moral, and social context
where boundaries between domestic and international organizing are progressively more blurred.
A fundamental indicator of the impact of globalization on corporate values is its influence on
specific and intentional organizational communication practices. Codes of Ethics are formalized
public statements of corporate principles and rules of conduct that govern inter-organizational
and intra-organizational practices and relations. A Code of Ethics is a guide to both present and
future behavior and specifies corporate ethical values and the responsibilities of employees to
one another and to organizational stakeholders (Kaptein and Schwartz, 2008). Globalization

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theories posit organizational convergence, suggesting that corporate Codes of Ethics will become
commonplace and include greater consideration of global issues (Maignan and Ralston, 2002;
Stohl et al., 2006).

Circumventing the Gap between Desired State and Actual State in Ethics

A trine which pertains to the fact that most code of ethics failed to function as intended boils
down to the expectations it sets. A set of code of ethics that lay upon the foundry of unrealistic
expectations is likely to be a debacle. Conversely, codes succeed because of their successes, in
spite it sounds paradoxical. By such virtue, those successes must be targeted, focused and
reasonable. Where failures overshadow successes, a spiraling effect is likely to be concocted
where more and more violations seem to occur. On another spectrum, it should be warranted that
codes will also backfire when excessive and overwhelming controls are exerted upon. In one
very controversial study of the New York City police department in 2003, the ethics regime was
criticized on the fact that it made it nearly insurmountable for the police to execute their tasks.
The postulation stated that there were close to the verge of innumerable forms to fill out,
regulations to follow, questions that needed to be asked. Other researchers have argued that one
of the unanticipated consequences of creating an ethics code is increasing public cynicism.
Donald Menzel (2006) has argued that disappointment in an ethics code is inevitable and must be
taken into account when designing ethics programs.

It is imperative that ethical values and principles in codes to incorporate or blend in cognitive
and emotive elements. They must appeal to reason, as well as the emotional content of
professionalism. Effective codes of conduct should focus on a manageable list of inappropriate
behaviors articulated in a succinct and concise manner. Both of these should be written for the
intended audience, not specialists in the area. They must also have penalties associated with them
that are appropriate and timely. Most successful codes have both administrative and criminal
penalties. In the vast majority of ethics cases administrative penalties (demotion, salary reduction,
and dismissal) are the most appropriate penalties.

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Question 1. In what ways are companies trying to strengthen their ethic codes?

Sanctions Sections

Companies are rewriting the codes into a more detailed and specific manner. For instance,
German software giant SAP has a 14-page code with sections that describe conduct with
customers, vendors, and competitors, as well as stock-trading rules. Businesses are adding
enforcement measures, including guidelines for employees to follow if they see violations. A
sanctions section in SAPs code explains that any act in opposition to this Code of Conduct is
subject to internal review, and can result in consequences that affect employment, and could
possibly lead to external investigation, civil law proceedings, or criminal charges.

Signature, Consent and Agreement Requirement

Businesses are increasingly requiring all employees to read and sign the ethics statement. This
measure is an apparent extension of the Sarbanes-Oxley rule that CEOs and CFOs certify the
accuracy of company financials.

Tech Backup

Companies are adding more training around their codes of ethics. The new focus is on providing
guidance for senior managers, rather than assuming they understand the issues. Technology is
increasingly involved in all these pursuits. Integrity Interactives code-of-ethics training course
includes a testing component. All employees are mandated to continually train until they score
100% on a test. Continuous Controls Monitoring solution, which flags possible code-of-
conduct violations, like purchasing from a vendor that charges more than the standard price (that
might mean the employee is getting some sort of kickback) has also been implemented.

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Reinforcing Accountability

Withal to the case highlights in the revolution of strengthening ethics, another stark example
which succinctly suggests that companies are increasingly probing into ethical cementation can
be seen on the basis of Fortune 1000 Firms Survey 2002. The survey revealed that 93% of
companies listed in Fortune 1000 are developing formal code of ethics. The most prominent case
can be visualized under the move of Healthcare Financial Management Association (HFMA) in
2002. It was reported that HFMA revised its code of ethics to designate contact persons who
handle reports of ethical violations, to clarify how the board should deal with cases of ethical
violations and to guarantee a fair hearing process. Manufacturer of household products Pledge,
Drano and Windex on the other hand, has reformed its code of ethics to cover a broader spectrum
which include expectations to employees, commitment to consumers, community and society in
general. In the semblance of Texas Instruments (the electronics giant), its code of ethics include
issues related to policies and procedures, laws and regulations, relationships with customers,
suppliers and competitors, conflict of interest, handling proprietary information and code
enforcement within the business settings. The rationale of assigning an independent personnel
who coordinates ethical conducts provide an avenue for both employee and management to
consult with in the realm of dealing ethical dilemmas, be it in routine or non-routine decision
making.

Overall, it is clear and vivid that companies are indeed assuming a more proactive stance in
strengthening their code of ethics as the event-subsequence of a wide array of corporate scandals
afore-conferred. To institute real change or modification in behaviors however, a more radical
approach is imperative one that entails permeating long-term change in employees behavior
towards ethical compliance. Support from the top, as suggested by the case would constitute a
sound start in the drive towards the state of such actualization.

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Recommendations

Question 2. One issue raised in the article and in the opening case of this chapter concerns
instituting real change in the ethical behavior of companies and their employees. What more
can a company do to make sure its code of ethics is followed?

No compliance manual, regardless of its thoroughness, can cover every contingency. And, if one
could be written that did cover all possibilities, it would occupy so much space and be so
cumbersome to use that its covers would never be opened. By equipping employees with
corporate-supported values and empowering them to make decisions based on those values, they
are granted the readiness to take action even during adverse or extreme situations where specific
guidance are absent.

Erecting a Robust and Self Sustaining Ethics Infrastructure

Albeit writing and inscribing a realistic business code of conducts is ostensibly the emerging ride
on the ethical bandwagon in wake of scandalous rashes (i.e: Enron and WorldCom), likelihood
of such adoptions hoisting organization towards an ethical assembly ground is slender. Beyond
the shadow of a doubt, scripting code of conducts is a sound and plausible start. To warrant that
the essences of code of ethics are instilled, nurtured and complied, supports from top levels is
construed to be momentous. It is deemed imperative of corporations to establish a committee of
independent non-executive directors cementing on its Board of Directors who are responsible for
ensuring that systems are in place in the realm of assuring employee compliance with the Code
of Ethics. Advocated and recommended measures in hovering towards the a robust and self-
sustaining ethics infrastructure include staff training, evaluations of compliance systems,
appropriate funding and staffing of the corporate ethics office and effective protections to
employees who "blow the whistle" on perceived actions contrary to the spirit and/or letter of the
Code. Many corporations establish independent "hot lines" or "help lines" where employees can
seek guidance in the event that they are confronted with an ethical dilemma or when they
encountered unethical conducts in the workplace. Annual training in repressing mental extinction
and reinforcing compliance on the code is becoming commonplace. Every publicly listed

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corporation should mull of establishing a regular or periodical review system to ensure the Code
is dynamic and updated in the light of new developments and external environmental shift.

Communication and Assimilation

Whilst writing the code of ethics for a corporation is an elevation and a steer towards an ethical
organization, failure to communicate the code of ethics to employees would however hamper the
efforts and resources directed at the inscription of code of ethics. In the 1980s, Tom Peters talked
extensively about Managing by Walking Around (MBWA). In the purest sense, MBWA is a way
for supervisors and managers to best communicate their (task and ethical) expectations and
requirements in daily, informal meetings with employees. These informal conversations endow
employees with data of 2 distinct continuums spoken or verbal information and the inferred
information gleaned from subtle communications in the dimension of the words used by the
manager. Employees basically want to know two things. They want to know what is expected or
required for them to survive and to be successful (tasks and ethics). They also want to know
"how they are doing" at this point in time (tasks and ethics). The essence in communicating the
codes of ethics to employees sees the light, but not limited to the following:

i. Goals

It is paramount that employees are able to envisioning how their goals support the organization's
mission and vision. It signifies an excellent opportunity to bond personal goals as a constituent of
the code of conduct or code of ethics. Let employees know that how you accomplish a goal is
just as important as accomplishing the goal itself. Cutting corners can hurt the corporation, its
reputation and, eventually, the individual employee.

ii. Roles
Employees should be guided on how their piece of the job blends or melds into the macro aspect
of an organization. It is imperative that the top management constantly remind and recognize
employees of their values, contributions and merit. In addition, the top management should
ensure that employees comprehend their roles and expectations set forth are aligned with that of
top managements vision by such virtue:

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 Expectations
- Be certain that employees understand exactly what you expect. What has to be done?
When? To what standards? How will it be evaluated? What should they do if they
encounter any roadblocks or unanticipated changes? How do you want them to handle
questions and/or "gray areas" where expectations may be unclear or conflicting?
Priorities
- Remind your employees of the organization's operational priorities. If safety, quality
and customer service come first for example, then make that clear to your employees. Be
clear about what you expect them to do when they experience conflicts between any of
these core values. Clarify what constitutes ethical conduct.

Synthesizing Ethical Conduct into Corporate Systems

Elicit the position of the corporation as an ethical business that conforms beyond the statutory
stratum governing business entity is a tenable kick-start. The next stride steering towards an
ethical organization hails upon providing employees and customers with a written pledge (i.e: in
the form of credo or values). Some instances include but not limited to the followings: These are
our values. This is how we define what is right, fair and good. We promise that all employees (at
every level) of this organization will treat each other and customers accordingly. To reinforce
the synthesis, training should be provided to employees on their ethical responsibilities.
Consistent guidance should also be given people how to translate the pledge into specific actions
that support the pledge and build trust. In gauging success and identifying uncontended gaps,
simple and non-convoluted systems should be implemented to measure the effectiveness of
ethics initiative. On the basis of the results measured, determine if employees are living the
pledge and measure the differences it makes to employees, customers and bottom line.
Employees who voluntarily choose to live the promises and pledge should be rewarded
accordingly whilst those who assume a nonchalant stance towards the code of ethics in spite of
training and commitment exerted from the management should be removed.

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Back to Basics Spiritual Programs

The root of ethic is highly associated with individual responsibility. It is all about ones own
perception and judgment. Not matter how good documentation, monitoring system, program and
enforcement the company have in place, the individual person will ultimately determine the
success of those. Enrons lessons supposedly to be learned and endure since its became the
turning point that unveiled the corporate scandals which resulted to the introduction of most code
of ethics for business around the world. However, the ethics issues are not ended and last in fact
there are still issues going on. For certain country in the world, code of ethics merely a window
dresser to obscure the stakeholders eyes in order to attract and sustain their position in the
competitive world.

Ethical teachings of most religions are largely compatible with each other and with secular views.
For instance, the Quran represents a divine message conveyed to the Prophet Muhammad by the
Archangel Gabriel. However, a new perspective was added. Muhammad was a successful
businessman. Consequently, the Quran includes rules not only for manners and hygiene, and
marriage and divorce, but also for commerce and politics, interest and debts, contracts and wills,
and industry and finance. Islamic law, the Sharia, represents the sum of duties required by God
of human beings with respect not only to God, but also to ones fellows (Riham Ragab Rizk,
2008).

It is recommended that the company could embark spiritual programs to strengthen the role of
inner sense. The inner sense in this context refers to the capacity of a person to distinguish
between right and wrong. The program can be any religious activity so long as it does not exceed
the border line. The purpose of the activity is to close up the relationship with the creator as
well as human being. By implementing such activity it is hope that it could close the social gap,
reduce the greed, and to unite the entire organization so that everybody can feel the sense of
belongings and treat the company as a family. In addition to that, it would help everybody to
understand their function and responsibility towards their creatures.