--------------------------------Selling Ethics

by Catherine D. Mayes

We know you have a corporate compliance program. Following the adoption of the U.S. Sentencing Guidelines for Organizations and the decision of the Delaware Chancery Court in In re: Caremark, every company issued (or reissued) a code of conduct and conducted “ethics” training for its employees. Columbia/HCA did so, and then, if one is to believe the indictments and pleadings, people went right ahead and falsified cost reports. My own company adopted a code of conduct in 1993. Yet we have had a number of ethics violations since, none the scale of what happened at Columbia/HCA, but, nevertheless, things that put more gray hair on senior management heads. My guess is your company (or your clients) are not so very different. Does this prove corporate compliance programs are a big waste of time?

Not on your life. A corporate compliance program is effective if it instills among employees the ability to detect violations and the willingness to report them to you. You can not define “success” in ethics training as the elimination of violations. The root causes of unethical behavior are not addressed by ethics training.1 There may be cases where an employee stops doing something wrong as a result of learning that it is wrong, but in our experience, the employee who is engaged in prohibited activity knows it is prohibited and is doing it anyway. So we define “success” in ethics training as getting your ethical employees (which 99% are) to come forward when they see or think they see unethical activity by others.

In order for ethics training to be effective, you have to get past the cynicism (“No one really worries about ethics.”) and the defensiveness (“You don’t trust me, do you?”) and convince your good employees, especially managers, that ethics is good business. This article suggests how to go about that. It assumes you have a formal code of conduct for employees and formal training on what is required of them by law and by your company’s internal policies. It assumes as well that your company's training is a touch stale and that the formal code of conduct has gathered dust in your bookcase. The challenge is to keep your program healthy.

Step 1: Convince Yourself.

Read (or reread) the cases involving noncompliance in your industry. Read the recent Supreme Court cases involving sexual harassment.2 The message is clear: violations do not go unpunished just because company policy prohibits the illegal act, but the punishment for companies that have conscientiously tried to avoid violations is nearly always less onerous than for companies that have no such track record. More importantly, notice that the violations that end up in the courts are ones that went on a long time, not the ones that were detected and dealt with timely by the company. The longer illegal activity goes undetected, the more likely a major liability will result, with all the attendant bad publicity, loss of management focus, legal costs and other headaches.

Step 2: Convince Your Senior Management.

You’re the lawyer, so the law moves you. Your superiors are businessmen. They need to be convinced that corporate compliance programs work. Ethics is good business. Together with sound business decisions and corporate citizenship, ethics is an essential component of a positive public image—that illusive, but vital good will. In addition, ethics is a risk and cost management tool. This is true for many reasons, all (unfortunately) hard to quantify.

Ethical companies retain good employees. If your employees, all the way up the ranks to middle and senior managers, see unethical behavior in the management layer above them, what do they do? Quit, at best; lose their commitment; or at worst, copy the behavior in the misguided notion that dishonesty is the key to success in your company.

Ethical companies retain good customers. Customers, like employees, are overwhelmingly ethical people. Even when they might suggest or imply they want you to bend a rule on their behalf, they are not likely to leave you for refusing. But when they conclude a company is bending rules routinely, they flee.

It is always cheaper to investigate one false act than to investigate many. It is always cheaper to pay a fine for a single violation than for many. At the risk of being redundant, the realistic objective of the compliance program is early detection, not prevention.

Senior management tends to think all you need to do to get compliance is to tell people if they don’t follow the rules they’ll be fired. Managers with this mindset are not particularly interested in the idea of “selling” ethics. But once a violation occurs, they are engaged. That’s the time to be ready with your message: ethics is good business.

Step 3: Convince Your Employees.

Above all else, employees need to be convinced that senior management is serious about conducting business honestly and within the law, and about punishing wrongdoers.

• Ethics (or something akin to it) needs to be mentioned in every all-hands meeting.

• Ethics needs to be a stated goal of the organization.

• Ethics needs to be enforced in detail: take care of the small stuff and the big stuff doesn’t happen. If an employee is found to have committed a minor violation of law or policy, treat him with dignity but resist the temptation to be “merciful.” In most cases the employee who is terminated will find comparable work and will have learned a valuable lesson. More importantly, the employees who remain will have learned a valuable lesson.

• Invite business units to do an updated risk assessment of the ethical and legal issues in their unit. A lively dialogue about where controls are needed or where they may be excessive refocuses attention on the legal and ethical obligations of the group.

• Ethics can be woven into presentations on new products, new tools and new developments in the industry. Besides touting all the bells and whistles, show employees and customers that you know what your moral obligations are by pointing out the edits and audit trails built into the system.

• Respond to every question and report of suspicious activity with great interest and earnestness. For many people, mustering the courage to blow the whistle is a hurdle. It will immediately put them at ease to know you share their concern and will take charge of an investigation or research their issue. This person will find it easier to call you again and will encourage his or her coworkers to call you when they have a question or suspicion.

Endnotes

1 In 1997, the Ethics Officer Association and the American Society for Chartered Life Underwriters and Chartered Financial Consultants sponsored a survey of diverse organizations. More than one-third of the employees admitted committing an ethics violation. The most common violation was cutting corners on quality control. Ethical Management 8:5 (November 1998). Most unethical behavior can be attributed to workplace pressure to perform or personal gain (money, ambition or romance). Ibid at 5.

2 Faragher v. City of Boca Raton, 188 S.Ct. 2275; Burlington Industries, Inc. v. Ellerth, 118 S.Ct. 2257.

About the Author

Catherine Dunlap Mayes is the Corporate Compliance Officer of Sallie Mae, Inc. Based in Reston, Sallie Mae provides funds for education by purchasing loans, primarily federally guaranteed student loans originated under the Federal Family Education Loan Program, from lenders. The company currently owns or manages student loans for 5.3 million people. The company, including subsidiaries, has approximately 4,000 employees in 13 states. In addition to her compliance duties, Catherine is Legislative Counsel and an expert in title IV of the Higher Education Act of 1965. She graduated in 1977 from the University of Virginia School of Law and practiced 6 years with the D.C. firm of Beveridge and Diamond, P.C., before joining Sallie Mae.

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