Attention to ethics is on the rise at American companies. The impetus for this shift toward better behavior, experts say, is financial reality as well as moral awakening.
Today, lapses by a single employee can cost a company millions of dollars in fines. That has driven many corporations to create a new post: the ethics officer.
"Ten years ago they were practically nonexistent," says W. Michael Hoffman, founder and executive director of the Center for Business Ethics at Bentley College in Waltham, Mass. Today, he says, between 35 and 40 percent of major US companies have such officers.
Since 1991, membership in the Ethics Officer Association, based at Bentley, has jumped from 12 to 300, says EOA chairman Bill Redgate. He says the number of ethics officers continues to grow.
A key factor fueling the rise in officers and broader programs devoted to ethics is the 1991 implementation of strict sentencing guidelines for corporations. Companies are now held more accountable for wrongdoing by their employees, and can be slapped with massive fines.
The guidelines are very specific about what punishments go with what crimes. That leaves federal judges little leeway to reduce fines and sentences except in cases where companies have made an effort to support and enforce ethical behavior.
When Japan's Daiwa Bank, for example, was fined an astounding $340 million in February for a US employee's elaborate bond-trading fraud, it became clear how far-reaching the reforms were. The fine was so high because the company had no significant compliance program in place and did not immediately report the crime, among other things. Writing in ethikos, a business-ethics newsletter in Mamaroneck, N.Y., lawyer Jeffrey Kaplan calls the punishment "the largest criminal fine in the history of US law."
But factors other than the sentencing guidelines are influencing companies as well. A desire for a better corporate culture, concern about civil lawsuits, and reaction to industry trends are also bringing ethics to the fore.
"I am extremely pleased and optimistic about how much has happened in building these programs," Dr. Hoffman says. He says the increase shows the commitment of companies to "upholding ethical standards."
Sears, Roebuck & Co. says a combination of factors led it to launch an ethics department and revamp policies three years ago.
In 1992, Sears was tainted by allegations, settled out of court, that incentives at its auto-repair shops caused mechanics to cheat customers.
The debacle, along with the sentencing guidelines and discussions about the firm's values and future direction, led the Chicago-based company toward specific reforms, says Bill Giffin, Sears's vice president of ethics and business policy. Many of the company's 300,000 employees were surveyed for suggestions on what should be included in the new policies, Mr. Giffin says.
"It's one of the model programs out there," Hoffman says. An "effective" program is regarded as one that includes ethics policies, an officer or department to oversee them, and a training program to inform employees about them, he says.
Sears has tried to avoid a finger-pointing environment. "We measure our success by how many people we help, not how many people we catch," Giffin says. This approach is one that many experts recommend.
Sears also installed an "assist-line" that allows employees to call and get guidance on ethical issues or to voice concerns.
Not all companies have come as far as Sears.
Many Fortune 1000 service and industrial firms do not do enough to support their ethics policies, says management professor Gary Weaver of the University of Delaware in Newark, citing recent research he did with colleagues at Pennsylvania State University.
"It can end up looking like window dressing, even if management did not intend it" that way, he says.
Many of the companies surveyed lacked training programs and periodic checks to make sure employees know the policies.
Dr. Weaver adds that companies should incorporate ethics into more "common organizational functions" to show employees that such policies are not just for outward appearances. Performance reviews that rate the employee on ethical as well as other job-related issues are one way of doing this, he says.
This kind of integrated approach, Weaver says, can happen in any size company, even small ones without resources for an ethics office. "I don't think that having a code [of ethics] by itself accomplishes anything," he says. "What matters is what you do to implement the code."