Are ethics too expensive?

Hard-hit firms are cutting training. But hard times are when workers need it most.

Michael Sloan

After a raft of early-decade scandals like Enron and Worldcom, an embarrassed corporate America built and developed programs to encourage high ethical standards in the workplace. Now recession is pressuring those same companies to trim those programs.

They aren’t really mission-critical, the thinking goes. You can always catch up on training next year.

There’s just one problem.

Stressful periods – like the great recession of 2008-09 – are precisely the times when managers and employees most need a little help to keep them on the straight and narrow.

“In a time where the economy is bad and corporations are struggling to survive, there is more temptation to cut corners and step over the ethical line than there is in other times,” says Michael Hoffman, executive director of Bentley University’s Center for Business Ethics in Waltham, Mass.

There’s some statistical evidence to back this up. Workplace misconduct tends to increase by at least 11 percent during periods of turmoil, including times of layoffs and budget cuts, according to a 2008 report by the Ethics Resource Center in Arlington, Va.

Also, 46 percent of executives expect fraud levels in their organizations to increase this year, according to a Compliance Week/Deloitte survey of 249 public company executives in December. Only 3.6 percent expected it to go down.

Even regulators are worried. In a rare bit of budgeting advice, the Securities and Exchange Commission in December warned firms not to make short shrift of compliance programs, which often include ethics training, when cutting expenses. Last month, panelists at a Washington, D.C., conference coached international business leaders on how to manage an effective compliance program in a resource-constrained environment.

Companies, in other words, are trying to pursue ethics on the cheap.

The Ethics & Compliance Officer Association says that at least six of its member firms have recently cut ethics budgets, and at least two others have consolidated their ethics and compliance programs. ECOA declined to name the companies. And firms making such cuts don’t exactly trumpet the fact.

The question is: Is cut-rate ethics really feasible?

“The main thing that [clients] say – and this may be optimistic – is that they’re deferring,” says Steve Priest, president of Ethical Leadership Group, a consulting firm in Wilmette, Ill. “They’re saying, ‘This is not the year we can do assessments, do training, or engage managers’ ” in ethics initiatives.

One possible solution: Make the ethics arena more efficient.

Training may be the core testing ground for the idea. Forty percent of companies have recently decreased overall employee training and another 14 percent are considering doing the same, according to a Hewitt Associates survey of 518 executives in April. Ethics training – one of the more expensive parts of compliance programs – would be a natural area of scrutiny for corporations looking to cut costs.

“I don’t think a whistle-blower hot line costs all that much, and obviously an audit is something you have to do, so the [ethics cost] issue tends to come up in terms of training,” says Noah Pickus, director of the Kenan Institute for Ethics at Duke University in Durham, N.C. “That’s the thing that you’re going to cut.”

Ethics training is where workers develop skills for such challenges as saying no to bribery, spotting conflicts of interest, and treating subordinates with respect. The training impact tends to be highest through in-person interaction with instructors and colleagues, experts say, but that approach is also pricey since it may involve consultants, travel, and valuable time away from the job.

Online training, a growth area for the past five years, can help firms save on travel and other costs. Mr. Priest says companies are increasingly using Web-based seminars or “webinars” to cover content that, in the past, would have been addressed at conferences. But some in the ethics field question whether online training is very effective.

“A company comes out and says, ‘All of our employees have done ethics training,’ and then you ask what it is, and they’ve been filling out a questionnaire online,” says Frank Vogl, cofounder of Transparency International, an anticorruption organization. “I wonder: Wait a second. Is that training? Does it really sink in? Or are they going through a pro forma, compliance-type operation that really doesn’t have much effect?”

Ethicists say high-tech fixes aren’t the only option. Mr. Hoffman and Mr. Pickus urge companies to seize a recession-induced opportunity by integrating ethics discussions into routine staff meetings. This serves the dual function of saving on outside consulting fees and making managers more active players in the formation of ethical cultures.

Corporate leaders are finding no shortage of fodder for ethics discussions. At one media company that Pickus has advised, managers have recently begun reading aloud the company’s code of ethics at the start of every budget meeting. This practice reinforces values and frames every spending decision in a context of fairness and responsibility.

Still, cash-strapped companies must pick their battles. That sometimes means focusing where ethical infractions would pose the largest legal or reputational danger. For pinched clients, Daylight Forensic & Advisory sometimes does a data analysis to identify an organization’s highest-risk areas and then concentrates compliance initiatives there, according to Scott Moritz, one of Daylight’s executive directors.

Today’s lean initiatives will have to prove their effectiveness in blunting temptations to fudge numbers, abuse power, or cheat in pressure-cooker work environments. Already in 2007, the ERC’s biannual business ethics survey has found that the incidence of workplace misconduct had climbed to pre-Enron levels. Results from the 2009 survey are expected later this year.

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