Many Firms Flagging On Follow-Up To Ethics Codes

1-9-98
University Park, Pa. -- A new survey of trends in corporate ethics management suggests that the majority of Fortune 1000 firms have committed mainly to the low-cost, possibly symbolic, side of the effort.

Researchers from Penn State's Smeal College of Business Administration and the University of Delaware say that while most of the 254 firms that responded to the survey have adopted ethics codes and policies, they differ substantially in their efforts to see that those policies or codes actually are put into practice.

For instance, while 98 percent of the firms claimed to address ethics and conduct issues in a formal document, only 45 percent required an annual acknowledgment of receipt, and 51 percent an annual acknowledgment of compliance, by employees.

"Our study is distinguished in part by the degree of specificity with which different aspects of corporate ethics activity are delineated and measured," said Linda Klebe Treviño, professor of organizational behavior in Penn State's Smeal College. "We looked at such topics as who has formal responsibility for ethics management, how their offices are structured, how they evaluate their effectiveness, and how active their CEOs are in delivering ethics-related messages. The results provide, in effect, a snapshot of the 'state of the art' in formalized corporate ethics functions."

Co-authors with Treviño on the study were Philip L. Cochran, associate professor of business administration and director of the Center for Study of Business and Public Issues in The Smeal College, and Gary R. Weaver, assistant professor of management with the University of Delaware's College of Business and Economics. The research was supported by the Ethics in Business Research Fund of the American Institute of Certified Public Accountants, and will appear in the Journal of Business Ethics.

The population studied consists of the Fortune 500 industrials and 500 service corporations, as listed in 1994. The responses were collected from the officers most responsible for dealing with ethics and conduct issues in the firms. "One surprise we had regarding these officers was that while 137 of the firms reported having a single officer responsible for ethics, more than half of them actually spend not more than 10 percent of their time in ethics-related activities," said the University of Delaware's Weaver. "Unfortunately, only a meager 19 of these 137 firms reported that from 91 to 100 percent of the officer's time was spent on ethics-related functions."

Furthermore, just 30 percent of the firms reported having specific departments or offices created to deal with ethics and conduct issues, and of those, 63 percent were created in the 1990s.

Less than one-fourth of the firms reported frequently comparing their ethical performance with that of other companies, and 22 percent answered that they "never" do this. Only 10 percent frequently survey external stakeholders, such as customers or suppliers, regarding the firm's ethics and values, and 46 percent answered "never." Again, only 10 percent use external parties to help evaluate their ethics program, and 51 percent said "never."

"In summary, although some firms are quite active in externally assessing their corporate ethical performance and programs, roughly equal to much greater numbers of firms do not resort to external evaluations," said Penn State's Cochran.

Slightly more than half the firms have adopted some kind of telephone-based system whereby ethics and compliance complaints and queries can be raised by employees, yet one-fourth said the system receives no more than one call per month per 10,000 employees. Eighteen percent report 20 or more calls per month per 10,000 employees.

As for CEOs' direct involvement in ethics management, 46 percent were said to discuss ethics-related issues with the ethics officers once or twice a year, but 32 percent attended no meetings with ethics as a primary focus. Forty-six percent sent out company-wide communications about business ethics and conduct annually, but 62 percent provided no live or taped messages about ethics to employees.

"Although an annual formal message from the CEO may seem, at first glance, to constitute a respectable level of CEO commitment, we tend to disagree," said Treviño. "Employees in firms as large as those in the Fortune 1000 receive a staggering number of different work-related messages throughout the year. Considering this, and given that pro forma communiqués may be taken considerably less seriously than other forms of communication, our results suggest that from the standpoint of most employees, many CEOs convey minimal official commitment to corporate ethics programs."

The researchers point out, however, that their data indicate many exceptions to the low-level commitment scenario. They also note that in cases where CEO attitudes toward ethics program activities are unclear in the eyes of employees, employees of necessity will form their opinions of a CEO's ethics commitment largely from information provided by their immediate supervisors and company "grapevines."

"Whether or not these sources accurately portray the CEO's stance on ethics, and provide support for any formal ethics program, is an open question," Weaver said. "And without wishing to denigrate the work that is done in the context of formal ethics programs, one must still admit that on their present scale in many firms, ethics programs and policies risk being swamped by other, often more persistent influences on organization members."

These other influences may be part of the formal organization, such as compensation policies, or reflect the informal side of the organization, such as supervisor role-modeling or elements of organizational cultures and subcultures.

"At least in their current form, we should assume that corporate ethics programs are not self-sufficient; they depend heavily for their success on support from other organizational systems and informal norms and practices," Cochran said. "In the long run, the implementation of ethics policies by persons not directly involved in ethics program activities will be crucial for encouraging good corporate behavior."

For example, the researchers note that what department heads say during performance appraisals can be as important as any ethics officer's comments during a training session. They add that judging by the responses they received, there is a limited amount of organizational attention and resources that can be focused on formal ethics program activities and structures. "Formalized ethics programs may now be the societally taken-for-granted method for fostering corporate ethics, but just because they are taken for granted is no guarantee that they alone are adequate to the task," Treviño said. "Nor does it mean they are the only or necessary means for completing the task; one should not assume that firms reporting little in the way of formal ethics program activity thereby are unethical firms.

"But the common focus on formal ethics programs can distract attention from other organizational processes that are central to fostering good business ethics."

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Contact:
Charles DuBois (814) 863-3798 ccd@psu.edu