Every ethics and compliance conference I’ve been to for at least the last four years - including the conferences I’ve had a hand in running - has included Measuring Effectiveness as one of its major themes - and for good reasons:

• The Sentencing Guidelines and best practices call for periodic assessments;
• Boards and executives want to see empirical evidence of successes, failures, and trends as well as charts and graphs that help them understand the program and justify its expense and effort;
• Measuring your own program is a prerequisite to benchmarking with others; and, most importantly,
• We’ve all heard the maxim “you only get what you measure.”

This demand for metrics has driven more and more companies to rely on in-house surveys to gauge employee morale, assess culture and track opinions about ethics and compliance program elements. There’s no doubt that surveys are a useful tool, but are in-house surveys as reliable and accurate as we think?

Some of the problems with surveys are not new and are the result of poor question writing or faulty implementation. Leading questions are a common culprit: “Do you know that you can call our Helpline anonymously - Yes or No?” One can imagine survey-takers thinking, “Well I know it now. I’ll answer yes.” And how much of our data is skewed by “social desirability”. Most people like to present themselves in a favorable light, so their responses may be biased toward what they believe is socially desirable or, in this context, toward what they think is the most ethical answer.

Then there’s the problem of trust: “Is this survey really anonymous? Why are they asking so many demographic questions? Won’t they be able to identify me?” Like the problems above, these too can be addressed fairly easily. In this case simply ask if you really need all those demographic questions. Probably not, and consider what you gain by asking them and what you loose in terms of trust. In addition, it’s usually a good idea to have employees send their surveys to a third party for compilation. Trust is also an issue with on-line surveys. While they can be efficient and very cost effective, few believe they’re untraceable.

But what worries me more than these perennial survey problems is a new trend that seems to be occurring especially at companies that put the most emphasis on metrics. When ethics and compliance metrics are tied to performance reviews or when they are used to identify corporate problem sites, it doesn’t take long for everyone to realize what answers are most desirable. People know that a “wrong” answer will mean a manger’s bonus might be dinged or that poor numbers will result in remedial training or other unwanted attention from Corporate. In cases like these the pressure is strong to be sure to get the answers right. I’ve had employees tell me, “We don’t want to jam up our supervisor. When she’s happy, we’re happy…so we do what we can to help.”

It can get worse. I’ve seen examples of managers prepping their employees under the guise of training. And given the pressure, don’t be surprised when outright cheating occurs including manipulating the employee selection process to ensure that only those with “positive attitudes” are surveyed. Fortunately, in most cases actual cheating isn’t necessary because it’s safe to assume that everyone knows what answers are desirable. They’ll know what to do on their own.

Data-mining and consolidating survey results into a single overall number to be reported to the Board – another recent trend - only compounds the problems.

Most of these survey errors and problems tend toward a positive bias, and so the cumulative result can be greatly inflated data. Recently when conducting an assessment of a company’s corporate culture I ran into exactly this situation. Their in-house survey data was spectacularly good, but our focus groups told a very different story. Digging a little deeper, employees told us that so much emphasis was being placed on ethics and compliance metrics they had begun to “game” the system. The result was a false sense of optimism that went all the way up to the Board.

So what’s the solution? The quick answer is to avoid over-reliance on in-house surveys, perhaps by alternating annual surveys with focus groups. But there’s much more to it than that. We’ve scheduled sessions on the topic at this spring’s Conference Board meetings in San Diego and New York to explore the matter in more detail and I’ll have more to say about solutions in upcoming blogs. In the meantime, what are your thoughts? Have you seen problems like those I’ve mentioned? Do you have solutions that are working?

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“It must be a typo” was my reaction today upon reading the New York Times headline online: “Fraud costs bank $7.1 Billion.” Perhaps the headline was supposed to be about banks, plural, and the story was about fraud losses over the years. Or maybe the amount was $7.1 million.

But no. France’s second largest bank, Société Générale, disclosed today that one rogue trader caused $7.1 billion dollars in losses. As is common in our experience, the trader did not appear to have personally profited from the trades.

Bank spokespeople are claiming that Jerome Kerviel was able to perpetuate this fraud because he used to work in the risk management office and thus was able to breach five levels of controls. Plus he was “a computer genius.”

Outside experts are criticizing the banks internal controls. Société Générale states that their internal controls “have been revised and reinforced to avoid any reoccurrence of further similar risk.” They have also fired five individuals, including Kerviel’s supervisor and the head of global equities and derivatives trading.

My hunch is they may want to look at the most critical internal control: culture. It is very difficult to believe that any one individual, even a “computer genius,” could pull off a fraud of such magnitude without awareness by anybody else at Société Générale.

I have had the privilege of conducting a lot of ethics training in France. Most of the time, in response to hypothetical case studies, I hear that “reporting the misconduct of others is not our job. To do so is not the French way. It is the responsibility of management to find this out and do something about it.”

I wonder what the employees of Société Générale think about this cultural value now. What do the shareholders think? This case provides $7.1 Billion reasons for working to build a culture where people take responsibility for acting when they suspect illegal conduct.

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Primaries, caucuses, polls, comebacks… it’s a presidential election year and for ethics and compliance officers that means a long list of potential risks and challenges. A recent article in the Wall Street Journal detailed the efforts that campaign staffers are making to “bag trophy supporters” - influential executives who will fund raise and publicly work on the candidates behalf. To me, the article was one red flag after another and it got me thinking about specific steps that ought to be taken to head off embarrassing incidents or worse.

To begin, this is the perfect time to review your Code and policies to make sure they’re clear and up-to-date about contributions and campaign financing. These issues are complex and can vary from state to state. Email reminders to employees, especially senior managers, reminding them of the rules and encouraging them to ask questions if they’re in doubt is probably a good idea. This is especially important if you’re a government contractor or if your company or industry has a PAC.

But beyond campaign financing, sometimes employees are unclear about the limits on using company resources for political activities. Most have no problem making the easy calls: it’s not OK for an employee to make copies of campaign flyers. Emails to clients or customers urging them to support a candidate would be clearly wrong. But what about some of the tougher calls? For example, do you allow use of company facilities for rallies? Do you make exceptions if the rally focuses on particular issues – like healthcare, energy or defense – that are directly related to your business? Do you make exceptions if your CEO or a senior executive is a supporter? Which brings me to another set of problems.

What if a senior executive hosts a fund raiser and encourages peers and subordinates to attend? Does it matter if the event is off site and after hours? What constitutes inappropriate pressure? What happens to those who decline? How would you respond to a complaint from an employee who feels he is being retaliated against by his boss ever since they discussed their political preferences? Is there anything you can or should do if your CEO or a senior executive chooses to publicly support a controversial candidate?

Most companies prohibit employees, without clearance, from speaking on behalf of the company and publicly endorsing a candidate, but what do you do if a sales associate insists it’s her right to wear a candidates’ button when visiting customers?

The issues can be most difficult when a senior executive is an enthusiastic supporter. In the worst cases they see their choice as the only reasonable one and can’t understand how anyone could disagree. If asked, they often won’t see their advocacy as unacceptable pressure on subordinates or as creating tensions in the workplace, instead they’ll defend it as their right and even their public obligation. If you’re faced with a tough challenge like this, remember there is good news: there’s only eleven more months to go.

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Graydon Wood, the retired ethics officer of what was then the New York phone company once said, “You don’t have to know Aristotle to be an ethics officer.” At the time he was speaking to a group of philosophers who were doing their best to make the case that ethics officers needed to be thoroughly grounded in the theories of Kant, Rawls, Mill and yes – Aristotle. Given the audience Graydon’s pronouncement was pretty gutsy.

While I agree with Graydon for the most part, sometimes a little Aristotle can be a good thing. Take Aristotle’s advice that even noble intentions, when taken to the extreme, can result in vice not virtue. This is good advice and I can think of few times when I wish I had followed it. Here’s one.

In 1999, following the Salt Lake City and International Olympic Committee’s bribery scandals, I was asked to join a newly created Ethics Oversight Committee for the U.S. Olympics. One of my first tasks was to help Pat Rodgers, the Director of Compliance, draft a new Code of Ethics for the U.S. Olympics. Determined to take a strong stand against the mistakes of the past, and committed to protecting the reputation of the U.S. Olympic movement, we wrote that executives and staff should avoid “even the appearance of conflicts of interest.” These were high-minded sentiments but as we learned just a few years later they were impossible to enforce. What exactly constituted an “appearance of a conflict?” We quickly found that it was subject to wildly differing interpretations.

My experience is not unique. I know of others who have also been led by good intentions into similar Code drafting blunders. A few years ago I became familiar with an organization’s Code that included the promise: “We will always tell the complete truth.” Once again, a noble aspiration but it subsequently raised problems. For example, could employees claim the company violated its own Code when it failed to inform them of impending layoffs? What if they asked and management didn’t tell all they knew? In fact, something very much like this did happen. The problem could have been avoided if the organization had used more common wording such as We Value Honesty. They really didn’t need to promise to always tell the complete truth.

This advice might be timely since there seems to be a lot of companies reviewing and updating their Codes. I recommend they follow Aristotle’s advice and take a close look at the aspirations and promises they make. Is the $25 gift and entertainment limit well meaning but impractical? Do they really mean it when they say “retaliation in all its forms will never be tolerated”? All its forms? How do they plan to enforce that?

They should also review similar language in other communications. Are they over-promising about their ability to maintain confidentiality? Is External Affairs making claims about the company’s commitments to social responsibility that employees read as over-the-top hyperbole (and consequently question the company’s credibility)?
Have you seen other examples of Codes, policies or corporate communications that have over-promised or otherwise gone too far? Let me know. I look forward to hearing from you.

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A few months ago I was asked to contribute to the 20th anniversary edition of the quarterly best practices newsletter ethikos. One of the questions they asked was “What have been the most significant disappointments in the business ethics movement during [the last twenty years]?

One of the disappointments I wrote about was the overemphasis that has been given to the Organizational Sentencing Guidelines. It turns out my comments surprised some of my colleagues since many of them have known me primarily through my work with the Sentencing Commission. So maybe a clarification is in order.

On the one hand, it’s undeniable that in 1991 when they were first approved, the Organizational Guidelines gave the business ethics movement a structure, impetus, a common language and a common set of issues. It’s no coincidence that the ethics officer community exploded in both size and energy immediately after 1991.

Similarly, since the 2004 revisions, we’ve seen a huge increase in the number of conferences and forums devoted to culture, integration of ethics and HR practices, board training, and tone at the top – all topics that were added to the Guidelines in 2004. It’s clear that the Guidelines continue to be extremely influential in setting our agendas.

But therein lies the problem. Our focus on the Guidelines has advanced a best practice model and a specific set of issues but at the same time it has led to an overly narrow view of what constitutes business ethics.

As a community we have too often excluded broader marketplace and strategic issues which don’t fit neatly into the Guideline’s scheme of things. Even today, and in spite of their critical importance, executive compensation, marketing and advertising practices and human rights generally fall outside most ethics and compliance officers’ responsibilities. I think this narrowing of our concept of business ethics can be directly traced to the dominance of the Guideline model.

For 2008, we have included sessions at the Conference Board’s Ethics and Compliance Conference which attempt to address some of these broader issues. I’m interested in your opinion. What do you think? Should topics like executive compensation and marketing practices be addressed by ethics and compliance officers? Do you already do so or have you considered the possibility and rejected it?

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