by Steve Priest, President of Ethical Leadership Group, a Global Compliance company

Yesterday Senator Ted Stevens of Alaska was found guilty on seven felony counts. He failed to disclose gifts and services of approximately $250,000 largely used to renovate his home.

Like most Americans I hate the fact that senators, congressmen (and women???), governors, state representatives, alderman—politicians in every conceivable role and both parties—take things they shouldn’t. Or at least don’t disclose things they should.

But since the focus of ELG is on organizational ethics and compliance, let’s look at the other half of the equation. What about the people who provided the gifts and services?

The most valuable gifts and services provided to Senator Stevens involved remodeling and furnishing his Alaskan home. The remodeling was largely done by employees of VECO Corporation. According to the charges, this remodeling occurred over six years, and included:

• building a new first floor
• installing a new electrical system
• installing a new roof
• adding a wraparound deck
• installing a rope lighting system
• installing kitchen appliances
• repairing many parts of the home.

This renovation work, as well as other gifts, was approved by the then Chairman of VECO, Bill Allen. Both Mr. Allen and a VP have pleaded guilty to bribing Alaska state legislators but have not yet been sentenced. Their testimony in the Stevens case may help them reduce their sentences, but they almost certainly face time in prison, as does Senator Stevens.

Always hoping for innocent mistakes rather than calculated wrong-doing, I looked up more information on VECO in hopes that Allen and his VP perhaps were naïve and did not know what they were doing was wrong. Unlikely. VECO was a sophisticated global company with over 4,000 employees. They knew the rules, and thought it would be in their best interest to violate them, at least with Alaskan government officials and Senator Stevens.

Could anything have stopped them—or at least ended their bribery earlier? Sometimes bribery is hard to discover. It is usually conducted in secret. Bribers and recipients try not to leave trails.

In this case, however, a number of VECO employees conducted the work on the Senator’s house. It is impossible that they did not know whose home it was. It is improbable that the neighbors’ eyesight failed. It is extraordinarily unlikely that a firm like VECO—whose main business was oil field services—would be doing commercial home renovations.

Yet these renovations started in 2000—and lasted until 2006. Where were the whistleblowers?

This exposes one of the biggest risks that privately held, family-managed companies face. When the wrongdoing is directed or approved by a member of the family that owns the place, where are you going to report an issue? Who is going to make that call?

One would like to think it is different in publicly held companies, but in our focus groups we have heard the same concern. “Why should I make a report when I believe the people at the top already know?”

An active Board of Directors with a visible, independent profile is one key mitigating step. Many privately held companies prefer not to have one, but this is the only internal resort for employees in companies like VECO. These boards, like their publicly traded counterparts, also need to provide an anonymous reporting channel for employee concerns to go directly to them so they cannot be filtered by members of management. This does not have to be a hotline on every board member’s desk. It can be the standard helpline, with an inviolable protocol established with the provider: calls of these (defined) types or about these people go directly to Board member Y.

Would such a system of governance and reporting have saved VECO? Perhaps not. We don’t know whether employees had been trained about the issue and their reporting obligations, and we don’t know anything about the VECO culture. But it certainly might have made a difference, and can in many other organizations.

The cost of the bribery scandal is obviously high for a number of individuals. Including Mr. Allen’s family, who have had to live through this with him, and will suffer his loss when he goes to prison. And including the employees of what used to be VECO. For, as is so often the case, VECO is no more. In 2007, in the wake of the scandal involving Alaskan officials, Mr. Allen’s daughter sold VECO.

Do you think the family got as much post scandal as they would have before? Do you think employees felt as secure afterwards? At least they were acquired by a very reputable company (CH2MHill), but the change had to be painful no matter what.

I’m not crying for Senator Stevens or Bill Allen. But it is too bad that ethics and governance failures cost so many innocent people so much. I’ll revisit that theme as I explore the financial services meltdown over the next few months.