6. Control by ethics officers

In the United States, which was the first and most consistent to embrace the issue, ethics officers have been appointed formally by organizations since the mid-1980s. One of the catalysts for the creation of this new role was a series of fraud, corruption, and abuse scandals that afflicted defense industry at that time. This led to the creation of the Defense Industry Initiative (DII), a pan-industry initiative to promote and ensure ethical business practices. DII is a non-profit association of responsible U.S. defense companies committed to conducting business affairs at the highest ethical level and in full compliance with the law. The DII set an early benchmark for ethics management in corporations.

In 1991, the Ethics & Compliance Officer Association (ECOA)—originally the Ethics Officer Association (EOA)—was founded at the Center for Business Ethics (at Bentley College, Waltham, MA) as a professional association for those responsible for managing organizations' efforts to achieve ethical best practices. The membership grew rapidly (the ECOA now has over 1,200 members) and was soon established as an independent organization.

Another critical factor in the decisions of companies to appoint ethics/compliance officers was the passing of the Federal Sentencing Guidelines for Organizations in 1991, which set standards that organizations (large or small, commercial and non-commercial) had to follow to obtain a reduction in sentence if they should be convicted of a federal offense. Although intended to assist judges with sentencing, the influence in helping to establish best practices has been far-reaching.

Ethics officers often report to the Chief Executive Officer and are responsible for assessing the ethical implications of the company's activities, making recommendations regarding the company's ethical policies, and disseminating information to employees. They are particularly interested in uncovering or preventing unethical and illegal actions.

A related trend is the introduction of risk assessment officers that monitor how shareholders' investments might be affected by the company's decisions.

The effectiveness of ethics officers is not clear. If the appointment is made primarily as a reaction to legislative requirements, one might expect little impact, at least over the short term. In part, this is because ethical business practices result from a corporate culture that consistently places value on ethical behavior, a culture and climate that usually emanat from the top of the organization. The mere establishment of a position to oversee ethics will most likely be insufficient to inculcate ethical behavior: a more systemic program with consistent support from general management will be necessary.

In the context of management control, ethical issues can arise in any department or function of an organization. On the financial front, the ethical issues may arise due to the creation of budgetary slack and managing earnings. Budgetary slack is a deliberate understatement of revenues and/or overstatement of expenses in the budget. It is caused by managerial intention rather than by an unforeseen error in the estimation process. Whether the manager feels that creating slack is ethical or unethical depends on his/her personality traits (related to honesty and fairness). It also depends on the extent of open communications possible between the manager and his/her superiors regarding the ability and the support necessary to achieve the desired objectives. Earnings management is used by organizations to show the financial performance to be better than they actually are. This may misguide stakeholders who use the financial statements to assess the organization's financial strength. Ethical issues in the sales function arise when the salespeople are under pressure from the higher authorities to achieve targets in order to earn incentives or recognition. 

In order to regulate ethical conduct, one of the best practices followed by organizations is to constitute an Ethics Committee. The Ethics Committee has to strike a balance between the ethical issues cropping up due to the strategic decisions taken at top management level, and the ethical problems that the employees face at all levels of functioning.

Corporate ethics system is supported by personnel from HR, communications, legal and security departments as well as by top-managers. Special positions (corporate ethics managers) may also be introduced. For the sake of the system effectiveness, the participants need both the knowledge of corporate ethics and the ability to carry out special procedures such as sorting out appeals on ethical issues, investigation, skills of presenting ethical issues etc. To maintain and develop the system the participants must possess skills of effective interaction in the field of corporate ethics, understand the tasks of the system and ways to enhance it.

The scope of works includes:

• Training corporate ethics specialists—corporate ethics managers, coordinators of corporate ethics programmes;

• Advanced training of corporate ethics specialists (HR, internal communications, internal audit, legal and security departments);

• Individual counseling of top management over participation in the corporate ethics system.

• Elaborating instruments and methodological materials which maintain the operation of corporate ethics system

Organizational structure, available resources of a company, its regional and professional units’ peculiarities are all taken into account when creating a system of corporate ethics is created. They determine the infrastructure of corporate ethics and the standard procedures aimed at maintaining its viability. The consultants provide support for introduction and implementation of corporate ethics programmes being guided by the principle of their full integration into the activities of the enterprise.

The scope of works is as follows:

• Creating an information system for the participants of corporate ethics system;

• Elaboration of awareness programmes to phase in and develop corporate ethics systems;

• Arranging ongoing monitoring of compliance with ethical norms within an enterprise;

• Methodological support of the system’s participants (methodology for sorting out appeals, holding briefing meetings and presentations).