MGMT 374 Week 12 Lecture Presentation


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  • Notice that environmental issues and climate change is far and away the greatest topic of concern, followed by privacy issues and data security and demand for safer products
  • While fewer people preferred to report to management in 2009, it is still by far the most popular channel for reporting misconduct
  • Ethics audits have drawbacks as well: They can be expensive, can disrupt employees’ routines, and can be difficult to find qualified auditors
  • MGMT 374 Week 12 Lecture Presentation

    1. 1. <ul><li>Implementing and Auditing Ethics Programs </li></ul>C H A P T E R 9
    2. 2. The Ethics Audit <ul><li>Systematic evaluation of an organization’s ethics program and performance to determine whether it is effective </li></ul><ul><ul><li>Regular, complete, and documented measurements of compliance with policies and procedures </li></ul></ul><ul><ul><li>Can be a precursor to establishing an ethics program </li></ul></ul><ul><ul><li>Helps to identify the firm’s current ethical standards, policies, and risk areas </li></ul></ul>Source: Digital Vision
    3. 3. The Social Audit <ul><li>Process of accessing and reporting a business’s performance in fulfilling the economic, legal, ethical , and philanthropic responsibilities expected by its stakeholders </li></ul><ul><ul><li>Broader in scope than an ethics audit </li></ul></ul><ul><ul><li>An ethics audit might be a component of a social audit </li></ul></ul>
    4. 4. Benefits of an Ethics Audit <ul><li>Identify potential risks and liabilities and improve legal compliance </li></ul><ul><li>Can be key in improving organizational performance </li></ul><ul><li>Improved relationships with stakeholders </li></ul><ul><ul><li>Pressure to account for actions in areas including corporate governance , ethics programs , customer relationships , employee relations , environmental policies , and community involvement </li></ul></ul>
    5. 5. Top Business Issues Over the Next Five Years
    6. 6. Ethical Crisis Management <ul><li>Plans to respond to and recover from disasters that can disrupt operations, destroy organizational reputation and erode shareholder confidence </li></ul><ul><ul><li>Involves contingency planning, assessing organizational risks, planning for potential occurrences and providing tools to respond </li></ul></ul>
    7. 7. Crisis Management and Recovery <ul><li>U.S. companies are failing to identify and manage ethical, social, economic , and environmental concerns </li></ul><ul><li>Ethical disasters follow recognizable phases of escalation </li></ul><ul><ul><li>Anticipation of problems and intervention can stave off organizational disaster </li></ul></ul>Source: Triangle Images
    8. 8. Where U.S. Has Lost Competitiveness A growing number of people fear the U.S. is losing ground in business ethics and corporate governance.
    9. 9. Measuring Non-financial Performance <ul><li>Non-financial measures of performance are crucial to a firm’s health </li></ul><ul><li>Measure wholeness and soundness of a company (“return on integrity”) </li></ul><ul><ul><ul><li>The Sarbanes–Oxley Act </li></ul></ul></ul><ul><ul><ul><li>Six Sigma </li></ul></ul></ul><ul><ul><ul><li>Balanced Scorecard </li></ul></ul></ul><ul><ul><ul><li>The Triple Bottom Line </li></ul></ul></ul>
    10. 10. Risks in Ethics Auditing <ul><li>Ethics audits may uncover ethical problems that a company cannot remedy </li></ul><ul><li>Stakeholders may be dissatisfied with the information </li></ul><ul><li>Conducting the audits is a financial and record keeping burden </li></ul><ul><li>No guarantee that auditing is the solution to ethics concerns </li></ul>
    11. 11. The Auditing Process <ul><li>Secure top management and board commitment </li></ul><ul><li>Establish an ethics audit committee </li></ul><ul><li>Define the scope of the audit </li></ul><ul><li>Review the organizational mission, goals, and values </li></ul><ul><li>Collect and analyze relevant information </li></ul><ul><li>Verify the results through an outside agent </li></ul><ul><li>Report the findings to </li></ul><ul><ul><li>Audit committee, managers, and stakeholders </li></ul></ul>
    12. 12. Secure Commitment of Top Management and the Board <ul><li>The first step in the auditing process </li></ul><ul><ul><li>Top management may want a way to benchmark their ethical performance </li></ul></ul><ul><li>The board may </li></ul><ul><ul><li>Initiate audits based on stakeholder concerns or in response to corporate governance reform </li></ul></ul><ul><ul><li>Have been held responsible for the ethical and legal compliance programs of the company’s they oversee </li></ul></ul>
    13. 13. Establish an Ethics Oversight Committee <ul><li>Ideally, the board of directors’ financial audit committee would oversee the audit </li></ul><ul><ul><li>In most companies, managers or ethics officers conduct it </li></ul></ul><ul><li>Individuals within the firm and external auditors should be involved </li></ul><ul><ul><li>An external auditor should not have other consulting or conflict-of-interest relationships with top managers or board members </li></ul></ul>
    14. 14. Define the Scope of the Audit <ul><li>Scope is determined by the type of business, risks faced, and the opportunities to manage ethics </li></ul><ul><ul><li>Includes defining the key subject matter or risk areas that are important to the ethics audit as well as the bases on which they should be assessed </li></ul></ul>Source: Triangle Images
    15. 15. Review Organizational Mission and Goals <ul><li>Should include a review of the current mission statement and strategic objectives </li></ul><ul><li>Should examine all formal and informal documents that make commitments with regard to ethical, legal, or social responsibility </li></ul><ul><li>Define the firm’s ethical priorities </li></ul>
    16. 16. Collect and Analyze Information <ul><li>Identify tools for measuring progress in improving employee’s ethical decisions </li></ul><ul><li>Collect internal and external documents </li></ul><ul><li>Determine a baseline level of compliance </li></ul><ul><li>Determine all commitments </li></ul>Source: Digital Vision
    17. 17. Employee-Preferred Channels for Reporting Misconduct Source: 2009 National Business Ethics Survey, Ethics Resource Center, p. 35
    18. 18. Verify the Results <ul><li>Have an independent party verify the results of the data analysis </li></ul><ul><ul><li>Increasing numbers of companies having results independently audited </li></ul></ul><ul><li>Verification is an assessment of the quality, accuracy, and completeness of a company’s social report </li></ul>
    19. 19. Report the Findings <ul><li>The final step: Issue the ethics audit report </li></ul><ul><ul><li>Should spell out the purpose and scope of the audit, the methods used in the audit process </li></ul></ul><ul><li>Although the ethics audit may be similar to a financial audit, their forms are different </li></ul>Source: Stockbyte
    20. 20. Strategic Importance of Ethics Auditing <ul><li>Should be conducted regularly </li></ul><ul><li>Provide a benchmark of overall effectiveness of ethics initiatives </li></ul><ul><ul><li>Can be important in asset allocation and program development </li></ul></ul><ul><li>Can demonstrate the positive impact of ethical conduct and social responsibility initiatives on the firm’s bottom line </li></ul>