Download Benefits of an Ethics Audit

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