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9 Implementing an Ethics Program
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Learning Outcomes
After reading this chapter, you should be able to do the
following:
• Explain how an organization can structure and manage an
ethics program.
• Develop a code of conduct that articulates standards to
company stakeholders.
• Create an ethics training and communications plan.
• Evaluate mechanisms for obtaining advice on ethical issues
and reporting ethical misconduct.
• Design an effective monitoring and auditing system.
ped82162_09_c09_255-294.indd 255 4/23/15 8:47 AM
Introduction
Introduction
Ethics Program Pays Off for Morgan Stanley

On April 25, 2012, Garth Peterson, former managing director
for Morgan Stanley’s real estate
business in China, pleaded guilty to violating the Foreign
Corrupt Practices Act (FCPA) and for
conspiring to evade Morgan Stanley’s internal controls for
meeting securities laws for invest-
ment advisers (United States Department of Justice, 2012).
From 2004 to 2007, Peterson
cultivated a relationship with a Chinese official to obtain
business approvals. In 2008, execu-
tives at Morgan Stanley discovered the violations, reported
them to the U.S. Securities and
Exchange Commission (SEC), and fired Peterson (Lucchetti &
Kendall, 2012). Department of
Justice officials declined to bring any enforcement action
against Morgan Stanley because of
its documented ethics and compliance program, stating:
According to court documents, Morgan Stanley maintained a
system of internal
controls meant to ensure accountability for its assets and to
prevent employ-
ees from offering, promising or paying anything of value to
foreign govern-
ment officials. Morgan Stanley’s internal policies, which were
updated regu-
larly to reflect regulatory developments and specific risks,
prohibited bribery
and addressed corruption risks associated with the giving of
gifts, business
entertainment, travel, lodging, meals, charitable contributions
and employ-
ment. Morgan Stanley frequently trained its employees on its
internal policies,
the FCPA and other anti-corruption laws. Between 2002 and
2008, Morgan

Stanley trained various groups of Asia-based personnel on anti-
corruption
policies 54 times. During the same period, Morgan Stanley
trained Peterson on
the FCPA seven times and reminded him to comply with the
FCPA at least 35
times. Morgan Stanley’s compliance personnel regularly
monitored transac-
tions, randomly audited particular employees, transactions and
business units,
and tested to identify illicit payments. Moreover, Morgan
Stanley conducted
extensive due diligence on all new business partners and
imposed stringent
controls on payments made to business partners. (United States
Department
of Justice, 2012, para. 6)
The experience of Morgan Stanley shows that companies with
excellent ethics and compli-
ance programs may be protected should their employees violate
standards. An excellent eth-
ics and compliance program meets five common elements set
forth in the U.S. Federal Sen-
tencing Guidelines for Organizations (FSGO), the FCPA, the
U.K. Bribery Act 2010, and the
Organisation for Economic Co-operation and Development
(OECD) Good Practice Guidance
on Internal Controls, Ethics, and Compliance. Although the
language differs, each of the four
guidelines recommends the following steps: 1) create program
structure, 2) establish corpo-
rate standards, 3) educate the workforce, 4) create investigation
procedures, and 5) assess
program effectiveness (see Figure 9.1 for the key elements to
implementing an organiza-

tional ethics program).
Figure 9.1: Key elements to implementing an organizational
ethics program
An excellent ethics and compliance program meets five common
elements.
Establish Corporate
Standards
• Code of Conduct
• Global Considerations
• Implementation
Educate the
Workforce
• Training Plan
• Training Execution
Create Investigation
Procedures
• Ethical Guidance
• Reporting Mechanism
• Investigation Process
Assess Program
Effectiveness
• Ethical Performance
Metrics
• Audit Committee
Create Program

Structure
• Ethics Officer
• Board Oversight
• Reporting Relationship
ped82162_09_c09_255-294.indd 256 4/23/15 8:47 AM
Establish Corporate
Standards
• Code of Conduct
• Implementation
Educate the
Workforce
• Training Plan
Procedures
Assess Program
Effectiveness
Metrics
• Audit Committee

Create Program
Structure
• Ethics Officer
• Board Oversight
Section 9.1 Creating a Program Structure
Though prescriptive in the steps needed to create an effective
ethics and compliance program,
none of the aforementioned guidelines specifies the method to
be used. Rather, each organiza-
tion may tailor its program to applicable industry practice or
standards, the size of the orga-
nization, and the risk of misconduct (United States Sentencing
Commission, 2013). Ethics
professionals typically share initiatives that work for their
company (best practices) so that
other organizations can model their ethics and compliance
programs on proven strategies.
This chapter presents practical steps for implementing an
effective organizational ethics pro-
gram. The first step involves creating a structure to manage and
oversee the organization’s
ethics and compliance program. This is followed by clear
communication of standards of
acceptable behavior that address potential risks for misconduct.
The third step is to educate
the workforce via a training program that resonates with the
audience and encourages ethical
behavior as the norm. The fourth entails creating procedures to
respond to reported miscon-
duct through a transparent and fair investigation process. The

final step involves monitoring
and assessing program effectiveness to identify any areas for
improvement. The chapter pro-
vides best practices as a foundation for an organization to
design an ethics and compliance
program that meets its distinct requirements.
9.1 Creating a Program Structure
As demonstrated by the Morgan Stanley example, simply
creating an organizational ethics
program is not sufficient for preventing misconduct. To ensure
the effective implementation
of an ethics program throughout an organization, a designated
individual or group must have
the authority and responsibility to oversee it.
Introduction
Ethics Program Pays Off for Morgan Stanley
On April 25, 2012, Garth Peterson, former managing director
for Morgan Stanley’s real estate
business in China, pleaded guilty to violating the Foreign
Corrupt Practices Act (FCPA) and for
conspiring to evade Morgan Stanley’s internal controls for
meeting securities laws for invest-
ment advisers (United States Department of Justice, 2012).
From 2004 to 2007, Peterson
cultivated a relationship with a Chinese official to obtain
business approvals. In 2008, execu-
tives at Morgan Stanley discovered the violations, reported
them to the U.S. Securities and
Exchange Commission (SEC), and fired Peterson (Lucchetti &
Kendall, 2012). Department of
Justice officials declined to bring any enforcement action
against Morgan Stanley because of

its documented ethics and compliance program, stating:
According to court documents, Morgan Stanley maintained a
system of internal
controls meant to ensure accountability for its assets and to
prevent employ-
ees from offering, promising or paying anything of value to
foreign govern-
ment officials. Morgan Stanley’s internal policies, which were
updated regu-
larly to reflect regulatory developments and specific risks,
prohibited bribery
and addressed corruption risks associated with the giving of
gifts, business
entertainment, travel, lodging, meals, charitable contributions
and employ-
ment. Morgan Stanley frequently trained its employees on its
internal policies,
the FCPA and other anti-corruption laws. Between 2002 and
2008, Morgan
Stanley trained various groups of Asia-based personnel on anti-
corruption
policies 54 times. During the same period, Morgan Stanley
trained Peterson on
the FCPA seven times and reminded him to comply with the
FCPA at least 35
times. Morgan Stanley’s compliance personnel regularly
monitored transac-
tions, randomly audited particular employees, transactions and
business units,
and tested to identify illicit payments. Moreover, Morgan
Stanley conducted
extensive due diligence on all new business partners and
imposed stringent
controls on payments made to business partners. (United States
Department

of Justice, 2012, para. 6)
The experience of Morgan Stanley shows that companies with
excellent ethics and compli-
ance programs may be protected should their employees violate
standards. An excellent eth-
ics and compliance program meets five common elements set
forth in the U.S. Federal Sen-
tencing Guidelines for Organizations (FSGO), the FCPA, the
U.K. Bribery Act 2010, and the
Organisation for Economic Co-operation and Development
(OECD) Good Practice Guidance
on Internal Controls, Ethics, and Compliance. Although the
language differs, each of the four
guidelines recommends the following steps: 1) create program
structure, 2) establish corpo-
rate standards, 3) educate the workforce, 4) create investigation
procedures, and 5) assess
program effectiveness (see Figure 9.1 for the key elements to
implementing an organiza-
tional ethics program).
Figure 9.1: Key elements to implementing an organizational
ethics program
An excellent ethics and compliance program meets five common
elements.
Establish Corporate
Standards
• Code of Conduct
• Implementation
Educate the

Workforce
• Training Plan
Procedures
Assess Program
Effectiveness
Metrics
• Audit Committee
Create Program
Structure
• Ethics Officer
• Board Oversight
ped82162_09_c09_255-294.indd 257 4/23/15 8:47 AM
There are three components to an effective ethics program
structure. The first is an appointed
ethics officer who oversees compliance with legal and ethical
standards and acts as a stew-

ard of the ethics and compliance program within the
organization (Ethics Resource Center,
2007). The second component is oversight of the ethics and
compliance function by the orga-
nization’s governing body (e.g., the board of directors). The
third is the relationship between
the ethics officer and whomever he or she reports to, which can
help or hinder the effective-
ness of the ethics and compliance program.
Approaches to managing an organizational ethics program vary.
Some companies have a
distinct department for managing the ethics and compliance
program, such as the Corpo-
rate Office of Ethics and Business Conduct at Lockheed Martin
(Lockheed Martin Inc., 2007).
Other companies assign responsibility for ethics and compliance
to existing functions, such as
human resources or legal departments. An informal survey by
the Ethics & Compliance Offi-
cer Association (ECOA) found that less than a third of the
companies (31.6%) had a separate
functional area for ethics, whereas almost half (47.4%) included
ethics as part of the legal/
general counsel function (Kane, 2014).
Companies gain advantages by structuring ethics and
compliance programs appropriately
within the organization. Organizations should consider the
following questions when design-
ing an ethics and compliance program:
• How does the ethics and compliance function relate to the
business, chief executive
officer (CEO), and top management?

• How does the ethics and compliance function relate to
functional departments or
divisions of the company?
• What should the ethics and compliance relationship be with
external stakeholders
(e.g., customers, suppliers, regulators)?
• How does the ethics and compliance function relate to the
board of directors or
owners?
• What should the ethics and compliance function report about
and to whom, how,
and when?
The reporting structure must allow the ethics officer to address
delicate situations in which
executive management may be involved in wrongdoing. The
OECD Good Practice Guidance on
Internal Controls, Ethics, and Compliance recommends that
senior corporate officers have a
duty to oversee “ethics and compliance programmes or measures
regarding foreign bribery,
including the authority to report matters directly to independent
monitoring bodies . . . with
an adequate level of autonomy from management, resources,
and authority” (OECD, 2010,
p. 3). The concept of an appropriately designed program
suggests that the designated ethics
officer have sufficient authority and responsibility to perform
duties to ensure compliance of
legal and ethical standards throughout the organization.
The Role of the Ethics Officer

What are the responsibilities of an ethics officer? The Society
for Human Resource Man-
agement (SHRM) states that the ethics officer “serves as the
organization’s internal control
point for ethics and improprieties, allegations and complaints,
and conflicts of interest; and
provides corporate leadership and advice on corporate
governance issues” (SHRM, 2014,
ped82162_09_c09_255-294.indd 258 4/23/15 8:47 AM
para. 1). This description provides the purpose of an ethics
officer in general terms, which
may not reflect the breadth of responsibilities for a larger
organization. The Ethics Resource
Center (2007), on the other hand, provides an example of a job
description for a chief ethics
and compliance officer with responsibilities for the conduct of
employees worldwide:
Corporate Officer with responsibility to provide global
leadership on compli-
ance and ethics; oversee all compliance and ethics programs and
initiatives
of the company; ensure that appropriate programs, procedures
and policies
are implemented to reduce the chances of illegal or unethical
conduct by the
company. (p. 7)
Regulatory guidelines stipulate that the ethics and compliance
function be led by high-level

personnel (United States Sentencing Commission, 2013) or top-
level managers (Ministry of
Justice, 2011). Recall in Chapter 1 that there was a shift from a
solely compliance focus in
the early 1990s to either a combined compliance/ethics or solely
ethics focus in the 2000s.
The managerial level, title, and department name can reflect the
organization’s commitment
to the ethics program and its emphasis on ethics versus
compliance. For example, the eth-
ics and compliance function at Cisco resides in an ethics office,
whereas most ethical issues
at Harley-Davidson are referred to the legal department and the
chief compliance officer/
general counsel (Cisco, 2014; Harley-Davidson, n.d.). A study
found that a title of chief, such
as chief ethics officer or chief compliance officer, is the most
common in larger companies
(28%), followed by vice president (10%), executive vice
president or senior vice president
(9%), director (7%), manager (4%), and officer (3%) (Weber &
Wasieleski, 2013). See a
sample of titles for the ethics professional in the feature box
Consider: What’s in a Name of an
Ethics Professional? to recognize variations in naming ethical
departments and the respon-
sible manager.
Consider: What’s in a Name of an Ethics Professional?
A review of the ECOA member listing shows some of the titles
that may be used for ethics
professionals:
• Chief compliance officer
• Chief ethics and compliance officer

• Chief ethics officer
• Chief risk, compliance and ethics officer
• Vice president, corporate responsibility
• Vice president, global compliance and ethics
• Director of business conduct
• Director of integrity, security and compliance
• Director, corporate compliance and ethics
• Director, ethics and integrity programs
• Director, ethics and regulatory compliance
• Senior manager, ethics and non-financial corporate policies
and procedures
• Senior manager, global ethics and compliance
• Senior vice president, global [corporate social responsibility]
and risk management
• Manager, business integrity and compliance
• Manager, ethics and employee issues
(continued)
ped82162_09_c09_255-294.indd 259 4/23/15 8:47 AM
The diverse titles of ethics professionals imply that the duties of
the ethics officer vary among
organizations. The Ethics Resource Center (2007) identifies
typical responsibilities of ethics
officers:
• Oversee assessment of organizational risk for misconduct and
noncompliance;
• Establish organizational objectives for ethics and compliance;
• Manage the organization’s entire ethics and compliance
program;

• Implement initiatives to foster an ethical culture throughout
the organization;
• Supervise ethics and compliance staff embedded throughout
the organization;
• Frequently inform the board of directors and senior
management team of risks,
incidents, and initiatives driven by the ethics and compliance
program, and progress
toward program goals;
• Implement a program of measurement to monitor program
performance; and
• Oversee periodic measurements of program effectiveness. (p.
2)
A key role of the ethics officer is to coordinate the ethics
program with other company manag-
ers in the areas of human resources, finance, communications,
risk management, and gover-
nance. Additionally, the ethics officer may communicate
regularly with customers, suppliers,
and the media on ethical issues relating to the company or
industry. A survey of 800 ethics
and compliance professionals from financial service firms in 62
countries found that the typi-
cal week of an ethics officer includes, on average, a little more
than a day of addressing regu-
latory developments, such as tracking and analyzing regulatory
developments (15% of time
during the workweek) and amending policies and procedures
(7%) (Hammond & Walshe,
2013). Another day involves communicating with the legal
department, conducting internal
audit and risk functions (16%), and reporting to the board (6%).
During the rest of the week,

the ethics and compliance professionals reported focusing on
compliance tasks including
monitoring activities, training, and provision of advice and
guidance (56%).
The Ethics Resource Center (2007) has identified 11
qualifications expected from the desig-
nated lead of an ethics program. They include:
• Substantial business experience (15 years+);
• Ability to communicate (public speaking, professional writing,
with executives, etc.);
• Ability to develop and deliver training;
• Familiarity with Sarbanes-Oxley, Federal Sentencing
Guidelines [FSGO] and other
relevant compliance standards;
Questions to Consider
1. Why does the ethics function vary among organizations?
What company factors
would lead to the wording of the ethics function?
2. Which titles reflect a focus on compliance only? Which titles
reflect a focus on ethics?
3. Does a title provide sufficient authority to oversee an
organization’s ethics program?
Does the title of the ethics professional indicate a level of
autonomy in addressing
ethical issues?
Consider: What’s in a Name of an Ethics Professional?
(continued)

ped82162_09_c09_255-294.indd 260 4/23/15 8:47 AM
• Familiarity with leading thinking and research in business
ethics and compliance;
• Understanding of the auditing process;
• Understanding of the risk management/risk assessment
process;
• Comfort with eLearning, learning management systems, and
other IT [information
technology];
• Project management skills;
• Substantial management experience (10 years+); and
• Ability to motivate and inspire people. (p. 26)
As formal ethics and compliance education is only a recent
offering in higher education, many
ethics officers come from legal, auditing, or human resources
disciplines. Over half of ethics
professionals in vice president or director roles have a law
degree, while less than 5% of all
ethics professionals are certified public accountants (Society of
Corporate Compliance and
Ethics, 2013). To gain knowledge in ethics and compliance,
professionals seek certification
from the ECOA and the Society of Corporate Compliance and
Ethics (SCCE). According to an
SCCE survey, the average compensation for ethics professionals
ranges from $214,118 for vice
presidents to $71,894 for assistants/specialists, whereas
compensation for certified profes-
sionals are slightly higher (Society of Corporate Compliance

and Ethics, 2013). See Table 9.1
for more detailed information about compensation for ethics
professionals.
Table 9.1: Average compensation for ethics professionals
Vice President Director Manager
Assistant/
Specialist
Average total
compensation
$214,118 $139,582 $102,324 $71,894
Certified Compliance
& Ethics Professional
from SCCE
$230,637 $166,109 $113,875 $78,580
Other certifications* $170,425 $128,571 $103,376 $69,352
No certification $236,479 $134,857 $93,586 $70,904
* Includes industry-specific certifications in healthcare, fraud
examination, internal auditing, information systems
Source: Society of Corporate Compliance and Ethics. (2013).
2013 cross-industry compliance & ethics staff survey (pp. 40).
Minneapolis, MN: Society of Corporate Compliance and Ethics.
The relationship of the ethics officer to the governing authority
of an organization shifted from
informal or nonexistent to a formal reporting requirement with
the enactment of Sarbanes-

Oxley (Chapter 4) and similar legislation worldwide, which
placed greater responsibility for
accurate financial reporting on the board of directors. The 2004
and 2010 amendments of
the FSGO encourage companies to allow the chief ethics and
compliance officer access to the
board of directors to report on observed misconduct. To create
an effective program struc-
ture, organizations ask, “What is the appropriate involvement of
the board of directors in the
ethics and compliance program and what should be the
relationship between the board and
the ethics office?” The next section explores these questions.
ped82162_09_c09_255-294.indd 261 4/23/15 8:47 AM
Board Oversight
Oversight of the ethics program by the governing body of an
organization differs from the
daily management by the ethics officer. The role of the board of
directors is to monitor
management practices and performance in achieving company
goals, as well as to protect
the organization from reputational and financial risks resulting
from ethical misconduct.
Board members may be responsible to stockholders for
monetary damages if they fail to
set up procedures guarding against misbehavior that results in
fines and penalties. Recall
from Chapter 1 how Medicare and Medicaid fraud resulted in
scrutiny of the healthcare

industry and the subsequent Caremark decision of 1996
statement that directors have a
duty to assure that accurate information and reporting systems
are in place and followed
(Cohan, 2002; Robinson & Pauzé, 1997). The realization that
Enron’s board of directors
twice waived its conflict of interest policy for establishing
special purpose entities with its
chief financial officer increased regulatory attention to the
board’s responsibility to over-
see the ethics program (Felo & Solieri, 2003).
The FSGO outlines the responsibilities of the board of directors
and senior management relat-
ing to ethics and compliance as follows:
• The board of directors must be knowledgeable about the
organization’s ethics and
compliance program, including information on the compliance
risks facing the firm
and the programs installed to combat those risks.
• Senior management must ensure that the organization has an
effective compliance
program.
• Those individuals with day-to-day operational responsibility
for ethics and compli-
ance must “be given adequate resources, appropriate authority,
and direct access”
to the board of directors or an appropriate subgroup of the board
(United States
Sentencing Commission, 2013, p. 497).
A board of directors faces many challenges when implementing
an adequate monitoring pro-

cess to stop illegal and unethical behavior within the
organization (Prentice, 2012). One chal-
lenge is that company ethics may not receive attention on the
board agenda. The CEO and
management team typically set the agenda for board meetings
and are the primary source of
information for the board members (Sharpe, 2011). Another
challenge is achieving the right
degree of monitoring to demonstrate aggressive detection and
punishment for violations of
ethical standards without creating an atmosphere of distrust that
erodes innovation (Cohan,
2002). Board members must be able to ask the right questions
and provide an environment
of trust among the ethics office and the board.
The FSGO accepts that a board cannot manage every aspect of
the ethics and compliance
practices within a business, allowing for “Specific individual(s)
within the organization [to]
be delegated day-to-day operational responsibility for the
compliance and ethics program”
(United States Sentencing Commission, 2013, p. 497). The
board looks to the ethics officer
to create an ethical culture that emphasizes proper conduct, and
that increases brand value
and reputation, necessitating regular communication and reports
between the board and the
ethics officer. Table 9.2 provides sample questions that board
members should ask the ethics
leader of the organization.
ped82162_09_c09_255-294.indd 262 4/23/15 8:47 AM

Table 9.2: Sample questions the board of directors should ask
the chief ethics officer
Board Oversight Questions Element of Ethics Program
The Board Needs
to Ensure That . . .
Do we have the right model to
oversee, manage, and implement
the company’s ethics and compli-
ance (E&C) program?
Program structure
Governance
Executive oversight
Resources
A chief ethics and compliance officer
(CECO) or equivalent appointed.
The CECO has sufficient personnel
and resources commensurate with
company needs.
The CECO is sufficiently integrated
with the company’s executive team.
The CECO has the ability to report
directly to the board or board com-
mittee formally or informally.
How do we assess adherence to
company standards? How do we
determine effectiveness?
Code of conduct and appropriate
policies

There is a code of conduct for all
employees, the board, senior man-
agement, and third parties.
The board is periodically educated
on the company’s code of conduct.
How do we ensure the visibility
of high-risk matters arising in the
business units?
Code of conduct and appropriate
policies
High-risk policies are in place.
Policies address systemic and
industry-specific risks.
How do we train our employ-
ees? How do we raise employee
awareness of the company’s E&C
program?
Targeted training and
communications
Periodic training and education for
all employees, management, and
critical third parties takes place.
Training and code certification
process is tracked and that further
inquiries take place when issues
arise.
The company issues regular com-
munications to all employees on E&C
topics.

The board receives appropriate code
of conduct and other relevant integ-
rity education periodically.
Are we identifying and prioritizing
the company’s compliance risk?
Periodic risk assessment There is full understanding of the
company’s risk profile.
Risk assessment is completed
periodically.
Risk assessment and manage-
ment target high-risk areas for the
business.
Senior management IS accountable
for risk management.
A relationship exists between E&C
risk assessments and enterprise risk
management.
(continued)
ped82162_09_c09_255-294.indd 263 4/23/15 8:47 AM
Board Oversight Questions Element of Ethics Program
The Board Needs
to Ensure That . . .
Are we auditing for priority com-
pliance risk?
Monitoring, investigating, and

auditing
Periodic monitoring and auditing
of E&C program is completed with
reports to the board.
Routine internal audits occur.
Key compliance indicators (fines,
penalties, warning, violations) are
reviewed.
An investigations protocol is in place
and is followed; reports received on
overall results.
Exit interviews occur.
Do we have the right systems in
place to ensure observed miscon-
duct is reported? Ensure employ-
ees are comfortable raising issues?
Anonymous reporting and
helplines
A system is in place for employees
and others to report and discuss
concerns without fear of retaliation.
Concerns are addressed and
resolved.
The board receives periodic report-
ing of statistics about hotline or
other reported issues, including
trend lines, comparisons to peer
companies, and overall business
statistics.
How do we measure E&C program
effectiveness?

Continual review and improve-
ment of E&C program
Lessons are learned from mistakes;
board seeks examples.
Accountability for improvements is
demanded from senior management.
Proof of implementation of improve-
ments is provided.
E&C considerations are factored into
performance evaluations.
The CECO is encouraged to become
a member of peer associations to
access materials, benchmarking, and
best practices.
Sources: Adapted from Tables 1 & 4, pp. 12, 18 in Bonime-
Blanc, A., & Brevard, J.E. Ethics and the Board: Integrating
Integrity into
Business Strategy. Council Perspective CP-013 © 2009 by The
Conference Board, Inc.
The ethics officer must be able to inform the board of directors
and senior management team
of risks, incidents, and activities related to the ethics and
compliance program without fear of
retaliation (Ethics Resource Center, 2007). To provide regular
updates to the board, the ethics
program needs a system for collecting the statistics and
qualitative findings of risks, program
effectiveness, and potential misconduct. Ethics officers should
provide board members with
easy to read dashboards of quantitative information such as
helpline/hotline call statistics,
material investigations, training completion, communications

reach, code of conduct certifi-
cations, employee ethics culture survey results, employee
turnover counts, and exit interview
feedback. Qualitative information that the ethics officer should
provide includes new laws or
Table 9.2: Sample questions the board of directors should ask
the chief ethics officer (continued)
ped82162_09_c09_255-294.indd 264 4/23/15 8:47 AM
regulations, internal audit findings, and risk assessment reports.
Reporting to the board can
be time-consuming, as one study found that 36% of ethics
professionals spent more than four
hours a week creating and amending information for the board,
with more than 70 organiza-
tions spending more than 10 hours a week preparing information
for the board (Hammond
& Walshe, 2013).
Reporting Relationship
The ethics officer’s credibility and authority with the board and
the company is heavily influ-
enced by whom he or she reports to within the organization.
Michael Hoffman, a noted pro-
fessor of business ethics at Bentley University, stresses that the
reporting structure can affect
an ethics officer’s objectivity, independence, power, and
influence to ensure ethical integrity
throughout the organization (Hoffman, 2010). He stated, “There

are many signs that the role
of the day-to-day ethics officer, the person who really does the
ethics work, is being marginal-
ized rather than strengthened” (p. 744).
Hoffman describes three ways that the reporting relationship of
ethics officers influences
their objectivity, independence, power, and influence. One
reason refers to the point that was
made in the previous section on Board Oversight: if the ethics
officer does not have access to
the board of directors, it reduces his or her influence and power
to provide accurate infor-
mation on the organization’s ethical program. Another reason is
that a conflict of interest
occurs should ethical misconduct by the ethics officer’s
supervisors be observed. This conflict
of interest can restrict the ethics officer’s objectivity and
independence when enforcing the
organization’s ethical code. The final reason is that inadequate
resources or authority mini-
mize an ethics officer’s power and influence over other
departments.
In some organizations, an ethics officer reports to a senior
executive in a legal, human
resources, or internal audit department. Most studies show that
ethics and compliance offi-
cers most often report to the general counsel with increasing
numbers reporting directly to
the CEO (SAI Global, & Baker & McKenzie, 2013; Weber &
Wasieleski, 2013). An ethics officer
may be in the tenuous position of both monitoring the ethical
integrity of and reporting to
senior managers who have the power to have him or her
promoted or fired. Senior manag-

ers may recommend ignoring unethical conduct, or fail to take
action on an ethics officer’s
recommendation.
Treviño, den Nieuwenboer, Kreiner, and Bishop (2014)
recounted an example where an ethics
officer was ignored:
We had a big investigation . . . that involved senior officers of
an alleged
ethical violation that was quite serious. . . . Senior management
didn’t take
it very seriously. . . . A couple of years later it recurred and this
time they
realized the seriousness of it and responded fully. . . . So that
was kind of a
game changer . . . because senior management, including the
Board of Direc-
tors, saw how a good ethics program identifies and can help
solve problems
before they get big. (p. 196)
According to the Ethics Resource Center (2007), the ideal
reporting structure will allow the
ethics officer to:
ped82162_09_c09_255-294.indd 265 4/23/15 8:47 AM
CEO
VP
Operations
HR

Director
Ethics
Officer
VP
Marketing
VP
Finance
General Counsel
C-Suite/Board
Functional Reporting
Ethics
Officer
Chief Financial
Officer
Chief Marketing
Officer
General
counsel
CEO
CEO
Chief Financial
Officer

Chief Marketing
Officer
Chief Ethics
Officer
Board
General
counsel
• Have employment decided and terminated only by the
direction of the board of
directors;
• Directly report to either the board or the CEO;
• Have direct, unfiltered access to the board; and
• Achieve performance goals as defined by the board and CEO.
(p. 2)
Consider how each of the reporting relationships in Figure 9.2
enhances or restricts the
objectivity, independence, and influence of the ethics officer.
Figure 9.2: Progression of reporting relationship of the ethics
officer
The reporting relationships of the ethics officer can vary by
organization.
CEO
VP
Operations

HR
Director
Ethics
Officer
VP
Marketing
VP
Finance
General Counsel
C-Suite/Board
Functional Reporting
Ethics
Officer
Chief Financial
Officer
Chief Marketing
Officer
General
counsel
CEO
CEO
Chief Financial

Officer
Chief Marketing
Officer
Chief Ethics
Officer
Board
General
counsel
ped82162_09_c09_255-294.indd 266 4/23/15 8:47 AM
Section 9.2 Developing a Code of Conduct
The individual that an ethics officer reports to has discretion to
allocate resources for pro-
moting ethical standards, educating the workforce, monitoring
compliance, and investigating
potential violations. The FSGO stipulate that organizations
ensure that the individual del-
egated with operational responsibility of the ethics and
compliance program has adequate
resources to perform his or her role effectively (United States
Sentencing Commission, 2013).
Program resources include dedicated personnel and a sufficient
budget for salaries, training,
the reporting hotline, and other expenses.
The number of resources varies among organizations, including
the dedicated staff and bud-
get for ethics and compliance. A 2013 study found that most

companies with fewer than
1,000 employees have three or fewer ethics professionals,
whereas more than half of com-
panies with 50,000 or more employees have more than 10
dedicated ethics staff members
(SAI Global, & Baker & McKenzie, 2013). A 2014 study of
more than 1,000 companies found
that 12% of firms do not have a separate budget for ethics and
compliance activities, yet
almost one third estimate an annual budget of more than $1
million for their ethics program
(PWC, 2014).
The number of ethics staff and the specific budget for the ethics
program vary depending
on the size of the company and whether it is part of a heavily
regulated industry. How can
the board ensure that an ethics officer has adequate resources?
The Ethics Resources Center
(2007) suggests that resources should include:
• Sufficient funds and content expertise to review, refresh, and
distribute the corpo-
rate code of conduct to every employee and the board once a
year;
• Sufficient funds to comprehensively train every employee and
the board on organi-
zational standards and core compliance risks;
• Sufficient staffing to work with management to promote the
values of the
organization;
• Sufficient staffing and funds to conduct thorough compliance
audits, monitoring, and

risk assessments;
• Sufficient resources to ensure the effectiveness of ethics and
compliance controls;
• Sufficient staffing to maintain an anonymous helpline (or to
outsource this function),
and to investigate incidents that are reported;
• Sufficient staffing to separate the proactive communication
and training functions
from the receipt of calls and follow-up investigations; and
• Sufficient staffing to serve as a resource to the board and
senior management.
(p. 24)
With adequate authority and resources, the ethics officer can
encourage compliance with
legal and ethical standards found in the company’s code of
conduct.
9.2 Developing a Code of Conduct
The ethics office is typically responsible for creating the
company’s code of conduct, which
forms the foundation of an ethics and compliance program.
Employees of companies with a
formal code of conduct report greater satisfaction with
outcomes of ethical dilemmas than
ped82162_09_c09_255-294.indd 267 4/23/15 8:47 AM

those working for companies without one (Adams, Taschian, &
Shore, 2001). A study by
Erwin (2011) found that companies with a high quality ethics
code are seen as leaders in
corporate citizenship, sustainability, ethical behavior, and
trustworthiness.
Despite these findings, Enron’s accounting scandal and Alcoa’s
corruption scandal occurred
with corporate ethics codes in place, which begs the question of
whether a code of conduct
has an impact on ethical behavior. One European study shared
the following perspective of
formal corporate codes:
The head of sales at an investment bank explained, “It is very
good that every-
one has to read them, but as long as something is not illegal,
people will do it
anyway.” Ethics activities would be empty, symbolic gestures
with no inten-
tion of having a practical impact. (Norberg, 2009, p. 218)
Much research in behavioral ethics looks beyond the mere
existence of a code of conduct to
explain ethical behavior in the workplace, recognizing that the
quality of the content and
familiarity with the code are key factors for creating an ethical
culture (Andreoli & Lefkowitz,
2009; Kaptein, 2011; Treviño, Weaver, Gibson, & Toffler,
1999). Individual and organizational
factors affect employee acceptance of a code of conduct
(Andreoli & Lefkowitz, 2009). For
example, familiarity with an industry code of conduct and
perceptions of usefulness lessen
when an uncertain business environment creates role ambiguity

(Chonko, Wotruba, & Loe,
2003). Additionally, managers with a relativist ethical
orientation (believing that it is impos-
sible to make claims of right or wrong) are less likely to
consider the ethics code binding than
idealists (people who act on their moral ideals in all situations)
(Chonko et al., 2003).
Even the title of the code can influence whether employees
uphold the desired conduct of
the organization (see Consider: What’s in a Name of an Ethics
Code? ). The title should convey
the purpose of the document. A rules-based code appears
punitive, with a “thou shalt not”
aspect, and typically includes company standards and rules
applicable to an issue area (Ethics
and Compliance Officer Association Foundation, 2008). Naming
the document a compliance
code sends a message to the workforce that following the law is
sufficient, rather than the
concept of business ethics being about choice and judgment in
following company values.
Values-based codes like Every Day Values: The Harley
Davidson’s Code of Conduct connect
company values with employee behavior (Harley-Davidson,
n.d.; Martens, 2012; Treviño
et al., 1999).
Multinational companies need to consider the wording of the
code’s title carefully as some
concepts may present difficulties in translation. For example,
the term ethics can have moral-
istic connotations in some regions, while compliance can evoke
feelings of imposition of com-
pany standards (Martens, 2012). A review of the 200 largest
global corporations found strong

variances in the titles of codes with 36% containing the word
conduct, 17% containing prin-
ciples/guidelines, 9% containing ethics, 6% containing values,
and 4% containing integrity
(Kaptein, 2004).
Consider: What’s in a Name of an Ethics Code?
The document that summarizes the company’s ethical and legal
standards can go by
many names, including:
• Code of conduct;
• Code of ethics;
• Code of business conduct;
• Code of ethical and legal standards;
• Ethics guide;
• Code of employee conduct; or
• Standards of professional and business conduct.
The title of the document can create a brand for the company’s
ethics and compli-
ance. The content becomes relevant to the workforce when the
code ties the ethics
and compliance program to the company’s mission or business
strategy. The title can
make that connection and serve as a theme throughout the
document. Consider these
titles for company code of conduct documents:
• Setting Our Sights High (Bausch & Lomb Incorporated);
• Follow the Right Road (The Auto Club Group); and
• Inside the Lines (Nike).
Sources: Ethics and Compliance Officer Association
Foundation, 2008, p. 58; Martens, 2012.

1. How does the title of a company’s ethics document affect
your attitude about the
content? Is one title more attractive than another?
2. What is the overall message that the title of the code of
conduct conveys? Does it
reflect the purpose of the document to provide employee
guidance on expected
conduct?
3. Propose creative titles for ethics codes for a pharmaceutical
company and a
restaurant.
ped82162_09_c09_255-294.indd 268 4/23/15 8:47 AM
Implementing an effective code of conduct is not a simple task.
One study found that a code
for equal opportunity in the hiring process limits discrimination
only when enforced by man-
agement and integrated into normal practice (Petersen & Krings,
2009). Enforcement of the
document requires close attention to the tone and terminology,
such as phrases like “may
result in disciplinary action.” The U.S. courts find that such
ambiguous penalties for noncom-
pliance negate contractual obligations to comply with a code of
conduct (Kenny, 2007). The
design of the document and the communication of the code play

a critical role in embed-
ding the ethical standards for conduct throughout the
organization (Kaptein, 2011; Verbos,
Gerard, Forshey, Harding, & Miller, 2007). The following
sections outline best practices in
designing a code of conduct document.
those working for companies without one (Adams, Taschian, &
Shore, 2001). A study by
Erwin (2011) found that companies with a high quality ethics
code are seen as leaders in
corporate citizenship, sustainability, ethical behavior, and
trustworthiness.
Despite these findings, Enron’s accounting scandal and Alcoa’s
corruption scandal occurred
with corporate ethics codes in place, which begs the question of
whether a code of conduct
has an impact on ethical behavior. One European study shared
the following perspective of
formal corporate codes:
The head of sales at an investment bank explained, “It is very
good that every-
one has to read them, but as long as something is not illegal,
people will do it
anyway.” Ethics activities would be empty, symbolic gestures
with no inten-
tion of having a practical impact. (Norberg, 2009, p. 218)
Much research in behavioral ethics looks beyond the mere
existence of a code of conduct to
explain ethical behavior in the workplace, recognizing that the
quality of the content and
familiarity with the code are key factors for creating an ethical
culture (Andreoli & Lefkowitz,

2009; Kaptein, 2011; Treviño, Weaver, Gibson, & Toffler,
1999). Individual and organizational
factors affect employee acceptance of a code of conduct
(Andreoli & Lefkowitz, 2009). For
example, familiarity with an industry code of conduct and
perceptions of usefulness lessen
when an uncertain business environment creates role ambiguity
(Chonko, Wotruba, & Loe,
2003). Additionally, managers with a relativist ethical
orientation (believing that it is impos-
sible to make claims of right or wrong) are less likely to
consider the ethics code binding than
idealists (people who act on their moral ideals in all situations)
(Chonko et al., 2003).
Even the title of the code can influence whether employees
uphold the desired conduct of
the organization (see Consider: What’s in a Name of an Ethics
Code? ). The title should convey
the purpose of the document. A rules-based code appears
punitive, with a “thou shalt not”
aspect, and typically includes company standards and rules
applicable to an issue area (Ethics
and Compliance Officer Association Foundation, 2008). Naming
the document a compliance
code sends a message to the workforce that following the law is
sufficient, rather than the
concept of business ethics being about choice and judgment in
following company values.
Values-based codes like Every Day Values: The Harley
Davidson’s Code of Conduct connect
company values with employee behavior (Harley-Davidson,
n.d.; Martens, 2012; Treviño
et al., 1999).
Multinational companies need to consider the wording of the

code’s title carefully as some
concepts may present difficulties in translation. For example,
the term ethics can have moral-
istic connotations in some regions, while compliance can evoke
feelings of imposition of com-
pany standards (Martens, 2012). A review of the 200 largest
global corporations found strong
variances in the titles of codes with 36% containing the word
conduct, 17% containing prin-
ciples/guidelines, 9% containing ethics, 6% containing values,
and 4% containing integrity
(Kaptein, 2004).
Consider: What’s in a Name of an Ethics Code?
The document that summarizes the company’s ethical and legal
standards can go by
many names, including:
• Code of conduct;
• Code of ethics;
• Code of business conduct;
• Code of ethical and legal standards;
• Ethics guide;
• Code of employee conduct; or
• Standards of professional and business conduct.
The title of the document can create a brand for the company’s
ethics and compli-
ance. The content becomes relevant to the workforce when the
code ties the ethics
and compliance program to the company’s mission or business
strategy. The title can
make that connection and serve as a theme throughout the
document. Consider these
titles for company code of conduct documents:

• Setting Our Sights High (Bausch & Lomb Incorporated);
• Follow the Right Road (The Auto Club Group); and
• Inside the Lines (Nike).
Sources: Ethics and Compliance Officer Association
Foundation, 2008, p. 58; Martens, 2012.
1. How does the title of a company’s ethics document affect
your attitude about the
content? Is one title more attractive than another?
2. What is the overall message that the title of the code of
conduct conveys? Does it
reflect the purpose of the document to provide employee
guidance on expected
conduct?
3. Propose creative titles for ethics codes for a pharmaceutical
company and a
restaurant.
ped82162_09_c09_255-294.indd 269 4/23/15 8:47 AM
Code Content
Designing a code of conduct includes identifying the topics and
tone that will resonate with
the workforce, as the code’s purpose is to guide employee
behavior. This is particularly

important as studies have shown that employees generally have
difficulty naming specific
behaviors that the code requires or prohibits (Adams et al.,
2001). To make the content more
memorable, The Ethics and Compliance Handbook cautions
against codes that are generic,
bland, or legalistic (Ethics and Compliance Officer Association
Foundation, 2008). In reality,
there is no such thing as a generic organization. Therefore,
those designing the code should
tailor it to reflect the organization’s unique culture, risks, and
history, which ultimately shape
the ethical issues covered by the code and the manner of
conveying acceptable conduct. Con-
tent may vary because of the regulatory environment for the
industry or geographical region.
Some content is applicable to all employees, while others may
be specific to a function such
as accounting or sales. The code of conduct should clearly
address expectations on topics rel-
evant to the intended audience in language that is readily
understood.
Recommended Elements of a Code
Given that an organization can tailor a code of conduct to meet
the needs of its workforce
and industry, the elements or sections of the code will vary
accordingly. As the foundation of
the ethics and compliance program, the code of conduct should
provide sufficient guidance
to develop an ethical culture. The Ethics and Compliance
Handbook identifies eight sections
recommended in a code of conduct (Ethics and Compliance
Officer Association Foundation,
2008). They include:

1. An introductory letter from senior management or the CEO
reinforcing top manage-
ment support for ethics and compliance in the organization;
2. A mission statement, statement of values, and guiding
principles of the company;
3. An ethical decision-making framework to guide employees in
making choices;
4. Resources for seeking advice and reporting misconduct;
5. Substantive rules and guidance for acceptable and
unacceptable behavior for risk
areas;
6. Disciplinary rules and enforcement procedures for unethical
behavior;
7. Protection against retaliation for reporting misconduct; and
8. An acknowledgment or certification that employees have
received and read the com-
pany code of conduct.
The quality of the code of conduct contributes to its
effectiveness in deterring misconduct.
A review of company codes in the 1970s showed limited
inclusion of relevant ethical issues
and few procedures for seeking advice, reporting misconduct, or
taking disciplinary actions
(Cressey & Moore, 1983). By sharing best practices, more
companies are developing codes of
conduct that incorporate all eight recommended sections.
Ethisphere Institute has developed
criteria to evaluate the quality of a code of conduct, as shown in
Table 9.3. Codes of conduct
meeting these components are effective tools in setting and
reinforcing expectations for ethi-
cal behavior.

ped82162_09_c09_255-294.indd 270 4/23/15 8:47 AM
Table 9.3: Evaluation components to benchmark the quality
of a corporate code of conduct
Component Component Description
Public Availability The code should be readily available to all
stakeholders. What is the avail-
ability and ease of access to the code?
Tone from the Top Level at which the leadership of the
organization is visibly committed to
the values and topics covered in the code.
Readability and Tone What is the style and tone of the language
used in the document? Is it
easy to read and reflective of its target audience?
Non-Retaliation & Reporting Is there a stated and explicit non-
retaliation commitment and dedicated
resources available for making reports of code violations? If so,
is it pre-
sented clearly?
Commitment & Values Does the code embed corporate values or
mission language? Does it
identify the ethical commitments held to its stakeholders (e.g.,
customers,
vendors, communities)?

Risk Topics Does the code address all of the appropriate and
key risk areas for the
company’s given industry?
Comprehension Aids Does the code provide any comprehension
aids (questions and answers/
frequently asked questions, checklists, examples, case studies)
to help
employees and other stakeholders understand key concepts?
Presentation and Style How compelling (or difficult) is the code
to read? This depends on layout,
fonts, pictures, taxonomy, and structure.
Sources: Erwin, 2011; NYSE Governance Services, 2014.
The Morgan Stanley code of conduct titled “Doing the Right
Thing” is an example of a docu-
ment that meets the Ethisphere Institute’s evaluation criteria. A
common element in both The
Ethics and Compliance Handbook and Ethisphere Institute
evaluation criteria is a demonstra-
tion of top management’s commitment to the ethics and
compliance program. The first page
of Morgan Stanley’s code of conduct includes a statement by
James P. Gorman, the chairman
and CEO, stressing “an unwavering commitment to the highest
standards of ethical conduct”
and concludes with, “Like you, I am proud to be part of a Firm
that has such a distinguished
heritage and promising future. Thank you for doing your part to
uphold our greatest tradi-
tion” (Morgan Stanley, 2014, p. ii).
The code of conduct is values-based, tying ethical behavior to
Morgan Stanley’s values

of putting clients first, leading with exceptional ideas, doing the
right thing, and giving
back. Throughout the document, sections begin with the word
we, denoting that the code
of conduct applies to everyone. The section titled “We Make
Ethical Decisions” includes
a series of questions to assist employees in choosing the right
action when faced with
an ethical dilemma. Disciplinary procedures, resources for
reporting, and non-retaliation
ped82162_09_c09_255-294.indd 271 4/23/15 8:47 AM
procedures are presented early in the document. The following
are the major headings
featured in the code:
• What This Code Means to Us;
• We Make Ethical Decisions;
• We Treat Others with Dignity and Respect;
• We Support Our Communities;
• We Protect Our Franchise and Address Conflicts of Interest;
• We Protect and Prevent the Misuse of Confidential and
Material Nonpublic
Information;
• We Follow the Letter and the Spirit of the Laws and
Regulations;
• We Protect Our Interests;
• We Are Honest and Fair in Our Communications with the
Public;
• We Report Information and Cooperate with Requests Relating

to Litigation,
Investigations, Inquiries and Complaints; and
• Code of Conduct Acknowledgement.
The key ethical issues and acceptable behaviors outlined in
Morgan Stanley’s code of con-
duct guide employees in everyday conduct through simple,
concise language and concrete
examples to aid in comprehension. The document specifically
states, “Throughout this Code,
we include questions and answers that address situations that
commonly arise and illustrate
how particular policies apply in practice” (Morgan Stanley,
2014, p. 2). The code is 15 pages
long, with detailed policies and procedures for 34 ethical topics.
It is unlikely that all of the
ethical issues are relevant to all employees. Therefore, in
addition to the full table of contents,
the code of conduct provides a summary listing of the 15 ethical
issues that have generated
the most questions from employees.
Focusing the Code on the Organization’s Key Risk Areas
The focus of company codes of conduct changes over time and
varies by geographical loca-
tion. A review of codes of conduct in the 1970s recognized a
focus on misconduct that directly
impacts company profit, such as conflict of interest, rather than
responsibilities to others
(Cressey & Moore, 1983). A review of global companies’ codes
in 2009 found that U.S. com-
panies focus more on accounting fraud, conflict of interest, and
insider trading, while global
companies tend to emphasize security, human rights, bribery,
and money laundering (Shar-

batoghlie, Mosleh, & Shokatian, 2013). Table 9.4 lists possible
topics for codes of conduct
from The Ethics and Compliance Handbook. The list is
extensive and inclusion of all topics is
neither practical nor necessary for most organizations.
Table 9.4: Possible topics for codes of conduct
• Anticorruption • Gifts, entertainment, and gratuities
• Antitrust/competitive information/unfair
competition
• Government contracting, transactions,
and relationships
• Billing for services • Government relations and lobbying
• Books and records/financial reporting
and recordkeeping
• Harassment (sexual and otherwise)
(continued)
ped82162_09_c09_255-294.indd 272 4/23/15 8:47 AM
• Community or civic activities • Investigations (internal and
government)
• Complying with laws • Licensure and professional
certifications

• Confidential and proprietary information • Marketing, sales,
advertising, and promotions
• Conflicts of interest • Media relationships
• Copyrights, patents, and intellectual property • Money
laundering
• Customer service and customer relations • Political
contributions
• Discrimination • Privacy and safeguarding information
• Document retention • Procurement/purchasing
• Environment, health, and safety • Professional standards,
competence,
and due care
• Equal employment and affirmative action • Respect and fair
treatment
• Expense reimbursement and time reporting • Securities trading
and insider information
• External inquiries/public disclosure
and reporting
• Security
• Family and personal relationships
(e.g., nepotism)
• Social media

• Fraud • Work-life balance
• Workplace violence
Source: The ethics and compliance handbook: A practical guide
from leading organizations. Copyright © 2008 The Ethics &
Compliance Officer Association Foundation. Reprinted with
permission.
When identifying key risk areas to include in a code of conduct,
executives must consider
external forces, internal perceptions, and historical data. The
first consideration, external
forces, represents the legal, regulatory, and competitive
environment that can elevate an issue
to warrant attention in the formal code of conduct. For example,
in the United States, regula-
tions provide specific topics that should be addressed, including
policies on conflict of inter-
est, insider trading, and bribery (Ethics & Compliance Officer
Association Foundation, 2008;
NYSE Governance Services, 2014).
Second, internal forces such as the industry, size, or
international scope of the company can
determine topics to emphasize in the code of conduct. For
example, a company manufac-
turing products in emerging markets may place more emphasis
on environmental impact,
human rights, and safety. Additionally, a survey of employees
can reveal internal perceptions
regarding what ethical issues they consider likely to occur,
providing issues to include in a
code of conduct.
Lastly, the ethical topics that the company has struggled with in

the past should be included
in the code of conduct. Audit findings, regulatory
investigations, or common employee viola-
tions are sources for historical data of relevant ethical topics. It
is useful to organize the key
issues by stakeholders, corporate values, or internal employee
conduct (Kaptein, 2004).
Table 9.4: Possible topics for codes of conduct (continued)
ped82162_09_c09_255-294.indd 273 4/23/15 8:47 AM
Global Considerations
International companies have additional considerations when
designing a code of conduct
that applies to employees in multiple countries. The first
decision is whether to develop one
common code for all countries or separate documents for each
country. Some organizations
may consider one code impractical or unrealistic because of
variations in legal requirements,
cultural norms, and languages among the countries. Benefits of
a common code include:
a) there is only one definition of what is right or wrong, b)
employees are clear on expected
behavior no matter where they travel on business, and c) the
company avoids liability associ-
ated with inconsistent practices. One solution is to create one
common code with regional or
country variations that bridge gaps between local laws or
customs and company standards

(Martens, 2012).
Companies that intend to implement a global code of conduct
that applies across the orga-
nization must make careful considerations during the code
drafting process. Best practices
dictate that companies seek input from a legal team, managers,
and workers while developing
the code. This team can help identify and address:
• Key ethical and legal concerns;
• Cultural or historical issues that affect business operations;
• Workforce dynamics that could either promote or interfere
with the adoption of the
code of conduct in their country or region; and
• Language or terminology issues. (Ethics & Compliance
Officer Association Founda-
tion, 2008, p. 62)
An effective code of conduct provides guidance for employees
to manage contradictions
between individual or local norms and the company’s standards.
Chapter 5 described how
cultural differences influence ethical positions and increase the
potential for conflicts within
a global organization. One study relates how an ethics officer
investigating a report that “a
high-level executive had been making sexist and ageist ‘jokes’
during business-related confer-
ence calls” discovered that the executive, who worked outside
the United States, was unaware
that his remarks were offensive and potentially discriminatory
because they would be accept-
able in his country (LRN, 2006, p. 3).

Halff (2010) found that the majority of the world’s largest
corporations fail to acknowledge
contradictions between local norms and corporate norms,
leading to hidden and overt vio-
lations of the company code of conduct. Global codes that
include negative language such
as “employees must never” can lead employees to feel that the
company is not considering
local norms (Martens, 2012). Organizations that do
acknowledge differences take varying
approaches such as to seek advice, apply the stricter rule,
follow local norms, or comply with
corporate code. Companies like Lockheed Martin and Cisco
serve as role models for multina-
tional companies striving for a global code of conduct. Their
codes of conduct are provided in
multiple languages, include symbols for navigation, and provide
examples relevant to diverse
employees. Global companies can follow practices suggested for
a suitable global code of con-
duct such as:
First acknowledge that sets of norms might contradict, second
give clear
priority to one set of norms (local or corporate) and thirdly
provide specific
instances and/or examples of how and when to apply the priority
rule. They
ped82162_09_c09_255-294.indd 274 4/23/15 8:47 AM

are particularly precise about gift-giving, facilitating payments,
employment
of relatives, and the entertainment of public servants. (Halff,
2010, p. 364)
Global companies should avoid region- or country-specific
terms or phrases when drafting
the code for an international audience. For example, a U.S.-
based firm should not refer to
a non-U.S. government employee in anti-bribery sections as a
foreign government official.
The local employees would not consider their government
officials, customs agents, or pub-
lic employees as foreign. Some terms in codes of conduct relate
to country regulation, such
as affirmative action or equal employment opportunity in the
United States. Use of country-
specific terms fails to convey the ethical standard of
nondiscrimination to workers in other
countries. Table 9.5 provides suggestions for replacement terms
to make culturally-specific
terminology more global.
Table 9.5: Replacement terms for culturally-specific language
Term Country Replacement Term
Equal employment opportunity United States-centric Fair hiring
practices/no
discrimination
Antitrust United States-centric Fair competition
Antimonopoly United Kingdom-centric
Bullying/mobbing United Kingdom and Europe Harassment,

disrespectful
treatment
Anti-bribery United Kingdom Improper payments
FCPA United States
Source: L. T. Martens, 2012, Globalising a Business Ethics
Programme, p. 25. Copyright 2012 by the Institute of Business
Ethics.
The graphic design of the document should reflect cultural
sensitivity through the use of
color, symbols, and photos (Martens, 2005). For example, red
print may trigger negative feel-
ings of forced compliance in Western countries where red is
used as the symbol for danger.
Universal symbols are preferable, although not always practical
when a standard or example
requires a currency amount. For example, a reference to
accepting or giving gifts over $25
should include the equivalent amount in euros or yen. Photos
should represent the interna-
tional character of the company and not be offensive in any part
of the world. A global code of
conduct should be a useful guide to appropriate behavior for all
employees.
Implementation of a Code of Conduct
To implement a code of conduct, organizations must formulate a
plan to ensure that workers
receive the code and understand its purpose. The plan should
include distributing the docu-
ment to all employees, providing tools to help them apply the
code in their daily activities,

and recording their acceptance of it. All communication
surrounding the code is vital to its
success. Employees become more familiar with and supportive
of a code of conduct when
senior management demonstrates support for the code and
employs diverse communication
activities for educating workers on the content and application
of the code (Kaptein, 2011).
ped82162_09_c09_255-294.indd 275 4/23/15 8:47 AM
Distribution of the code can take various forms, but it should
remain easily accessible to
employees and available to all stakeholders (NYSE Governance
Services, 2014). Every new
employee should receive a printed copy upon hiring and during
orientation. Current employ-
ees could receive copies through the company mail or e-mail
communications periodically or
when the code has been revised. Companies often create
websites to communicate informa-
tion regarding the ethics program and code of conduct. Some
companies require an online
course to introduce the policies and procedures contained within
the code of conduct.
To increase accessibility and use of the code of conduct, many
companies have begun offer-
ing an electronic version. More than just a PDF, an electronic
code provides employees with
an interactive tool for finding specific information, links to
resources, and a variety of learn-

ing scenarios (NYSE Governance Services, 2014). Morgan
Stanley includes a statement in its
code of conduct that says “The electronic version of this Code
includes links to policies and
procedures” (Morgan Stanley, 2014, p. i). See Business Best:
Cisco eBook Code of Conduct for an
example of a company that delivers the code electronically to a
global audience.
Business Best: Cisco eBook Code of Conduct
In 2012, Cisco released an interactive eBook version of the
company code of business con-
duct (COBC) to its mobile, global workforce. The online
interactive COBC is able to reach the
85% of Cisco employees working from home or traveling
(World Watch, 2013). The COBC
eBook provides many tools to make it easier for employees to
find information on ethical
issues, such as pop-up frequently asked questions, links to other
Cisco tools and resources,
an “Ask/Report” list of ways to obtain help on any topic,
embedded videos, and pop-up defi-
nitions (Cisco, 2014). Cisco’s 2013 Corporate Social
Responsibility Report states:
Our Code of Business Conduct sets out our expectation for
everyone at
Cisco to behave ethically in everything they do. Through
regular training
and a new interactive eBook version of the Code, we equip
employees with
the knowledge and skills to make the right decisions if they are
ever con-
fronted with an ethical dilemma. (Cisco, 2013, p. B2)

The eBook is easy to navigate and includes universal symbols
for interactive functions. See
Figure 9.3 for a snapshot of the instructions for the user on the
first screen. Though the inter-
active eBook is only available in English, an introductory video
features employees from all
countries stating, “I know the code” in their native languages.
Translations of the Cisco COBC
are available on the [email protected] website page as a PDF
with hyperlinks.
(continued)
ped82162_09_c09_255-294.indd 276 4/23/15 8:47 AM
Interact with this brochure.
Here’s how.
In addition to the interactive tabs, buttons and
hotspots you’ll find throughout this brochure,
look for these helpful icons. You can click on
them to get more information anytime.
Turn pages
Just grab and drag a lower corner, or click the arrows.
Use the tools
Zoom in, bookmark, or print the brochure.
Play video
Jump to a page
Click Contents icon for visual navigation to any page.

What if?
Tools/Resources
Ask/Report
Following the launch of the eBook, an employee survey showed
improvement in almost all
measures regarding the ethical culture (Cisco, 2013). More than
92% of employees in 2013
felt that Cisco was taking ethical business concerns seriously
(up from 90% in 2011). In just
two years’ time, the percentage of employees who agreed with
the statement, “The manage-
ment team sets a good example of company values, culture, and
the Code of Business Con-
duct” increased from 81% to 89%. Finally, by 2013, 89% of
employees knew where to report
an ethics question or concern compared to 83% in 2011.
Business Best: Cisco eBook Code of Conduct (continued)
(continued)
Figure 9.3: Instructions for navigating Cisco’s COBC eBook
Cisco’s COBC eBook contains universal symbols for the
interactive functions.
Source: Reprinted with permission from Cisco. (2014). Code of
Business Conduct.
Interact with this brochure.
Here’s how.

In addition to the interactive tabs, buttons and
hotspots you’ll find throughout this brochure,
look for these helpful icons. You can click on
them to get more information anytime.
Turn pages
Just grab and drag a lower corner, or click the arrows.
Use the tools
Zoom in, bookmark, or print the brochure.
Play video
Jump to a page
Click Contents icon for visual navigation to any page.
What if?
Tools/Resources
Ask/Report
ped82162_09_c09_255-294.indd 277 4/23/15 8:47 AM
Section 9.3 Educating the Workforce
Many organizations require employees and management to sign
a statement certifying that
they have received and read the code of conduct. Certification
statements are one way a com-
pany can demonstrate to regulators that it is committed to the
ethics and compliance pro-
gram (NYSE Governance Services, 2014). These statements

allow companies to:
• Confirm receipt of the code of conduct;
• Obtain acknowledgement from employees that they have read
and understood the
code of conduct;
• Establish that employee abides by, or will abide by the code of
conduct;
• Obtain confirmation that employees reported any breaches of
the code;
• Confirm that management has discussed the code with their
team. (IBE, 2012)
Code certification holds employees accountable for their
actions. In a study by the Institute of
Business Ethics, about half of the companies referred to code
certification statements during
disciplinary decisions involving code of conduct violations
(IBE, 2012). Whether a company
can obligate an employee to sign an acknowledgement form may
depend on local labor laws
(IBE, 2012). Should an employee refuse to sign, additional
ethics training or discussions with
the employee’s manager may occur.
As the foundation of the ethics and compliance program,
companies recognize the impor-
tance in thoroughly educating the workforce on the content and
use of the code of conduct.
Code certifications do not ensure that the employees have read
and understood the content of
the code of conduct, and explaining the code of conduct only
when employees are first hired
or when the codes are first distributed is no longer a sufficient
way to show a good faith effort

to educate employees on ethics and compliance.
9.3 Educating the Workforce
Organizations that invest in educating the workforce to comply
with legal and ethical stan-
dards expect their employees to apply what they have learned
consistently over time. How-
ever, ethics training tends to have a similar effect on people as
when they witness a traffic
accident—they slow down and drive carefully for a week or so,
then gradually fall back into
their old driving habits. Research has shown that one-time
ethics training can have transient
1. What are the advantages and disadvantages of an interactive
online code of conduct?
Why should printed or PDF formats continue to be offered, even
when there is an
online version?
2. Does an electronic format provide advantages in Cisco’s
ability to make further
improvements to its code over time?
3. Access the eBook to view the table of contents and a few
pages. Would the eBook
meet Ethisphere Institute’s evaluation criteria for an effective
code of conduct?
Business Best: Cisco eBook Code of Conduct (continued)
ped82162_09_c09_255-294.indd 278 4/23/15 8:47 AM

effects if organizations do not provide ongoing, interactive
training and offer organizational
support (Martin, 2010; Richards, 1999; Warren, Gaspar, &
Laufer, 2014). In order for employ-
ees to fully learn concepts, their formal training should include
a period during which they
can practice applying ethics in the workplace. A well-planned
ethics training program can
result in the establishment of a culture of ethics and compliance
(Ethics Resource Center,
2013b; Valentine & Fleischman, 2004). In a study of bank
employees before and after the
introduction of formal ethics training, Warren et al. (2014)
found that participants displayed
sustained, positive effects in identifying unethical behavior,
intentions to behave ethically,
and perceptions of organizational efficacy in managing ethics.
Developing a Training Plan
The objective of ethics training is to help employees make
decisions that are consistent with
the organization’s values. Training should provide methods for
employees to manage con-
tradictions between individual values and the company’s ethical
standards. To address the
specific challenges in ethics training, Knouse and Giacalone
(1996) outline the major com-
ponents of ethical education in business that remain relevant
today (see Table 9.6). They
recommend providing employees with a foundation in how
ethical orientations affect ethical
decision making, as well as offering opportunities to practice

applying the company’s ethical
standards.
Ethics training should align with company values and connect
ethical concepts to daily
actions. To make that connection, some organizations are
adopting a giving voice to values
(GVV) approach to their business ethics training. Based on
Mary Gentile’s (2010a) book, Giv-
ing Voice To Values, regarding how individuals address values
conflicts in the workplace, the
GVV approach has seven foundational pillars that correlate to
the components for ethical
training in Table 9.6: 1) values; 2) choice; 3) normality; 4)
purpose; 5) self-knowledge, self-
image, and alignment; 6) voice; and 7) reason and
rationalization. Incorporating GVV in an
organizational ethics program can help employees develop
methods to voice their concerns.
The program appears to address employee apathy and
indifference to potential and existing
ethical issues.
Table 9.6: Components of ethics training in business
Component Objectives GVV Pillar
Provide trainees with an under-
standing of ethical judgment
philosophies and heuristics for
making ethical judgments.
Seek common ethical values
among employees and with the
organization.
Encourage actions consistent

with employee values and those
of the organization.
Use critical thinking strategies
that include questions for ethical
decision making.
Acknowledging shared values
Choosing to act
Provide industry-/profession-
specific areas of ethical concern.
Address ethical issues particular
to employee positions, profes-
sions, or industry.
Normalizing values conflicts
(continued)
ped82162_09_c09_255-294.indd 279 4/23/15 8:47 AM
Component Objectives GVV Pillar
Provide trainees with organiza-
tion’s ethical expectations and
rules.
Encourage compliance with
ethical expectations contained in
employee handbooks, codes of
conduct, and training.

Purpose as an employee
Provide trainees with an under-
standing of their own ethical
tendencies.
Recognize that individual dif-
ferences and personality traits
impact ethical actions.
Understanding one’s self
Take a realistic view; elaborate
on the issues that can hamper
ethical decisions.
Understand traps for ethical
misconduct to avoid falling into
them.
Become more effective
in responding to others’
rationalizations.
Anticipating reasons and
rationalizations
Have the trainees practice and
apply in the workplace.
Apply concepts in daily work life.
Encourage discussion, sharing,
and feedback on ethical actions.
Using one’s voice

Source: Gonzalez-Padron, T., Ferrell, O., Ferrell, L., & Smith,
I. (2012). A critique of giving voice to values approach to
business ethics
education. Journal of Academic Ethics, 1–19.
To develop the most effective training, companies need to tailor
the program to the target
audience by identifying and prioritizing key risks by employee
segment. For example, train-
ing on data privacy and security are relevant to employee
groups that use computers. Training
in the proper use of company resources should consider the
functions most likely to commit
occupational fraud—individuals working in accounting,
operations, sales, customer service,
and purchasing (Association of Certified Fraud Examiners,
2012). Training on bribery is
most relevant to executives and sales staff working in
international markets. Managers and
supervisors would most benefit from hiring policies regarding
discrimination. All employees
should receive training on reporting misconduct, social media
use, and harassment.
The training plan should identify the frequency and depth for
each key issue. The frequency
of training then depends on the level of likelihood that an
ethical issue will occur. Determining
how much detail and attention the training requires depends on
whether the target group can
create, identify, or simply understand the risk. For example,
discrimination is a key issue for
many companies. Managers or supervisors with responsibilities
to hire, promote, evaluate,
and terminate employees have the potential to put a company at
risk of lawsuits. Therefore,

their training requires in-depth and possibly frequent instruction
on policies and procedures
to demonstrate nondiscriminatory practices. Training of all
employees should focus on iden-
tifying and reporting discriminatory practices. The training plan
for discrimination requires
awareness training supplemented with a communication
program that provides regular
reminders to all employees through e-mails, newsletter articles,
and posters that help them
to recognize discrimination in the workplace.
Table 9.6: Components of ethics training in business
(continued)
ped82162_09_c09_255-294.indd 280 4/23/15 8:47 AM
While ethics training often involves asking employees to watch
formal presentations, it is
perhaps even more important for those conducting the training
to listen to employees and
engage them in dialogue. The workforce consists primarily of
adults with a great deal of expe-
rience and knowledge that contributes to the learning process
(Bixby, 2011). Telling someone
not to cheat on an expense report is not as effective as
addressing rationales for the miscon-
duct. In order to design a training program that fits the needs of
the workforce, ethics trainers
must listen to the concerns and questions raised by employees
about ethical issues or com-
pany practices. Listening is a powerful communication tool that

requires being present in the
dialogue without multitasking or succumbing to distractions
(Schloss, 2012). See Consider:
Active Listening for an exercise to develop active listening
skills.
Training Delivery
To ensure that each member of the workforce receives and
engages with the ethics train-
ing materials, organizations can incorporate a wide variety of
training and communication
methods that accommodate diverse learning styles, varying risk
levels of misconduct, and
a dispersed workforce. These methods include lectures and
presentations, case studies and
scenarios, role-playing, videos, and various e-learning
platforms. Table 9.7 outlines the pros
and cons of each.
Consider: Active Listening
Active listening requires paying attention to the content of what
someone is saying. Too often
people focus on how to respond to someone talking before the
end of the conversation. Prac-
tice listening to all of what someone is saying with this
exercise.
1. First, find a partner.
2. Then designate one person to initiate speaking (Person A).
3. Person A will begin a brief conversation of a few sentences.
This could relate to the
weather, common interests, or what he or she did last weekend.
4. When Person A stops talking, Person B must begin a

conversation using the LAST
word that Person A spoke as the FIRST word of the first
sentence. For example, if
Person A stops speaking with the phrase, “I ate so much,”
Person B could begin with
“Much of my time is spent . . .”
5. Similarly, when Person B stops talking, Person A must begin
a conversation using the
LAST word that Person B spoke.
6. Repeat Steps 4 and 5 for about 10 minutes.
1. How well did each of you listen to what the other was
saying? Were you able to catch
the other speaker’s last word each time?
2. Did you strive to make the exercise easy for your partner or
difficult? For example,
ending a conversation with an adjective may be more difficult
to start another
conversation, such as “I was so hungry.”
ped82162_09_c09_255-294.indd 281 4/23/15 8:47 AM
Table 9.7: Pros and cons of training methods
Delivery Advantages Disadvantages

Lectures and presentations Reach a large number of people,
quick to implement
Trainees are passive and do not
experience multiple viewpoints
Case studies and scenarios Generate discussion and
participation
Can have focus that is too narrow
in the issues addressed
Role-playing Highly interactive and insightful Some people may
be unwilling to
participate
Videos Realism Too specific and not participative
E-learning (online or computer
training)
Easy to implement and highly
flexible
Limited opportunity for discus-
sion and interaction
Source: Ferrell & Ferrell, 2009, p. 50.
Advances in technology offer innovative approaches to
engaging employees in ethics training.
Awareness training can include short, targeted messages on
common ethical issues. Lock-
heed Martin periodically distributes its Integrity Minute series
to employees. The series fea-
tures short soap opera style videos that highlight key ethics

topics of relevance to employees.
The videos reinforce company policies and generate dialogue
among the workforce. If timed
correctly, such as just before employees submit expense reports,
travel to high-corruption
locations, or meet with government officials, these types of
videos can be particularly effec-
tive. Customizable video clips on ethical issues are available
from ethics and compliance sys-
tem vendors such as Corpedia and NAVEX Global. Corpedia
offers a series of RealBiz Shorts
featuring Second City Communications actors in funny video
clips of consequences for failing
to follow ethical policies. NAVEX offers Burst Learning videos,
which feature engaging street
interviews and humorous scenarios in which characters address
ethical dilemmas.
Informal training can occur through social media, company
discussion boards, or regular
lunch and learn sessions. Formal training sessions can be
online, face-to-face, or as a hybrid
program (French, 2006). Classroom training can be time-
consuming for employees, increase
travel expenses, slow the delivery time of course material, and
result in inconsistent content.
In-person training is preferable for executives who must delve
into high-risk areas, or for
topics that require interaction such as interview tactics for
investigations of ethics violations.
Deloitte Touche Tohmatsu Limited offers blended learning,
which requires completion of an
online training of procedures prior to meeting in person
(Sweeney, 2007). For example, train-
ing on harassment policies is online, while role-playing and
discussions take place during live

sessions in a classroom setting. Challenges in adopting online
learning in business include:
• Resistance to change and cultural resistance to learning
online, more often from
senior and middle management;
• Cultural acceptance of online learning delivery in
international training; and
• Insufficient bandwidth on Web-based systems, hindering the
ability to provide quick
and effective interactive learning packages. (Macpherson,
Elliot, Harris, & Homan,
2004)
For routine training, online instruction can be more effective
than classroom instruction
(Sitzmann, Kraiger, Stewart, & Wisher, 2006). Advantages of
online training include less travel
ped82162_09_c09_255-294.indd 282 4/23/15 8:47 AM
Section 9.4 Reporting Misconduct
and control over timing for completion of the course. Online
training allows users to search
for supplemental information easily and avoid distracting
classmates (Sweeney, 2007). This
training may be more expensive to design, but offers cost
savings and the ability to track
completion rates through automated systems. Regardless of the
method used, frequent ethics
training and regular communications can empower employees to

make ethical decisions and
identify misconduct.
9.4 Reporting Misconduct
To support a culture that encourages ethical behavior, it is
crucial that employees feel com-
fortable seeking advice on ethical concerns and reporting
misconduct. A simple approach
is to establish an open door policy through which employees
may seek counsel from any
manager. IBM began implementing this approach during the
early years of their ethics pro-
gram (Carroll, 1991). In the United States, Sarbanes-Oxley and
the 2004 amendments to the
FSGO require that an organization create and publicize a system
to address and respond to
employee inquiries about ethics and compliance issues
(Sarbanes-Oxley Act of 2002; United
States Sentencing Commission, 2013). The U.K. Bribery Act
2010 includes a provision for
“the reporting of bribery including ‘speak up’ or ‘whistle
blowing’ procedures” (Ministry
of Justice, 2011, p. 22). Compliance with regulation appears to
be driving company invest-
ments in formal reporting systems for ethics and compliance
violations. A review of U.S. eth-
ics and compliance programs has shown that more than half
(55%) of the surveyed compa-
nies created internal reporting mechanisms after the Sarbanes-
Oxley requirement (Weber &
Wasieleski, 2013).
Developing a Reporting Mechanism and Providing Ethical
Advice
Designing an advisory and reporting mechanism entails

decisions on a number of details that
contribute to a successful implementation. These include:
• What will the service be called? How will it be branded?
• How will the service be communicated to employees?
• What types of calls will not be handled by ethics and
compliance (e.g., payroll
questions will be directed to human resources)?
• What types of reporting formats will be utilized: phone,
Internet, e-mail, fax,
text message?
• Will “24/7” advice and reporting be available?
• What languages need to be supported?
• Is reporting unethical or illegal activities mandatory or
encouraged? (Ethics &
Compliance Officer Association Foundation, 2008)
A system that employees are comfortable using requires
providing for anonymous inqui-
ries, protecting confidentiality, preventing retaliation, and
disclosing investigation of reports
where possible.
Employees may fear that an inquiry will lead to an
investigation, retaliation by coworkers,
or scrutiny of their own actions. Labels for those who expose
misconduct include tattletale,
ped82162_09_c09_255-294.indd 283 4/23/15 8:47 AM

snitch, informant, and rat, or in German, Spitzel (snitch or spy)
(Riebl, 2004). To overcome
barriers for speaking up, organizations need to provide a variety
of channels for obtaining
ethical advice to allow inquiries to occur in the manner most
comfortable for the employee.
Methods should be easily accessible, simple to use, and
facilitate reporting suspicious activity.
For example, Cisco provides an ethical decision tree to help
employees find information about
an ethical concern, has a “Sharing Ethical Concerns” link on the
[email protected] website, and the
company’s interactive code of business conduct eBook has a
link on each page to ask ques-
tions or report misconduct (Cisco, 2014). Mechanisms for
advice and reporting can include:
• A dedicated telephone helpline (where technology protects
anonymity);
• A dedicated fax number;
• A dedicated Web-portal or e-mail inbox;
• A dedicated postal address;
• Personal phone call or meeting with members of the ethics and
compliance team;
• An organizational ombudsman;
• Specific members of the human resources team;
• Direct supervisors and managers;
• Specific members of the general counsel’s office;
• Internal or external auditors; and
• Designated members of the audit committee of the board of
directors. (Ethics &
Compliance Officer Association Foundation, 2008, p. 81)
The name of a reporting system can affect whether employees

consider it an appropriate
avenue for their ethical concern. When they see the word
hotline, workers may assume that
their concern needs to be urgent or a significant violation to
warrant reporting. Over the past
20 years, there has been a marked increase in the number of
companies that have switched
from calling their telephone reporting systems hotlines to
calling them helplines (Weaver,
Treviño, & Cochran, 1999; Weber & Wasieleski, 2013). Other
names that organizations use for
telephone reporting systems include ethics advice line, share
concerns, ethics connect, ethics
line, and integrity line (Ethics & Compliance Officer
Association Foundation, 2008).
Confidential, Neutral, and Independent
It is vitally important that employees can make inquiries that
are confidential and receive
advice from a neutral and independent source. When reporting
is confidential, employee
identities are protected and names are not revealed. Having the
option to remain anonymous
provides the workforce with a sense of trust in the company’s
ability to maintain confidenti-
ality. Some companies assign a tracking number to anonymous
reports so the employee can
receive an update on his or her report or query (Riebl, 2004).
United Technologies (2014)
recommends that employees not use company computers for
communications to their
eDIALOG ethics advice and reporting program in order to
protect confidentiality.
Neutral advice refers to clear and understandable guidance that
does not advocate a spe-

cific party. In order for employees to receive independent
advice, the telephone reporting
system must operate separately from management. When
implementing a reporting sys-
tem, companies can adopt one of three models—in-house,
outsourced, and hybrid—all of
which influence workers’ perceptions of independence (Riebl,
2004). In 1994, the majority
of U.S. organizations managed a telephone reporting system
with internal staff (Weaver et
al., 1999). By 2010, 65% of the companies were using third
party vendors for helplines or
ped82162_09_c09_255-294.indd 284 4/23/15 8:47 AM
hotlines, with only 26% of the organizations assigning their
own employees to handle all calls
(Weber & Wasieleski, 2013). The use of outside vendors
guarantees employees the assurance
of anonymity. Hybrid models share the duties for processing
inquiries and reports between
in-house staff and outside vendors, where inquiries seeking
guidance on company-specific
policies require internal staff expertise.
Despite company efforts to offer confidential reporting via a
neutral and independent system,
employees still struggle with using these methods to report
misconduct. In the 2013 National
Business Ethics Survey®, the Ethics Resource Center found that
U.S. employees preferred to
approach a supervisor regarding ethical concerns, with only

16% of those reporting mis-
conduct using anonymous hotlines. In continental Europe, the
use of anonymous reporting
mechanisms is low, with one third of employees saying that
their organization has an anony-
mous speak up mechanism (Basran, 2012). Due to French
privacy laws, employees located in
France have restrictions on matters that are eligible for
anonymous reporting.
Employees of multinational companies tend to perceive that
advice and reporting mecha-
nisms are only for workers in the country where headquarters is
located (Riebl, 2004). Call
centers that provide translation services or have native language
abilities can accommodate
employees worldwide. Even with native language resources, a
survey by the ECOA found that
only 36% of the companies with international employees felt
that employees outside of the
home country were comfortable using the resources (Riebl,
2004). The feature, Reputation
Ruin: Olympus Hotline brings attention to many of the barriers
for reporting misconduct.
Reputation Risk: Olympus Hotline
Olympus Corporation is a Japanese manufacturer of endoscopic
medical devices as well as
cameras and other imaging devices, microscopes, and
information and communications
equipment. For the fiscal year ending in March 2011, Olympus
reported sales of $10.6 bil-
lion. In the same year, Michael Woodford became CEO and
discovered dubious accounting
at Olympus. He shared his concerns with the board of directors

and was subsequently fired.
Because of Woodford’s suspicions and dismissal, an
independent special committee panel
exposed hidden investment losses of 117.7 billion yen ($1.5
billion) dating back to the 1990s
(Verschoor, 2012).
Woodford is the most visible whistle-blower in the company
scandal, but he is not the only
one to experience retaliation for speaking up. Masaharu
Hamada, a salesperson for Olympus,
alleged being demoted and harassed after making a report to the
hotline in 2007. Hamada
was concerned that his boss was poaching employees from a
client, which would harm
the client relationship and was contrary to ethical standards of
the industry. Following his
report, the hotline office informed Hamada’s boss of the
complaint, which then led to retali-
ation for reporting the unethical activity. According to the
independent panel report, at least
one employee reported an accounting problem involving fake
vouchers to the hotline but
withdrew the report when asked to provide his or her name
(Osawa, 2012).
According to The Wall Street Journal investigation, Olympus
launched a compliance hotline
in 2005 following the enactment of the whistle-blower
protection laws of 2004. The special
committee found that employees attempting to make anonymous
reports of misconduct to
the compliance hotline were encouraged to disclose their
identity or told the allegations
would not be investigated. In Japan, a tradition of lifetime
employment and a strict seniority

(continued)
ped82162_09_c09_255-294.indd 285 4/23/15 8:47 AM
system dictates that employees show unbounded loyalty to their
coworkers. Few reports
made it to the hotline for fear of retaliation from coworkers.
Designers of the hotline recom-
mended that external parties handle employee inquiries to
overcome fears of retaliation. The
corporate auditor, Hideo Yamada, opposed having a third party
manage the reporting mecha-
nism, instead electing to manage the hotline with his staff. As a
result, the special committee
described the culture at Olympus as “a stuffy atmosphere that
prevented people from speak-
ing freely” (Osawa, 2012, para. 8).
Since the scandal, Olympus has suffered from a damaged
reputation and a volatile stock price.
Tsuyoshi Kikukawa, chairman and former CEO; Hisashi Mori,
director and executive vice presi-
dent; and Yamada resigned and were subsequently convicted in
a Tokyo court for their roles in
the cover-up of investment losses. The costs relating to the 13-
year fraud was 700 million yen
($7 million) in fines, a 10 million pound (1.2 billion yen, $15.4
million) settlement to Woodford
for unlawful dismissal and discrimination, 17 billion yen
($166.49 million) in lawsuit damages
by 2014, and a pending lawsuit seeking 27.9 billion yen ($272

million) (Knight, 2014). In addi-
tion, Hamada won Japan’s first whistle-blower case, and
received 2 million yen ($20,000) in
damages from Olympus (Kageyama, 2013).
1. Evaluate the Olympus reporting mechanism for confidential,
neutral, and
independent characteristics. What should Olympus do to
improve ethics reporting
in the organization?
2. How does the Japanese culture impede the effectiveness of an
ethics reporting
system?
3. What steps could Olympus take to demonstrate a commitment
to ethics and
compliance?
Reputation Risk: Olympus Hotline (continued)
Receiving Reports
Regardless of the preferred method for providing guidance on
ethics and compliance issues,
employees expect a response that is timely, credible, and
trusted. Therefore, supervisors need
training on how to handle inquiries regarding potential
violations of ethical standards. Active
listening is critical, as employees may not be able to clearly
articulate their ethical concerns.
Some companies provide employees with a list of questions that
helps organize their thoughts
before filing a report. The ethics professionals who receive the
reports can use checklists to

gather sufficient information to determine the appropriate
response and action. All inquiries
need to be documented for tracking purposes without
compromising confidentiality.
It is crucial that employees do not fear becoming the subject of
the investigation when report-
ing a violation. However, they need to be aware that false
accusations are subject to disciplin-
ary action. The Ethics and Compliance Handbook provides a list
of red flags that could indicate
that the motive for reporting influences the accuracy of the
claims, including if the employee:
a) makes frequent allegations, b) is involved in a work or
personal dispute with the subject
of the report, or c) is facing disciplinary action or poor
performance evaluation (Ethics &
Compliance Officer Association Foundation, 2008). The process
for receiving reports must
prevent dismissing an allegation as false because of a perceived
motive of the accuser. Deter-
mining the validity of the report is part of the investigation
process.
ped82162_09_c09_255-294.indd 286 4/23/15 8:47 AM
• Document report
• Assign identifying code
• Assess urgency
Incoming Report
• Screen for scope
• Assess seriousness

• Assign investigator
1. Determine nature
of the allegation
• Identify questions
• Decide method
• Develop timeline
2. Make a plan
• Assemble documents
• Notify interviewees
• Conduct interviews
3. Develop the facts
• Prepare documentation
• Reach a conclusion
• Deliver findings
4. Document the
investigation
• Disclose results
• Reinforce confidentiality
and retaliation policy
Close the
investigation
Investigations
Investigation of an allegation of unethical or illegal behavior

involves establishing exactly
what happened and what the organization can learn about
preventing future misconduct. No
single investigative process can meet the needs of all
organizations. A large organization with
a dispersed workforce may require additional coordination
among regional management. A
small organization may have an accelerated process. Some
allegations will move through an
investigative process quickly, while others may require
extensive resources and time to com-
plete. The four steps to investigating a report of unethical or
illegal activity (shown in Fig-
ure 9.4) are: 1) determine the nature of the allegation, 2) make a
plan, 3) develop the facts,
and 4) document the investigation.
Figure 9.4: Steps for investigating a report of unethical activity
The four steps to investigate a report of unethical or illegal
activity are the same for large and small
companies.
Source: Tracy Gonzalez-Padron, representation of material in
Jones, E., O’Neill, K., & Winter, G. (2013). Conducting lawful
and effective
global investigations. Paper presented at the ECOA 21st Annual
Ethics & Compliance Conference, Chicago.
• Document report
• Assign identifying code
• Assess urgency
Incoming Report
• Screen for scope

• Assess seriousness
• Assign investigator
1. Determine nature
of the allegation
• Identify questions
• Decide method
• Develop timeline
2. Make a plan
• Assemble documents
• Notify interviewees
• Conduct interviews
3. Develop the facts
• Prepare documentation
• Reach a conclusion
• Deliver findings
4. Document the
investigation
• Disclose results
• Reinforce confidentiality
and retaliation policy
Close the
investigation
ped82162_09_c09_255-294.indd 287 4/23/15 8:47 AM

In most companies, the ethics and compliance staff are
responsible for investigating alle-
gations. Small companies that do not have dedicated ethics
professionals may rely on legal
counsel or human resources to conduct investigations. The
investigation process is triggered
by the documentation of the allegation, which may originate
from an external helpline, the
ethics office, or a functional supervisor. The individual
receiving the report must make an
immediate assessment to determine if the alleged conduct
endangers life or property and
requires immediate attention. It is important that all points of
reporting know when calling
911 or notifying security is necessary.
Determining the nature of the allegation includes identifying the
scope and seriousness of the
issue, which can establish who should be involved in the
investigation. It should first be deter-
mined whether the ethics and compliance function should
conduct the investigation. Some
reports are handled more efficiently at a functional level, such
as a production safety issue in
which an employee is not following scheduled equipment
checks. The person conducting the
investigation should have skills that match the type of
misconduct. Questions to ask during
this stage in the process include:
• What specific misconduct or actions have been reported or
alleged?
• Who is the source of the allegation, if known?
• Does the allegation seem to be a plausible and legitimate

concern?
• What are the initial facts?
• Are there any inconsistencies in the initial facts?
• What evidence suggests that the misconduct did not occur?
• Are there any mitigating circumstances?
• How serious does the potential violation appear to be?
• Is the scope broad enough to enable the company to take
appropriate remedial
action, including determining the extent to which internal
processes should be
modified?
• Will the investigation findings likely be reported to third
parties such as law enforce-
ment or regulators (Jones, O’Neill, & Winter, 2013)?
The next step is to develop a plan that outlines the parameters
to guide the investigation. The
plan builds from the analysis in Step 1 to address the questions
that must be answered by
the investigation. Once the investigator has the information, he
or she must determine what
information is missing. A detailed plan should answer the
following questions:
• “Who will be interviewed as witnesses and in what order?”
• What topics will be addressed in witness interviews?
• “Which documents will be examined?”
• Which documents will be shared with witnesses?
• “At what stage of the process will the subject(s) of the
allegation be told what she or
he is, or they are, being accused of ?”
• “Beyond interviewees, who will be notified of the
investigation?” (Ethics & Compli-

ance Officer Association Foundation, 2008, p. 100)
Implementation of the investigation plan involves gathering the
facts of the case through vari-
ous methods. The first task is to identify and review the
policies, procedures, regulations,
and ethical codes that relate to the alleged misconduct. The
second task is to assemble rel-
evant documents such as personnel files, e-mails, security
video, and business records. The
ped82162_09_c09_255-294.indd 288 4/23/15 8:47 AM
Section 9.5 Monitoring and Assessing Progress
third task is to prepare questions for interviewing witnesses and
schedule adequate time to
meet with each witness. Investigators should explain to
witnesses that they are only gath-
ering information at this time and that witnesses should not
discuss their interviews with
coworkers. During the interview, active listening must be used
to obtain a witness’s full story.
An approach to interviewing known as the funnel technique can
be helpful, which begins with
open-ended questions to encourage the witness to talk,
prompting with questions to gather
all information possible. Once the witness feels that all the facts
have been conveyed, he or
she should be asked for specific details to clarify the story. The
interview should end with the
question “is there anything else?” to confirm that all
information has been exhausted.

The final step is to document the investigation to deliver to
management. The facts should
be stated clearly, and supported by documentation and interview
notes. Investigators should
avoid making conclusions or inserting personal opinions. They
must consult with manage-
ment to determine if sufficient evidence is available to reach a
conclusion and determine if
disciplinary action will occur. Once the document step is
completed, the investigation can be
closed. Disclosing the results of an investigation demonstrates a
commitment to enforce ethi-
cal standards. At a minimum, it is important to inform the
person who made the initial report.
If confidentiality can be maintained, the results may be
disclosed to the supervisor of the
subject of the investigation. The results of ethics investigations
may be reported to the board
of directors. Another way of disclosing the results of ethics
investigations is to present them
as learning cases during training, even if disguising the subjects
to maintain confidentiality.
9.5 Monitoring and Assessing Progress
The FSGO require a regular review of a company’s ethics and
compliance program to “ensure
that the organization’s compliance and ethics program is
followed, including monitoring
and auditing to detect criminal conduct; and to evaluate
periodically the effectiveness of the
organization’s compliance and ethics program” (United States
Sentencing Commission, 2013,
p. 498). After the Olympus scandal, Japanese companies are
feeling pressure to instill a cul-
ture of ethics and compliance within their organizations

(McNulty, 2011; Verschoor, 2012).
Companies should not wait for a crisis to assess their ethics and
compliance program. Cor-
porate controllers and the board of directors want to see a return
on their investment in
ethics training, communication, investigations, and program
management. Regulators want
companies to monitor for compliance to ensure that policies and
procedures are followed.
A 2013 survey found that “81% of organizations can
demonstrate the effectiveness of their
code of conduct,” 77% assess training programs positively, and
72% can show consistent use
of policies and procedures (SAI Global, & Baker & McKenzie,
2013, p. 12). However, the true
impact of the ethics and compliance program is measured by
how well the efforts modify
employee awareness of ethical issues and policies, attitudes
toward ethics and compliance,
and behaviors.
Measuring Ethical Performance
Measuring program effectiveness entails asking, “What has the
program achieved, and
where are opportunities for improvement?” Periodic program
evaluations provide a better
ped82162_09_c09_255-294.indd 289 4/23/15 8:47 AM
understanding of employee knowledge and perceptions of the

ethics and compliance cul-
ture. Insights gained can inform senior management of
compliance trends that may require
program adjustments. There are two approaches for measuring a
program’s effectiveness:
measuring activity and measuring outcomes. Table 9.8 lists
common metrics for measuring
ethics and compliance programs. Many companies rely on
activity metrics, as they are easier
to track, rather than measuring behaviors. These metrics focus
on the number of transactions
with each program element, often relating to the number of
people that the program touches.
Surveys of ethics officers have found that over half of the
companies rely on audit results,
training completion rates, and number of hotline/helpline calls
(PWC, 2014; SAI Global, &
Baker & McKenzie, 2013). Outcome metrics seek to quantify
the impact that the program has
on changing behaviors, focusing on reducing misconduct.
Table 9.8: Common metrics for measuring ethics and
compliance programs
Ethics and Compliance
Program Component Measuring Activity Measuring Outcomes
Overall ethical culture Employee questionnaire and
culture surveys
Exit interviews
Supplier surveys
Customer surveys
Web content
Press coverage
Code of conduct Number of code of conduct

certifications
Number and type of substan-
tiated violations of code of
conduct
Training Number of training courses
completed
Percent participation
Employee surveys
Number and type of ethical
violations
Advice and reporting
mechanisms
Number of hotline/helpline calls
Number of reports of misconduct
Anonymous vs. identified callers
(percentage of employees fearing
retaliation)
Number of reports leading to
investigation
Investigations Number of completed
investigations
Number of disciplinary actions
Number of revised policies, pro-
cedures, and program elements
Monitoring and auditing Number of audits completed
Benchmarking to best practices
Number of issues addressed

Sources: PWC, 2014; SAI Global & Baker & McKenzie, 2013.
There are multiple methods for measuring the impact of the
ethics and compliance program.
Employee surveys can assess awareness of the program,
relevant policies and procedures, and
confidence in acting ethically. Similar surveys of suppliers can
uncover risks of noncompliance
ped82162_09_c09_255-294.indd 290 4/23/15 8:47 AM
with company standards. Surveys, however, can be expensive,
and employees may not trust the
company to maintain confidentiality (Edwards, 2010). An
underutilized method to gain insight
into the ethical culture of the organization is exit interviews.
Only one third of companies use
exit interview information and miss an opportunity to uncover
issues that prompt employees to
leave the company (PWC, 2014; SAI Global, & Baker &
McKenzie, 2013). Another source for per-
ceptions of a company’s ethics are expressions of company
stakeholders on social media. Price-
waterhouseCoopers recommends that companies consider
emerging data-driven measures
such as analyzing the Web content of customers, employees,
investors, and other stakeholders:
Social expressions regarding customer satisfaction, perceptions
of fair deal-
ing and integrity and/or a sense of trust, pride or loyalty by

employees, cus-
tomers and investors can provide insight into elements relevant
to the overall
objectives of an ethics and compliance program. (PWC, 2014, p.
20)
Evaluating perceptions of all stakeholders, not just employees,
can provide valuable insights
on how the ethics program influences behaviors. Yet less than
20% of companies monitor
press and public statements as a measurement of public trust in
the company’s ethics (PWC,
2014). For a comprehensive assessment of an organization’s
ethics and compliance program,
companies should seek input from all stakeholders, including
top management and the board
of directors.
Monitoring and Auditing the Ethics Program
Monitoring and auditing the ethics and compliance program
differs from assessment. Whereas
assessment focuses on the program’s achievements and areas for
improvement, the functions
of monitoring and auditing focus on whether the process is
effective. Monitoring refers to “a
system of activities that provide an organization with a self-
appraisal of its control system’s
performance” (Hedley, & Ben-Chorin, 2011, p. 69). Monitoring
an ethics program involves
setting controls for compliance and early identification of
noncompliance. Examples of ongo-
ing monitoring activities include reviewing and approving travel
expenses, utilizing a quality
assurance checklist, listening to customer service calls, and
surveying company e-mail. The

degree of monitoring for compliance varies by organization, but
excessive controls can give
employees the impression that the company does not trust them,
reducing their commitment
to the organization.
Auditing involves a periodic review of company compliance
with ethical and legal standards
to determine whether all the elements of an effective ethics and
compliance exist. For public
companies, the audit committee of the board of directors is
responsible for overseeing the
ethics and compliance program. In the United States, the
Sarbanes-Oxley Act of 2002 requires
the audit committee to select external auditors and to establish
reporting mechanisms to
receive and act on anonymous concerns regarding accounting,
internal control, and auditing
(Felo & Solieri, 2003). The types of questions that an auditor
might ask include:
• Does the company have all of the necessary standards and
procedures in place, given
the applicable legal and regulatory framework?
• Has the company appropriately distributed those written
standards and procedures,
including its code of conduct?
ped82162_09_c09_255-294.indd 291 4/23/15 8:47 AM
Summary & Resources
• Has the company provided ongoing training programs to

educate its employees,
officers, and (where appropriate) agents and contractors?
• Has the company devoted adequate resources to the operations
of its compliance
program, and does the compliance officer have sufficient
authority within the
organization?
• Are employees actually following the company program?
• Have there been any internal investigations of alleged
noncompliance with the pro-
gram? If so, what were the results?
• If internal investigations have taken place, were the proper
procedures for investiga-
tions followed?
• Were remedial actions taken upon discovery of wrongdoing?
(Gordon, 2013,
pp. 58–59)
Through formal audits, ongoing monitoring efforts, and periodic
evaluations of the ethics and
compliance program, a company can continuously improve the
ethical environment of the
organization. Sharing best practices allows all organizations to
learn from the successes and
failures of others. No two ethics and compliance programs are
identical. The size, industry,
location, and company history can influence the implementation
of each component of the
ethics program.
Summary & Resources

Chapter Summary
An ethics and compliance program should be developed to meet
the needs of the organi-
zation. Implementing an effective organizational ethics program
consists of five steps. First,
designers must create a structure to manage and oversee the
ethics and compliance program
within an organization. An ethics officer is a steward of this
program within the organization,
and should be given sufficient authority and resources to
encourage compliance with legal
and ethical standards.
Second, the ethics and compliance program must communicate
clear standards of acceptable
behavior that address the organization’s risks, typically in a
code of conduct. The individu-
als designing the code should tailor it to reflect the
organization’s unique culture, risks, and
history. Content may vary due to the regulatory environment of
the industry or geographical
region.
Third, the organization needs to educate the workforce via a
training program that reso-
nates with its audience and encourages ethical behavior as a
norm. Educating the workforce
involves ongoing and interactive training, regular
communications, and follow-up support by
management. The objective of ethics training is to help
employees make decisions that are
consistent with company values. Organizations should consider
a wide array of training and
communication methods, including classroom and online
learning.

Fourth, procedures should be put in place to respond to reported
misconduct through a trans-
parent and fair investigation process. A system that employees
are comfortable using requires
providing for anonymous inquiries, protecting confidentiality,
preventing retaliation, and
ped82162_09_c09_255-294.indd 292 4/23/15 8:47 AM
Summary & Resources
disclosing investigation of reports where possible. Multiple
methods should be offered for
employees to seek advice on ethical concerns and report
suspicious activity. An investigation
of an allegation of unethical or illegal behavior involves
establishing exactly what happened
and what the organization can do to prevent future misconduct.
The final step in developing an ethics program involves
monitoring and assessing program
effectiveness to identify areas for improvement. Monitoring of
the ethics program involves set-
ting controls for compliance and early identification of
noncompliance. The two approaches
used to determine the effectiveness of an ethics and compliance
program are measuring activ-
ity and measuring outcomes. Activity metrics focus on the
number of transactions with each
program element, often relating to the number of people that the
program touches. Outcome
metrics seek to quantify the impact that the program has on
changing behaviors, focusing on

reducing misconduct. The auditing function involves a periodic
review of company compli-
ance with ethical and legal standards to determine whether all
the elements of an effective
ethics and compliance exist.
Key Terms
ethics officer A steward of the ethics and
compliance program within an organization.
rules-based code An enumerated list of
issue areas along with the company stan-
dards applicable to that issue area.
values-based code A code of conduct
connecting company values with employee
behavior.
Critical Thinking and Discussion Questions
1. How could a company of 75 employees implement an ethics
program with limited
resources?
2. Choose an organization that you work for or are interested in
working for. Locate
its code of conduct (or code of ethics/code of business
standards). Score the code of
conduct using Ethisphere Institute’s benchmarking criteria. How
does this organiza-
tion compare to similar firms in the industry? Write a code of
conduct for a small
fictitious business.
3. How can a company determine if ethical training is effective

other than showing
completion of online courses or attendance?
4. Should reporting of observed misconduct be mandatory? If
so, how could the policy
be communicated and enforced? What are the unintended
consequences of potential
disciplinary action if an employee does not speak up?
5. Why would questions on the ethical culture of an
organization be valuable during an
exit interview? What questions would you ask?
Suggested Resources
Cisco Code of Business Conduct
http://www.cisco.com/assets/about/ethics/cobc/ebook/page/04-i-
am-ethical.html
ped82162_09_c09_255-294.indd 293 4/23/15 8:47 AM
http://www.cisco.com/assets/about/ethics/cobc/ebook/page/04-i-
am-ethical.html
Summary & Resources
Ethics & Compliance Officer Association
http://www.theecoa.org
Ethics Resource Center
http://www.ethics.org

Ethisphere Institute
http://www.ethisphere.com
Federal Sentencing Guidelines
http://www.ussc.gov/guidelines-manual/2014/2014-ussc-
guidelines-manual
ped82162_09_c09_255-294.indd 294 4/23/15 8:47 AM
http://www.theecoa.org
http://www.ethics.org
http://www.ethisphere.com
http://www.ussc.gov/guidelines-manual/2014/2014-ussc-
guidelines-manual
10 Looking Forward
Mike Householder/Associated Press
Learning Outcomes
After reading this chapter, you should be able to do the
following:
• Summarize potential ethical risks in business by recognizing
relevant issues, performing environmental
scanning, and identifying reliable resources for uncovering
future misconduct risks.
• Analyze how trends in the economic, geopolitical, social, and
technological environment lead to ethical
issues in business.

• Evaluate how emerging ethical issues affect the ethics and
compliance function in an organization.
ped82162_10_c10_295-324.indd 295 4/23/15 8:49 AM
Introduction
Introduction
Self-Driving Cars
Imagine driving along a winding mountain pass, with a ravine
on the right and a rock wall
across the opposite lane on the left. Taking a sharp turn around
the mountain, you see two
cars coming toward you in both lanes, one trying to pass the
other. In seconds, each driver
must react. You slam on the brakes, hoping that the other cars
adjust to allow the passing car
to move out of your lane.
Now imagine the same situation, except this time you are in a
self-driving car, taking photos
of the scenery as you tour through the mountain pass. The car
relies on radar sensors, lasers,
and cameras to keep the vehicle on a path to the designated
destination (Greimel, 2013).
Turning the corner, the directional equipment cannot see around
the mountain, but recog-
nizes an obstacle immediately. The computer controlling the car
must now react. The decision
to stop or swerve can lead to a potentially fatal accident or save
all passengers. Your life and

the lives of others depend on the computer program designed
and installed by the automaker.
Do you trust the automaker to keep you safe?
Automakers are racing to launch self-driving, or autonomous,
cars by the year 2020. Some mod-
els already feature technology that allows them to park
themselves, warn of lane departures,
detect a vehicle in blind spots, and slow or stop to avoid an
obstacle even before the driver reacts.
Such measures have already reduced traffic accidents in the
United States, and studies predict
“that if just 10% of the cars in the U.S. were autonomous, there
would be 211,000 fewer accidents
annually, and 1,100 lives would be saved each year” (Tuttle,
2013, para. 7). Other advantages
include greater use of fuel resources and greater mobility for
persons with disabilities.
However, there are ethical challenges to market a car that
requires little or no driver inter-
vention (Newman, 2014). What would prevent a car
manufacturer from programming the
car’s route so passengers will pass sponsoring businesses? The
safety features in existing
cars emit warnings and require driver intervention. As
technology progresses toward a more
autonomous car, drivers may become accustomed to being able
to read, work, or perform
other tasks while the vehicle transports them to their
destination. Distracted drivers are less
likely to react quickly should they need to take control of the
vehicle (Knight, 2013).
Who is at fault when the car advises the driver to take control,
yet the driver does not, or

does not have enough time to do so? How should the system
choose between its passenger’s
safety and someone else’s life in an oncoming vehicle? The
issue is further complicated by the
complexity of the electronics and communications, and reliance
on transportation infrastruc-
ture, all of which increase the potential for system malfunction
or hacking. As one researcher
stated, “Every company wants to have the first self-driving car,
but no one wants to have the
first self-driving car crash” (Iozzio, 2014, p. 20).
The general concept behind an autonomous car is that it is a
robot designed to transport humans
and protect them in the process. In the 1950s, science fiction
author Isaac Asimov created the
three laws of robotics to outline the ethics of robotics when
interacting with humans:
1. A robot may not injure a human being or, through inaction,
allow a human being to
come to harm.
ped82162_10_c10_295-324.indd 296 4/23/15 8:49 AM
Section 10.1 Identifying Ethical Risks of the Future
2. A robot must obey the orders given to it by human beings,
except where such orders
would conflict with the First Law.
3. A robot must protect its own existence as long as such
protection does not conflict
with the First or Second Laws. (Anderson, 2008, pp. 477–478)

Advances in technology to develop robotic weapons test
Asimov’s premise of doing no harm.
A robot is defined as “a mechanical device having a reasonably
high level of intelligence, the
ability to make elementary decisions, and the dexterity and
flexibility to perform an intricate
sequence of different motions without human intervention”
(Leap & Pizzolatto, 1983, p. 697).
Robots perform many tasks in manufacturing, surgery, and the
military. Why, then, would an
autonomous car be different?
First introduced by moral philosopher Philippa Foot in 1967,
the trolley problem is a thought
experiment that may shed some light on the moral decisions
imposed on the robotic car by
its creators (Myers, 2014). Imagine you are standing near a train
yard where you witness a
runaway trolley careening down the track toward five people
who will die unless the train
changes direction. You notice a lever that you could pull to
switch the trolley to a side track,
where a sixth person is standing and who would surely die
should the train be diverted. Your
options, then, are to do nothing and allow five people to die, or
pull the lever and cause one
person’s death. When presented with this scenario in a research
setting, subjects typically
rely on moral reasoning and moral emotions to determine a
course of action (Lanteri, Chelini,
& Rizzello, 2008). In a similarly complex dilemma, what could
a robotic car rely on to make
the most ethically sound decision?

This chapter explores the future trends in business and society
that are likely to create new
ethical issues for organizations. The material evokes reflection
on two questions: What are
the potential risks for ethical misconduct in the future? How
will changes in the workplace
influence organizational ethics programs? The chapter presents
tools to identify ethical issues
that a business may encounter in the future. Emerging issues are
explored that relate to future
workforce transitions, business models, and technological
advances. Then, approaches that
an ethics and compliance program may use to address new
ethical issues are considered. The
discussion in this chapter builds on the historical background of
business ethics in the first
chapters as well as topics relating to the identification of ethical
issues, ethical decision mak-
ing, and ethical traps. Looking forward requires understanding
the past.
10.1 Identifying Ethical Risks of the Future
Business leaders can detect early warnings of the ethical risks
of the future by monitoring
an organization’s internal and external environments for the
ethical dimensions of busi-
ness strategies. Recall from Chapter 3, ethical dimensions of
business are described as what
ought to be and include value judgments rather than data-driven
factual dimensions (Grier,
2013). Exploring the ethical dimensions of business requires
reflection beyond the immedi-
ate business activity and considers the long-term effects on
stakeholders and the organiza-
tion. Additionally, Chapter 3 introduced environmental scanning
as an organizational process

that enables companies to identify political, social, and
technological trends that could influ-
ence misconduct in the workplace. Business strategists
recognize environmental scanning
ped82162_10_c10_295-324.indd 297 4/23/15 8:49 AM
that incorporates stakeholder analysis as the foundation for
corporate planning of success-
ful organizations (Bluedorn, Johnson, Cartwright, & Barringer,
1994; Kimiagari, Keivanpour,
Mohiuddin, & Van Horne, 2013).
As discussed in Chapter 1, social issue life cycle theory asserts
that attention to ethical issues
changes over time, progressing from relative inattention to an
ethical issue, to awareness of
the issue, and finally to an expectation for responsible behavior
by the public or other com-
pany stakeholders (Ackerman, 1975; Zyglidopoulos, 2003).
Therefore, ethical issues become
more important to certain stakeholder groups. Ethical issue
intensity describes the per-
ceived relevance or importance of an ethical issue to individuals
or groups (Ferrell, Fraed-
rich, & Ferrell, 2013). Managers need to develop capabilities to
identify the ethical issues that
require attention and action.
This section provides strategies for managers to identify future
ethical issues that require a
response from their organization. Environmental scanning for

ethical dimensions includes
engaging stakeholders and recognizing that ethical issue
intensities will shift over time
(Bowie & Dunfee, 2002; Crittenden, Crittenden, Pinney, & Pitt,
2011). A framework is offered
to determine appropriate company responses to moral pressures
from the public and com-
pany stakeholders. The section concludes with a guide of
credible and reliable resources to
identify emerging ethical issues.
Recognizing Relevant Ethical Issues
Managers may not have the time and resources to prepare for
every potential ethical issue.
Meyer and Kirby (2010) have identified three factors that create
demand for businesses to
address an ethical issue: 1) the growing scale of companies and
their impacts, 2) improve-
ments in sensors that measure impacts, and 3) heightened
sensibilities of stakeholders. Man-
agers should consider these factors in predicting ethical issues
that are relevant to their
business.
Scale reflects the recognition that a firm or industry can have a
large impact on the environ-
ment, people, and the economy. Larger companies are often
under greater public scrutiny as
irresponsible actions (e.g., pollution, labor violations, or false
advertising) impact a larger
number of people. For example, a Chinese media report exposed
the unsafe practices of a
meat factory supplying American fast food chains in Shanghai,
China, including reusing meat
that had fallen on the floor and selling expired meat products

(Solomon, 2014). The factory
was not acting with integrity and misrepresented the safety and
freshness of meat sold to cus-
tomers. The food safety violations may not have been noticed if
it were not for the factory’s
connection to McDonald’s and KFC restaurants in the Shanghai
area. The two fast food chains
have more than 8,000 restaurants in China and have struggled
with food safety scandals in
their supply chain since 2012.
Companies can predict future ethical issues relating to the scale
of their business by rec-
ognizing the resources that comprise the largest part of the
company’s product or service.
For example, beef and chicken are main ingredients for
McDonald’s flagship items, making
ped82162_10_c10_295-324.indd 298 4/23/15 8:49 AM
unsafe food practices of a meat supplier a relevant ethical issue
to which the company must
respond. Increasingly, consumers and the public tend to hold a
firm responsible for not only
its own but also its suppliers’ unethical behaviors (Hartmann &
Moeller, 2014). Ethical issues
in global supply chains include unsafe work environments,
human rights violations, harmful
environmental outputs, and poor product quality or output.
Ethical issues with procurement
of other key ingredients, such as potatoes, may warrant
attention by fast food companies.

These companies and others may find that their global
workforce has grown so large that
monitoring ethical conduct becomes more challenging.
Sensors refer to technology that measures actual outcomes of an
industry or individual com-
pany and provides the ability to track sources of misconduct
directly to the source company.
As discussed in Chapter 3, new technologies, such as keystroke
monitoring, global positioning
systems (GPS), and radio frequency identification (RFID) chips,
can detect misuse of pro-
prietary data or fraud. These sensors can track misconduct
throughout a company’s supply
chain or measure the impact of a company’s misconduct. For
example, radiation sensors and
GPS tracking on moving vehicles provided an accurate
reflection of the damage to residents
from Japan’s nuclear plant explosions in 2011 due to a safety
failure of emergency systems
(Hemmi & Graham, 2014).
Heightened sensibilities for an ethical issue relate to the
expectation for responsible behav-
ior by the public or other company stakeholders. Managers
should seek ethical issues that
could arise from the business strategy, including the entire
value chain. For example, Oxfam
International and Human Rights Watch enacted a boycott to
force Indian rug producers to
abandon the use of child labor that violates global ethic
standards (see Chapter 4) such as
the Global Sullivan Principles, the Fair Labor Association
Workplace Code of Conduct, the
United Nations Global Compact’s Ten Principles, and Social
Accountability International’s

SA8000 Standard (Ballet, Bhukuth, & Carimentrand, 2014). The
boycott affected importers
and retailers of Indian rugs as well, and encouraged them to
purchase only from certified rug
producers. Managers can recognize relevant emerging ethical
issues by looking for future
shifts in stakeholder priorities, potential legal action by
stakeholders, and ethical misconduct
throughout the supply chain.
Environmental Scanning of Stakeholders
and Ethical Issue Intensity
Responding to the moral judgments of consumer, labor, and
investor stakeholders is a chal-
lenge for many companies that may be pressured to address
societal issues, such as animal
testing, abortion, homosexuality, equal opportunity, alcohol and
tobacco use, human and
worker rights, and gun control. Management should ask, “How
have stakeholder expectations
changed?” to recognize shifts in stakeholder attitudes toward an
ethical issue (Meyer & Kirby,
2010, p. 43). As the intensity of an issue grows, company
stakeholders increase pressure for
a business to act responsibly by expressing their moral
judgment on the issues. However,
despite the pressure, a company may not be able to act on the
moral judgments of all stake-
holders. Bowie and Dunfee (2002) provide a framework to
categorize moral pressures on
business and appropriate responses as depicted in Table 10.1.
ped82162_10_c10_295-324.indd 299 4/23/15 8:49 AM

Table 10.1: Strategies for responding to moral expressions
of company stakeholders
Type of Moral
Expression
Moral Expression
Is . . . Examples
Recommended
Strategy
Benign Inarguably consistent
with universal princi-
ples (ethical principles
with which most people
agree)
Pressure on tobacco
companies to pro-
vide clear, dramatic
warnings about health
effects; investor pres-
sure for transparent
financial reporting
If expressed as a man-
datory duty, firm has
an obligation to act in
compliance
Disputed A contested issue
within the relevant

community that is not
resolved by manifest
universal principles; an
idiosyncratic context-
specific issue
Shareholders or
employees demand-
ing that their firm stop
giving corporate money
to Planned Parenthood
based on antiabor-
tion views; employees
objecting to a policy
requiring that frequent
flyer miles earned on
firm business are given
to the firm, which they
find to be unfair
Act consistently with
core values of the firm
Problematic Inarguably inconsis-
tent with universal
principles
Employees, unions, and
customers demanding
racial discrimination
Resist compliance
Source: Adapted from Bowie, N., & Dunfee, T. (2002).
Confronting morality in markets. Journal of Business Ethics,
38(4), 381–393.

Benign moral pressures reflect widely accepted ethical
principles, such as a desire to protect
human well-being and provide a safe workplace. As introduced
in Chapter 1, these universal
principles are hypernorms, described as “principles so
fundamental that, by definition, they
serve to evaluate lower-order norms, reaching to the root of
what is ethical for humanity”
(Donaldson & Dunfee, 1999, p. 46). Managers may consider
that a business activity is widely
accepted by most people when it is mandated by regulation,
industry practice, or global ethi-
cal standard. For example, the right to a safe and healthy
working environment is recognized
as a fundamental human right by the International Labour
Organization, a United Nations
agency (ILO, 2011). In response, many nations have regulations
on occupational health and
safety. Bowie and Dunfee (2002) encourage companies to
comply with benign moral pres-
sures, especially those mandated by law.
Disputed moral pressures arise when one segment of the public
opposes the position of
another segment. In addition to the societal moral issues that
have been mentioned, disputes
on the fairness of employee policies or corporate governance
practices can create emerging
ethical issues. The best course of action for companies is to
follow their core values in deter-
mining appropriate actions.
ped82162_10_c10_295-324.indd 300 4/23/15 8:49 AM

Problematic moral pressures center around what is “ethical for
humanity” (Donaldson &
Dunfee, 1999, p. 46), and typically occur when a company or its
stakeholders demand an
activity that violates a universal ethical standard, such as
discriminating according to race or
engaging in slave labor. Even organizations with strict policies
consistent with universal val-
ues can experience a shift in ethical standards in response to
influential dominant stakehold-
ers (Sawaoka, Newheiser, & Dovidio, 2014). One example is
supplier pressure to allow child
labor in order to reduce manufacturing costs.
Credible and Reliable Resources
Responsive companies may be able to anticipate benign,
disputed, and problematic pressures
by regularly scanning the credible and reliable resources
available within the internal and
external environment. Regular review of company sources, such
as common helpline top-
ics, misconduct reports, exit interviews, and employee/supplier
surveys, may offer valu-
able insight into ethical issues that are emerging internally
within the organization. There
are numerous sources to gather information from the external
environment, including news
media and business journals. A suggested practice is for
managers to subscribe to newsfeeds
of business, ethics, and compliance outlets for alerts to
regulatory shifts, industry practices,
and reported misconduct. These daily or weekly reminders can

generate dialogue among
management as to possible application within the organization.
Credible public news outlets can indicate shifts in public
opinion especially with the recent
growth in user-created content on news media online editions.
The Organisation for Eco-
nomic Co-operation and Development (OECD) defines user-
created content as: “a) content
made publicly available over the Internet, b) which reflects a
certain amount of creative
effort, and c) which is created outside of professional routines
and practices” (OECD, 2007,
p. 4). A 2014 Pew Research Center study reports that “11% of
all online news consumers have
submitted content (including videos, photos, articles, or opinion
pieces) to news websites or
blogs” (Mitchell, 2014, p. 5).
User-created content on social media (websites for social
networking) provides management
with valuable information on the opinions of customers,
employees, suppliers, competitors,
and the public. Fan and Gordon (2014) recommend the use of
social media analytics, which
‘involves a three-stage process: capture, understand, and
present” (p. 74) (see Figure 10.1).
Social media analytics is the interpretation of social media data
to “extract useful patterns
and intelligence,” going beyond simply tracking traffic to an
Internet site (Fan & Gordon,
2014, p. 74).
The first step is to discover and collect messages from social
websites through social media
monitoring. One challenge encountered in this step is sifting

through the large amount of
irrelevant material that may be collected. The second step is to
interpret the meaning of the
social media content using techniques for categorizing opinions,
and analyzing sentiments
and trends in an effort to predict shifting customer, supplier,
employee, and community
expectations of the company (Kalampokis, Tambouris, &
Tarabanis, 2013). Finally, when pre-
senting trends in emerging ethical issues, companies will focus
on identifying potential risks
and opportunities. For example, increasing public concerns
about improper disposal of con-
sumer electronics leaking toxic chemicals into the environment
encouraged companies to
offer trade-in or removal services when purchasing a new
product (Fan & Gordon, 2014).
ped82162_10_c10_295-324.indd 301 4/23/15 8:49 AM
• Gather data from various sources
• Preprocess the data
• Extract pertinent information from the data
Capture
• Remove noisy data (optional)
• Perform advanced analytics: opinion mining
and sentiment analysis, tropic modeling,
social network analysis, and trend analysisUnderstand
• Summarize and evaluate the findings from
the understand stage
• Present the findings

Present
While useful, organizations should consider user-created
content with care as it tends to
reflect the beliefs of individuals with strong convictions rather
than those of the general pop-
ulation (Eveland & Shah, 2003; Yildirim, Gal-Or, & Geylani,
2013). User-created content also
tends to reflect a younger and more technologically-savvy
individual who may not represent
public opinion. For example, during the days following the 2012
elementary school shooting
in Newtown, Connecticut, the Pew Research Center found that
while nearly two thirds of
those who posted related comments on Twitter expressed
support of stricter gun control, its
public opinion polls during the same period indicated a more
equal split with 49% support-
ing gun control and 42% opposing stricter gun controls (Matsa
& Mitchell, 2014). In addition,
when interpreting reader reactions to media coverage of various
issues, companies must bear
in mind the potential for bias in the U.S. news media toward
liberal or conservative social
causes (Eveland & Shah, 2003; Sutter, 2012).
A wide range of non-media organizations, such as nonprofit
research centers, communities
of practice, non-governmental organizations (NGOs), and think
tanks, provide valuable infor-
mation on emerging ethical issues that may affect businesses.
The U.S.-based Ethics Resource
Center and the European-based Institute for Business Ethics are

examples of nonprofit ethics
research organizations that offer insight into misconduct in the
workplace. A community of
practice is often described as a group of people “who share a
concern, a set of problems, or
a passion about a topic, and who deepen their knowledge and
expertise in the area by inter-
acting on a regular basis” (Wenger, McDermott, & Snyder,
2002, p. 4). Some communities of
practice are informal social networking groups, while others are
members only, requiring an
annual fee to participate.
Figure 10.1: Social media analytics process
A social media process entails three stages designated to
capture, understand, and present information
on consumer and social trends affecting the business.
Source: Weiguo, F.A.N., & Gordon, M.D. (2014). The power of
social media analytics. Communications of the ACM, 57(6), 74–
81. Reprinted
with permission of The Association for Computing Machinery.
• Gather data from various sources
• Preprocess the data
• Extract pertinent information from the data
Capture
• Remove noisy data (optional)
• Perform advanced analytics: opinion mining
and sentiment analysis, tropic modeling,
social network analysis, and trend analysisUnderstand
• Summarize and evaluate the findings from

the understand stage
• Present the findings
Present
ped82162_10_c10_295-324.indd 302 4/23/15 8:49 AM
I II III
Updated Aug 28, 2014
North
America
South
America Africa
Europe
Asia
Preventative
Priority Level
An example of an organization that provides executive
networking opportunities to under-
stand and address critical issues is The Conference Board, Inc.
(The Conference Board, 2014).
Another community of practice is the Corporate Executive
Board Company (CEB), which
offers networking opportunities by function, including ethics
and compliance officers (CEB

Compliance & Ethics Leadership Council, 2014). These
networking opportunities allow pro-
fessionals to discuss what ethical issues create concerns for
their businesses. As an NGO, the
United Nations Global Compact provides companies with
guidance on responsible business
practices worldwide with special working groups to explore key
issues.
Think tanks are groups of experts who research technological
and social problems with the
goal of generating creative solutions and offering advice. Think
tanks often rely on member-
ship and sponsorship from companies and/or academic
institutions. For example, a resource
for identifying threats to businesses worldwide is the Council
on Foreign Relations (CFR), an
independent, nonpartisan membership organization, think tank,
and publisher of Foreign
Affairs magazine. CFR’s website includes an interactive global
conflict tracker, which provides
a view of perceived security threats worldwide (see Figure 10.2
for a screenshot of CFR’s
interactive Global Conflict Tracker). The threat analysis is a
summary of CFR’s annual Preven-
tive Priorities Survey, which asks governmental officials,
experts, etc. to assess the likelihood
of occurrence of a major threat in the following 12 months. A
major threat includes cyber
attacks against business and governmental websites, and
computer databases (Council on
Foreign Relations, 2014). In 2013, extensive attacks on banking
databases and public web-
sites in South Korea and the United States disrupted banking
transactions and risked con-
sumer information (Sang-Hun, 2013; Gorman & Yadron, 2013).

Figure 10.2: CFR interactive Global Conflict Tracker
Global assessment of crisis risks provides early warnings of
threats to business.
Source: From CFR’s Global Conflict Tracker from the Center
for Preventive Action. Copyright © 2015 by the Council on
Foreign Relations.
Reprinted with permission.
I II III
Updated Aug 28, 2014
North
America
South
America Africa
Europe
Asia
Preventative
Priority Level
ped82162_10_c10_295-324.indd 303 4/23/15 8:49 AM
Table 10.2 summarizes credible and reliable resources to
identify emerging ethical issues for

an organization.
Table 10.2: Sample resources for identifying emerging ethical
issues
Resources Example Sources Consideration for Use Suggested
Practices
News media The New York Times
The Wall Street Journal
Financial Times
The Economist
Forbes
Bias in coverage and
position; user-generated
content provides reader
opinions
Monitor multiple news
sources for balancing
biases
Ethics/corporate social
responsibility (CSR)
magazines
Ethical Corporation
Provides industry best
practices and emerging
issues
Distribute beyond the
ethics and compliance

or social responsibility
staff
Interactive forum/
online newswires
CSRwire
The GRC Digest
Law.com newswire
Provides timely notice
of regulatory shifts,
industry practices, and
ethical misconduct
Share with manage-
ment throughout
the organization and
encourage dialogue
on application to the
business
Social media Twitter, Inc.
Facebook, Inc.
LinkedIn Corporation
Foursquare
Manta
YouTube
Valuable insights into
changing consumer
interests and tastes,
influential users, poten-
tial crises, and com-
petitive intelligence;
may not reflect public

opinion
Adopt social media
monitoring and ana-
lytical tools to identify
ethical issues relating
to industry or company
Nonprofit research
centers
Institute of Business
Ethics
National surveys
provide information
on types of misconduct
and reporting barriers
Review trends that
signal a shift in what
employees consider
unethical behavior
Communities of
practice
The Conference Board
CEB
Business for Social
Responsibility
European Business Eth-
ics Network
Allows ability to dia-

logue with peers; costly
Select an organization
that fits the industry or
primary focus of ethics
and CSR initiatives
NGOs and think tanks UN Global Compact
Transparency
International
Council on Foreign
Relations
The World Economic
Forum
Publicly available stud-
ies identify emerging
opportunities and risks
for business; need
to interpret ethical
dimensions
Determine gaps in
program given new
issues
ped82162_10_c10_295-324.indd 304 4/23/15 8:49 AM
Management should consider how the global trends in the
economic, geopolitical, social, and
technological environment affect existing or future stakeholders

of the organization. The
World Economic Forum, a global think tank located in Geneva,
Switzerland, provides a com-
prehensive overview of economic, environmental, geopolitical,
societal, and technological
risks that have the potential for “significant negative impact for
several countries and indus-
tries” (World Economic Forum, 2014b, p. 12). A complete
listing from the Global Risks 2014
report is included in Table 10.3, along with the ranking of the
top 10 global risks of highest
concern. The report identifies three trends that industries should
consider:
1. Demands on governments for reform may negatively affect
industries such as
healthcare, financial services, and energy;
2. The generation entering the workforce in the 2010s faces
high unemployment,
unfulfilling economic potential, and are full of ambition to
improve the world;
3. A dynamic online world allows for cyber attacks that destroy
trust in the Internet for
communication or commerce (World Economic Forum, 2014b).
Table 10.3: Global risks 2014
ECONOMIC
Shocks to economic infrastructure
Fiscal crises in key economies [1]
Failure of a major financial mechanism or institution [9]
Liquidity crises
Structurally high unemployment/underemployment [2]
Oil-price shock to the global economy

Failure/shortfall of critical infrastructure
Decline of importance of the US dollar as a major currency
ENVIRONMENTAL
Natural disasters and man-made risks of depletion of natural
resources
Greater incidence of extreme weather events (e.g. floods,
storms, fires) [6]
Greater incidence of natural catastrophes (e.g. earthquakes,
tsunamis, volcanic eruptions, geomagnetic
storms)
Greater incidence of man-made environmental catastrophes (e.g.
oil spills, nuclear accidents)
Major biodiversity loss and ecosystem collapse (land and ocean)
Water crises [3]
Failure of climate change mitigation and adaptation [5]
GEOPOLITICAL
Areas of politics, diplomacy, conflict, crime, and global
governance (corruption)
Global governance failure [7]
Political collapse of a nation of geopolitical importance
Increasing corruption
Major escalation in organized crime and illicit trade
Large-scale terrorist attacks
Deployment of weapons of mass destruction
Violent inter-state conflict with regional consequences
Escalation of economic and resource nationalization
(continued)
ped82162_10_c10_295-324.indd 305 4/23/15 8:49 AM
Section 10.2 Emerging Ethical Issues

SOCIETAL
Risk relating to social stability and public health
Food crises [8]
Pandemic outbreak
Unmanageable burden of chronic disease
Severe income disparity [4]
Antibiotic-resistant bacteria
Mismanaged urbanization (e.g. planning failures, inadequate
infrastructure and supply chains)
Profound political and social instability [10]
TECHNOLOGICAL
Risks relating to growing centrality of information and
communication technologies
Breakdown of critical information infrastructure and networks
Escalation in large-scale cyber attacks
Massive incident of data fraud/theft
Note: Brackets [ ] denote ranking in top 10 global risks of
highest concern.
Sources: Table 1.1 & Table 1.2, p. 13 in World Economic
Forum. (2014). Global risks 2014 (Ninth ed., pp. 60).
Switzerland.
Reprinted with permission.
The potential global risks have ethical dimensions. Using the
categorization of ethical issues
from Chapter 3, many of the global risks to business involve
employee misuse of company
resources, honest and truthful communication that demonstrates
respect and fairness toward
company stakeholders, and workplace issues, such as lying to
employees, discrimination
leading to improper hiring practices, abusive behavior and

harassment, health or safety vio-
lations, and employee privacy breaches. Future risks and
opportunities for a business orga-
nization can lead to new ethical issues that may require
managers to adopt a different way of
interacting with stakeholders.
10.2 Emerging Ethical Issues
Managers need to focus on the emerging ethical issues that are
most relevant for their orga-
nization. The trends and risks uncovered in the environmental
scanning of credible sources
can determine the ethical issues that are most likely to affect a
business. This section provides
some examples of ethical issues that a manager may need to
address in the future. An orga-
nization’s evaluation of ethical risks is ongoing and should not
be limited to the emerging
ethical issues in this chapter. Managers can develop the
capabilities to identify potentially sig-
nificant ethical issues by exploring current trends in business,
such as workforce transitions,
new business models, and communication and technological
advances.
Workforce Transitions
New ethical issues emerge as companies respond to a changing
workplace. In many coun-
tries, service-related jobs are replacing manufacturing jobs, thus
creating a demand for work-
ers with higher education degrees and technological skills.
Companies in developed countries
need to adapt to an aging workforce that requires new
approaches in assuring the health,

Table 10.3: Global risks 2014 (continued)
ped82162_10_c10_295-324.indd 306 4/23/15 8:49 AM
Jobs requiring creativity ad complex human exchanges are
increasing.
Those that can be computerized are in decline.
W a n t e d : s k i l l s o f h u m a n i n t e r a c t i o n
Change in U.S. Jobs 2001–2009
Transaction jobs that
can be automated
Interaction jobs
involving problem
solving and contact
Production jobs turning materials
into finished goods
+4.8 million
-0.7 million
-2.7 million
safety, and well-being of employees. Workforce planning for
future ethical concerns includes
assessing the current workforce, identifying challenges in future

workforce skills, and antici-
pating legal obligations in recruiting and hiring employees
(Crush et al., 2014).
As identified by the World Economic Forum (2014b), one of the
top global risks is severe
income disparity. Wage inequality can be accounted for in large
part by the growing trend
toward a services-occupation economy, which is divided into
the lower paying routine jobs on
one end of the spectrum and the higher paying managerial or
consultative jobs on the other.
The shift toward lower wages for certain services began in the
1990s as companies began
outsourcing janitorial and security services in the United States
by contracting with private
companies that often pay lower wages and do not offer
employee benefits. One study found
that janitors received up to 7% less in wages after outsourcing,
whereas security guards saw
wage losses in the 8% to 24% range (Dube & Kaplan, 2010). A
survey of hiring managers
worldwide has shown that over the next five years, more than
half of all jobs in the United
States will require technical skills and higher education levels
(Mulvey & Schramm, 2013).
The report found that industries demanding specific technical
skills or advanced college edu-
cation include high tech, manufacturing, health, construction,
mining, and oil and gas.
Entry-level jobs and jobs with no minimum education
requirements are primarily in the
nonprofessional services industry, with the lowest paid
employees working in retail and
food preparation (Bureau of Labor Statistics, 2014a). Colvin

(2014) provides support for a
trend that companies are replacing many low-skilled jobs with
technology whenever possi-
ble. The jobs that remain typically require creativity and human
interaction (as shown in
Figure 10.3).
As a result of the wage disparity, companies will likely face
emerging ethical issues when
employing unskilled workers. Those who manage to find low
paying jobs are likely to experi-
ence major financial and mental stress as they struggle to
balance family and work, leading
to depression, high absenteeism, and turnover (Devine et al.,
2006; Henly & Lambert, 2014;
Figure 10.3: Shift of U.S. jobs 2001–2009
Jobs requiring creativity and human exchanges are increasing in
the U.S.
Source: Colvin, G. (2014). In the future, will there be any work
left for people to do? Fortune, 169(8), 193–202.
Jobs requiring creativity ad complex human exchanges are
increasing.
Those that can be computerized are in decline.
W a n t e d : s k i l l s o f h u m a n i n t e r a c t i o n
Change in U.S. Jobs 2001–2009
Transaction jobs that
can be automated
Interaction jobs

involving problem
solving and contact
Production jobs turning materials
into finished goods
+4.8 million
-0.7 million
-2.7 million
ped82162_10_c10_295-324.indd 307 4/23/15 8:49 AM
Percent distribution of civilian labor force, by age,
1992, 2002, 2012, and projected 2022
75 years and over
65 to 74 years
55 to 64 years
25 to 54 years
20 to 24 years
16 to 19 years
P
e
rc

e
n
t
d
is
tr
ib
u
ti
o
n
100%
90%
80%
70%
50%
60%
40%
30%
20%
10%

0%
1992 2002 2012 Projected 2022
Okechukwu, El Ayadi, Tamers, Sabbath, & Berkman, 2012).
Financial stress may also lead to
stealing from the workplace or using company time for personal
concerns, such as making
phone calls home during working hours.
In many developed countries, the working age population is
becoming older. By 2025, 35% of
the workforce in most countries of the European Union (EU)
will be comprised of 50- to
64-year-olds, compared to 17% of workers who are 25 years old
and younger (European
Commission, 2014). In the United States, employees aged 55
and over are expected to com-
prise over 25% of the workforce by 2022 (Bureau of Labor
Statistics, 2014b). Figure 10.4
depicts the trends of an aging workforce in the United States,
showing an increase from 1992,
in which older workers comprised only 11.8% of the workforce.
Now that very few U.S. companies offer pension plans, and
Social Security benefits are dwin-
dling, many older workers are putting off retirement. The effect
on business is unclear. In
many countries, age discrimination in hiring occurs due to
stereotypes that older work-
ers are resistant to change, less likely to cope with stress, and
less productive (Karpinska,
Henkens, & Schippers, 2013; Vandenberghe, Waltenberg, &
Rigo, 2013). A European study

supporting such stereotypes showed that older workers in one
organization tend to engage
Figure 10.4: Trends of aging workforce in the United States
The share of labor in the United States is projected to rise for
people age 55 and over.
Source: Bureau of Labor Statistics. (2014a). The editor’s desk,
share of labor force projected to rise for people age 55 and over
and fall for
younger age groups. Retrieved September 2, 2014, from
http://www.bls.gov/opub/ted/2014/ted_20140124.htm.
Percent distribution of civilian labor force, by age,
1992, 2002, 2012, and projected 2022
75 years and over
65 to 74 years
55 to 64 years
25 to 54 years
20 to 24 years
16 to 19 years
P
e
rc
e
n

t
d
is
tr
ib
u
ti
o
n
100%
90%
80%
70%
50%
60%
40%
30%
20%
10%
0%
1992 2002 2012 Projected 2022

ped82162_10_c10_295-324.indd 308 4/23/15 8:49 AM
http://www.bls.gov/opub/ted/2014/ted_20140124.htm
in counteractive communicative behaviors that prevent teams
from creating ideas, find-
ing solutions, and productive discussion (Schulte, Lehmann-
Willenbrock, & Kauffeld, 2013).
Counteractive communication includes statements expressing no
interest in change, com-
plaining, denying responsibility, or terminating the discussion,
such as “Well, that’ll never
happen,” “We’re always the ones who get bullied,” and “That’s
the supervisors’ fault” (Schulte
et al., 2013, pp. 948–949). Ethical issues relating to
discrimination and harassment can erode
trust in the ethical culture of the company. Organizations like
AARP, Inc. (formerly the Amer-
ican Association of Retired Persons) offer advice for companies
to help them address the
effects that aging workers have on their organization and steps
for creating a culture that
attracts qualified workers of all ages (AARP, 2014).
The workplace of tomorrow may look very different from today.
Companies are expecting
more output from employees as technology enhances
productivity, allows older workers
to continue employment, and replaces routine tasks (Colvin,
2014; European Commission,
2014). Employees in creative, technical, and managerial
positions can work anywhere and

at all hours of the day. A trend for the younger generations is to
start their own business, or
work as an integral part of a small business. As more employees
strive to balance work and
family with increased pressure for long hours, companies can
respond by including ameni-
ties such as “restaurants and cafes, coffee shops, dry cleaners,
community centers, day care
and elder care” (Moore, 2013, para. 9). Larger companies like
Google offer on-site services to
employees, whereas smaller companies may need to collaborate
with other small businesses
to create a workplace hub to share amenities.
With the line between work and personal time blurring,
companies will struggle to prevent
employee use of company equipment, time, and expense
accounts for personal use. In 2013,
Yahoo! Inc. Chief Executive Officer (CEO) Marissa Mayer
rescinded the right for employees to
work from home due to concerns of accountability and
alignment (“Yahoo! Telecommuting
ban may be unique, but revisiting arrangements recommended,”
2013). Managers may need
to resolve the conflict between trusting employees to work from
home and the reality that
some employees abuse the privilege by misstating working time
or starting their own busi-
ness (Bercovici, 2013).
New Business Models
Like the changing workplace, new business models have the
potential to create emerging
ethical issues. Nidumolu, Prehalad, and Rangaswami (2009)
describe new business models

as a way to gain a competitive advantage by finding “novel
ways of delivering and capturing
value, which will change the basis of competition” (p. 60). An
early example of a new business
model with an innovative delivery mechanism for providing
products and services belongs to
Interface, Inc., a carpet company. Rather than selling and
installing carpet that would even-
tually end up in a landfill, Interface implemented a service
model that allowed commercial
customers to lease carpeting, which the company would
maintain and properly dispose of
when it was worn (Geiselman, 1998). The leasing program
addresses the environmental eth-
ics issues of the carpet industry, explained by an Interface
executive as:
The [carpet] industry sends 4 billion pounds of stuff to landfills
each year.
The plan benefits both the environment and customers who
otherwise would
have to dispose of the carpet themselves. Some landfills refuse
to accept car-
pet, and others charge high fees. (Geiselman, 1998, p. 11)
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However, Interface’s business model created a new ethical issue
by modifying the way com-
panies purchase and expense carpeting. Leasing carpet rather
than purchasing it changes the
way the asset is expensed and depreciated, creating a temptation

for clients to misreport the
asset on company financial statements (Frecka, 2008).
New business models developed by the banking industry have
also resulted in emerging ethi-
cal issues. The banking industry is undergoing changes in the
way customers make financial
transactions. Customers may pay bills, transfer funds, and
deposit or withdraw money with-
out ever visiting a bank branch. The use of video-equipped
automatic teller machines (ATMs)
allow bank customers to speak with live remote tellers to
complete complex transactions like
bill and loan payments, opening new accounts, and initiating
loans.
Mobile banking creates ethical challenges in ensuring
confidentiality of private information
and securing data from outside hackers. In the near future,
mobile banking could include the
use of technologies, such as Google Glass and smartwatches.
Credit cards may be replaced
by facial recognition software, mobile payment systems,
touchless transactions, and a digital
wallet that allows purchases from within mobile device apps
and mobile websites (Roberts
& Mondalek, 2014). One test of Google Glass in New Zealand
banks found that consumers
disliked using voice commands to conduct mobile banking,
stating a desire for privacy when
making financial transactions (Crosman, 2014). Security
remains a predominate reason that
consumers do not engage in mobile banking or online payments
in any form, with fears of
data interception, phone hacking, or trust of the company’s use
of personal information as

specific concerns (Board of Governors of the Federal Reserve
System, 2014, pp. 11 & 13).
Some changes in banking influence the nature of bank employee
jobs, creating other ethi-
cal issues for the industry. Such issues relate to employee
perceptions of fairness when lay-
offs result from a shift to automated and mobile banking. Over
1,700 branch employees of
Barclays Bank PLC in the United Kingdom lost jobs in 2013
because mobile banking made
their jobs redundant (Crosman, 2013). At the same time, Bank
of America tellers in New York
invoked a strike claiming their positions were displaced by
cheaper labor at the bank’s call
centers handling video ATM financial transactions (Crosman,
2013).
Communication and Technology Advances
Innovations in communication and technology that drive some
new business models also
result in emerging ethical issues that are not immediately
evident to managers. For example,
the introduction of new technology such as the personal
computer, personal digital assis-
tants, and mobile phones may have seemed like a novelty to
some people (Huber, 2005). Over
time, however, technological innovations such as these have
become an essential part of the
workplace, changed the tasks of the workforce, and created
unanticipated ethical challenges.
Managers should consider the ethical implications of greater
Internet use, communication
among the supply chain, and wearable technology.

Since its inception, the Internet has evolved so rapidly that
many ethical issues have emerged
in ways that are difficult to resolve given their pervasive nature.
The basis for the Internet
is an “any-to-any” connectivity of computer networks, which
follows conventions that were
established in the United States in 1973 (Markoff, 2013). Over
40 years later, there are an
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Going Global: Google Grapples Globally
Google is a global leader in the Internet publishing,
broadcasting, and search portals industry,
which encompasses organizations that publish online content,
provide search portals, and
operate websites (Hoovers, 2014c). Major competitors to
Google include Facebook (United
States), Yahoo! (United States), Baidu, Inc. (China), Tencent
Holdings Limited (China), DeNA
Co., Ltd. (Japan), and Naver Corporation (South Korea). To
remain competitive, Google oper-
ates in more than 50 countries and is available in more than 100
languages (Hoovers, 2014b).
Diverse regional and national policies on Internet privacy and
censorship create challenges for
Google. According to the industry overview from Hoovers
(2014c), regulations of the Internet
are continually changing to keep up with new ethical issues,
stating:

Laws and regulations are a significant challenge for Internet
content firms.
Import/export requirements, content policies, trade restrictions,
and data
privacy are among the many regulatory hurdles Internet firms
must clear to
do business on a global scale. (p. 5)
Google’s international presence provides two examples of
tackling ethical issues with the
Internet.
Censorship in China
In 2000, Google launched a Chinese version of Google.com
with great anticipation of
accessing a large, growing population of Internet users (Tan &
Tan, 2012). As the company
struggled to increase market share, Google created new products
that allowed access to
information that the Chinese Internet search engine, Baidu.com,
did not allow. Following
Chinese government investigations into Google’s operation,
Google succumbed to pressures
estimated 2.7 billion Internet users worldwide (Hoovers,
2014c). The United States governs
much of the Internet, controls the addressing system, and is
home to leading Internet-related
companies like Microsoft, Google, and Facebook, Inc. (Gjelten,
2013). However, fears of reli-
ance on the United States for Internet connectivity have
prompted various European coun-
tries to set up intraregional hubs for Internet exchanges. For
example, data transfers to and
from Norway, Finland, and Russia can route through Sweden

(Irion, 2009). Thailand is becom-
ing an Internet gateway for Vietnam, Laos, Cambodia, and
Myanmar (Leesa-nguansuk, 2012).
As data travels through complex systems of network hubs,
citizens lose the protection of
national privacy rules (Irion, 2009). Privacy rules vary by
region. The EU countries require
Internet search engines to restrict access to information that
citizens want to protect, China
and other countries restrict access to politically sensitive
content, and the United States
protects the free flow of information (Fisher, 2014). Forrester
Research provides a global
heat map that shows the levels of protection for data privacy by
country at http://www
.forrestertools.com/heatmap/. Business strives to safeguard
confidential data from surveil-
lance in countries where government monitoring of Internet and
phone communications lim-
its privacy, such as in the United States, the United Kingdom,
Russia, China, Thailand, Taiwan,
and Singapore (Sherman, 2014). See Going Global: Google
Grapples Globally for ethical issues
relating to government surveillance, international privacy rules,
and protecting individual
and company proprietary information.
(continued)
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http://www.forrestertools.com/heatmap/

to restrict access to politically sensitive sites or topics and
share private customer data to
government agencies. Tan and Tan (2012) noted that:
For Google to uphold its values—of “Don’t Be Evil” and make
information
“universally accessible and useful”—while compromising its
ethical stan-
dards to cooperate with a Chinese government that maintains
social control
through sophisticated filtering of “offensive” Internet content
puts it in a
CSR [ethical] paradox. (p. 473)
In 2009, Google experienced a data breach allegedly from the
Chinese government seeking
incriminating evidence against Chinese dissidents. The incident
prompted Google to reduce
its presence in mainland China and publish a link on its
government approved “.cn” domain
(Google.cn) to an uncensored website based in Hong Kong
(Hoovers, 2014b).
Censorship in Europe
In 2010, while managing the issues of censorship in China,
Google was also dealing with
a privacy issue relating to European data protection law. Google
holds 85% of the search
engine market in Europe. A Spanish citizen claimed that Google
was violating his privacy
when search results included a newspaper notice of his
repossessed home. The case went to
the Court of Justice of the European Union. On May 13, 2014,

the European Court ruled on
the following issues:
a. On the territoriality of EU rules: Even if the physical server
of a company process-
ing data is located outside Europe, EU rules apply to search
engine operators if
they have a branch or a subsidiary in a Member State which
promotes the selling of
advertising space offered by the search engine;
b. On the applicability of EU data protection rules to a search
engine: Search engines
are controllers of personal data. Google can therefore not
escape its responsibilities
before European law when handling personal data by saying it is
a search engine.
EU data protection law applies and so does the right to be
forgotten.
c. On the “Right to be Forgotten”: Individuals have the right—
under certain condi-
tions—to ask search engines to remove links with personal
information about them.
(European Commission, 2012, p. 1)
Google must comply with the new requirements to respond to
requests for removing links to
content by European users. However, the court ruling fails to
provide clear direction on how
to implement a fair process that respects the rights of the
individual without jeopardizing
open access to information. Some questions Google and other
search engines have on the rul-
ing include:

How will each EU member nation interpret and enforce the
ruling?
Does the ruling apply to non-Europeans who petition removal of
information to Euro-
pean regulators?
Must removal of online content or links to content occur only in
Europe, or across world-
wide platforms?
If worldwide removal is required, how can search engines
comply with free speech laws
of the United States? (Scott, 2014)
Going Global: Google Grapples Globally (continued)
(continued)
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1. How can Google determine the best ethical approach to
handling government
demands for censorship of information or disclosure of
customer transactions?
Using the two-fold test from Chapter 3, how does complying
with government
demands harm company stakeholders and/or violate a common
ethical principle
or business standard?
2. How does Google’s introduction of future products like an
autonomous car and

Google Glass create potential challenges in censorship and
surveillance demands
from law enforcement and governments?
3. If you were Google’s ethics and compliance officer, what
actions would you take to
anticipate future ethical issues and incorporate them into the
program?
Going Global: Google Grapples Globally (continued)
While businesses seek to prevent unauthorized access to
confidential data, legitimate com-
munication with business partners contributes to the potential
for a cyber attack. Director of
National Intelligence James Clapper highlighted this security
threat in a report to the United
States Senate Select Committee on Intelligence on March 12,
2013:
We assess that highly networked business practices and
information tech-
nology are providing opportunities for foreign intelligence and
security ser-
vices, trusted insiders, hackers, and others to target and collect
sensitive U.S.
national security and economic data. (Clapper, 2013, p. 2)
The Software Alliance (BSA) finds that hackers are able to
bypass computer security through
unlicensed software used by company vendors, customers, and
business partners. A global
software survey by BSA found that many employees are not
aware of company policies pro-
hibiting unlicensed software, increasing the potential for

noncompliance within the organiza-
tion or enforcement of compliance by suppliers (BSA | The
Software Alliance, 2014). Manag-
ers need to identify gaps in their ethics and compliance efforts
that put the company at risk of
misconduct due to emerging security threats.
Another new technological advance that could affect business
includes wearable technology.
For the past decade, RFID chips in clothing provide
transparency of the supply chain to the
apparel manufacturers and retailers. Research continues to
expand the technology to weave
electronic sensors into the cloth. Manufacturers recognize new
business opportunities with
the development of smart textiles that “regulate body
temperature, reduce wind resistance,
and control muscle vibration” (Hoovers, 2014a, p. 11).
Optical wearable technology has been in use by the military and
aviation (Wong, 2014). In
2012, Google announced the beta testing of Google Glass,
eyeglass frames with a small com-
puter display connected to the Internet. Some industries are
eager to adopt wearable sur-
veillance technology to improve employee productivity and
customer service. Virgin Atlantic
Airways Ltd. hopes that concierge and airport staff using
Google Glass and other wearable
technology can assist passengers upon arrival, when boarding,
and in-flight by accessing a
database on passenger preferences (Weiss, 2014).
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Section 10.3 The Future of Organizational Ethics and
Compliance
Small, lightweight, hands-free cameras used in sports over the
past decade are finding their
way into the workplace. As of 2013, one out of every four U.S.
police departments provides
wearable cameras for patrol officers. While officers wearing
body cameras experience fewer
citizen complaints and use of force incidents than those without
(Elinson & Kesling, 2014),
individuals and businesses fear misuse of surveillance by police
or the government.
Many of these wearable technologies create emerging ethical
issues regarding privacy and
confidentiality (Whitford, 2014). Innovations in surveillance
technology have created major
privacy concerns among employees, customers, and businesses.
Initially, police officers
opposed using wearable cameras for fear that supervisors could
target them for disciplinary
action (Elinson & Kesling, 2014). Companies should consider
employee reactions to surveil-
lance in the workplace.
In the United Kingdom, theater owners banned Google Glass
from cinemas for fear of users
making copies of films (Weiss, 2014). Companies may need to
consider a similar ban to pro-
tect intellectual property. Privacy concerns of customers of
restaurants, bars, and other public
venues fear videos or photos taken without their knowledge are
prompting the businesses to
ban the use of wearable surveillance technology in some

establishments, which can be a simi-
lar concern in the workplace. Restrictions on the use of Google
Glass devices while driving
due to perceived cognitive distraction continue to evolve,
affecting transportation companies
or employee travel policies (Rosenberger, 2014). Companies
need to consider possible uses
of wearable surveillance devices for harassing employees or
sharing proprietary information
with competitors. Ethics officers must consider future ethical
issues and their impact on the
organizational ethics and compliance program.
10.3 The Future of Organizational
Ethics and Compliance
Ethics and compliance professionals need to anticipate future
demands on their profession to
respond to emerging issues that result from changes in the
workplace and new business inno-
vations. The ethics and compliance function has changed since
the inception of the profession
in the 1990s as a response to the U.S. Defense Industry
Initiative (DII) (see Chapter 1). Chap-
ter 4 explored the influence of laws and guidelines on the role
of an ethics and compliance
officer to coordinate a company’s legal, ethics, audit, training,
and risk functions. Emerging
ethical issues will affect the ethics and compliance practice in
the future, including the orga-
nizational ethics and compliance program and the ethics and
compliance function.
Given the volume and complexity of emerging ethical issues in
the years to come, ethics and
compliance professionals will benefit from employment

opportunities in their field, but bear
the brunt of the heavy demands they will likely face. In the
United States, the Bureau of Labor
Statistics (2014a) projects employment of over 250,000
compliance officers by the year 2022.
While occupations focusing solely on compliance are expected
to grow at a rate of only 5%
between 2012–2022, a lower than average rate of other
occupations, surveys from the Soci-
ety of Corporate Compliance and Ethics (SCCE) have found that
27% of companies expect to
increase staffing for the ethics and compliance functions
(SCCE, 2013).
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Compliance
Despite burgeoning employment opportunities, another survey
found that over half of ethics
and compliance professionals suffer from job-related stress and
60% consider leaving their
job (SCCE, 2012). Reasons for stress include the pressures to
comply with new and changing
laws and regulations, challenges to prevent compliance and
ethics violations, and complexity
of remediating compliance and ethics violations. The following
sections examine the future
demands on ethics and compliance professionals, beginning
with regulatory shifts that dic-
tate changes in company policies.
Regulatory Shifts Lead to Company Policy Shifts

Shifts in government regulation lead to shifts in corporate
policy. As shown in Going Global:
Google Grapples Globally, multinational companies often
struggle to address regulations that
are inconsistent with corporate values and policies. Managers in
Asia and Europe find that
corporate ethical codes that prevent censorship of Internet
content may need to be adapted
to local regulations. In the case of Google, the company
addresses the variance in privacy and
freedom of information by stating in its code of conduct:
Google is committed to advancing privacy and freedom of
expression for our
users around the world. Where user privacy and freedom of
expression face
government challenges, we seek to implement internationally
recognized
standards that respect those rights as we develop products, do
business in
diverse markets, and respond to government requests to access
user infor-
mation or remove user content. (Google, Inc., 2012, Serve Our
Users section,
para. 5)
For further clarification of policies, Google instructs its
employees to contact the legal or eth-
ics and compliance office of their location. As with all
multinational corporations, Google
must provide custom ethics training by region to accommodate
varying regulations among
nations. While Europe’s ruling for the right to be forgotten
specifically applies to providers
of Internet search engines, the shift toward broadening the

scope and reach of privacy laws
should make companies of all industries take notice.
Similar to the nebulous realm of the Internet, marijuana
legalization represents another con-
stantly shifting landscape. It can be difficult for companies
operating in different states or
countries to keep track of where marijuana is legal, illegal,
legal only for medicinal purposes,
or in the process of becoming legal. Marijuana, or cannabis, is
an illegal drug in most coun-
tries. In the United States, it is considered a controlled
substance under the Controlled Sub-
stances Act (Title II of the Comprehensive Drug Abuse
Prevention and Control Act of 1970)
(Hartman, 2013).
In the 1970s, some states and countries decriminalized
marijuana possession for personal
use, yet retained criminality of the manufacturing, distribution,
and sale of marijuana. In the
1990s, the drug became legal in Alaska, Oregon, Washington,
and Maine for medicinal reasons,
primarily pain management (Mello, 2013). Worldwide,
medicinal uses of marijuana became
legal in Canada beginning in 2001, and later in Chile, Finland,
and Israel. In 2012, Colorado
and Washington became the first states to legalize the sale of
marijuana for recreational use.
In December 2013, Uruguay became the first country to legalize
the growing, selling, and use
of marijuana (“Uruguay—Marijuana Becomes Legal,” 2013).
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Compliance
Many international companies are challenged to create
appropriate organizational drug use
policies that take into account the evolving legalization of
marijuana use. Medical marijuana
use may be legal in some states, yet it remains an illegal
substance under federal law and its
use or sale is not allowed. Courts hearing wrongful termination
cases rule that while patients
with grave and debilitating disabilities fall under the Americans
with Disabilities Act, protec-
tion does not preclude firing an employee for taking a drug that
is illegal under federal law
(Hartman, 2013). However, interpretations of
employee/employer rights regarding medical
marijuana could change. The legislation legalizing medical
marijuana in New York includes
antidiscrimination protections for certified patients using
marijuana for medical reasons
(Volpe & Reiter, 2014).
An article in the Colorado Biz magazine provided two examples
of how companies could
maintain current drug policies, despite the legalization of
marijuana in Colorado. In essence,
as long as marijuana remains an illegal substance under federal
law, businesses can ban it
and continue drug tests to enforce the ban (Hartman, 2013).
Companies with military or gov-
ernment contracts must comply with federal requirements
regarding controlled substances.
According to Geotech Environmental Equipment’s president and
CEO, “Geotech is required to

maintain a drug-free workplace because of the work we do for
the federal government, so we
test at hire, accident and reasonable suspicion” (Caley, 2013,
para. 18). Workplace safety is
another reason for prohibiting marijuana use, especially for
industries under federal regula-
tion. Many workers at Colorado-based Swingle Lawn, Tree and
Landscape Care drive motor
vehicles and fall under Federal Motor Carrier Safety
Administration regulations. The policy at
the company affects all workers; as the human resources
director explained, “Even if they are
not driving, they are operating chainsaws and climbing 60-foot
trees, so all employees are still
subject to pre-employment drug testing and post-incident
testing” (Caley, 2013, para. 16).
Organizations wanting to preserve a ban on marijuana use
should revise policy statements
clarifying company rules that any marijuana use—for medicinal
purposes or purchased under
state laws allowing recreational use—is prohibited both during
work hours and outside work
hours. This is a recommended strategy even for those companies
operating only in locations
where marijuana remains illegal. Stating the company policy
during the hiring process can
prevent employees from misunderstanding their right to
marijuana under state laws. Ethics
and compliance professionals play an important role in
identifying and addressing potential
ethical issues from new regulations in the organization.
The Ethics and Compliance Professional in the Future
The ethics and compliance function has evolved throughout the

past three decades. Many
businesses invested in ethics and compliance management
because of regulatory initiatives
and the U.S. Federal Sentencing Guidelines for Organizations
(FSGO) (see Chapters 4 and 9).
However, the ethics and compliance professional plays a much
larger role in the organiza-
tion than that dictated by law. The ethics and compliance
function of the future will need to
respond to the demands on the profession to prevent misconduct
by the organization and
safeguard the public interest (Murphy, 2014).
In May 2014, RAND Corporation explored the potential shifts
in the compliance field over the
coming decade during its annual symposium. The symposium
was sponsored by the RAND
Center for Corporate Ethics and Governance, a research
organization committed to improving
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Compliance
public understanding of corporate ethics, law, and governance
and to identifying specific ways
in which businesses can operate ethically, legally, and
profitably (Murphy, 2014). The business
leaders and academic experts participating in the discussions
recognized that emerging risks
to a company’s reputation are driving changes to the ethics and
compliance function. A com-
pany’s reputation may be harmed by violations of law,

opportunistic and dishonest behavior,
and an amoral corporate culture. Business management
considers that the role of the ethics
and compliance function and the chief ethics and compliance
officer is to address emerging
reputational risks, prevent misconduct that contributes to
reputational risk, and limit the
damage of a reputational crisis. One of the attendees expressed
the heightened attention to
the ethics and compliance function to mitigate reputational risk
by stating:
Reputation risk is a chief concern for many, many board
members today.
Directors know that they need to be worried about reputation,
but they’re
often vague about what they specifically need to do. This
involves a basic
tieback to the compliance function, and to what the compliance
officers are
doing to address operational and strategic risk at the highest
levels of their
organizations. (Greenberg, 2014, p. ix)
To address risks in the organization, ethics and compliance
professionals should cultivate
positive relationships with auditing staff if the organization is
large enough to warrant ded-
icated auditing resources. Internal and external auditors
evaluate the effectiveness of risk
management, controls, and governance processes (Forman,
2013). New regulations create
stress on the ethics professionals to keep policies current,
educate the workforce, and moni-
tor compliance. They are responsible for maintaining the
organizational ethics and compli-

ance program, which includes setting ethical standards, training
employees, and investigating
reports of misconduct. Ethics and compliance professionals can
avoid duplicating tasks by
leveraging the auditors for monitoring compliance. Auditors can
verify that employees are
following the laws, regulations, and policies by including
compliance tests in the audit proto-
cols (Forman, 2013). Ethics officers should meet regularly with
auditing staff to identify high-
risk areas to include in the audit plan. Auditors can share
findings and serve as consultants to
the ethics staff to remedy noncompliance situations.
Challenges for Ethics and Compliance Professionals
Ethics and compliance professionals of the future will need to
overcome challenges to further
their role of protecting their company’s reputation. In order to
establish a company culture of
integrity and ethical conduct, the ethics and compliance
function must have legitimacy within
the organization. Organizational legitimacy is “a generalized
perception or assumption that
the actions of an entity are desirable, proper, or appropriate
within some socially constructed
system of norms, values, beliefs, and definitions” (Suchman,
1995, p. 574).
Legitimacy is important for ethics and compliance professionals
to influence appropriate
behavior. The compliance nature of the ethics and compliance
function often entails asking
employees to follow rules that affect their job performance. For
example, as sales departments
strive to increase revenue and make sales, the ethics and
compliance staff track pending regu-

lation that would restrict the industry if companies ignore
responsible business practices. As
emerging regulations create change in company ethics policies,
ethics and compliance pro-
fessionals will need to establish legitimacy with all employees
of the organization to affect
appropriate change in behaviors.
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Compliance
Treviño, den Nieuwenboer, Kreiner, and Bishop (2014)
conducted a study of the legitimacy
of the ethics and compliance function in U.S. organizations.
They found that the ethics and
compliance function’s legitimacy resulted from external
sources, primarily the regulatory
pressures due to past ethical scandals. However, most ethics and
compliance officers experi-
enced internal challenges with legitimacy within their company,
creating a barrier to effec-
tively managing the ethics and compliance program. The study
identified four internal chal-
lenges to establishing legitimacy within an organization, which
relate to previous discussions
throughout the text.
1. Difficulty in evaluating effectiveness
Ethics and compliance officers struggle with measuring the
return on investment of
ethics and compliance initiatives. The metrics for an ethics and
compliance program

differ from other functions and may require further explanation
to show a return on
investment. This can be achieved by utilizing some of the
approaches for measur-
ing the effectiveness of an ethics and compliance program that
were discussed in
Chapter 9.
2. “We are already ethical” mentality
Even with top management support, some employees will
question the need for
ethics and compliance guidance, as they perceive that they are
acting in line with
personal ethical principles. In Chapter 1, this phenomenon is
described as ethical
fading, which can lead to cognitive biases that increase the
potential for unethical
behaviors. Therefore, the role of ethics professionals is to look
beyond the for-
mal organizational ethics program and identify ethical traps that
may occur (see
Chapter 7).
3. Clash with business imperatives
Ethics and compliance officers must address some employees’
beliefs that ethics is
contrary to pursuing business success. Chapter 1 outlined the
costs of ethical lapses,
including a loss of reputation that influences customer loyalty,
employee satisfaction,
and government intervention, while Chapter 2 demonstrated that
responsible com-
panies gain competitive advantages, such as attracting
employees, reliable supply
chain and favorable competitive environment.

4. Clash with legal mindset
Contradictions exist between the goals and purposes of the legal
department and
those of the ethics and compliance function. One ethics and
compliance officer
expressed this conflict by stating:
General Counsel’s role is to protect the corporation. Therefore,
the advice that they give is, “This is the law. This is what you
can
do, and this is what you can’t do.” That’s a lawyerly thing to do
and that’s what I would expect a general counsel to do. The
Ethics
Officer’s role is to say, “I understand what the law is, but I
don’t
believe this is . . . how we put ourselves out with respect to
integ-
rity.” (Treviño et al., 2014, p. 192)
This clash with the legal mindset creates a challenge for the
ethics and compliance profes-
sional to create an environment of ethical conduct beyond what
is dictated by law. For that
reason, the reporting relationship between the ethics officer and
his or her supervisor is
ped82162_10_c10_295-324.indd 318 4/23/15 8:49 AM
Compliance
gaining importance in structuring an effective ethics and
compliance program for the future,
as discussed in Chapter 9. The trend is to remove the ethics and

compliance function from the
legal department, and have a direct reporting relationship to the
CEO or board of directors.
Direct access to the board complies with the FSGO, and allows
for independence of the legal
department and unrestricted investigations of misconduct at
senior levels of management
(Snell, 2011b).
Building Trust in the Ethics and Compliance Profession
Trust is a fundamental component of a business’s reputation.
The CEO of SCCE, Roy Snell
(2013), considers that the most important role an ethics
professional can play in business is
to build trust through an ethical culture that contributes to the
success of the organization
and the economy. Joseph Murphy, the director of public policy
at SCCE feels that ethics and
compliance professionals have a duty to protect the public
interest. He stated:
. . . when C&E (Compliance and Ethics) violations occur in
major companies,
there is the potential for dramatic negative consequences with
more wide-
spread impact (e.g., the Bhopal disaster, Enron debacle, BP oil
spill). Organi-
zational misconduct can result in high-stakes harm to society.
(Murphy, 2014,
p. 9)
Sharon Allen (2010), chairman of the board at Deloitte,
recommends positioning the ethics
officer and ethics staff as trusted and strategic advisors on the
ethical best practices that
the organization needs. Ethics professionals should consistently

scan for emerging ethical
issues and anticipate revisions of the code of conduct or
company policies. Knowing the top
global risks that could influence the business allows the ethics
team to create plans to protect
against the threat. A leading concern for business is the
unauthorized access to confiden-
tial data (Council on Foreign Relations, 2014; World Economic
Forum, 2014). Folsom (2014)
found that even with the increasing threat of cyber attacks,
many companies are not pre-
pared to detect or prevent hackers from accessing data. The
reason provided is that no one in
the organization is accountable for compliance, training, and
monitoring programs to protect
against cyber threats. Ethics and compliance professionals can
take ownership of data secu-
rity by becoming proficient in technical cybersecurity issues.
A good relationship with information technology (IT) personnel
is essential to implementing
security procedures designed to prevent cyber theft, or
modifying software applications to
comply with new regulations. Ethics professionals and IT
professionals often have trouble
communicating with each other because they tend to use terms
that are specific to their posi-
tions. One compliance officer, Stuart Lehr stated, “A lot of the
problem is that you get lost with
the first acronym from IT staff ” (“Compliance and IT Work
Best as Partners,” 2011, p. 5). A
shared list of acronyms and terms with explanations can
enhance communication. Likewise,
ethics professionals cannot expect IT personnel to understand
systems changes from reading
a regulation. Lehr provides the following questions to guide IT

professionals in responding to
new regulations:
1. Task: What does the regulation require?
2. Translation: How do we eliminate compliance jargon and
define what we need
to do?
ped82162_10_c10_295-324.indd 319 4/23/15 8:49 AM
Compliance
3. Result: What must systems do to meet the regulations?
4. Inventory: Is there existing functionality that can be
modified?
5. Gaps: Where are the holes in functionality?
6. Deadline: When must compliance be reached?
7. Validation: How will tests verify the system is in
compliance? (“Compliance and IT
Work Best as Partners,” 2011, p. 6)
Beyond developing a relationship with IT professionals, ethics
officers must develop a rela-
tionship with the organization’s executives. To develop trust,
ethics officers should convey
messages in terms that executives will understand. Since
business executives care about the
financial viability of the company, ethics professionals should
discuss ethical risks in financial
terms, rather than in moral terms. Allen (2010) suggests
following this formula when recom-

mending investments in addressing an emerging ethical issue:
• First, calculate your organization’s enterprise value or market
capitalization.
• Then, discuss the implications of how the lack of an ethical
culture [or attention to
an ethical issue] can bring down the entire enterprise. (Use
actual examples when it
has happened before).
• Finally, draw the connection between ethical behavior and the
value of the entire
enterprise. (p. 556)
The ethics and compliance function has made a great deal of
progress since the 1980s when
the DII formed to create the first ethical principles for business.
Organizational ethics and
compliance programs today are more comprehensive than that of
General Dynamics’s eth-
ics program, which included the first formal standards of
business ethics and conduct. A
new profession of ethics and compliance has emerged to focus
on creating an ethical culture
within an organization. Recognizing the value of an ethics
professional, Bentley professor
Patrick J. Gnazzo gives this advice to students:
No matter what career you choose after you leave Bentley, an
effective chief
ethics and compliance officer (CECO) will make your job all
the more enjoy-
able. An effective CECO has your back, and he or she will make
it easier to say
“no” to the inevitable pressure to cut corners or bend the rules.

An effective
CECO allows employees to devote their energies to being
productive rather
than protective. (Gnazzo, 2011, p. 534)
An ethical business requires employees and managers to hold all
coworkers and leadership
accountable for ethical conduct. Responsible managers strive to
encourage ethical decisions
by fostering a culture to recognize ethical issues, mitigate
biases and pressures against ethical
conduct, and leading by example. A formal organizational ethics
program provides employees
and managers the tools to encourage and support responsible
business conduct now and in
the coming years. A long history of events and sociopolitical
changes shape the ethical and
societal expectations of business. Ethical leaders learn from
prior experiences, realize cur-
rent ethical concerns, and anticipate future ethical issues for
their business. An ethical and
responsible business creates long-term value for customers,
employees, shareholders, sup-
pliers, and the community.
ped82162_10_c10_295-324.indd 320 4/23/15 8:49 AM
Summary & Resources
benign moral pressure Stakeholder pref-
erence for behavior that is inarguably con-
sistent with manifest universal principles.
community of practice Groups of people

who share a concern, a set of problems, or
a passion about a topic and interact on a
regular basis to deepen their knowledge and
expertise in the area.
counteractive communicative behav-
iors Actions that prevent teams from creat-
ing ideas, finding solutions, and productive
discussions.
disputed moral pressure Stakeholder pref-
erence for behavior that is not resolved by
manifest universal principles and reflects one
segment of society in opposition of another.
Summary & Resources
Chapter Summary
Trends in the economic, geopolitical, social, and technological
environment create new ethi-
cal issues for business. Social issue life cycle theory asserts that
ethical issues evolve over
time, progressing from relative inattention to an issue, to
awareness, and finally to an expec-
tation for responsible behavior by stakeholders. Proactive
identification of emerging ethical
issues requires monitoring an organization’s internal and
external environments to detect
early signs of the ethical dimensions of future business
opportunities.
Company stakeholders can bring three types of ethical issues to
the attention of management.
Benign ethical issues are those consistent with universal
principles of acceptable conduct.
Disputed issues are controversial, with opposing views of

acceptable action. Problematic
issues are those that are inconsistent with universal principles
and could lead to misconduct.
Credible resources for identifying emerging ethical issues
include print and online media,
user-generated content in social media sites, surveys by ethical
centers, think tanks, NGOs,
and participation in industry association networks.
New ethical issues emerge as companies respond to workforce
transitions, such as service-
related jobs replacing manufacturing jobs, with a need for
higher education and technological
skills from workers. Companies in developed countries must
adapt to an aging workforce that
requires new approaches in assuring its health, safety, and well-
being. Workforce planning
for future ethical concerns includes assessing the current
workforce, identifying challenges in
future workforce skills, and anticipating legal obligations in
recruiting and hiring employees.
Innovative business models may create ethical challenges in
fairly treating company stake-
holders that are new to the industry. Ethical challenges with
surveillance technology relate to
privacy concerns of employees, customers, and businesses.
Emerging ethical issues and new business regulations require
ethics and compliance profes-
sionals to anticipate future demands on their profession and the
organization. Ethics profes-
sionals should foster positive relationships that build trust with
employees, leadership, and
the board of directors. The ethics and compliance function in
business has made much head-

way since its inception in the 1980s with formal organizational
ethics programs, acknowl-
edgement as a profession, and an appreciation for the value of
creating an ethical culture.
Key Terms
ped82162_10_c10_295-324.indd 321 4/23/15 8:49 AM
Summary & Resources
Critical Thinking and Discussion Questions
1. Search current newspapers or trade journals for reports of
new technologies. Select
one technology and identify the ethical considerations that a
company adopting the
technology should address.
2. Select a global risk from Table 10.3 or another future risk to
business. Find three
credible sources of information that would highlight ethical
issues that organiza-
tions should consider incorporating into their ethics and
compliance program.
Identify any underlying biases in the source material that might
skew a recom-
mended action.
3. Envision the workplace of the future. What ethical issues
arise from robot technol-
ogy performing reasoning and decision-making tasks like
performing surgery? Who
would be accountable for misconduct or unethical actions?

4. How can an organization maintain workplace prohibitions of
activities that may be
legal in the state or country where they operate, such as
marijuana use, concealed
weapons, or smoking indoors? How can a company avoid
lawsuits from employees
claiming unfair or discriminatory practices?
5. What skills will ethics and compliance professionals require
to handle demands
to manage future ethical issues? What skills will operational
managers require to
encourage and ensure ethical conduct in their function? How
can an organization
prepare its workforce to anticipate and respond to emerging
ethical issues?
Suggested Resources
AARP Workforce Assessment
http://www.aarpworkforceassessment.org/welcome
Business for Social Responsibility
http://www.bsr.org/
ethical issue intensity The perceived rel-
evance or importance of an ethical issue to
individuals or groups.
problematic moral pressure Stakeholder
preference for behavior that is inargu-
ably inconsistent with manifest universal
principles.

organizational legitimacy A generalized
perception or assumption that the actions of
an entity are desirable, proper, or appropri-
ate within some socially constructed system
of norms, values, beliefs, and definitions.
social media analytics The collection and
interpretation of social media data to extract
useful patterns and intelligence.
social media monitoring The process to
discover and collect content on social net-
working sites on relevant topics.
think tank Groups of experts researching
technological and social problems in order
to generate new ideas and offer advice.
user-created content Content made pub-
licly available over the Internet that reflects
a certain amount of creative effort and is
created outside of professional routines and
practices.
ped82162_10_c10_295-324.indd 322 4/23/15 8:49 AM
http://www.aarpworkforceassessment.org/welcome
http://www.bsr.org/
Summary & Resources
Council on Foreign Relations
http://www.cfr.org/

CSRwire
http://www.csrwire.com/
Ethical Corporation
http://www.ethicalcorp.com/
http://www.ethics.org/
http://ethisphere.com/
European Business Ethics Network
http://www.eben-net.org/
Forbes
http://www.forbes.com/
Forrester Research’s Global Heat Map
Institute of Business Ethics
http://www.ibe.org.uk/
Law.com Newswire
www.law.com

The Conference Board
https://www.conference-board.org/
The Economist
http://www.economist.com/
The Financial Times
http://www.ft.com/home/uk
The GRC Digest
http://www.grcdigest.com/
The New York Times
http://www.nytimes.com
The Wall Street Journal
http://online.wsj.com/
ped82162_10_c10_295-324.indd 323 4/23/15 8:49 AM
http://www.cfr.org/
http://www.csrwire.com/
http://www.ethicalcorp.com/
http://www.ethics.org/
http://ethisphere.com/
http://www.eben-net.org/
http://www.forbes.com/
http://www.ibe.org.uk/

www.law.com
https://www.conference-board.org/
http://www.economist.com/
http://www.ft.com/home/uk
http://www.grcdigest.com/
http://www.nytimes.com
http://online.wsj.com/
Summary & Resources
Transparency International
http://www.transparency.org/
United Nations Global Compact
https://www.unglobalcompact.org/
World Economic Forum
http://www.weforum.org/
ped82162_10_c10_295-324.indd 324 4/23/15 8:49 AM
http://www.transparency.org/
https://www.unglobalcompact.org/
http://www.weforum.org/

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