Chapter 9 Managing and Controlling Ethics Programs
- 1. CHAPTER 9 - Managing and Controlling Ethics Programs 1
- 2. TABLE OF CONTENT Summary Implementing Ethics Programs The Ethics Audit Benefits of Ethics Auditing The Auditing Process The Strategic Importance of Ethics Auditing
- 3. SUMMARY This chapter examines the concept of an ethics audit as a way to help implement an effective ethics program. The chapter begins by discussing the implementation of ethics programs. We define the term ethics audit and explore its relationship to a social audit. Next, we examine the benefits and limitations of this implementation tool. The challenges of measuring nonfinancial ethical performance are examined, and evolving standards are reviewed from AA1000, the Global Reporting Initiative, and the Open Compliance Ethics Group.
- 4. SUMMARY We then detail a framework for an ethics audit, including securing the commitment of directors and top managers; establishing a committee to oversee the audit; defining the scope of the audit process; reviewing the firm’s mission, values, goals, and policies and defining ethical priorities; collecting and analyzing relevant information; verifying the results; and reporting them. Finally, this chapter considers the strategic importance of ethics auditing.
- 6. IMPLEMENTING ETHICS PROGRAMS In order to implement a successful ethics program, an organization must have ways of managing, evaluating, and controlling business ethics programs. Managing EvaluatingControlling
- 7. IMPLEMENTING ETHICS PROGRAMS Five factors can impact success of ethics programs The content of the code of ethics The frequency of communication regarding the ethics program The quality of communication Senior management’s ability to incorporate ethics into the organization Local management’s ability to do the same Success Factors for Ethics Program Implementation Content Frequency of Communication Quality of Communication Role of Senior Management Role of Local Management
- 8. IMPLEMENTING ETHICS PROGRAMS Viewing a business ethics program as a part of strategic planning and management activities is critical to the success of any firm. Shared values among employees are the “glue” of successful management and control of business ethics programs. When the business ethics program helps to align and direct activities toward an ethical culture, there will be a commitment to the long-term ethical progress of the firm. Business Ethics Management Activities Strategic Planning
- 9. IMPLEMENTING ETHICS PROGRAMS Three types of controls are involved with implementing and managing an ethics program. Formal controls Process controls Output controls Types of Control of an Ethics Program Formal Controls Process Controls Output Controls
- 10. IMPLEMENTING ETHICS PROGRAMS Three types of controls are involved with implementing and managing an ethics program. Formal controls for business ethics include input controls that provide the proper tools and resources (proper selection of employees, ethics training, and structural systems, including communication systems). Types of Control of an Ethics Program Formal Controls Process Controls Output Controls
- 11. IMPLEMENTING ETHICS PROGRAMS Three types of controls are involved with implementing and managing an ethics program. Process controls include management commitment to the ethics program and the methods or system for evaluation. Types of Control of an Ethics Program Formal Controls Process Controls Output Controls
- 12. IMPLEMENTING ETHICS PROGRAMS Three types of controls are involved with implementing and managing an ethics program. Output controls involve setting standards against actual behavior. One of the most popular methods of evaluating ethical performance is an ethics audit. Types of Control of an Ethics Program Formal Controls Process Controls Output Controls
- 13. THE ETHICS AUDIT
- 14. THE ETHICS AUDIT An ethics audit is a systematic evaluation of an organization’s ethics program and performance to determine whether it is effective. It includes regular, complete, and documented measurements of compliance, measuring conformity to the firm’s desired ethical standards. Can be a precursor to setting up an ethics program. It identifies the firm’s current ethical standards, policies, and risk areas so that an ethics program can effectively address problem areas. Ethic Audit Ethical Standards Policies Risk Areas
- 15. THE ETHICS AUDIT A social audit is the process of assessing and reporting a business’s performance in fulfilling the economic legal ethical, and philanthropic responsibilities expected of it by its stakeholders Social Audit Economic Responsibilities Legal Responsibilities Legal Responsibilities Philanthropic responsibilities
- 16. Next, a video on Social Audit
- 17. THE ETHICS AUDIT Social reports often discuss issues related to a firm’s performance in the four dimensions of social responsibility as well as to specific social responsibility and ethical issues such as staff issues, community economic development, volunteerism, and environmental impact. Ethics Audit Social Audit
- 18. THE ETHICS AUDIT In contrast, ethics audits focus on more narrow issues related to assessing and reporting on a firm’s performance in terms of ethical and legal conduct. An ethics audit can be a component of a social audit. Ethics auditing is similar to financial auditing in that it employs similar procedures and processes to create a system of integrity that includes objective reporting. Ethics Audit Social Audit
- 20. BENEFITS OF ETHICS AUDITING #1 Detect misconduct before it becomes a major problem #3 Identify potential ethical issues and improve legal compliance #5 Sets goals against which to measure actual performance #2 Improve relationships with stakeholders who demand greater transparency #4 Preparing for Ethical Crisis and Recovery
- 21. BENEFITS OF ETHICS AUDITING #1 Detect Ethical Misconduct Early There are many reasons why companies choose to understand, report on, and improve their ethical conduct. One reason is to detect ethical misconduct before it becomes a major problem.
- 22. BENEFITS OF ETHICS AUDITING #1 Detect Ethical Misconduct Early Accounting scandals and legal and ethical transgressions have encouraged companies to better account for their actions in a wide range of areas including corporate governance, ethics programs, customer relationships, employee relations, environmental policies, and community involvement. Measuring the ethical work climate is one way to learn about the ethical culture of an organization. The auditing process can highlight trends, improve organizational learning, and facilitate communication and working relationships
- 24. BENEFITS OF ETHICS AUDITING #2 Improved Relationships with Stakeholders One of the greatest benefits of the auditing process is improved relationships with stakeholders.
- 25. BENEFITS OF ETHICS AUDITING #3 Identify potential ethical issues and improve legal compliance Just as companies develop crisis management plans to prepare to, respond to, and recover from natural disasters, they should also prepare for ethical disasters, which can result in substantial legal and financial costs, disrupt operations, reduce productivity, destroy organizational reputation, and erode stakeholder confidence.
- 26. BENEFITS OF ETHICS AUDITING #3 Identify potential ethical issues and improve legal compliance Despite the high costs of misconduct, U.S. companies are failing to identify and manage ethical, social, economic, and environmental concerns.
- 27. BENEFITS OF ETHICS AUDITING #3 Identify potential ethical issues and improve legal compliance Stages of an Ethical Disaster Ethical disasters follow recognizable phases of escalation, from ethical-issue recognition the decision to act unethically organization’s discovery of and response to the act. Ethical-issue Recognition The Decision To Act Unethically Organization’s Discovery Of And Response To The Act
- 28. BENEFITS OF ETHICS AUDITING #4 Preparing for Ethical Crisis and Recovery Contingency planning Anticipation of and intervention during these situations can stave off organizational disaster. Contingency planning assesses risks, plans for these potential occurrences, and provides ready tools for responding to ethical crises. Purpose of Contingency Planning Assesses risks Plans for these potential occurrences Provides ready tools to respond
- 29. BENEFITS OF ETHICS AUDITING #4 Preparing for Ethical Crisis and Recovery Process of Ethical Disaster Recovery The process of ethical disaster recovery planning involves assessing the organization’s values, developing an ethics program, performing an ethics audit, and developing contingency plans for potential ethical disasters. Assessing the organization’s values Developing an ethics program Performing an ethics audit Developing contingency plans for potential ethical disasters
- 30. HOW DO CORPORATION MANAGES RISK?
- 31. Next, a video on Enterprise Risk Management
- 32. BENEFITS OF ETHICS AUDITING #5 Sets goals against which to measure actual performance Although much of the regulatory focus of corporate ethics and compliance is driven by financial measures, the integrity of an organization also has to focus on nonfinancial areas of performance.
- 33. BENEFITS OF ETHICS AUDITING #5 Sets goals against which to measure actual performance Nonfinancial performance measures are crucial to a firm’s health To determine the wholeness and soundness of the many aspects of a business that enhance ethics and profits without increasing risk. Return on Integrity The word integrity implies a balanced organization that not only makes ethical financial decisions but also is ethical in the more subjective aspects of its corporate culture.
- 34. BENEFITS OF ETHICS AUDITING #5 Sets goals against which to measure actual performance Many organizations and regulatory frameworks offer a means of capturing ethical performance Structural Behavioral The Sarbanes–Oxley Act has focused on questionable accounting and the metrics that destroy shareholder value.
- 35. BENEFITS OF ETHICS AUDITING #5 Sets goals against which to measure actual performance On the other hand, models exist to capture structural and behavioral organizational ethical performance. Some of the performance tools are the following Six Sigma Balanced Scorecard Triple Bottom Line Global Reporting Initiative AccountAbility AA100 Framework Open Compliance Ethics Group
- 36. BENEFITS OF ETHICS AUDITING #5 Sets goals against which to measure actual performance Six Sigma is a methodology to manage process variations that cause defects, defined as unacceptable deviation from the mean or target, and to systematically work toward managing variation to eliminate those defects. Six Sigma Balanced Scorecard Triple Bottom Line Global Reporting Initiative AccountAbility AA100 Framework Open Compliance Ethics Group
- 37. Next, a video on Six Sigma
- 38. BENEFITS OF ETHICS AUDITING #5 Sets goals against which to measure actual performance Balanced Scorecard is a method for measuring a company’s activities in terms of its vision and strategies. Six Sigma Balanced Scorecard Triple Bottom Line Global Reporting Initiative AccountAbility AA100 Framework Open Compliance Ethics Group
- 39. Next, a video on Balanced Scorecard
- 40. BENEFITS OF ETHICS AUDITING #5 Sets goals against which to measure actual performance The Triple Bottom Line captures an expanded spectrum of values and criteria for measuring organizational (and societal) success— economic, environmental, and social. Six Sigma Balanced Scorecard Triple Bottom Line Global Reporting Initiative AccountAbility AA100 Framework Open Compliance Ethics Group
- 41. Next, a video on Triple Bottom Line
- 42. BENEFITS OF ETHICS AUDITING #5 Sets goals against which to measure actual performance The Global Reporting Initiative (GRI), which advances sustainability reporting, has become a prominent framework that companies have adopted to report their social and sustainability progress. Businesses can use the GRI to come up with a more standardized method of reporting nonfinancial results in a way that users of the reports can understand. Six Sigma Balanced Scorecard Triple Bottom Line Global Reporting Initiative AccountAbility AA100 Framework Open Compliance Ethics Group
- 43. Next, a video on GRI
- 44. BENEFITS OF ETHICS AUDITING #5 Sets goals against which to measure actual performance Companies benefit because the GRI provides tools for improving their implementation of the triple bottom line, the disclosure of their progress in this area, the ability to compare their sustainability efforts to those of other companies, and the chance to enhance their reputation in the eyes of stakeholders. Users benefit because this standardized sustainability reporting provides them with a benchmark to compare companies’ sustainability initiatives. Six Sigma Balanced Scorecard Triple Bottom Line Global Reporting Initiative AccountAbility AA100 Framework Open Compliance Ethics Group
- 45. BENEFITS OF ETHICS AUDITING #5 Sets goals against which to measure actual performance AccountAbility is an international membership organization committed to enhancing the performance of organizations and to developing the competencies of individuals in social and ethical accountability and sustainable development. Six Sigma Balanced Scorecard Triple Bottom Line Global Reporting Initiative AccountAbility AA100 Framework Open Compliance Ethics Group
- 46. BENEFITS OF ETHICS AUDITING #5 Sets goals against which to measure actual performance The AA1000 process standards link the definition and embedding of an organization’s values to the development of performance targets and to the assessment and communication of organizational performance. AA1000 ties social and ethical issues into the organization’s strategic management and operations. Six Sigma Balanced Scorecard Triple Bottom Line Global Reporting Initiative AccountAbility AA100 Framework Open Compliance Ethics Group
- 47. BENEFITS OF ETHICS AUDITING #5 Sets goals against which to measure actual performance Open Compliance Ethics Group created a universal framework for compliance and ethics management. Focus on non-financial compliance and qualitative elements of internal controls. Guidelines that companies can utilize as they see fit. Offers tools and certification procedures. Six Sigma Balanced Scorecard Triple Bottom Line Global Reporting Initiative AccountAbility AA100 Framework Open Compliance Ethics Group
- 48. RISKS AND REQUIREMENTS IN ETHICS AUDITING Although ethics audits provide many benefits for individual companies and their stakeholders, they do have the potential to create risks. Risk of having to uncover a serious ethical problem that it would prefer not to disclose until it can remedy the situation. Risk of having to find that one or more of its stakeholders’ criticisms cannot be dismissed or easily addressed. Risk of fostering stakeholder dissatisfaction while in the process of conducting an ethics audit Risk of imposing extra burdens burdens (especially with regard to record keeping) and costs for firms that undertake an ethics audit Risk of having no guarantee that the process of auditing and reporting a firm’s ethics programs will help it avoid challenges related to its programs Risk of it being ineffective because this type of auditing is relatively new, and there are few common standards to judge disclosure and effectiveness or to make comparisons.
- 49. RISKS AND REQUIREMENTS IN ETHICS AUDITING Being viewed by the public as needing an audit can motivate companies to conduct one in order to signal their intention to respond to concerns. Although ethics and social responsibility are defined and perceived differently by various stakeholders, a core of minimum standards for ethical performance is evolving. Specific, measurable, achievable, and meaningful measurements in terms of business impact on communities, employees, consumers, the environment, and economic systems The FSGO’s seven steps for effective ethical compliance, the Sarbanes–Oxley Act, and the Dodd-Frank Act provide standards that organizations can use in ethics auditing.
- 51. THE AUDITING PROCESS Questions to be addressed during an audit: How broad the audit should be? What standards of performance should be applied? How often the audit should be conducted? Whether and how the audit’s results should be reported to stakeholders What actions should be taken in response to audit results?
- 52. THE AUDITING PROCESS An ethics audit should be unique to each company, reflecting its size, industry, corporate culture, and identified risks as well as the regulatory environment in which it operates. The framework in this chapter encompasses a wide range of business responsibilities and relationships. There is no generic approach that will satisfy every firm’s circumstances.
- 53. THE AUDITING PROCESS The following steps provide a general framework #1 Secure management and board commitment #2 Establish an ethics audit committee #3 Define the scope of the audit #4 Review organizational mission, goals, and values #5 Collect and analyze relevant information #6 Verify the results through an outside agent #7 Report the finding
- 54. THE AUDITING PROCESS The first step in conducting the audit is to secure the commitment of the firm’s top management and, if it is a public corporation, its board of directors. Pressure for an ethics audit may come from the board of directors in response to stakeholder concerns or legally mandated corporate governance reforms related to the Sarbanes–Oxley Act, which suggests that boards of directors should provide oversight for all auditing activities. #1 Secure management and board commitment #2 Establish an ethics audit committee #3 Define the scope of the audit #4 Review organizational mission, goals, and values #5 Collect and analyze relevant information #6 Verify the results through an outside agent #7 Report the finding
- 55. THE AUDITING PROCESS Court decisions related to the FSGO hold board members responsible for the ethical and legal compliance programs of the firms they oversee. Pressure for an audit may come from top managers looking for ways to track and improve ethical performance, and to give their firm an advantage over competitors that are facing questions about their ethical conduct. #1 Secure management and board commitment #2 Establish an ethics audit committee #3 Define the scope of the audit #4 Review organizational mission, goals, and values #5 Collect and analyze relevant information #6 Verify the results through an outside agent #7 Report the finding
- 56. THE AUDITING PROCESS CEOs and CFOs may face prosecution if they knowingly certify misleading financial statements. Some companies have established an ethics officer in conjunction with an ethics program, and the ethics officer may campaign for an ethics audit as a way to measure the effectiveness of the firm’s ethics program. Regardless of where the impetus for an audit comes from, its success hinges on the support of top management. #1 Secure management and board commitment #2 Establish an ethics audit committee #3 Define the scope of the audit #4 Review organizational mission, goals, and values #5 Collect and analyze relevant information #6 Verify the results through an outside agent #7 Report the finding
- 58. Next, a video on Why Starbucks CEO Pushes Social Responsibility
- 59. THE AUDITING PROCESS The next step is to establish a committee or team to oversee the audit process. Ideally, the board of directors’ financial audit committee should oversee the ethics audit. In most firms, managers or ethics officers conduct social and ethics auditing. #1 Secure management and board commitment #2 Establish an ethics audit committee #3 Define the scope of the audit #4 Review organizational mission, goals, and values #5 Collect and analyze relevant information #6 Verify the results through an outside agent #7 Report the finding
- 60. THE AUDITING PROCESS This team should include members who are knowledgeable about the nature and role of ethics audits and come from various departments within the firm. Outside consultants may be hired to coordinate the audit and report the results directly to the board of directors. An external auditor should not have other consulting or conflict-of-interest relationships with top managers or board members. #1 Secure management and board commitment #2 Establish an ethics audit committee #3 Define the scope of the audit #4 Review organizational mission, goals, and values #5 Collect and analyze relevant information #6 Verify the results through an outside agent #7 Report the finding
- 61. THE AUDITING PROCESS The ethics audit committee should establish the scope of the audit and monitor its progress to ensure that it stays on track. The scope depends on the type of business, the risks faced by the firm, and available opportunities to manage ethics. This step includes defining the key subject matter or risk areas that are important to the ethics audit as well as the bases on which they should be assessed. #1 Secure management and board commitment #2 Establish an ethics audit committee #3 Define the scope of the audit #4 Review organizational mission, goals, and values #5 Collect and analyze relevant information #6 Verify the results through an outside agent #7 Report the finding
- 62. THE AUDITING PROCESS The audit process should include a review of the current mission statement and strategic objectives. The company’s overall mission may incorporate ethics objectives, but these may also be found in separate documents, including those that focus on social responsibility. This step should examine all formal documents that make explicit commitments with regard to ethical, legal, or social responsibility, as well as less formal documents, including marketing materials, workplace policies, and ethics policies and standards for suppliers or vendors. #1 Secure management and board commitment #2 Establish an ethics audit committee #3 Define the scope of the audit #4 Review organizational mission, goals, and values #5 Collect and analyze relevant information #6 Verify the results through an outside agent #7 Report the finding
- 63. THE AUDITING PROCESS It is important to examine all of the firm’s policies and practices for the specific areas covered by the audit. Should look at how managers are rewarded for meeting their goals and the systems available for employees to give and receive feedback. An effective ethics audit should review all systems and assess their strengths and weaknesses. #1 Secure management and board commitment #2 Establish an ethics audit committee #3 Define the scope of the audit #4 Review organizational mission, goals, and values #5 Collect and analyze relevant information #6 Verify the results through an outside agent #7 Report the finding
- 64. THE AUDITING PROCESS Concurrent with this step in the auditing process, the firm should define its ethical priorities. Because there may be no legal requirements for ethical priorities, it is up to management’s strategic planning processes to determine appropriate standards, principles, duties, and required action to deal with ethics issues. #1 Secure management and board commitment #2 Establish an ethics audit committee #3 Define the scope of the audit #4 Review organizational mission, goals, and values #5 Collect and analyze relevant information #6 Verify the results through an outside agent #7 Report the finding
- 65. THE AUDITING PROCESS The next step is to identify the tools or methods for measuring the firm’s progress in improving employees’ ethical decisions and conduct. The firm should collect relevant information for each designated subject-matter area. #1 Secure management and board commitment #2 Establish an ethics audit committee #3 Define the scope of the audit #4 Review organizational mission, goals, and values #5 Collect and analyze relevant information #6 Verify the results through an outside agent #7 Report the finding
- 66. THE AUDITING PROCESS A thorough audit will include a review of all relevant reports, including external documents sent to government agencies and other parties. The information collected will help determine baseline levels of compliance as well as the internal and external expectations of the company. This step identifies where the company has met its commitments. #1 Secure management and board commitment #2 Establish an ethics audit committee #3 Define the scope of the audit #4 Review organizational mission, goals, and values #5 Collect and analyze relevant information #6 Verify the results through an outside agent #7 Report the finding
- 67. THE AUDITING PROCESS Some techniques for collecting evidence might involve examining both internal and external documents, observing the data-collection process (such as by consulting with stakeholders), and confirming information in the organization’s accounting records. Auditors may also employ ratio analysis of relevant indicators to identify any inconsistencies or unexpected patterns. #1 Secure management and board commitment #2 Establish an ethics audit committee #3 Define the scope of the audit #4 Review organizational mission, goals, and values #5 Collect and analyze relevant information #6 Verify the results through an outside agent #7 Report the finding
- 68. THE AUDITING PROCESS Because stakeholder integration is so crucial to the ethics audit, a company’s stakeholders need to be defined and interviewed during the data-collection stage Understanding employee issues is vital to a successful audit. Customers are a primary stakeholder group because their patronage and loyalty determines the company’s financial success. Providing meaningful feedback is critical for creating and maintaining customer satisfaction. #1 Secure management and board commitment #2 Establish an ethics audit committee #3 Define the scope of the audit #4 Review organizational mission, goals, and values #5 Collect and analyze relevant information #6 Verify the results through an outside agent #7 Report the finding
- 69. THE AUDITING PROCESS Some investors seek to include in their investment portfolios the stocks of companies that conduct ethics and social audits. They are becoming more aware of the financial benefits that can stem from socially responsible management systems. Organizations can obtain feedback from stakeholders through standardized surveys, interviews, and focus groups. Companies can also encourage stakeholder exchanges by inviting specific groups together for discussions. The primary objective is to generate a variety of opinions about how the company is perceived and whether it is fulfilling stakeholders’ expectations. #1 Secure management and board commitment #2 Establish an ethics audit committee #3 Define the scope of the audit #4 Review organizational mission, goals, and values #5 Collect and analyze relevant information #6 Verify the results through an outside agent #7 Report the finding
- 70. THE AUDITING PROCESS Once these data have been collected, the firm should then compare its internal perceptions to those discovered during the stakeholder assessment stage, and then summarize findings and draw preliminary conclusions. May involve descriptive assessments of the findings (the costs and benefits of the company’s ethics program, the strengths and weaknesses of the firm’s policies and practices, feedback from stakeholders, and issues that should be addressed in future audits). It may be appropriate to weigh the findings against standards identified earlier, both quantitatively and qualitatively. Data analysis should also include an examination of how other organizations in the industry are performing in the designated subject-matter areas. #1 Secure management and board commitment #2 Establish an ethics audit committee #3 Define the scope of the audit #4 Review organizational mission, goals, and values #5 Collect and analyze relevant information #6 Verify the results through an outside agent #7 Report the finding
- 71. THE AUDITING PROCESS The next step is to have an independent party (social/ethics audit consultant, a financial accounting firm that offers social auditing services, or a nonprofit special-interest group with auditing experience) verify the results of the data analysis. #1 Secure management and board commitment #2 Establish an ethics audit committee #3 Define the scope of the audit #4 Review organizational mission, goals, and values #5 Collect and analyze relevant information #6 Verify the results through an outside agent #7 Report the finding
- 72. THE AUDITING PROCESS Verification is an independent assessment of the quality, accuracy, and completeness of a company’s social report. Independent verification offers a measure of assurance that the company has reported its audit fairly and honestly, as well as providing an assessment of its social and environmental reporting systems. Verification by an independent party gives stakeholders confidence in a company’s ethics or social audit and lends the audit report credibility and objectivity. #1 Secure management and board commitment #2 Establish an ethics audit committee #3 Define the scope of the audit #4 Review organizational mission, goals, and values #5 Collect and analyze relevant information #6 Verify the results through an outside agent #7 Report the finding
- 73. THE AUDITING PROCESS An increasing number of companies are opting for independent verification of ethics audits. The process of verifying the results of an audit should involve standard procedures that control the reliability and validity of the information. Auditors can apply substantive tests to detect material misstatements in the audit data and analysis. A financial auditor may be asked to provide a letter to the company’s board of directors and senior managers that highlights any inconsistencies in the reporting process. #1 Secure management and board commitment #2 Establish an ethics audit committee #3 Define the scope of the audit #4 Review organizational mission, goals, and values #5 Collect and analyze relevant information #6 Verify the results through an outside agent #7 Report the finding
- 74. THE AUDITING PROCESS The final step is to issue the ethics audit report. Reporting the audit findings to the relevant internal parties and, if approved, to external stakeholders in a formal report. The report should spell out the purpose and scope of the audit, the methods used in the audit process (evidence gathering and evaluation), the role of the (preferably independent) auditor, any auditing guidelines followed by the auditor, and any reporting guidelines followed by the company. #1 Secure management and board commitment #2 Establish an ethics audit committee #3 Define the scope of the audit #4 Review organizational mission, goals, and values #5 Collect and analyze relevant information #6 Verify the results through an outside agent #7 Report the finding
- 75. THE AUDITING PROCESS Although the ethics audit may be similar to a financial audit, their forms are quite different. In a financial audit, the Statement of Auditing Standards dictates the content and placement of every word of a financial audit report. The report issued can be an unqualified opinion, a qualified opinion, an adverse opinion, or a disclaimer of opinion. #1 Secure management and board commitment #2 Establish an ethics audit committee #3 Define the scope of the audit #4 Review organizational mission, goals, and values #5 Collect and analyze relevant information #6 Verify the results through an outside agent #7 Report the finding
- 76. THE STRATEGIC IMPORTANCE OF ETHICS AUDITING
- 77. THE STRATEGIC IMPORTANCE OF ETHICS AUDITING Although the concept of auditing implies an official examination of ethical performance, many organizations audit their performance informally. Any attempt to verify outcomes and to compare them with standards can be considered an auditing activity. Organizations such as the Better Business Bureau (BBB) provide awards and assessment tools to help any organization evaluate their ethical performance. Companies with fewer resources may wish to use the judging criteria from the BBB’s Torch Award Criteria for Ethical Companies as benchmarks for their informal self- audits.
- 78. Next, a video on BBB – Ethics – Better Business Bureau
- 79. THE STRATEGIC IMPORTANCE OF ETHICS AUDITING The ethics audit should be conducted regularly rather than in response to problems or questions about a firm’s priorities and conduct. An audit may be comprehensive and encompass all of the ethics and social responsibility areas of a business, or it can focus on one or two specific areas.
- 80. THE STRATEGIC IMPORTANCE OF ETHICS AUDITING Problems with Ethics Audit Ethics audits can present several problems. They can be expensive and time consuming Selecting the auditors may be difficult if objective, qualified personnel are not available Employees sometimes fear comprehensive evaluations, and in such cases, ethics audits can be disruptive
- 81. THE STRATEGIC IMPORTANCE OF ETHICS AUDITING Benefits of Conducting Ethics Audit Deeper Analysis of Company Performance Efficient Resource Management Better Strategic Planning Pinpointing Areas of Improvement- Cultivate Positive Organizational Ethical Behavior
- 82. THE STRATEGIC IMPORTANCE OF ETHICS AUDITING Benefits of Conducting Ethics Audit Provides an assessment of a company’s ethical performance as compared to its core values, ethics policy, internal operating practices, management systems, and the expectations of key stakeholders Deeper Analysis of Company Performance Efficient Resource Management Better Strategic Planning Pinpointing Areas of Improvement- Cultivate Positive Organizational Ethical Behavior
- 83. THE STRATEGIC IMPORTANCE OF ETHICS AUDITING Benefits of Conducting Ethics Audit The assessment can be used to reallocate resources and activities as well as focus on new opportunities. Deeper Analysis of Company Performance Efficient Resource Management Better Strategic Planning Pinpointing Areas of Improvement- Cultivate Positive Organizational Ethical Behavior
- 84. THE STRATEGIC IMPORTANCE OF ETHICS AUDITING Benefits of Conducting Ethics Audit The process can also help companies fulfill their mission statements in ways that boost profits and reduce risks. Deeper Analysis of Company Performance Efficient Resource Management Better Strategic Planning Pinpointing Areas of Improvement- Cultivate Positive Organizational Ethical Behavior
- 85. THE STRATEGIC IMPORTANCE OF ETHICS AUDITING Benefits of Conducting Ethics Audit Can pinpoint areas where improving operating practices can improve both bottom-line profits and stakeholder relationships Deeper Analysis of Company Performance Efficient Resource Management Better Strategic Planning Pinpointing Areas of Improvement- Cultivate Positive Organizational Ethical Behavior
- 86. THE STRATEGIC IMPORTANCE OF ETHICS AUDITING Benefits of Conducting Ethics Audit Can demonstrate the positive impact of ethical conduct and social responsibility initiatives on the firm’s bottom line, convincing managers—and other primary stakeholders—of the value of more ethical and socially responsible business practices Deeper Analysis of Company Performance Efficient Resource Management Better Strategic Planning Pinpointing Areas of Improvement- Cultivate Positive Organizational Ethical Behavior