©john dienhart 2005 thank you to the banta family and the banta center at the university of...

©John Dienhart 2005

Thank you to the Banta Family Thank you to the Banta Family and The Banta Center at the and The Banta Center at the

University of Redlands for the University of Redlands for the opportunity to speak with you opportunity to speak with you

about business ethics.about business ethics.

Thanks to all the participants who Thanks to all the participants who added valuable information to our added valuable information to our

discussion and to all those who discussion and to all those who silently followed along.silently followed along.

----John Dienhart, Seattle UniversityJohn Dienhart, Seattle University


The Following Slides “Corporate The Following Slides “Corporate Responses to Sarbanes-Oxley” Responses to Sarbanes-Oxley”

are copyrighted by John are copyrighted by John Dienhart and Tom Tyler (specific Dienhart and Tom Tyler (specific

slides). slides).

They may used without They may used without permission for non-profit permission for non-profit educational purposes. educational purposes.

Permission is required for all Permission is required for all other purposes.other purposes.


Corporate Responses to Corporate Responses to Sarbanes-OxleySarbanes-Oxley

Ethics, Compliance, and Business Ethics, Compliance, and Business ExcellenceExcellence

Presented to the Presented to the

Banta Center for Business Banta Center for Business Ethics and SocietyEthics and SocietyUniversity of RedlandsUniversity of Redlands

Copyright ©John W. Dienhart 2005Copyright ©John W. Dienhart 2005Seattle University [email protected] University [email protected]


AgendaAgenda How Did We Get to SOX and How Did We Get to SOX and

Other Legislation?Other Legislation? Success Depends On Knowing Success Depends On Knowing

How We Act in GroupsHow We Act in Groups Compliance or Ethics?Compliance or Ethics? Ethical Culture – The DataEthical Culture – The Data The Quest for Business The Quest for Business

ExcellenceExcellence


Market Failures: Zebras Market Failures: Zebras and Horsesand Horses

Japan

Korea

&


Efficient Efficient MarketsMarkets

Four Condition of Efficient MarketsFour Condition of Efficient Markets InformationInformation Property RightsProperty Rights Risk-Reward RelationshipsRisk-Reward Relationships CompetitionCompetition

Fundamental Assumption of Fundamental Assumption of CompetitionCompetition Players are subject to the marketPlayers are subject to the market Players do not control the marketPlayers do not control the market


Models for Models for Financial ControlFinancial Control

Committee of Sponsoring Committee of Sponsoring Organizations of the Treadway Organizations of the Treadway Commission (COSO)Commission (COSO)

Cadbury Commission (England)Cadbury Commission (England)

Canadian Criteria of Control Canadian Criteria of Control Committee (CoCo)Committee (CoCo)

Turnbull Report (England)Turnbull Report (England)


A New Role for ControlA New Role for Control

““Applied with care and visionApplied with care and vision, the , the models can directly support the models can directly support the

success of the organization.”success of the organization.”

““Applied mechanicallyApplied mechanically they may they may support control, but not support control, but not

necessarily success.”necessarily success.”

Galloway, 1994: Internal Auditor (edited)Galloway, 1994: Internal Auditor (edited)


What’s New for Control?What’s New for Control?

1.1. A broad definition of A broad definition of control control

2.2. Learning and reflection Learning and reflection

3.3. Values essential to the Values essential to the control environmentcontrol environment


Market & Control Market & Control FailuresFailures

Zebras, Horses, and ColtsZebras, Horses, and Colts Information failures thatInformation failures that

Violated property rightsViolated property rightsMisrepresented risk-Misrepresented risk-reward relationshipsreward relationships

Violated standards of Violated standards of competitioncompetition


U.S. – Voluntary No LongerU.S. – Voluntary No Longer SOXSOX

Broad definition of controlBroad definition of control Ethical rules and standardsEthical rules and standards Professional EthicsProfessional Ethics Code of Ethics for Financial ManagersCode of Ethics for Financial Managers

Federal Sentencing Guidelines Federal Sentencing Guidelines for Organizations for Organizations Broad definition of controlBroad definition of control Ethical CultureEthical Culture Learning and ReflectionLearning and Reflection


Will SOX and Will SOX and FSGO Succeed?FSGO Succeed?

Managers Have Less and Managers Have Less and More Power Than they More Power Than they

RelizeRelize


Individuals in Individuals in GroupsGroups

1.1. The Longest LineThe Longest Line

2.2. High VoltageHigh Voltage

3.3. Rolling Into RolesRolling Into Roles


The Longest LineThe Longest Line


High VoltageHigh Voltage


Shocking Others, Shocking Others, OurselvesOurselves

100% sent electric shocks up through 100% sent electric shocks up through 135 volts135 volts

80% administered shocks up through 80% administered shocks up through two hundred and eighty-five voltstwo hundred and eighty-five volts

Slightly more than 60% went up to 450 Slightly more than 60% went up to 450 voltsvolts

Austria, Italy, Jordan, Germany, Austria, Italy, Jordan, Germany, Holland, South Africa, Spain, United Holland, South Africa, Spain, United Kingdom, USA (Australia)Kingdom, USA (Australia)


Decision-Makers Who

Attend to NarrowPersonal Interests

Decision-Makers Who

Rely on Principles

Decision-Makers Who Rely on Rules

Ethical Decision Making


Rolling into RolesRolling into Roles


Organizations: 3 in 1Organizations: 3 in 1

The judgments of othersThe judgments of others

Who have authorityWho have authority

To define rolesTo define roles


Managerial Power: More Managerial Power: More and Less Than We Might and Less Than We Might

ThinkThink The three experiments show that The three experiments show that

managers exert a great deal of managers exert a great deal of power over a significant number power over a significant number of direct reportsof direct reports

The three experiments show how The three experiments show how managerial power can drop off managerial power can drop off sharply with reports of reports. sharply with reports of reports.


Supplying the Supplying the Demand for Demand for

ReliableReliableInformation and Information and

ControlControlCompliance or Compliance or

Ethics?Ethics?


The Case for The Case for ComplianceCompliance

MissionValues General CodeSpecific Codes

Employees are mostly governed by specific rulesEmployees are mostly governed by specific rules

Lines of Text


The Case for The Case for EthicsEthics

MissionValues General CodeSpecific Codes

Employees Are More Easily Aware of Mission & ValuesEmployees Are More Easily Aware of Mission & Values

Awareness


Ethical CulturesEthical Cultures

The Special Role of The Special Role of

Procedural JusticeProcedural Justice


What Makes an Ethical What Makes an Ethical Culture?Culture?

Ethical LeadershipEthical Leadership FairnessFairness Ethical issues can be discussedEthical issues can be discussed Bring bad newsBring bad news Obedience to AuthorityObedience to Authority Ethical is part of promotion, Ethical is part of promotion,

assignments, hiringassignments, hiring Reward for ethical behaviorReward for ethical behavior Reporting mechanismsReporting mechanisms Self-InterestSelf-Interest Punish unethical behaviorPunish unethical behavior Follow through on violationsFollow through on violations

NO


Compliance v. ValuesCompliance v. Values

In a six company study a values In a six company study a values approach had better behavioral approach had better behavioral outcomes than a compliance approach outcomes than a compliance approach (Trevino, et. al. 1999)(Trevino, et. al. 1999)

Data: Companies with value based Data: Companies with value based culturescultures Lower rates of illegal/unethical behaviorLower rates of illegal/unethical behavior Employees more likely to seek guidance Employees more likely to seek guidance More willing to report violationsMore willing to report violations More willing to deliver bad news to managementMore willing to deliver bad news to management


Why Follow Why Follow Rules?Rules?

Procedural JusticeProcedural Justice I trust the organization has fari I trust the organization has fari

processes and procedures to processes and procedures to determin important issuesdetermin important issues

Distributive JusticeDistributive Justice The outcomes of rules seem fairThe outcomes of rules seem fair

Outcome favorabilityOutcome favorability The rules are good for me: I will The rules are good for me: I will

punished if I don’t follow them, punished if I don’t follow them, rewarded if I do, or the rules hage rewarded if I do, or the rules hage other good outcomes for me, such as other good outcomes for me, such as creating a safer workplace.creating a safer workplace.


Procedural Justice Drives Procedural Justice Drives ComplianceCompliance

Multi-company studyMulti-company study

0

0.05

0.1

0.15

0.2

0.25

0.3

Legitimacy,values

Comply Defer

Procedural justice Distributive justiceOutcome favorability

Beyond Compliance

Compliance Behavior

©Tom Tyler ©Tom Tyler 20032003


Procedural Justice Drives Procedural Justice Drives Compliance Compliance

Single Corporation StudySingle Corporation Study

0.24 0.23

0.0200

0.03

0

0.05

0.1

0.15

0.2

0.25

0.3

Legitimacy, values Rule following behavior

Procedural fairness Distributive fairness

Outcome favorability

Entries are beta weights for regression equations

©Tom Tyler ©Tom Tyler 20032003


Procedural Justice Drives Procedural Justice Drives Compliance Compliance Supervisor Rating in Supervisor Rating in

Single CorporationSingle Corporation

0.25

0.060.04

0

0.05

0.1

0.15

0.2

0.25

0.3

Procedural fairness Distributive fairness

Outcome favorability©Tom Tyler ©Tom Tyler 20032003


1% carbon lays down the framework for 99% iron

Ethics and Ethics and ComplianceCompliance


Establishing a Establishing a ProgramProgram

What We Name it MattersWhat We Name it Matters


Ethics Ethics ProgramsPrograms

Compliance Compliance ProgramsPrograms

Business Business Conduct Conduct ProgramsPrograms

Business Business

Practice Practice

ExcellenceExcellence

Integrity Integrity Programs

ProgramsEthics and Ethics and

Business Business

Conduct Conduct

ProgramsPrograms


The Center for The Center for Excellence in Excellence in

Business Business ConductConductTMTM


The Center for ExcellenceThe Center for ExcellenceTMTM

Work with the board, senior Work with the board, senior leaders, managers, and employees leaders, managers, and employees to develop and promoteto develop and promote

1.1. MissionMission

2.2. ValuesValues

3.3. General code of conductGeneral code of conduct

4.4. Specialized codes for different areasSpecialized codes for different areas

5.5. An ethical, procedurally fair An ethical, procedurally fair cultureculture that supports 1-4that supports 1-4


Special topics for the Special topics for the CenterCenter

1.1. M&AM&A

2.2. Global and Domestic Global and Domestic Cultural IssuesCultural Issues

3.3. Board TrainingBoard Training

4.4. Strategy and BrandStrategy and Brand


Could a Center for Excellence Could a Center for Excellence in Business Conduct have in Business Conduct have

helped in your organization helped in your organization with a specific issue? with a specific issue?

How can you build coalitions How can you build coalitions to get that information to a to get that information to a

higher level?higher level?


Thank you.Thank you.

Questions?Questions?

©john dienhart 2005 thank you to the banta family and the banta center at the university of...

Documents

john dienhart

market slide

control environment

standards of competition

market control failures

business ethics

business excellence

seattle university slide