RESPONSI BILITIES & LEADERSHIP ethics How to Make an Ethics Program Work By H. Stephen Grace Jr. and John E. Haupert he author’ experience tying or porate govemanc, ovenigh ad ‘onl hs led them tthe consi- sion that a strong ethics program wil no, by isl, ensure tical behavior in organ zations. It must always be supported by a strong system of checks and balances. “Topeter. hese 160 key ingens can bp pas arovemance system that mange ‘mens and boads can rely upon ‘The authors have developed a concept for building a program that promotes ethical tehavirin an ergarizato. This framework encourages eveyone o weekly, si ort those inlined w work ethically, nd ‘lees hoe who ray be trp 10 veer from the path of ethical havior. Named ESD, the framework builds on an under- ‘standing of human behavior and the personal ovemnce systems inside each inva ‘The ESD framework sso recognizes and responds tone ofthe mt signiica cbt Gls toiling ethical behavior it an rp tiation: unchecked consetons of power win he organization Philosophical and Spiritual Issues For thousands of years, philosophers and spiritual leaders have provided guid- ance on the importance of ethical behav- fo and the benefits of living and work- ing ethically. Another side of the story ‘of human nature however, isnot so uplift ing. Warnings slbound about the tempta- tions that cause people to act unethicaly ‘These warnings were well captured inthe ‘words of Ovid, who said, “The better things of life Tee and approve; the worse things of life I follow.” These wamings have made clear the tendency to stray from the path of ethical behavior. Numerous examples demonstrate how greed can tempt even the very rich, who 66 have no need for more money, to act metal. “The search for power also tpt in vidas to act unethical. History and cur rent evens point to plticins andl execu- tives who appear prepared to do just about anything to advance themselves, adding to their prestige and poser. This leads diretly to the dangers of unchocke conceiaions of power within ‘organization. Lord Acton put i apt “Power tno comin an absolute power comps acts.” Acton ao woes ss swellknown essy called "Nation ‘which bilamly alesse the unchecked consoldation of pover Wang inthe 1860s, ‘Acton aed abo bow, when anion ii time of fica, very rg people die that the soliton lies inthe creation ofan ideal sci whi ina, sa all power ful sate. Acon pointed out that once ths statis in place is docon-making power tyres, lane fr opps and it- ferences of opinion disappears, nd hee 2 ors of base nda Heres an “ahs: While the efor of thse individuals ‘who ave seized extraoninary pover hve fale time and again, Acton comet = ognized the tendency of human beings repeat the sae mise in thi search foe ‘olson to theirproblems. Acton ws ok ing back a hstery, btn doing 0 he Fer shadowed the eration ofthe Communist Stat he Naz si and more nce egies. Soci as that of Pol Pot in Cambodia and Seda Hussin in rag “The wring of Lord Acton del wih pit ical govemance, bt he lessons apply tor pore govern an! th cae ofa ing ethical behavior into an organization. ‘What we ned to prevenin any ogarization i the unchocke ensliation of power. “Through their work in many woubled sit- dations te ahr eed at any oe nization thet permits unchecked consol tons of power an organization in danger. ‘When the opportunity exists, certain indi- viduals or small groups of individuals will ‘consolidate power. vel their activities, and ‘manipulate ad intimidate individuals with- in and outside of the organization. ‘This is not to say tha this will happen to ll individuals inthe organization. Many ‘people will continue to be guided by their ‘own principles and will behave appropri- ‘ately. I the organization permits unchecked consolidations of power, however, then inevitably someone will be tempted to take advantage. Decent people will be corupt- ed out of fear ofthe consequences if they {do not follow along. ‘The ESD Framework “To succeed at building cthical behay- ioc, an organization rust have a gover nance proces thts uit on gorse Of checks and balances and is character iaod by transparency. It requires much ‘more than simply talking about eis issuing guidelines for ethical behavior. Tt isnot enough talk and iste rls about ethics and tess “tone at the tp." This ray well encourage employes to behave ethically, but without more substance, ethical plates mean very lle “The ESD framework provides the sib stance: a goverane proces tht ool encourages, but also sports and deers ESD incorpo a props of checks ae trance at will support employees wo are trying to work in acomect fashion Proper checks end balances help ensure tramp working ensronment and keep thal employes from being manipula and intimidated by others. Furthermore, proper checks and Balances prevent in ‘als from concentrating power, anor ingthial guidelines and veiling hei a ities, Such checks and balances are the test way to ensure transparency and subet cach employee to appropriate oversight “That's what takes to deter ad behavior APRIL 2006 / THE CPA JOURNAL‘An organization structuring a rigorous Board members should bring an aude of and balances to prevent them. As President setof checks and balances needs an under~ service, not etilement other postions. Reagan il abt agreements with okl War standing of where problems might deve!- Board members must always keep in mind adversaries “Trt bt verify” Traspaccy ‘op and how they canbe nipped inthe bud. that her job iso provide oversight © pro- is necessary here as well. Management ‘A good place to statis a thorough risk tect sharcholder value. They must sek to must continue to make it clear that tong profile developed by public accountants, ensure that every staff penn, from those checks and balances are continually being intemal auditors risk-management and in the “C* suite down to the lowest-level upd and new ones ae being developed legal staf, and peshaps outside help fom employee is performing ethically. What is 10 deter uncial behavior. Saf mis also constants andl eror--omissons car- needed troughout the organization isthe have confidence dh management wil uly riers. Once the risk profile is created, proper uxesianding of esponsbilies nd support those who rept malsance by oh- checks and balances to mitigate these risks the proper monitoring of how thse espon- es including ther superiors. a can be developed. Importantly, rans- sbilites are addressed—n viable se of Parency must permeate all facets of the checks and balanoes. Everyone inthe ga | —————______ business. The more people are aware of ization should know that ight contol sre H. Stephen Grace Jr, PRD, is presdem ‘what is going on, the move difficult i isin place and that ethical lapses will be dealt of Grace & Co. Cancultany, dnc. and a for incomect behavior to be overlooked. with very severely. The objet after all is former chair of Financial Executives This process must start at the board not cach somene guilty of maifeasince, International. John E. Haupert is a level, What is neded are board members but to prevent it from ever happening. member of the board of advisors of ‘who are informed about the business they Management must follow the lead ofthe Grace & Co, and served as treasurer of ae in, ae involved with it, have the boar by acting ethically and ining thatthe Port Authority of New York ane! New experience and expertise to perform their the sa do the same. How agai, words re Jersey prior wo retirement. An earlier ver~ utes, and are willing to devote the time notenough. Management mustconstanly be sion ofthis article was deivered as part required. They must understand their on gual for hse areas wher: chcllaps- of the 2008 Ethics Week program at responsibilities and be fekl accountable. esate most key, an provide the checks Barach College, CUNY. July 17-18, 2006 Hilton New York Hotel New York CPA Technology Sh + Don’t Miss peo cg” ay Hitt Oiti . Haren ‘APRIL 2006 / THE CPA JOURNAL 67