Effective Implementation of Ethical Programs: Theory and Practice

Abstract

What is the best process by which to implement ethical and compliance programs? That is, what are the best means for achieving the aims of inhibiting the criminal conduct and supporting the ethical conduct of organizational members? The US Federal Sentencing Guidelines (FSG) of 1991 required development of a compliance program in which the implementation process consisted of formal methods and the desired outcome was to inhibit criminal conduct. Research failed to support this approach. Furthermore, a clear failure of that approach is exemplified by the occurrence of several business scandals. The worst of these was the uninhibited criminal conduct of individuals in Andersen and Enron, notwithstanding the formal methods contained in these companies’ ethical codes of conduct and ethical programs. These scandals caused investors, amongst other stakeholders, significant monetary losses and eroded market confidence. Restoring public trust, a necessary condition for a viable market, was a challenge partly met by legislators and regulators through enactment of the Sarbanes Oxley Act (SOX 2002) and modification of the FSG (2004), the latter requiring the establishment of a culture supportive of ethical conduct. Given that events have demonstrated the limited utility of formal controls alone, it is necessary to reconsider the assumptions upon which the process of implementing compliance and ethical programs rests, in both theoretical and practical terms. (Clark and Leonard 1998) This paper aims to contribute to this process. It examines the formal, informal and personal methods available for establishing and implementing ethical and compliance programs. In particular, it considers what type and mix of methods are most likely to yield an effective implementation process.