Business Ethics 

U.S. DEPARTMENT OF COMMERCE

International Trade Administration

W ASHINGTON , D. C.

A publication of the 

GOOD GOVERNANCE PROGRAM

A MANUAL FOR MANAGING A

RESPONSIBLE BUSINESS ENTERPRISE

IN EMERGING MARKET ECONOMIES
Library of Congress Cataloging-in-Publication statement

Business ethics : a manual for managing a responsible business enterprise 

in emerging market economies / U.S. Department of Commerce, 

International Trade Administration.

p. cm.

“A publication of the Good Governance Program”

Includes bibliographical references and index.

1. Business ethics. 2. Business ethics—United States. I. United States.

International Trade Administration.

HF5387.B87129 2004

174’.4—dc22

2002056735

ISBN 0-16-051477-0

Certain materials included in this book are reprinted with the kind 

permission of their copyright holders. A full list of permissions appears 

on page 325. 

Published 2004 by the U.S. Department of Commerce, 

International Trade Administration.

For sale by the U.S. Government Printing Office, Superintendent 

of Documents

Internet: http://bookstore.gpo.gov

Telephone: (202) 512-1800

Mail Stop: SSOP, Washington, DC 20402-0001

Stock number: Stock number 003-009-00731-3

Federal Recycling Program

Printed on recycled paper.

This manual is intended to provide general guidance for businesses and practitioners in better understanding

emerging global standards of responsible business conduct. It is distributed with the understanding that the

authors, editors, and publisher are not engaged in rendering legal, accounting, or other professional services.

Where legal or other expert assistance is required, the services of a competent professional should be sought.

The manual contains information on business ethics program design and implementation that was current as

of the date of publication. While every effort has been made to make it as complete and accurate as possible,

readers should be aware that all information that is contained therein is subject to change without notice.
iii

MESSAGE FROM THE

U.S. SECRETARY OF COMMERCE

Business Ethics: A Manual for Managing a Responsible Business Enterprise in Emerging Market Economies grew out of collaboration between the U.S. Department

of Commerce and many dedicated people and organizations. It is intended to

provide a practical guide to assist owners and managers in meeting emerging

global standards and expectations for an effective business ethics program. 

Such a step-by-step guide should have great utility in the emerging market

economies that ring the globe. Many are new players in the modern global economy and lack experience in what it takes for free markets to function efficiently

and to deliver the jobs, goods, services, consumer choices, and general prosperity that are expected from democratic capitalism. Even developed market

economies, moreover, are searching for better ways to meet market challenges.

A fundamental ingredient of any successful market economy is respect for

basic human values: honesty, trust, and fairness. These values must become an integral part of business culture and practice for markets to remain free and to work

effectively. Private business is at the strategic center of any civil society. It’s where

people go for a job or to invest savings to realize their aspirations for their families.

Having spent most of my life working in American business, I am compelled

to ask, “If businesses fail to honor their responsibilities to society and don’t

believe in corporate stewardship, who in our society will?” Corporate stewardship protects the whole “human ecology” of the corporation and its communities,

nurturing the long-term economic growth of both and of their human resources.

You can apply the manual whether you represent business, civil society, or government and whether your enterprise is large or small. I hope you find the

manual easy to use in your development of a business ethics program. We certainly hope that it will stimulate public debate on the importance of business ethics.

Sincerely,

Donald L. Evans

U.S. Secretary of Commerce

ACKNOWLEDGMENTS

We are particularly grateful to Igor Y. Abramov and Kenneth W. Johnson,

who were the authors of the manual. In addition, we would like to thank the

many businesses and organizations across the globe that have graciously consented to the use of their materials as examples to illustrate the process of

designing a business ethics program. This book would not have been possible without the efforts of countless practitioners who have labored to develop international standards of responsible business conduct or business ethics

programs for their own enterprises. 

Comments and suggestions provided by experts from Armenia, Azerbaijan,

Georgia, Kazakhstan, Romania, Russia, the United States, and Uzbekistan on

early drafts of this book were critical to its development. We are especially

grateful for the insights offered by Gulsum Akhtamberdieva, Anita B. Baker,

Ion Pirvu, Kathleen Purdy, Tatiana Raguzina, Rena Safaralieva, Petr Shikirev,

Andrew Sommers, Robert Strahota, Jon Thiele, John Truslow, Zhan Utkelov,

George Wratney, and several members of the Ethics Officer Association. 

We would especially like to thank Matthew Murray for his contributions

to the drafting and editing of this manual. We also thank Danica R. Starks,

who has served as project coordinator of the book, and Elizabeth Ramborger,

John Ward, and William Corley for their contributions to the publication

process. 

Valuable editorial assistance was provided by the staff of Publication

Professionals LLC, who edited the text. The cover and text designs were created by Maureen Lauran. Composition and production assistance were provided

by the Typography and Design section of the U.S. Government Printing Office.

Finally, we are grateful for FREEDOM Support Act assistance funds that

were extended to the Good Governance Program by the Coordinator for

U.S. Assistance to the New Independent States. These funds helped make

this book possible.

Susanne S. Lotarski, Ph.D. 

Director

Office of Eastern Europe, Russia, and Independent States

International Trade Administration

U.S. Department of Commerce

v

vii

A project of the 

GOOD GOVERNANCE PROGRAM

of the 

U.S. DEPARTMENT OF COMMERCE

In consultation and cooperation with:

American Chamber of Commerce in Russia

Casals and Associates, Inc.

Center for Business Ethics and Corporate Governance

Chamber of Commerce and Industry of Romania and

Bucharest Municipality

Federal Commission for the Securities Market of the

Russian Federation

Russian Chamber of Commerce and Industry

National Fund for Russian Business Culture

Russian-American Business Dialogue

American Chamber of Commerce

Russian American Business Council

Russian Union of Industrialists and Entrepreneurs

U.S.–Russia Business Council

Transparency International, Azerbaijan

FOREWORD

We live in an age of innovation, the growth of free markets, and a world

economy. New technologies, roles for government, and players on the global

scene offer challenging opportunities, demands, and constraints. More peoples

and nations are working together to spread freedom and democratic principles; to nurture free markets; to protect individual property rights; and to

encourage respect for human rights, the rule of law, and the environment. 

With increasing urgency, market and social forces are rewriting the roles

and responsibilities of business as well. Though the profit motive of business

is understood and accepted, people do not accept it as an excuse for ignoring the basic norms, values, and standards of being a good citizen. Modern

businesses are expected to be responsible stewards of community resources

working toward the growth and success of both their companies and their

communities.

Government has an important role in the spread of freedom and democratic capitalism. It provides for the essential market-oriented legal framework

and reliable dispute resolution processes that allow businesses to compete fairly on the quality, prices, and delivery of their goods and services alone. It

enforces laws, regulations, and judgments to safeguard the social order its citizens value. It cannot, however, act alone. Businesses and civil society must also

be involved in solutions to community problems. They can help in the fight

against the corruption that saps national resources. They must reform the

unethical business practices that breed cynicism and distrust in communities.

Businesses are at the strategic center of a civil society, and they have a

stake in their communities. They depend on free markets and good public

governance for their growth and success, but they are also authors of their

own destiny. Through responsible business conduct, they contribute to the

essential social capital of trust and fairness that makes good governance and

free markets possible.

Markets become free and remain free if their players are responsible and

respect the basic values of honesty, reliability, fairness, and self-discipline.

The alternatives to responsible business conduct are inefficient markets and

costly government regulation. Free flows of capital, talent, knowledge, and

ix
creativity are possible where communities are known for transparency,

respect for property, a market-oriented legal framework, and reliable dispute

resolution mechanisms. The alternatives are a lack of capital, high transaction costs, limited markets, underdevelopment, and poverty. 

In short, owners and managers must temper the competitive aspects of

capitalism with concerned citizenship. They must take individual responsibility for the decisions and activities of their enterprises and their impact on

the culture of their enterprise and its stakeholders. A business needs committed, productive employees, agents, and suppliers to create goods and

services. It needs loyal, satisfied customers and consumers to make a profit.

It needs people who believe in it and in its prospects enough to invest. It

needs to take the long view and to respect the physical environment and the

prospects of future generations.

Over the past few decades, governments, international institutions,

transnational organizations, organized labor, and civil society have been

engaged in an ongoing dialogue into the role of business as responsible

stewards. Standards, procedures, and expectations for business are emerging worldwide. Enterprises and markets that are unaware of them, or fail

to plan their futures with them in mind, will be unable to participate in the

global dialogue and will risk being left behind as the global market economy expands.

Businesses around the world are designing and implementing business

ethics programs to address the legal, ethical, social responsibility, and environmental issues they face. By addressing these issues in a systematic way,

enterprises can improve their own business performance, expand opportunities for growth, and contribute to the development of social capital in their

markets. They can realize specific business benefits, such as:

• Enhanced reputations and good will 

• Reduced risks and costs

• Protection from their own employees and agents

• Stronger competitive positions

• Expanded access to capital, credit, and foreign investment

• Increased profits

• Sustained long-term growth

• International respect for enterprises and emerging markets

Enterprises that excel in these areas create a climate of excellence for

their employees, shareholders, and communities, and contribute to the economic wellbeing of their countries.

x Business Ethics
No single volume can tell individual businesses what decisions and activities will foster and meet the reasonable expectations of their stakeholders.

Each enterprise faces unique political, economic, social, and technological

pressures. Moreover, each has a unique organizational culture that influences

all that its members think, say, and do. However, a guide can demonstrate a

process through which owners and managers can identify enterprise stakeholders; can foster reasonable stakeholder expectations; and can inspire,

encourage, and support responsible business conduct.

Purpose of this Manual

This manual is intended to aid enterprises in designing and implementing a

business ethics program that meets emerging global standards of responsible

business conduct. Owners and managers can explore the substantial body of

global standards, procedures, and expectations described here. They can

adopt or adapt them on a sector-by-sector and enterprise-by-enterprise basis,

taking into account their particular circumstances, such as applicable laws and

regulations, the size of the enterprise, and the enterprise’s purpose.

This manual explores how a business ethics program helps owners, managers, and their professional advisers build an enterprise to meet these standards. It builds on three essential concepts to help busy owners and managers

design and implement business ethics programs for their unique enterprises. 

1. Responsible business conduct: the choices and actions of employees

and agents that foster and meet the reasonable expectations of enterprise

stakeholders.

2. Responsible business enterprise: an enterprise characterized by good

governance policies and management practices as well as by a culture of

responsible business conduct. It is adept at dealing with the challenges

and complexities of its business environment, but holds closely to its

purpose, core values, and vision.

3. Business ethics program: a tool that owners and managers use to inspire, encourage, and support responsible business conduct, by engaging

enterprise stakeholders in order to foster and meet their reasonable expectations, and designing structures and systems to guide and support

employees and agents.

There is, of course, no one right way to design and implement a business

ethics program, let alone to achieve a culture of responsible business conduct.

Whatever the size or purpose of the enterprise, however, owners and managers

will find value in building an enterprise that sets standards for responsible

business conduct, puts them into practice, and learns from experience. This

Foreword xi
manual distills the experience of business enterprises that have designed and

implemented business ethics programs to address a number of issues:

• What it means to be a responsible business

• How to approach responsible business as a strategy

• What structures and systems help management guide employees and

agents and foster reasonable expectations among enterprise stakeholders

• How to communicate with stakeholders about enterprise standards, expectations, and performance

• How to align management practices with core beliefs through a business

ethics program

• How to evaluate a business ethics program and learn from it

Four distinct but related disciplines have traditionally guided responsible business conduct: business and professional ethics, organizational

ethics, corporate social responsibility, and corporate governance. The

focus of all four approaches is the governance policies and management

practices that inspire, guide, and support responsible business conduct.

This manual integrates these four disciplines into a single, systemic discipline: the discipline of responsible business conduct. 

To help owners and managers apply the discipline of responsible business

conduct, this manual develops a set of tools that will assist them in answering

important questions drawn from each of the four traditional approaches to

responsible business conduct:

1. Business and professional ethics

a. What does a business enterprise owe its customers and consumers?

b. What standards of conduct and performance should an enterprise set

for its employees and agents?

c. What is the role of industry and government in setting business and

professional standards?

2. Organizational ethics

a. What is the optimal mix of values and rules to guide decision-making

and action?

b. What structures, systems, practices, and procedures will best implement the values and rules of the enterprise?

c. What outcomes should one reasonably expect from an enterprise’s decisions and activities, and how can an enterprise track, measure, and

report them?

xii Business Ethics
3. Corporate social responsibility

a. Who are the legitimate stakeholders of an enterprise, and what can

they reasonably expect?

b. Who speaks for the environment and future generations as stakeholders?

c. What is the role of business in sustainable development?

4. Corporate governance

a. Who can rightfully claim the power to govern an enterprise?

b. How can the board of directors and management best protect the

rights of shareholders, especially minority shareholders?

c. How can the board of directors best guide management to meet the

reasonable expectations of shareholders?

Organization of this Manual

This manual includes 10 chapters, which are arranged in five parts.

The five parts organize the chapters according to the flow of business

ethics program design and implementation, from defining key terms and

addressing global standards and best practices, through evaluating the

business ethics program as a part of organizational learning. Chapters

build on each other, but they may be read alone if the reader is interested

in a particular topic.

Part I, “The Responsible Business Enterprise,” develops a working definition of the responsible business enterprise (RBE). Chapter 1, “Responsible

Business Conduct in an Emerging Economy,” addresses the challenges business enterprises face, especially in emerging market economies. It concludes

that to be part of the solution to the problems facing businesses, enterprises

need to improve their business performance, contribute to the social capital

of their communities, and work with leaders in government and civil society

to develop a market-oriented legal framework and reliable judicial institutions. Chapter 2, “Responsible Management and the Responsible Business

Enterprise,” describes the emerging global standards of performance and

reporting and the benefits of having a business ethics program. 

Part II, “The Business Ethics Program,” introduces the reader to the elements of a business ethics program and its nature as a business strategy.

Chapter 3, “Responsible Business Conduct as Strategy,” treats the key concepts and components of a business ethics program and shows how owners and

managers can approach a business ethics program as a strategy. Chapter 4,

“Creation of a Business Ethics Program,” introduces owners and managers to

the process of developing, reviewing, and approving a business ethics program.

Foreword xiii
Part III, “Structuring the Business Ethics Program,” details the emerging global standards and best practices of responsible business conduct.

Chapter 5, “Standards, Procedures, and Expectations for the Responsible

Business Enterprise,” discusses responsible board-level governance policies

and management-level vision and value statements, and it describes how to

implement standards, procedures, and expectations. Chapter 6, “Business

Ethics Infrastructure,” discusses the structures and systems that owners and

managers use to implement a business ethics program. Chapter 7, “Business

Ethics Communications and Feedback,” discusses the challenges of communicating with an enterprise’s stakeholders about standards, procedures, and

expectations, as well as about the enterprise’s performance.

Part IV, “Putting Business Ethics into Practice,” describes how management aligns its practices on an enterprise’s core beliefs and follows through

on the expectations created through its business ethics program. Chapter 8,

“Aligning the Responsible Business Enterprise,” examines how an enterprise

needs to have the right employees and agents performing the right tasks in

pursuit of its purpose. It explores how the RBE responds when things go

wrong through the fault of its employees and agents or otherwise. Chapter

9, “Responsible Business Conduct and Practices,” pays particular attention

to the challenges of being a responsible business enterprise in an emerging

market economy, especially dealing with government procurement and contracting, influencing government legislation and regulation, and working

with other business leaders and civil society to develop a market-oriented

legal framework and reliable judicial institutions.

Part V, “Achieving Responsible Business Conduct,” helps owners and

managers determine whether their business ethics program is achieving

measurable goals. Chapter 10, “Program Evaluation and Organizational

Learning,” emphasizes the importance of evaluating a business ethics program as an integral part of organizational learning and of what it means to

be an RBE. 

How to Use this Manual

The audience for this manual includes decision-makers in enterprises of all

sorts: business, government, academia, and civil society—and their professional advisers. 

Most of the experience in business ethics programs around the globe

involves large, often quite complex, enterprises. Owners, shareholder representatives, and managers of such enterprises will find the discussion, worksheets, and sample provisions directly applicable. They may also find that it is

in their best interest to encourage or require their suppliers or service

xiv Business Ethics
providers to design and implement a business ethics program to minimize the

risk of supply chain disruption or indirect damage to their reputations.

The bulk of businesses in all economies, especially emerging market

economies, consists of small to medium-sized enterprises (SMEs).

Owners and managers of SMEs face particular challenges, and most chapters discuss specific issues facing SMEs. Some chapters have tables comparing the best practices of large, complex enterprises and cost-effective

solutions for the SME.

Individuals, businesses, and nongovernmental organizations seeking to

stimulate a public dialogue on issues and benefits of business ethics will also

find this manual useful. It offers a frame of reference for further dialogue. It

includes definitions of key terms and concepts. It helps define the role of the

private sector in creating transparent markets, strengthening the rule of law,

and supporting good public governance.

Although this manual emphasizes responsible business conduct, association members and government officials can also use it as a management tool

to order their affairs. The process described here applies to all enterprises having a shared purpose. To be effective, efficient, and responsible, an association

or government agency also should understand its relevant context and organizational culture. It also must establish and communicate to its stakeholders its

core beliefs, standards, procedures, and expectations. In short, an association

or government agency can benefit from designing and implementing an ethics

and compliance program similar to the business ethics program described here.

Finally, members of the press and other media can use this manual as a

framework to develop a series of articles or programs as features to raise

their audiences’ awareness of emerging global standards and best practices.

As business news events occur, the media can use this understanding to

develop and report business events as news items—confident that their readers will appreciate the significance of their reporting. They can then develop an editorial position and can publish a body of opinion-editorial pieces to

stimulate national and community dialogue.

When a business enterprise is ready to design and implement its business ethics program, the RBE Worksheets and appendices will aid it in collecting and analyzing the data necessary to build an effective program. The

worksheets can be used as checklists to ensure that owners, managers, and

working groups taking on this task have considered all relevant circumstances for their enterprise. These circumstances may include fundamental

matters such as the political, economic, and social context and organizational culture of the enterprise. An enterprise will be most effective at building a

business program if working groups of representative stakeholders are guided by an objective facilitator, whose sole responsibility is to help the group

stay on task and consider all relevant points of view.

Foreword xv
What sets this manual apart from general management texts and business ethics books is an emphasis on building formal enterprise structures,

systems, and practices to achieve responsible business conduct and to embed

it in the organizational culture. This manual emphasizes the process by

which owners and managers design and implement a business ethics program, recognizing that each enterprise faces unique circumstances. As such,

it does not answer specific legal or ethics questions. 

What it does provide is a comprehensive framework for addressing

ethics, compliance, and social responsibility questions on a strategic basis. It

helps owners and managers organize the body of practical wisdom reflected

in legal requirements, proposed guidelines, best practices, case studies, and

even traditions. It can stimulate and legitimize stakeholder dialogue into

matters of significance to all.

The challenges facing business are many, but its importance as the sector of society that generates consumer goods, jobs, wealth, economic

progress, and, yes, even tax revenues cannot be underestimated. By working

through this manual, business leaders, owners, and managers will construct

their own framework for approaching a challenging, complex world more

creatively and confidently.

Grant D. Aldonas 

Under Secretary for International Trade

U.S. Department of Commerce

Igor Y. Abramov 

Director, Good Governance Program 

International Trade Administration

U.S. Department of Commerce

Kenneth W. Johnson 

Director 

Ethics and Policy Integration Centre

Washington, D.C.

xvi Business Ethics
xvii

CONTENTS

Message from the U.S. Secretary of Commerce iii

Acknowledgements V

Foreword ix

Abbreviations and Acronyms xxi

I The Responsible Business Enterprise

Responsible Business Conduct in an 

Emerging Market Economy 3

Evolution to a Market Economy

Transition to a Market Economy

The Individual Business in an Emerging Market Economy

SUMMARY 20 

RESPONSIBLE BUSINESS ENTERPRISE CHECKLIST 20

Responsible Management and the 

Responsible Business Enterprise 21

Improving Business Performance

Generating Social Capital

Working with Leaders in Business, Government, and 

Civil Society

Building on the Foundation of Responsible 

Business Conduct

Adopting Global Standards and Best Practices

SUMMARY 39

RESPONSIBLE BUSINESS ENTERPRISE CHECKLIST 40

II The Business Ethics Program

Responsible Business Conduct as Strategy 43

Planning, Strategy, and the Business Ethics Program

2

3

1
xviii Business Ethics

Establishing the Nature of the Program

Building a Responsible Business Enterprise

Knowing the Structural Components of the Program

Planning the Business Ethics Program

Engaging the Enterprise’s Stakeholders

Adopting a Design, Review, and Approval Process

SUMMARY 63

RESPONSIBLE BUSINESS ENTERPRISE CHECKLIST 64

Creation of a Business Ethics Program 65

Planning an Effective Business Ethics Program

Understanding the Program Logic Model

Scanning the Relevant Context

Scanning the Enterprise’s Internals

SUMMARY 77

RESPONSIBLE BUSINESS ENTERPRISE CHECKLIST 77

III Structuring the Business Ethics Program

Standards, Procedures, and Expectations for the 

Responsible Business Enterprise 93

Standards and Procedures

Responsible Governance

Principles for Setting Management Standards, Procedures, 

and Expectations

Management Vision for the Enterprise

Management Standards, Procedures, and Expectations

Typical Code of Conduct Provisions

SUMMARY 124

RESPONSIBLE BUSINESS ENTERPRISE CHECKLIST 124

Business Ethics Infrastructure 129

Designing Business Ethics Infrastructure

Determining Systems of Authority, Responsibility, 

and Accountability

SUMMARY 144

RESPONSIBLE BUSINESS ENTERPRISE CHECKLIST 145

5

4

6
Contents xix

Business Ethics Communications 

and Feedback 147

Communicating and Providing Feedback

Communicating Standards and Fostering Reasonable 

Expectations

Ensuring Members Follow Standards and Meet Expectations

SUMMARY 176

RESPONSIBLE BUSINESS ENTERPRISE CHECKLIST 177

IV Putting Business Ethics into Practice

Aligning the Responsible Business Enterprise 185

Understanding the Importance of Alignment

Getting the Right People in the Right Places

Encouraging Employees to Follow Standards and Procedures

Dealing with Mistakes, Misconduct, or Misunderstandings

SUMMARY 204

RESPONSIBLE BUSINESS ENTERPRISE CHECKLIST 205

Responsible Business Conduct and Practices 207

Challenges to the Responsible Business Enterprise

Relationships with Government Officials and Entities

Role of the Private Sector in the Regulatory Process

Government Contracting and Procurement

Role of Voluntary Action

Relationships with Foreign Businesses and Governments

SUMMARY 223

RESPONSIBLE BUSINESS ENTERPRISE CHECKLIST 224

V Achieving Responsible Business Conduct

Program Evaluation and Organizational 

Learning 229

Ensuring Organizational Learning

Importance of Program Evaluation

Developing a Data Collection Plan

Reporting Program Performance

Conclusion—and New Beginning

RESPONSIBLE BUSINESS ENTERPRISE CHECKLIST 242

8

7

9

10
xx Business Ethics

Appendices 247

A Sample Ethical Decision-Making Model 249

B Basic Guidelines for Codes of Business Conduct 253

C Sample Integrity Pact 259

D Sample Declaration of Integrity in Business Conduct 265

E Sample Supply Chain Management Questionnaire 267

F Basic Information on the U.S. Foreign Corrupt Practices Act 270

G Fighting Corruption and Safeguarding Integrity 278

H Extracts from the U.S. Federal Sentencing Guidelines 

for Organizations 285

I Extracts from the Australian Criminal Code 290

NOTES 293

GLOSSARY 310

RESOURCES AND FURTHER READING 318

PERMISSIONS 325

INDEX 326

ABOUT THE AUTHORS 333

List of RBE Worksheets

1 Business Ethics Program Logic Model 78

2 Relevant Context Data Collection 80

3 Stakeholder Pressure Data Collection 82

4 Organizational Culture Questionnaire 84

5 Questions for the Responsible Business Enterprise 86

6 Sample Outline for a Code of Conduct 125

7 RBE Standards and Expectations Worksheet 127

8 Business Ethics Infrastructure Worksheet 146

9 Communications Needs Assessment Worksheet 178

10 Training Program Outcomes Worksheet 179

11 Communications Infrastructure Worksheet 181

12 Enterprise Alignment Worksheet 206

13 Responsible Business Practices Worksheet 225

14 Organizational Culture Worksheet 243

15 Process Evaluation 244

16 Outcomes Evaluation 245
ABBREVIATIONS AND ACRONYMS

ACFE Association of Certified Fraud Examiners

AML anti–money laundering

CEO chief executive officer

CERES Coalition for Environmentally Responsible Economies

CSR corporate social responsibility

FCPA Foreign Corrupt Practices Act

FSGO Federal Sentencing Guidelines for Organizations

GPA Agreement on Government Procurement

GRI Global Reporting Initiative

ICC International Chamber of Commerce

IEEE Institute of Electrical and Electronic Engineers

ILO International Labor Organization

ISO International Standards Organization

LCE large, complex enterprise

NGO nongovernmental organization

NTT Nippon Telegraph & Telephone

NYSE New York Stock Exchange

OECD Organization for Economic Cooperation and Development

RBE responsible business enterprise

RICO Racketeer Influenced and Corrupt Organizations Act

SABA Strategic Alliance of Business Associations

SAI Social Accountability International

SEC U.S. Securities and Exchange Commission

SME small to medium-sized enterprise

WTO World Trade Organization

xxi

II

The Business

Ethics Program

I

The Responsible

Business

Enterprise

3

This chapter explains what it means to be a responsible business enterprise (RBE) in an emerging market

economy. It describes the role of responsible business

conduct as owners and managers strive to improve

business performance, make profits, and contribute to

economic progress in their communities. 

It lays a foundation for the chapters that follow

by examining the legacies of a command economy

and the challenges those legacies present to businesses. The chapter concludes that a responsible

business can contribute to a successful evolution to

a market economy by improving its business performance; by helping build social capital in its

economy; and by working with leaders in business,

government, and civil society to develop essential

market-oriented institutions.

Evolution to a Market Economy

Where a society wants to evolve from a command to

a market economy, the challenges presented to individual enterprises can be daunting. All economies

face the same fundamental issues of responsible business conduct—product quality, transparency in

financial matters, workplace health and safety, protection of the environment, protection of workers,

and compliance with laws and industry standards.

However, they are magnified in both degree and kind

when an entire society is making a rapid evolution

toward a market economy. 

Responsible Business 

Conduct in an Emerging 

Market Economy 1

• Evolution to a

Market Economy

• Transition to 

a Market

Economy

• The Individual

Business in an

Emerging

Market Economy
RESPONSIBLE BUSINESS CONDUCT IN A MARKET ECONOMY

Whereas the market economy has proved to be an essential condition for

meeting the needs of the most people, valuable lessons have been learned

along the way, often at great social cost. Societies and individual business

enterprises have learned that it matters how profits are made, how wealth is

distributed, and whether business can be sustained. 

Business enterprises today are expected to meet standards of responsible

business conduct that go beyond what had been expected traditionally.

Although people more often than not still speak of business in terms of products, jobs, and profits, it is understood and accepted across the globe that a

business enterprise remains a member of its community. The pursuit of profits and economic progress is not a license to ignore community norms, values, and standards of respect, integrity, and quality. 

Improved business performance, profits, and economic progress come to

those who effectively and efficiently foster and meet the reasonable expectations of their primary stakeholders—customers, employees, suppliers,

investors, and the environment, as well as the owners and managers themselves (see Box 1.1). Success for any business is ultimately measured in profits and losses, and the socially responsible business generates the capital and

revenues required to operate and stay in business over the long haul. The

socially responsible business must generate enough revenue to cover the real

cost of capital, the risks and uncertainties of future economic activity, and the

needs of its workers and pensioners. The socially irresponsible enterprise,

4 Business Ethics

PRACTICE

NOTE

Enterprise Purpose and Profit

Yes, profit is a cornerstone of what we do—it is a measure of our contribution and a means of self-financed growth—but it has never been the

point in and of itself.The point is, in fact, to win, and winning is judged in

the eyes of the customer and by doing something you can be proud of.

There is symmetry of logic in this. If we provide real satisfaction to real

customers—we will be profitable.

David Packard, Founder

Hewlett-Packard
however, fails to cover these costs because it is unable to meet the reasonable

expectations of its stakeholders.1

For example, an effective, efficient, and responsible enterprise generates

revenue by satisfying customers. It attracts capital by meeting investor

expectations for return on investment. It increases effectiveness by attracting

the best employees. It reduces costs by reducing mistakes, misconduct, and

misunderstandings. 

An RBE holds some enduring purpose beyond profit to define the enterprise and inspire and guide its employees and agents, because a purpose

beyond profit sustains business enterprises.2 Enterprise purpose, moreover,

helps employees and agents have a deeper understanding of the intent

Chapter 1: Conduct in an Emerging Market Economy 5

Stakeholders are all those involved in,

affected by, or able to influence the 

business enterprise, including:

• Customers and consumers

• Owners, shareholders, and creditors

• Employees and agents

• Suppliers

• Competitors

• Media and advocacy groups

• Government

• Families

• Communities

• Society

• Environment

BOX 1.1

Reflecting Purpose

The specific goals that guide decisions throughout an organization have

their genesis in corporate purpose. In essence, goals internalize the preferences of the markets the company has chosen to serve. A principal

task of management is to embed corporate purpose in a set of ever

more precise goals and performance measures as they cascade down 

the organization.

Richard F. Ellsworth

Leading with Purpose

BUSINESS ENTERPRISE STAKEHOLDERS

PRACTICE

NOTE
behind specific goals, measures, and actions. “With this understanding,” one

author notes, “comes a greater acceptance of and, if they are consistent with

the person’s values, commitment to the individual goals.”3

THE BUSINESS ETHICS PROGRAM

An RBE is characterized by responsible business conduct at all four levels of

its identity4 as an enterprise: 

1. Compliance with the law

2. Risk management

3. Reputation enhancement

4. Value added to the community 

Responsible business conduct includes the choices and actions of owners, managers, employees, and agents that are (a) within their authority, (b)

well informed, (c) intended to pursue the enterprise purpose and meet reasonable stakeholder expectations, and (d) sustainable over time. Responsible

business conduct allows an enterprise to improve its business performance,

make profits, and contribute to the economic progress of its community.

Among the lessons learned by both business and government is that

responsible business conduct can be encouraged by the structures and systems, procedures, and practices of responsible business conduct, often called

6 Business Ethics

TRIPLE BOTTOM LINE

There is a new phrase appearing in business language or “business speak.” It is the concept of Triple Bottom Line, a concept

that recognises that there are three legs to the measurement of

a company’s performance—these being financial, social, and environmental. Put in a more friendly way Triple Bottom Line is

about “People, Planet and Profits.” This concept recognises that a

company cannot be judged by financial performance alone.

Furthermore, it also recognises that the three legs are linked. It

is not sufficient, however, just to talk about Triple Bottom Line

as a “nice, warm, fuzzy” concept. For those of us who see this

concept as the way of the future it is also necessary to “walk

the talk.” So this is it—the Hubbard Foods Ltd. Triple Bottom

Line Report—a first attempt to translate this concept into the

reality of running a business such as ours.

This report has also taken some soul searching on our behalf

and also, I believe, some bravery. In business, we have traditionally been taught to only present the Company in the best possible light, particularly to that important group of stakeholders—

the customer. It’s hard to be honest and self critical in a public

way. It’s easy to highlight your successes but hard to highlight

your failures and your areas for improvement. In the case of a

private company it is also hard to publicly disclose our financial

information.

Hubbard Foods Ltd. (New Zealand)

“CEO’s Statement”

BOX 1.2
good corporate governance or best practices. Moreover, many businesses now

account for the impact they have on all their stakeholders, including their

social impact—how they deal with employees, suppliers, and the community—and their environmental impact—how they treat the environment.5

A management tool owners and managers use to encourage responsible

business conduct is commonly called a business ethics program. A business

ethics program also helps owners and managers address the triple bottom line:

the financial, social, and environmental results or impacts of the business’s

operations (see Box 1.2). 

Business owners and managers have learned that a business ethics program helps owners and managers improve their business performance, make

profits, and contribute to economic progress by better

• Recognizing political, economic, social, and technological pressures

• Understanding organizational culture: core beliefs, participation, 

responsibility, knowledge sharing, and methods of dealing with conflict

• Fostering reasonable stakeholder expectations

• Developing responsible management practices to meet stakeholder 

expectations

• Learning from enterprise decisions and activities 

THE GLOBAL MARKETPLACE

The market economy has become increasingly global. Leaders in business,

government, and nongovernmental organizations (NGOs) now see global

economic development as “the best way to increase prosperity within and

among countries, and to create opportunities for millions of people, especially in the developing world, to secure a decent life for themselves and their

children.”6 The challenge is to find the right balance between emerging global norms, values, and standards and local cultures, business practices, and

community needs.7

Businesses in emerging market economies face many challenges, as

discussed in more detail later in this chapter. For example, although no

society approves of paying or accepting bribes, in societies where workers

receive lower than subsistence-level pay, “expediting fees” (also known as

“bribes”) often become unapproved but accepted behavior under local custom. In such societies, bribery is so common that even law enforcement

officials pay bribes to gain their positions.

While this manual describes processes reflecting emerging global standards, the design and implementation of a business ethics program requires

extreme sensitivity to local norms, values, and standards. The program must

Chapter 1: Conduct in an Emerging Market Economy 7
recognize that management policies, standards, and procedures will be open

to interpretation at all levels of the enterprise. For example, a superficial

approach to responsible business conduct condemns bribes and threatens to

punish those who pay or accept them. However, a business ethics program

takes a comprehensive approach. It recognizes such accepted behavior as

part of the challenges facing the enterprise and addresses such issues systemically. In other words, it addresses them at their roots by examining hiring processes, compensation schemes, and training and education; by instituting monitoring, auditing, and reporting mechanisms; and by influencing

the legislative or regulatory processes.8

A business ethics program does not set up either the enterprise or its

employees and agents for failure. Rather, it strives to place the right people

in the right positions in the enterprise to foster and meet reasonable stakeholder expectations as the surest means to improved business performance,

profits, and economic progress. It scans the relevant context of the enterprise

and its organizational culture to identify challenges and to develop responsible ways to meet them. It starts from the assumption that enterprises are

integral parts of their communities. It encourages them to work within the

community to overcome the challenges of emerging market economies and

contribute to community-driven development.

Moreover, a business ethics program takes care not to mistake cultural,

legal, or religious differences for a lack of ethics. In Islamic countries, for

example, mudaraba (reflecting a Sharia law requirement that a lender charge

8 Business Ethics

Cultural Differences

Given the country and industry differences found, from a managerial perspective, it appears to be a mistake

to expect all corporate ethics policies to look alike. Careful thought should be given to tailoring the policy

to the particular firm, industry, and country. Large multinational firms operating in a number of countries

need to consider the general applicability of a code of ethics or ethics training that was developed in the

country in which the firm’s headquarters is located. If ethical concerns differ by country, then imposing a set

of standards developed for one country on another country may be counterproductive. Similarly, expatriates working for multinational firms need to be aware that their own perception of ethical issues may not

match that of their native fellow employees.

Bodo B. Schlegelmilch and Diana G. Robertson

“The Influence of Country and Industry on Ethical

Perceptions of Senior Executives in the U.S. and Europe”

PRACTICE

NOTE
no interest) may result in forms of payment that could be mistaken by those

unfamiliar with the culture as inappropriate or unethical (that is, as “kickbacks”).9 A common cultural difference is the attitude toward hiring relatives. In some cultures, it is expected that owners and managers will hire relatives as a matter of course. In others, hiring relatives, which is known as

nepotism, is discouraged or, in some circumstances, prohibited. 

RESPONSIBLE BUSINESS AS PART OF THE SOLUTION

As long as businesses concentrate their attention and efforts on dealing with

everyday challenges rather than striving to rise above them, they may be part

of the problem. For example, although paying a small bribe to get a permit

or to evade taxes may be “just the way things are done” or something that

“everyone does,” businesses that do so may perpetuate business practices and

conduct that make the evolution to a market economy more difficult.

The ultimate issue for an RBE in an emerging market economy is

whether it sees itself as part of the current problem or part of the solution.

We hope this manual inspires all enterprises to see themselves as part of the

solution and provides them with a process and a toolkit to develop a road

map to guide their employees and agents, improve their business performance, make profits, and increase the prosperity of their communities. 

THE SMALL TO MEDIUM-SIZED ENTERPRISE

The “place business should occupy in society”10 is a particularly challenging

issue for the small to medium-sized enterprise (SME).11 Each SME is unique,

often taking on the character of its owners and managers. There is surprisChapter 1: Conduct in an Emerging Market Economy 9

Role of Business

At issue is the place that business should occupy in society, an issue that

raises a host of questions about how companies can or should—in their

own sphere of influence—contribute to progress in areas such as the

environment, labour conditions, and human rights.

Maria Livanos Cattaui, Secretary General

International Chamber of Commerce

PRACTICE

NOTE
ingly little research into the social responsibility of the SME.12 Moreover, it

is difficult, at best, to generalize the SME experience from country to country or even between regions within a particular country.13

SMEs in emerging markets are pioneers; they are plowing new ground as

they contribute to developing a market economy. In most economies, they

provide the bulk of jobs, especially new jobs, and contribute significantly to the

welfare of their communities because they are so closely connected. However,

SMEs often lack the capital, staff, or time of large, complex enterprises (LCEs)

to address many business issues. For example, tracking and complying with

changing laws and regulations are relatively more costly for SMEs. SMEs seldom have the close relationships with government that LCEs have, especially

those recently privatized. They are often unable to defend themselves against

unreasonable decrees, laws, or regulations or to advocate for changes that

would facilitate the transition to a market economy.

Though many of the best practices developed over the past two decades

reflect the experiences of LCEs, there are a number of reasons why an SME

might profit by adapting what the LCEs have learned: 

• The SME of today is more apt to become the LCE of tomorrow by

adopting emerging global standards and adapting the best practices of

successful LCEs. 

• By adopting global standards and adapting best practices where they

make sense, owners and managers are able to distinguish their SME

from the competition.

• By understanding the basic principles and practices of the emerging

global marketplace, owners and managers will be better able to recognize

responsible business conduct issues earlier and to work with others to

find solutions.

• Especially in a business environment that some perceive as high risk,

first impressions count. Developing a business ethics program will help

owners and managers present a core set of beliefs and standards more

clearly, thus demonstrating to investors and customers their enterprise’s

commitment to being an RBE in the global marketplace. 

• If an SME’s people are conversant in the language of emerging global

standards and best practices, they will be better able to speak the language of the global markets—and the opportunities to be found there.

Whereas the process of developing standards, procedures, and expectations is the same for all enterprises, the answers for each enterprise will

depend on the size and complexity of the enterprise itself. The goal for the

SME is not to duplicate the standards, procedures, infrastructure, practices,

and expectations of LCEs, but to learn from them—and to improve them.

10 Business Ethics
The CEO statement in Box 1.2, for example, is a part of the report to stakeholders of a 100-person New Zealand food-processing firm.14

Moreover, SMEs will find that they need not act alone in adopting the

world-class standards, procedures, infrastructure, practices, and expectations

described in these materials. Chambers of commerce, business associations,

colleges and universities, NGOs, and other professional advisers can use the

guide to help SMEs find their way. 

Transition to a Market Economy

For the enterprise in an emerging market economy struggling to make payroll, not to mention a profit, global economic development is, at once, an

opportunity, a risk, and a challenge. As an opportunity, it offers tantalizing

prospects for new markets and access to international capital. The risk, however, is heightened competition and capital flow reversals from the slightest

perceived political, economic, or social threat. The challenge is to learn from

the experiences of successful businesses in market economies and to adapt

them to overcome the legacies of the command economy. By learning from

others’ experiences (including the mistakes), enterprises in emerging markets can contribute to the development of their own market economies and

can join the global marketplace.

A business can influence—but not control—the political, economic, and

social contexts in which it operates (its relevant context). Business leaders

Chapter 1: Conduct in an Emerging Market Economy 11

Transition to a Market Economy

The transition from socialism is a unique historical process. Never before

have countries attempted such a radical and simultaneous transformation

of both their political and economic institutions. Underpinning these

transformations has been a complex set of reforms that entail building

the basic institutions of state, creating the foundations of a market economy and transferring wealth from the state to the private sector on a 

large scale.

World Bank 

Anticorruption in Transition

PRACTICE

NOTE
must work with NGOs and government legislators and regulators to develop a political, economic, and social context in which responsible businesses

can compete fairly—and succeed. Businesses and societies that do not meet

or aspire to meet these global standards and expectations are unlikely to be

ready to participate fully in the global marketplace.

LEGACIES OF CENTRAL PLANNING

Central planning and state-owned production characterized command

economies.15 Resources were allocated by plan instead of by markets.

Employment was generally full but effectively rationed through an internal

passport system. Capital was allocated centrally through a single institution.

Enterprises were responsible for production but not for marketing or pricing. Since planning was based on quantity, not quality, enterprises had little

incentive for innovation; indeed, innovation or quality improvement was

often punished with higher quotas or standards.16

The law restricted or abolished human and property rights and the sanctity of contract. It limited individual rights rather than state power. The legal

system lacked procedural and institutional tools to protect individual property and human rights and support the sanctity of contract. The legislative

framework was not oriented toward private enterprise, and regulators, judges,

and lawyers had little knowledge of, or experience in, free market concepts.17

When governments abruptly halted central planning of an entire economy, they left a legacy of cultural, institutional, and economic hurdles for

market-oriented reform. The networks of business relationships that form

the core of a market economy were largely nonexistent, and enterprises had

to develop them without the benefit of markets and supportive institutional

and legal frameworks. 

Economic Structure Precluded Competition, Entry, and Exit

The competition and innovation to meet the most important needs of customers and consumers, which characterize a market economy, were either

unlawful or discouraged in command economies. For relative ease of control,

state-owned enterprises tended to be large. New, competitive firms were few

and were found more often in the unofficial or “shadow economy.” Even

state-owned enterprises survived through an informal bartering system,

which remains, in large part, to this day.18 Exit—that is, failure—was seldom

feasible because the economy was expected to maintain full employment and

because of the official embarrassment that would arise from a 

failure. There was little competition from foreign producers, since trade relations were governed and restricted by planners. 

12 Business Ethics
In many emerging market economies, it is still relatively difficult for a firm

to enter the market. The number of procedures, time of entry, and cost of

entry vary, but they often greatly exceed what is required to set up an enterprise in a market economy.19 Enterprises are still expected to provide work and

housing to some extent. When the high costs of entry are combined with low

levels of “latent entrepreneurship” (an individual preference for self-employment as opposed to employment),20 domestic competitive forces develop slowly, and open markets become less an opportunity than a threat.

Producers Had Little Contact with Stakeholders

In a command economy, individual enterprises rarely had direct contact with

suppliers, customers, or consumers—some of the stakeholders in a business

enterprise. For many owners and managers, the concept of a stakeholder is

novel, even strange. Entrepreneurs now have to develop these essential relationships, and many others, where none existed before: 

• Customers and consumers. Recently privatized enterprises had to

shift their attention and efforts from satisfying the express preferences of

planners—especially in heavy industry—to identifying and satisfying the

preferences of customers and consumers. 

• Employees and agents. In a centrally planned economy, where the

quantity of goods produced is more important than their quality or fitness for customer purpose, managers could afford to look at employees

as “hands.” Independent judgment was often discouraged, and objectivity was seldom valued. People were not expected to bring unique qualities to their jobs. Indeed, until relatively recently, industrial economies

saw employees much the same way. In today’s market economies, however, a business enterprise needs to tap all the human potential available

to it to compete effectively. Enterprises now recognize that they must

invest in their employees and agents and “create a work environment

that respects the dignity and contribution of each individual.”21

• Suppliers and service providers. With the abolition of central planning,

an enterprise needs to develop a chain of suppliers, since it can now choose

what suppliers and service providers it wants to work with—and vice versa. 

• Shareholders and owners. Often, the privatization methods used by

many transitioning economies failed to ensure the presence of a strategic owner: a single shareholder with sufficient stake to provide motivation for monitoring management effectively. Conversely, some voucher

privatization schemes resulted in abusive corporate takeovers whereby

an individual was able to purchase small shares of a major state asset at

a low cost and to take control of that asset through abuse of the legal

process and through corrupt practices. In either event, privatization

schemes often failed to require effective corporate governance systems.

Chapter 1: Conduct in an Emerging Market Economy 13
Where there is separation of ownership and management without

accountability, there is little incentive for managers to make decisions

to the benefit of shareholders who have no voice. Managers are, in such

cases, able to use the assets of the enterprise to their own purposes.

• Lenders and investors. Since in a command economy success for an

enterprise was measured by meeting production quotas, businesses had

little or no experience with the risk management aspects of lending and

investing. Corporate governance encouraging financial transparency is

developing slowly, but a continuing barter system makes financial analysis for capital and credit difficult.

• Government officials and agencies. Under a command economy, the

political system fundamentally favored incumbent firms. At the local

level, relationships were very close between politicians or bureaucrats

and senior management. Though most state enterprises have by now

been privatized, many of these close relationships between politicians

and business managers remain in place. In some societies, many large

enterprises strive to “capture” the state by securing the passage of laws

or by obtaining licenses that benefit them over other enterprises.22 In

others, the state has effectively captured the economy by controlling a

dominant crop or natural resource, for example, even though economic

resources are nominally owned by the private sector. 

Market-Oriented Legislative, Procedural, and Institutional Tools 

Did Not Exist

A market economy requires a high degree of confidence in the rule of law

for business to meet its economic, social, and environmental responsibilities. In many emerging market economies, the vast majority of people do

not trust one another. The distrust surrounding the enforceability of contracts, for example, leads to large portions of the population believing that

negotiations are not over even after a contract is signed. Transaction costs

to protect one party from the other in such circumstances are much higher

as a result. 

A legal framework oriented toward free markets and reliable judicial

institutions is essential for this confidence to develop over time. Such a

framework will need

• Contract laws

• Laws regarding the formation, operation, management, and dissolution

of corporations

• Laws on privatization

• Real estate laws

• Laws against unfair competition

14 Business Ethics

International Labor

Organization standards

protect the right of workers to bargain collectively.

In at least one country in

East Asia, employee

unions are forbidden by

statute. If the employees

want to bargain as a

group, how should the

RBE relate to its workers?

Should it bargain with the

group of employees?

You Decide
• Labor–management laws

• Tax laws

• Accounting and auditing standards

• Laws protecting intellectual property rights

• Bankruptcy laws

• Environmental protection legislation and regulation

• Laws ensuring fiduciary responsibilities of managers and directors

• Rules governing the rights and obligations of shareholders, managers,

and boards of directors

• Laws permitting class-action suits

A confusing, burdensome, or even unfair legislative and regulatory

framework drives up the cost of setting up a business, dissuades investors,

and provides a fertile ground for corruption. As one researcher observes,

“Some critics even believe that regulations are intentionally drafted in a confusing manner to provide officials with more discretion.”23 Such a framework

is particularly damaging to the SME. Under such circumstances, responsible

business conduct is frequently discarded in favor of survival, or the law is

bent or interpreted to fit the circumstances.

Even where laws and regulations are well drafted, they are often

enforced unevenly—or ignored by the population—in practice. The failure

to enforce the legislative and regulatory framework, or to comply with it,

contributes to confusion, places the law-abiding enterprise at a competitive

disadvantage, discourages investors, and extends a climate of corruption.24

Although this manual urges building an RBE from an ethical perspective,

it is often the case that the state itself must actively support enterprises that

are trying to be responsible but that find themselves at a competitive disadvantage. A key to introducing ethics in an emerging market economy, then, is

to build a market-oriented legal framework and reliable judicial institutions.

Prescriptive rules, which would be undue government interference in a

developed economy, may be necessary to ensure that responsible business

conduct becomes a norm, a value, and a standard. The RBE works with other

leaders to influence government regulation to that end.

No less important than new laws, one researcher notes, is a judiciary

proficient at interpreting and enforcing the law with integrity.25 The creation

of effective dispute resolution mechanisms that can offer businesses transparent, predictable, and cost-effective results is one of the most important

steps a government can take to support market processes in an emerging

market economy.26 Finally, government agencies must exercise their authority and responsibility to execute the judgments reached.

Chapter 1: Conduct in an Emerging Market Economy 15

An electric power distributor is the sole provider

in a capital city. It

requires customers to

sign a contract that binds

them, but it sets forth no

obligations on the part of

the distributor. Are there

circumstances under

which such a contract

should not be enforced?

You Decide
Climate of Illegal Activity Persists

A final legacy of central planning is a climate of illegal activity. This legacy

stems from the autocratic nature of the state and the unaccountability of its

officials in a command economy, the remaining close ties between government and business, the incomplete legal and institutional reforms, the political and economic instability, and the ineffective implementation of marketoriented reforms.27

Among the consequences of a command economy was the emergence of

an unofficial or “shadow economy,” which was, by definition, unlawful.

Current entry barriers increase the potential for administrative corruption,

where entrepreneurs are tempted to pay bribes to overcome administrative

barriers.28 Higher entry costs are associated with higher corruption and larger unofficial sectors of the economy.

With the collapse of central planning and the lack of external constraints,

insiders and managers during the transition to a market economy often took

the opportunity to appropriate state-owned enterprises for their benefit, leading to asset stripping and rent diversion. Often, important natural resources or

whole industrial sectors were converted by insiders and managers.29

DEVELOPMENT OF MARKET-ORIENTED INSTITUTIONS

To raise the living standards of its people, a society must provide the conditions for a functioning market. In a free market, the role of government in

the marketplace is limited to protecting it from those who would attack or

abuse it. “The state creates and preserves the environment in which the market can safely operate.”30 A free market minimizes the role of command and

maximizes the scope for exchange of goods and service to meet important

needs through transactions free of duress and not otherwise unconscionable.31 A suitable institutional framework for a market economy would

typically contain at least the following seven components:32

1. A transparent regulatory system, including securities regulation

2. A sophisticated accounting and banking profession

3. A stock exchange with meaningful listing standards

4. Labor–management regulations

5. A system of protection for intellectual property

6. Effective legal and judiciary systems

7. A broad-based tax system

Emerging market economies are struggling to provide these conditions

to overcome the legacies of central planning, but institutional development

16 Business Ethics
takes time to design and implement. How successful an emerging economy

is at developing an institutional framework depends, at least in part, on

whether (and how long) it had been a sovereign state, how well developed its

institutions of public administration were, and how many valuable natural

resources it can privatize.33

In the meantime, many owners and managers struggle with the question,

“What does it mean to be a responsible business?” It is a sign of a healthy

dialogue that leaders in businesses, governments, and civil society are asking

the same question, not just in emerging market economies, but also across

the globe. 

The Individual Business in an Emerging Market Economy

The RBE recognizes its many roles and responsibilities in the community—

and engages its stakeholders—adding as much value as possible. Through

creativity, flexibility, and responsiveness in its day-to-day operations, it can

add value to the community in many ways: 

• Serving the most important needs of its customers and consumers

• Providing gainful employment for its employees and agents, so that they

can provide for their families and be responsible citizens

• Providing an adequate return to investors

• Purchasing goods and services from its suppliers and service providers

• Competing intensely, but fairly

• Forming strategic partnerships and alliances to create new business

opportunities

• Supporting community infrastructure through taxes and fees

• Participating in the political process to improve market conditions

• Respecting the environment34

The trust-engendering manner in which an RBE engages its stakeholders is a substantial contribution to the community in and of itself. Such enterprises help lay a foundation for a functioning market economy for all.

In an emerging market economy, an RBE must confront and rise above

the legacies of a command economy. As a part of the solution to its economy’s problems, it can participate in three essential ways: improving its business performance; helping build social capital in its economy; and working

with leaders in business, government, and civil society to develop the essential market-oriented legal framework and reliable judicial institutions.

Chapter 1: Conduct in an Emerging Market Economy 17
IMPROVING BUSINESS PERFORMANCE

An essential contribution of any business enterprise in the evolution to a

market economy is to improve its own business performance.35 For all business enterprises, this is the first step toward making profits and contributing

to economic progress. Performance can be improved by expanding and better engaging stakeholders as follows:

• Establishing clear standards and procedures to guide employees and agents

• Focusing on anticipating and meeting the needs and desires of customers and consumers more effectively and efficiently

• Attracting, hiring, and bringing out the best in employees, suppliers, and

service providers 

• Establishing internal control mechanisms to build confidence among

dispersed owners and investors 

• Developing and maintaining strategic alliances with enterprises sharing

the same values

These best practices are at the heart of a business ethics program.

They can significantly improve an enterprise’s prospects for success, as

described in more detail in Chapter 2. They can help an enterprise

improve its reputation, manage its risk, protect itself from its own employees and agents, strengthen its competitive position, expand its access to

capital and credit, increase profits, sustain long-term growth, and gain

international respect. 

HELPING BUILD SOCIAL CAPITAL

Respect, shared values, and mutual trust among individuals, businesses,

NGOs, and government officials are the foundation of a market economy.

To compete effectively and sustain economic growth, enterprises need

social capital as well as financial capital. To contribute to this social capital, an RBE can 

• Make the case in its community for a market economy and the role of 

responsible business.

• Develop a reputation for meeting the reasonable expectations of its

stakeholders.

• Agree to voluntary forms of alternative dispute resolution, such as mediation and arbitration, while domestic courts are formed. 

• Take responsibility for its mistakes and misconduct.

• Be willing to be held accountable for its mistakes and misconduct.

18 Business Ethics
• Correct misunderstandings about its decisions and activities.

• Compete fairly with competition, both foreign and domestic.

How effectively, efficiently, and responsibly an enterprise is able to add

value to its community depends, in large part, on how much its stakeholders

trust one another. As described further in Chapter 2, where market participants and community members cannot trust one another, transaction costs

soar. It may be that in markets and communities, especially in emerging market economies, the value an RBE most profitably adds is to be worthy of

trust—and to encourage other market participants and community members

to be trustworthy as well.

WORKING WITH LEADERS IN BUSINESS, GOVERNMENT, AND

CIVIL SOCIETY

An RBE helps government create the conditions for a market economy by

promoting responsible business conduct—through self-regulation or by

conducting a public dialogue with government officials and NGOs. Even

where the legal framework of decrees, laws, and regulations is unfair, supporting the rule of law is an important practice for an RBE. Faced with an

unfair legal framework, for example, businesses can work with other businesses and NGOs to point out the ethical dimensions of the decree, law, or

regulation and to work for change.

Responsible businesses can serve as a voice for the community. They can

work with leaders in government, business, and NGOs to do the following:

• Help develop the necessary institutional and legal frameworks for a market economy. 

• Support initiatives to develop good public governance on the part of

government itself.

• Strengthen NGOs to provide community-building services that business

and government are unable to provide.36

In economies where the government is unable to provide the social

services a community requires, an RBE can work with other businesses and

NGOs to identify community needs and can work with community-based

organizations to provide such services. For example, the RBE can contribute supplies or services as a part of community-driven development, or

it can contribute funds to community foundations. Some enterprises create their own charity programs or foundations or support volunteer work

by employees.

Chapter 1: Conduct in an Emerging Market Economy 19
SUMMARY

Across the globe, businesses are expected to be responsible—to improve their

performance, to make profits, and to contribute to the economic progress of

their communities by learning how to meet the reasonable expectations of

their stakeholders: their customers, employees, suppliers, investors, and the

environment, among others. Moreover, an enterprise does not cease being a

member of its community simply by virtue of entering into business. It is still

responsible for meeting community norms, values, and standards.

An RBE in an emerging market economy has many legacies of a command economy to overcome while the state develops a legal framework and

institutions that are market-oriented. An RBE can participate in the transition to a market economy by improving its business performance; by helping build social capital in its economy; and by working with leaders in business, government, and civil society to develop the essential market-oriented

legal framework and reliable judicial institutions.

20 Business Ethics

RESPONSIBLE BUSINESS ENTERPRISE

Checklist

1. List as quickly as possible your own heroes or heroines. Is this easy?

If not, what does that imply about what it means to be the owner or

manager of a responsible business enterprise?37

2. What challenges does your enterprise face in the years ahead?

3. Who are the stakeholders of your enterprise? 

4. What do you see as the role of business in your society? What, if

anything, do you owe your stakeholders?

5. What standards and procedures have you established to guide your

employees and agents?

6. What do your stakeholders expect of your enterprise, employees,

and agents? Are they reasonable expectations? What do you do to

foster reasonable expectations?

7. How do you know what your stakeholders expect? How do you

know you are meeting their expectations?
21

2

This chapter explores how an enterprise becomes a

responsible business. It explores how a business ethics

program helps the responsible business enterprise

(RBE) improve its business performance; help build

social capital in its economy; and work with leaders in

business, government, and civil society to develop a

market framework and the supporting legal infrastructure. It examines specific sets of global standards and

best practices of business ethics programs, and it concludes with eight questions that responsible owners

and managers must ask themselves for their enterprise. 

Improving Business Performance

There is much support for the notion that the discipline of responsible business conduct outlined here

contributes to improving business performance and

expanding opportunities for growth.1 Principal benefits coming to an enterprise that implements a 

business ethics program are

• Enhanced reputation and goodwill 

• Reduced risks 

• Reduced costs

• Protection from unethical employees and agents

• Enhanced performance, productivity, and competitive position

• Expanded access to capital, credit, and foreign

investment

• Increased profits and sustained long-term growth

• Increased international respect

Responsible Management

and the Responsible

Business Enterprise

• Improving

Business

Performance

• Generating

Social Capital

• Working with

Leaders in

Business,

Government, and

Civil Society

• Building on the

Foundation of

Responsible

Business

Conduct

• Adopting Global

Standards and

Best Practices
ENHANCED REPUTATION AND GOODWILL

An enterprise’s reputation for integrity is important for securing the loyalty

of customers, for recruiting and retaining the most professional and honest

employees, for becoming the business partner of choice, for winning local

community acceptance, and for increasing access to capital and credit. 

A business ethics program contributes to the enterprise’s reputation for

integrity. By giving adequate guidance to employees and agents, it ensures

that they know what is responsible business conduct. By helping form reasonable expectations among its stakeholders, it minimizes disputes with

customers and other stakeholders and increases stakeholder satisfaction.2

REDUCED RISKS

Every business, even if it strives to comply strictly with the law, is subject to

risks such as these: 

• Being exposed to criminal prosecution for bribing a government contracting officer

• Being debarred from government contracting or a strategic partnership

for an inappropriate gift or gratuity 

• Having to recall products for failure to follow quality standards and 

procedures

22 Business Ethics

Importance of Reputation

Reputation is now more important than ever as a result of an increasing

number of laws that regulate our business, higher expectations from our

customers and the general public about the way we do business, and a

business environment characterized by global expansion, technological

advances, and increased competition. But it has always been, and continues to be, our policy to conduct business in compliance with all applicable laws and regulations and in accordance with the highest ethical standards.We expect—as we always have—that UPSers, and the people acting on our behalf, will adhere to these principles.

United Parcel Service Inc.

Code of Business Conduct

PRACTICE

NOTE
• Having to clean up spills of toxic waste

• Dealing with employee claims of sexual harassment

• Dealing with lost employee time for health and safety problems 

• Being placed on a blacklist of international, national, or local organizations

An RBE develops processes with which it identifies, assesses, and manages the full range of factors that might pose a risk to social and financial performance. The processes include assessing risks, establishing adequate standards and procedures, training, and monitoring and auditing systems. These

processes help owners and managers plan, organize, and control the day-today operations of an enterprise to minimize risks to its capital, earnings, and

reputation. They include management of risks associated with accidental

losses, as well as operational risks such as those arising from financial mismanagement, fraud and embezzlement, corruption, and loss of reputation.

REDUCED COSTS

By providing employees clear guidelines on how to conduct day-to-day

business in compliance with laws and ethics through a business ethics program, the RBE can reduce transaction costs. A business ethics program

institutes procedures to detect and to prevent violations of the law and

ethics. It provides employees with clear guidelines on a host of day-to-day

transactions: how to conduct bids and tenders; how to conclude contracts;

Chapter 2: Responsible Management 23

Stakeholder Satisfaction and the Bottom

Line

Everyone in business knows it is far easier to retain a loyal customer 

than to win one. This principle can be extended. According to Frederick

Reichheld, U.S. companies lose, on average, 50 percent of their customers

every five years, 50 percent of their employees every four years, and 50

percent of their investors every year. But the most successful companies

have significantly lower turnovers.

Anita Roddick, Chief Executive Officer

The Body Shop

“A Third Way for Business,Too”

PRACTICE

NOTE
how to use confidential information; how to avoid conflicts of interest; and

how to work with customers, suppliers, service providers, and competitors.

The cost of bribery, kickbacks, and other forms of illegal or corrupt conduct is not only the amount paid. The full cost includes management effort

to allocate time to work with officials, to maintain a second set of books, and

to deal with the threat of extortion and blackmail. The real cost is the risk to

reputation and pride in the enterprise and the reduced prospects for participating in a market economy. 

PROTECTION FROM UNETHICAL EMPLOYEES AND AGENTS

It is not pleasant to contemplate, but the enterprise itself is often abused by its

employees and agents. Embezzlement of enterprise funds is a major example.

Cheating on time cards or carrying off supplies and tools, while relatively

minor, add up to significant losses sustained every year by businesses—both

large and small. It has been estimated that enterprises in the United States lose

some 6 percent of their revenues annually to employee misconduct.3

A business ethics program is designed to establish standards and procedures to prevent and detect violations of the trust put in employees. Among

these standards and procedures are processes to protect enterprise assets.

These specific processes may include establishing standards and procedures,

monitoring and auditing systems, and reporting mechanisms.

However, at the heart of a business ethics program is the desire of owners and managers to foster the commitment of their employees to the welfare

of the enterprise as a whole. Fostering this sense of loyalty and commitment

24 Business Ethics

Fraud

According to the Association of Certified Fraud Examiners’ (ACFE) 

“2002 Report to the Nation on Occupational Fraud and Abuse,” the 

per-employee losses from fraud in the smallest businesses are 100 times

the amount of their largest counterparts.

PRACTICE

NOTE

Joseph T.Wells

“Protect Small Business”
among employees and agents may be the most effective way in which a business ethics program protects the enterprise from disloyal employees. 

ENHANCED PERFORMANCE, PRODUCTIVITY, AND

COMPETITIVE POSITION

An RBE increases effectiveness and efficiency by enabling all stakeholders to

work together closely on the basis of respect, shared values, and mutual trust.

Such efforts lead to what one author calls “invisible savings” by reducing

employee conduct that is harmful to the enterprise but difficult to detect.4

After a business ethics program becomes a part of operations, many of the

costs of monitoring and supervision can be reduced. 

Product quality may improve and transaction costs, such as contracting,

may decline. For example, many large, complex enterprises (LCEs), most of

which have business ethics programs, are developing preferred supplier lists

to reduce the number of suppliers that they deal with. To ensure that there

is no interruption in supplies and services, these LCEs require that their supply chains adopt the same good management practices that they follow,

including a business ethics program.5 See, for example, Box 2.1, which gives

in part Gap Inc.’s code of vendor conduct. See Appendix E for a sample supply chain management questionnaire.

Since, in the minds of most employees, ethics are essentially a matter of

fairness,6 a business ethics program often increases employee morale. Better

Chapter 2: Responsible Management 25

SAMPLE VENDOR CODE

This Code of Vendor Conduct applies to all factories that produce

goods for Gap Inc. or any of its subsidiaries, divisions, affiliates

or agents (“Gap Inc.”).

While Gap Inc. recognizes that there are different legal and cultural environments in which factories operate throughout the

world, this Code sets forth the basic requirements that all factories must meet in order to do business with Gap Inc. The Code

also provides the foundation for Gap Inc.’s ongoing evaluation of

a factory’s employment practices and environmental compliance.

II. Environment

Factories must comply with all applicable environmental laws and

regulations.Where such requirements are less stringent than Gap

Inc.’s own, factories are encouraged to meet the standards outlined in Gap Inc.’s statement of environmental principles.

A. The factory has an environmental management system 

or plan.

B. The factory has procedures for notifying local community 

authorities in case of accidental discharge or release or any

other environmental emergency.

BOX 2.1

Gap Inc.

“The Gap Code of Vendor Conduct”
morale leads to increased productivity and innovation. It strengthens the

enterprise’s competitive position in its industry.

EXPANDED ACCESS TO CAPITAL, CREDIT, AND FOREIGN INVESTMENT

A business ethics program, including aggressive risk management processes,

may increase an RBE’s attractiveness to investors. Before making loans,

international lending institutions and domestic banks perform due diligence

on whether an enterprise is managed well. They look to see whether an

enterprise has strong financial supervision and internal controls. A business

ethics program is designed to prevent and detect illegal and unethical practices. Financial institutions may view management as a worthy credit risk and

allow access to capital at lower rates.

When entering new markets, foreign investors seek reliable partners who

demonstrate integrity and operate on a transparent basis. A business ethics

program reflecting global norms and values provides a common language

between an enterprise and foreign investors. It creates opportunity to build

partnerships that are based on respect, shared values, and mutual trust. 

INCREASED PROFITS AND SUSTAINED LONG-TERM GROWTH

The discipline of responsible business conduct does not deliver instant

results. However, a business ethics program—including infrastructure and

processes for continuous monitoring of compliance with law and ethics—

should help an enterprise be more reliable and stable over time. 

Once an RBE has demonstrated its ability to detect and to prevent violations of the law and ethics, it tends to earn stakeholder confidence. This

confidence leads to an increase in the value of shares; to wider access to capital and credit; to new clients, customers, and partners; and to further opportunities for expansion.

INCREASED INTERNATIONAL RESPECT

Adhering to the discipline of responsible business conduct can help enterprises gain access to international markets. It encourages compliance with

laws and regulations that require a high level of transparency. When the generally accepted business practices of a community are based on sound standards and reasonable expectations, fair competition is the norm and the RBE

can operate on a level playing field. Fair competition may encourage trading

partners to reduce trade barriers such as tariffs and quotas.

Recent research suggests that a business ethics program is particularly

valuable in times of merger, acquisition, and restructuring.7 It is thought that

26 Business Ethics
the essential elements of a business ethics program may help members of

often distinct organizational cultures manage their differences until they find

common ground. These elements include core beliefs, standards, and procedures; high-level personnel responsible for the program; and dedicated

resources to help employees seek advice. Enterprises undergoing privatization should also consider the advantages of a business ethics program as a

means to reduce the risks associated with this transition process.

Generating Social Capital

To define an RBE’s social responsibility, we can think in terms of levels of

social responsibility and try to appreciate the role of business in generating

social capital. Thinking in terms of levels—social responsibility and ultrasocial responsibility—reminds us that if a business were to do no more than

accomplish its essential business purpose of meeting the important needs of

its customers, it would still be making a significant contribution to the common good.8

Appreciating the role of business in generating social capital confirms

the stake that an RBE has in its communities and reaffirms the essential

social value of responsible business.

SOCIAL RESPONSIBILITY

The essential function of any business is to identify and meet the most

important needs of its customers. In a free market, it is only by serving customers well that the enterprise will survive and prosper over time. An RBE

is an essential part of a market economy, serving the needs of customers

while making a profit for its owners and investors. It does so by cooperating

well with its primary stakeholders—employees, suppliers, service providers,

and investors—as well as many others.

By entering the marketplace, an RBE does not cease to be a member of

its community. Being in business is not a license to ignore community

norms, values, and standards. An RBE uses good judgment in evaluating the

social impact of its goods and services on customers and the community as a

whole. For example, although it may be legal to sell a product such as tobacco or alcohol, an RBE will not sell to minors, who may abuse the product.

This practice is known as “socially responsible business.” 

The socially responsible business works hard and competes fairly. It recognizes that to destroy the fabric of a marketplace to make a profit is shortsighted. It does not abuse the public trust or degrade the environment, which

Chapter 2: Responsible Management 27
we all rely on. These principles are captured in the following definition of

corporate social responsibility:

A new business strategy in which companies conduct business

responsibly by contributing to the economic health and sustainable development of the communities in which they operate, offer employees healthy, safe, and rewarding work conditions, offer quality, safe products, and service . . . are accountable to stakeholders... and provide a fair return to shareholders whilst fulfilling the above principles.9

As a participant in markets and a member of its community, the socially

responsible business expresses its needs and concerns to government when

appropriate. It avoids using its economic power to gain competitive advantage through political means.

ULTRA-SOCIAL RESPONSIBILITY

Although the essential purpose of an RBE is to improve its business performance, to return a profit to its owners and investors, and to increase the

prosperity of its community by meeting the reasonable expectations of its

stakeholders, the RBE is nevertheless concerned about the quality of life in

its communities, as the Komatsu code provisions in Box 2.2 illustrate.10 Its

employees and agents also care about the communities in which they and

their families live. 

Businesses often support literacy programs, local schools and colleges,

and local infrastructure, such as water facilities, roads, or parks. They may

28 Business Ethics

HIV/AIDS is a growing

health problem across

the globe.What should

the RBE do in the fight

against the spread of

HIV/AIDS, if anything? 

If you believe there is a

role for business, does

this role represent good

business, socially responsible business, or ultrasocial responsibility?

You Decide

Customer Response to Social Performance

The Millenium Poll, a 23-country survey ...found that about 23 percent of

respondents said that they had either rewarded or punished a company

in the previous year based on their perceptions of its social performance.

Consumers were more active in North America (51 percent) and

Northern Europe (39 percent) than in Eastern Europe (15 percent) and

Asia (4 percent).

Lynn Sharp Paine

Value Shift

PRACTICE

NOTE
benefit from these as members of their communities. Supporting literacy

programs and education, for example, may lead to better employee applicants. Moreover, in some communities, a socially responsible business is

expected or required to contribute a certain percentage of its income to institutions caring for the poor and needy.11

In other communities, enterprises support such programs because such

involvement makes stakeholders feel better about themselves and the enterprise. For example, one enterprise recently developed a program supporting

research on dolphins in the Persian Gulf. Through that contribution to the

community, the enterprise not only enhanced its reputation, but also gave

great pride to its employees.

Some people confuse this sense of social responsibility with what it

means to be a socially responsible business. Nothing could be further from

the truth. The important point to remember is that a business is socially

responsible simply by virtue of effectively, efficiently, and responsibly meeting the reasonable expectations of its stakeholders.

TRUST AND SOCIAL CAPITAL

Responsible business, as an essential part of a free market, is an investment in

growth for a country as well as for an enterprise. Trust cannot be imposed; it

Chapter 2: Responsible Management 29

CONCERN FOR THE COMMUNITY

(1) Contribution to the Community

Through its operations as a good corporate citizen, Komatsu

responds to the commitment of its stakeholders. Also as a 

corporate citizen it is expected to contribute to the community.

Harmonizing with society is becoming increasingly important.

In an effort to harmonize further with the community, Komatsu

Ltd., on its 70th anniversary in 1991, declared its intention to

use one percent (1%) of its pre-tax earnings for social contribution. Komatsu will continue to actively work for the community.

Komatsu’s purpose and five (5) basic principles concerning social

contribution are as follows.

A. Purpose:“Komatsu and its employees, as local community

members, will contribute to society”

B. Basic Principles

1. Consistency

2. Public interest

3. Voluntary

4. Acceptable by employees

5. Not aimed at advertisement.

(2) Employees’Volunteer Activities

Komatsu will respect employees’ self-motivated participation in

voluntary charitable activities, and will never require employees

to join such activities. Komatsu will prepare various systems to

support their participation.

BOX 2.2

Komatsu Ltd. (Japan)

“Komatsu Code of Worldwide Business Conduct”
must be earned. The RBE makes a singular contribution to the community

by positioning itself so that it is able to pursue its purpose as an enterprise

over the long run, meeting the most important needs of its customers. 

Social capital is “performance-based trust.”12 It is “the ability of people

to work together for common purposes in groups and organizations.”13 Each

participant in a market or society is responsible for contributing to the pattern of reasonable expectations. In such a community, trust will be rewarded. The RBE strives to be a trustworthy member of its community in order

to contribute to its social capital.

Social capital is the foundation of a successful market economy. The

benefits of operating in a high-trust environment are many. As one scholar

observes, “A high-trust society can organize its workplace on a more flexible

and group-oriented basis, with more responsibility delegated to lower levels

of the organization. Low-trust societies, by contrast, must fence in and isolate their workers with a series of bureaucratic rules.”14

Another scholar lists eight studies that demonstrate the link between values in general, trust in particular, and profitability. The link is based on an

increase in creativity, support of management decisions, knowledge sharing,

and pride, among other factors (see Figure 2.1).15

A climate of trust can be abused, however. Customers who are not attentive may purchase goods or services of poor quality. Employees may steal

from their employers. Government agents may take advantage of an enterprise that goes to them for aid. Indeed, it is precisely because people put trust

in others that many irresponsible business practices are possible.16

30 Business Ethics

FIGURE 2.1

Links between Values,Trust

and Profitability
The discipline of responsible business conduct described in this manual

leads owners and managers to build their enterprises with structures and systems that will compensate for a lack (or abuse) of trust. Over time, such conduct will lead to an organizational culture that is based on shared values and

practices; more trust among stakeholders; and more effective, efficient, and

profitable performance. 

Working with Leaders in Business, Government, and Civil Society 

Social capital also accrues through the efforts of civil society: organizations, 

such as trade groups, business associations, service clubs, charities, university

faculty, and other nongovernmental organizations (NGOs) that aim to hold

business and government officials accountable. Business enterprises, in general,

have the potential to be powerful and influential members of their communities. 

The RBE helps create the conditions for good public governance by

promoting responsible business conduct—through self-regulation or

through public dialogue with government officials. These forms of voluntary

action help build social capital—the trust and shared values among individuals, government officials, civil society, the local community, and business

that make it possible to work together on a cooperative basis. 

Building on the Foundation of Responsible Business Conduct

Though a business enterprise is often portrayed as an isolated entity doing

whatever it can to make a profit, the enterprise, whether large or small, is an

integral part of its market, its community, and its society.17 As such, the social

responsibilities of a business are to improve its performance, to make profits, and to increase the prosperity of its community by meeting the reasonable expectations of its stakeholders.

RESPONSIBLE BUSINESS CONDUCT IS GOOD MANAGEMENT

Responsible business conduct addresses the issues of ethics, compliance

with laws and regulations, and social responsibility. Businesses face these

issues every day in a market economy. This manual sees responsible business conduct as a discipline, as something responsible owners and managers

can build on, and as an integral part of good management practice.

Approaching responsible business conduct as a discipline broadens the

thought processes of owners and managers by addressing the issues raised

by business and professional ethics, organizational ethics, corporate social

responsibility, and corporate governance. 

Chapter 2: Responsible Management 31
A business ethics program provides a toolkit of leadership and management practices to aid any enterprise—large or small—in the responsible pursuit of its envisioned future. It helps owners and managers ensure that their

employees and agents comply with applicable laws and regulations. It also

helps them minimize risk to the enterprise, enhance the enterprise’s reputation, and bring value to stakeholders by adapting emerging global standards

of responsible business conduct and best practices.

SPECIAL OPPORTUNITIES FOR SMALL TO MEDIUM-SIZED ENTERPRISES

Small to medium-sized enterprises (SMEs) have an additional incentive to

adopt the discipline of responsible business conduct: to create a wider commercial network. Where owners and managers embrace the global language

of responsible business through a business ethics program, a network of

business enterprises and supportive NGOs based on shared values is possible. Such a network allows the individual SME to develop some of the synergies and economies of scale that only larger enterprises can afford.

EMERGING GLOBAL STANDARDS

Particularly over the past two decades, a number of prominent business associations, NGOs, and international government institutions have developed a

body of global standards for the responsible business. These emerging global standards are of four types: 

1. A stakeholder engagement standard (AA1000S) 

2. Substantive standards (such as SA8000, Caux Round Table’s principles,

Interfaith Declaration’s principles, and the Basic Guidelines for Codes of

Business Conduct)

3. Management process standards (such as SA8000, the CERES Principles,

and the U.S. Federal Sentencing Guidelines for Organizations)

4. Reporting standards (such as the Global Reporting Initiative) 

As Figure 2.2 depicts, these standards provide the foundation for establishing the outcomes that can be expected from a business ethics program.

The major standards-setting institutions are of three major types: business

associations, stakeholder groups, and international governmental organizations.

Business Associations

Business associations that set standards include the following:

• Caux Round Table. A global network of business leaders committed to

principled business leadership, the Caux Round Table believes that business has a crucial role in developing and promoting equitable solutions

32 Business Ethics
to key global issues. The Caux Round Table’s Principles for Business serves

as a guide to sustainable and socially responsible prosperity as the foundation for a fair, free, and transparent society.18

• International Chamber of Commerce. The International Chamber

of Commerce (ICC) champions the global economy as a force for economic growth, job creation, and prosperity. ICC activities cover a broad

spectrum, from performing arbitration and dispute resolution to making

the case for open trade, the market economy system, and business selfregulation. The ICC’s report, Extortion and Bribery in International

Business Transactions, is another resource that helps fight corruption and

commercial crime. The ICC has direct access to national governments

and intergovernmental organizations on issues that directly affect business operations.19

• Coalition for Environmentally Responsible Economies. A U.S.

coalition of environmental, investor, and advocacy groups working 

together for a sustainable future, the Coalition for Environmentally 

Responsible Economies (CERES) is committed to continuous environmental improvement. It encourages enterprises to adopt the “CERES

Principles,” a 10-point code of environmental conduct.20

• Institute of Electrical and Electronics Engineers. The Institute of

Electrical and Electronics Engineers (IEEE) is a non-profit, technical

professional association of more than 377,000 individual members in

150 countries. Its “Code of Ethics” contains 10 points of agreements to

regulate the professional activities of its members.21 It also has a more

detailed “Software Engineering Code of Ethics and Professional

Chapter 2: Responsible Management 33

g

FIGURE 2.2

Global Standards as a 

Foundation
Practices” organized under eight principles.22 The IEEE has an ethics

committee and an ethics hotline. 

Stakeholder Groups, Including Nongovernmental Organizations

Stakeholder groups such as the following also set standards:

• Interfaith Declaration. The Interfaith Declaration provides principles

and guidelines to help practitioners identify the role they and their

organizations should play in the community and to support problem

solving.23 Particularly valuable are its “Principles for Global Corporate

Responsibility: Benchmarks for Measuring Business Performance.”24

• Global Reporting Initiative. The Global Reporting Initiative (GRI)

was established in late 1997 with the mission of developing globally

applicable guidelines for reporting on economic, environmental, and

social performance, initially for corporations and eventually for any

business, government entity, or NGO. Convened by CERES in partnership with the United Nations Environment Programme, the GRI

incorporates the active participation of corporations, NGOs, accounting

organizations, business associations, and other stakeholders from around

the world. The GRI’s Sustainability Reporting Guidelines represent the

first global framework for comprehensive sustainability reporting,

encompassing the triple bottom line of financial, social, and environmental issues.25

• Social Accountability International. A non-profit organization,

Social Accountability International (SAI) is dedicated to the development, implementation, and oversight of voluntary verifiable social

accountability standards. SAI is committed to ensuring that standards

and systems for verifying compliance with such standards are highly

reputable and publicly accessible. SAI works to improve workplaces and

combat sweatshops through the expansion and further development of

the international workplace standard, SA8000, and the associated

SA8000 verification system.26

• Global Sullivan Principles. In 1977, the Rev. Leon H. Sullivan developed the “Sullivan Principles,” a code of conduct for human rights and

equal opportunity for companies operating in South Africa. To further

expand human rights and economic development to all communities,

Sullivan created the “Global Sullivan Principles of Social Responsibility”

in 1997.27

• International Corporate Governance Network. A membership

association, the International Corporate Governance Network is devoted to improving corporate governance internationally and providing a

34 Business Ethics
voice between investors and management. As of 2001, its members

owned or managed US$10 trillion.28

• Institute of Directors in Southern Africa. In July 1993, the Institute

of Directors in Southern Africa established the King Committee on

Corporate Governance. The King Committee has produced two

reports on corporate governance for Southern Africa.29

• Institute of Social and Ethical AccountAbility. In 1999, the Institute

of Social and Ethical AccountAbility launched the AA1000 Framework.

AA1000S is an accountability standard designed to help enterprises

improve accountability and performance by learning through stakeholder engagement and by integrating their stakeholder engagement

processes into daily activities. AA1000S helps users establish a systematic stakeholder engagement process that generates the indicators, targets, and reporting systems needed to ensure the effectiveness of the

process in overall organizational performance. AA1000S is designed to

complement the GRI’s Sustainability Reporting Guidelines.30

International Governmental Organizations

International governmental groups also set standards as shown below:

• International Labor Organization. The International Labor

Organization (ILO) is the U.N. agency that seeks to promote social

justice and internationally recognized human and labor rights. The

ILO formulates international labor standards in the form of conventions and recommendations setting minimum standards of basic labor

rights: the freedom to associate, the right to organize, the right to collective bargaining, the abolition of forced labor, the right to equal

opportunity and treatment, and other standards regulating conditions

across the entire spectrum of work-related issues. Within the U.N. system, the ILO has a unique tripartite structure, with workers and

employers participating as equal partners with governments in the

work of its governing organs.31

• Organization for Economic Cooperation and Development.

Thirty countries sharing a commitment to democratic government and

the market economy form the Organization for Economic Cooperation

and Development (OECD). Having active relationships with some 70

other countries, NGOs, and civil society, the OECD has a global reach.

It plays a prominent role in fostering good governance in the public

service and in corporate activity. The OECD produces internationally

agreed-upon instruments, decisions, and recommendations to promote

rules of the game in areas where a multilateral agreement is necessary

for individual countries to make progress in a globalized economy.

Chapter 2: Responsible Management 35
• U.N. Global Compact. U.N. Secretary-General Kofi Annan first proposed the Global Compact in an address to the World Economic Forum

on January 31, 1999. Annan challenged business leaders to join an international initiative—the Global Compact—that would bring companies

together with U.N. agencies, labor, and civil society to support nine

principles in the areas of human rights, labor, and the environment.

Through the power of collective action, the Global Compact seeks to

advance responsible corporate citizenship so that business can be part of

the solution to the challenges of globalization. In this way, the private

sector—in partnership with other social actors—can help realize

Annan’s vision: a more sustainable and inclusive global economy.

• U.S. Department of Commerce. In cooperation with the Russian

Chamber of Commerce and Industry, the U.S. Department of Commerce

developed the Basic Guidelines for Codes of Business Conduct to reflect extensive input from Russian and U.S. trade organizations and businesses provided in the course of roundtables and discussions conducted in Russia and

the United States. The Guidelines have served as the foundation for model

codes in the Caucasus, Central Asia, Central and Southeast Europe, and

Latin America. See Appendix B for the Guidelines. 

As the result of ongoing global dialogue between these institutions, a

body of standards and expectations for responsible business has emerged.

These standards address a number of areas of concern to responsible owners

and managers:

• Business conduct, including fair competition

• Community relations, including political involvement

• Corporate governance

• Environmental protection

• Human rights

• Marketplace relations

• Workplace relations

• Accountability

• Reporting standards

This manual will refer to these standards often in the practice-oriented

chapters that follow. 

Table 2.1 identifies a number of emerging global standards affecting different stakeholders.32 It is organized according to the institutions that sponsor the standards and the major issues they address. The table depicts only

the range of international programs and initiatives undertaken to facilitate

the widespread adoption of the discipline of responsible business conduct. 

36 Business Ethics
Adopting Global Standards and Best Practices

When an enterprise designs a business ethics program, it is helpful to

organize emerging standards and best practices as answers to eight questions owners and managers of any enterprise should ask themselves as they

structure the enterprise. In Table 2.2, each question is followed by examples

of global standards and best practices that an RBE can use to help develop

appropriate answers.33

Specific best practices are outlined in the chapters to follow: standards,

procedures, and expectations (Chapter 5); business ethics infrastructure

(Chapter 6); business ethics communications and feedback (Chapter 7); business ethics alignment practices (Chapters 8 and 9); and business ethics program evaluation and organizational learning (Chapter 10). 

All enterprises need to ask themselves each of the questions in Table 2.2.

The sample global standards and best practices are drawn from the experiences of LCEs. However, these resources are readily available to all enterprises, including SMEs, on the Internet, and they can aid in working out the

answers for individual enterprises and serve to stimulate dialogue and inquiry.

Chapter 2: Responsible Management 37

TABLE 2.1 Emerging Global Standards and Reporting

Business Corporate Human Accountability

Sponsor Conduct Community Governance Environment Rights Marketplace Workplace and Reporting

BUSINESS ASSOCIATIONS:

Caux Round Table √ √√√ √

ICC √ √√ √

CERES √ √√ √

IEEE √√ √

STAKEHOLDER GROUPS:

Interfaith Declaration √ √√ √

Global Reporting Initiative √ √√ √

SAI √ √√ √

Global Sullivan Principles √ √√ √

International Corporate Governance Network √

Institute of Directors in Southern Africa √ √

Institute of Social and Ethical AccountAbility √

INTERNATIONAL GOVERNMENTAL ORGANIZATIONS:

ILO √ √√

OECD √ √√√ √

U.N. Global Compact √ √ √ √√√√

U.S. Department of Commerce √ √√√ √√√
38 Business Ethics

TABLE 2.2 Global Standards and Best Practices: Eight Questions

Questions for the Responsible Business Enterprise

What norms, values, and standards should we set

to guide our members and foster reasonable

expectations among our stakeholders?

What style, structure, and systems of authority and

responsibility at all levels should we exercise? 

How can we most effectively communicate our

standards and procedures and foster reasonable

expectations among our stakeholders?

What mechanisms can we establish to know that

our members are following our standards and procedures and meeting reasonable stakeholder expectations?

How can we ensure that we have the right people

in the right places while pursuing our purpose as

an enterprise?

How can we encourage our members to follow our

standards, procedures, and expectations?

What do we owe our stakeholders when mistakes,

misconduct, or misunderstandings occur involving

our standards and procedures or their reasonable

expectations?

How should we monitor, track, and report our performance as an enterprise and continuously learn

from it?

• Sound set of core beliefs

• OECD Guidelines for Multinational Enterprises

• Leadership styles

• Board-level committees

• High-level person responsible for program

• Executive-level ethics committee

• Executive modeling

• Formal communications

• Orientation

• Ethics training

• Independent audit committee 

• Audit department

• Quality monitoring mechanisms

• Ethics office 

• Policy on recruiting and hiring

• Policy on skills training

• Recognizing ethical behavior 

• Rewarding ethical behavior in 

challenging situations

• Voluntarily reporting mistakes and misconduct

• Cooperating with proper authorities

• Establishing program goals and objectives

• Developing appropriate action plans

• Establishing performance indicators

• Developing performance measurements

• Instituting data recording, collection, and analysis 

• OECD Guidelines for Corporate Governance

• U.S. Federal Sentencing Guidelines for Organizations

• Ethics office

• Individual duty to report misconduct

• Australian Criminal Code corporate 

culture approach

• Ethics games

• Posters

• Newsletter

• Stakeholder engagement and dialogue

• Organizational ombudsman

• Policy prohibiting retaliation

• Policy allowing confidentiality and privilege

• Policy on assigning, promoting, and terminating

staff members 

• Punishing substandard behavior 

• Establishing compensation schemes, especially

bonuses and incentive pay, that promote standards

• Correcting harm caused

• Conducting required skills and knowledge training

• Establishing reporting frameworks and schedules

• Identifying reporting targets

• Implementing Global Reporting Initiative standards

• Developing individual skills of generative learning

• Building a culture of knowledge sharing and quality

Sample Emerging Global Standards and Best Practices
In actual practice, even the LCEs borrow freely from the documents and

experiences of other enterprises. See the Glossary for definitions of key terms.

SUMMARY

There are at least eight practical reasons why owners and managers should

embrace a business ethics program as part of its management practice:

• Enhanced reputation and goodwill 

• Reduced risks

• Reduced costs

• Protection from unethical employees and agents

• Enhanced performance, productivity, and competitive position

• Expanded access to capital, credit, and foreign investment

• Increased profits and sustained long-term growth 

• Increased international respect

An RBE also contributes to the social capital of its community by basing

its business conduct on a solid foundation of responsible business conduct. It

works with leaders in government, civil society, and other businesses to

develop a market framework and the supporting legal institutions.

Over the past two decades, emerging global standards from a number of

business associations, stakeholder groups, and international institutions have

been addressing the issues of responsible business conduct: ethics, compliance, and social responsibility.

Chapter 2: Responsible Management 39
40 Business Ethics

RESPONSIBLE BUSINESS ENTERPRISE

Checklist

1. What responsible business conduct issues does your enterprise face,

and how is it organized to deal with them? 

2. What does being a socially responsible business mean to you? At

what levels does your enterprise perform: socially responsible or

ultra socially responsible? 

3. How would you describe your enterprise to a stranger? A government

regulator? Your family? Are the descriptions different? If so, why?

4. How much social capital is there in your markets? If the level of

social capital is low, how does that affect business transactions?

5. What might motivate your enterprise to consider a business ethics

program?

6. What benefits might your community see if more enterprises had

business ethics programs?

7. How well could owners and managers of your enterprise answer the

eight questions for a responsible business enterprise in Table 2.2?
I I

The Business

Ethics Program

43

3

This chapter helps owners and managers plan to

build a responsible business enterprise (RBE). It

provides an approach to designing and implementing a business ethics program, and it describes how

having one helps an enterprise improve its performance, make profits, and increase the prosperity of its

community by learning to meet the reasonable

expectations of its stakeholders. This chapter also

addresses the management challenges of designing

and implementing such a program.

Planning, Strategy, and the Business Ethics Program

Enterprises of all sizes develop strategies to bring

their resources together to achieve their goals and

objectives. A business ethics program helps owners

and managers improve their business performance,

make profits, and contribute to the economic

progress of their communities by meeting the reasonable expectations of their stakeholders.1 A business

ethics program also aims to achieve specific expected

program outcomes, such as increasing awareness of

ethics issues, improving decision-making, and reducing misconduct, which are discussed in more detail 

in Chapter 4.

To be effective over time, a business ethics program must be a formal plan, because it touches on

all aspects of the enterprise—operations, human

resources, communications, and marketing to

name but a few. Formally planning a business 

Responsible Business

Conduct as Strategy

• Planning,

Strategy, and the

Business Ethics

Program

• Establishing the

Nature of the

Program

• Building a

Responsible

Business

Enterprise

• Knowing the

Structural

Components of

the Program

• Planning the

Business Ethics

Program

• Engaging the

Enterprise’s

Stakeholders

• Adopting a

Design, Review,

and Approval

Process
ethics program ensures that owners and managers give due consideration 

to the enterprise’s relevant context, organizational culture, and reasonable 

stakeholder expectations. This manual provides a systematic approach to

guide owners and managers through the process. 

Busy managers need not fear that formal planning for a business ethics

program will overwhelm daily operations because, as discussed below, they

already have many elements in place. The planning process requires targeted stakeholder participation more than a large staff. However, once an

enterprise announces its intention to design and implement a business

ethics program, it needs to plan well and to base its plan on its core beliefs.

A lack of program consistency will hurt employee morale and generate

stakeholder cynicism.

Because of resource limitations, most small to medium-sized enterprises

(SMEs) use informal program strategy and planning. SMEs are less apt to

use formal teams and processes to set goals, objectives, strategies, and action

plans than are large enterprises.2 Nonetheless, they can adapt the processes

that follow to meet their circumstances. For example, they can use all of the

RBE Worksheets provided in the balance of this manual to direct their

thinking, to stimulate dialogue, and to engage their stakeholders. 

44 Business Ethics

Corporate Social Responsibility (CSR) and the SME

Research on CSR and SMEs is rare, but a 1991 review of research in the U.S. made the following six findings:

• Customer relations (i.e., customer satisfaction) is viewed as the primary social responsibility of 

small business 

• Consumer relations, product quality, employee concern, and profitability are perceived by managers

to be key social responsibility areas of small business 

• Managers and owners have perceptions of small business social responsibility that are similar to

those of nonbusiness people 

• Managers of small businesses and large corporations indicate few differences in their perception of

acceptable ethical practices P

• Social involvement activities by small businesses are informally structured

RACTICE

NOTE

Judith Kenner Thompson and Howard L. Smith

“Social Responsibility and Small Business”
These worksheets are intended to aid in designing and implementing

a business ethics program. They are designed to be consistent with the

principles of responsible management developed throughout these materials.3 A number of worksheets refer to emerging standards and best practices. For example, “Questions for the Responsible Business Enterprise”

(RBE Worksheet 5), refers to emerging global standards and best practices.

These standards and best practices are developed in detail in the chapters

that follow. 

Establishing the Nature of the Program

Owners and managers should define and communicate the purpose of the

business ethics program as early as possible. Responsible management recognizes that an effective business ethics program touches every decision and

activity of the enterprise. It guides patterns of thought, choice, and action

that subtly shape the organizational culture of the enterprise. The business

ethics program should be based on the core beliefs of the enterprise and

should reflect an approach or orientation that will resonate with employees

and other stakeholders. 

Recent research suggests that “specific characteristics of the formal

ethics and legal compliance program matter less than the broader perceptions of the program’s orientation toward values and ethical aspirations.”4

This research found that two factors are most important: (1) that ethics is

perceived to be important to leadership—from executive through supervisor—and (2) that employees believe they are treated fairly. It is particularly

important that enterprise policies and management actions be consistent and

that reward systems support ethical behavior.5

According to the research, familiarity with a code of conduct is relatively unimportant. Moreover, a program perceived as designed primarily to

protect senior managers is clearly harmful and is associated with increased

violations of its established standards and procedures.6 Research and experience over the past 15 years suggest that a primary best practice is to design

a business ethics program that goes beyond mere compliance.7

The following subsections are intended to help owners and managers

define the nature of an enterprise’s business ethics program so that it can be

as effective as possible. 

Chapter 3: Conduct as Strategy 45
ORIENTATION OF THE PROGRAM

Program effectiveness is closely related to employees’ perceptions of the orientation of a business ethics program. A business ethics program usually has

one of four primary orientations. The orientation reflects owner and manager motivations in designing and implementing the program and is an

important condition of program effectiveness. 

The primary orientations are: 

1. A compliance-based approach, which “focuses primarily on preventing,

detecting, and punishing violations of law”

2. A values-based approach, which “aims to define organizational values and

encourage employee commitment to ethical aspirations”

3. A satisfying external stakeholders approach through which enterprises

“hope to maintain or improve their public image and relationships with

external stakeholders” 

4. A protecting senior management approach, which “is introduced in part to

protect owners and senior management from blame for ethical failures

or legal problems”8

These primary orientations are not mutually exclusive. As a single orientation, values-based programs tend to be most effective. However, a business

ethics program that includes aspects of compliance-based programs and pays

attention to satisfying external stakeholders is also valuable. Employee perceptions that a program is oriented toward protecting senior management

from liability or prosecution contribute to employee cynicism and lead to

program outcomes that are “significantly more negative.”9

CONSIDERATIONS FOR THE SMALL TO MEDIUM-SIZED ENTERPRISE

Unlike large, complex enterprises (LCEs), the average SME is closely identified with its owners and managers. Thus SMEs must be particularly alert

to designing a well-balanced business ethics program. Often they will be

tempted to work out the program on their own and to simply present it to

employees and other stakeholders. They have limited resources and staff,

and, after all, it is their enterprise. Though in many cultures workers expect

to be told what to do—even what to think—a program is more apt to succeed where workers are involved enough in its design to feel committed to

it and where workers are willing to use individual judgment to apply its standards to the issues they face.

Owners and managers should, therefore, resist this temptation and

engage their employees and other stakeholders as much as possible. For

46 Business Ethics
example, owners and managers can use an RBE Worksheet in this manual to

guide their thinking in designing the program and to stimulate dialogue with

their employees and other stakeholders.

Building a Responsible Business Enterprise 

Each enterprise has a unique ethical character. This character quietly guides

what its members think, say, and do. It influences how external stakeholders

view the enterprise. As Figure 3.1 suggests, an enterprise’s identity as an

RBE has at least four levels: compliance, risk management, reputation

enhancement, and value added. Setting objectives in all four levels—and

achieving them—is a goal of a business ethics program.

Chapter 3: Conduct as Strategy 47

COMPLIANCE

VALUE

ADDED

REPUTATION

ENHANCEMENT

RISK MANAGEMENT

FIGURE 3.1

Levels of an Enterprise’s

Identity

The identity of an RBE reflects how well it meets its responsibilities as a

member of a community. Responsible business conduct—ethics, compliance,

and social responsibility—is an essential part of this identity. It influences the

way the enterprise sees itself and the way the community views the enterprise. Indeed, how the enterprise deals with responsible business conduct

issues may be the most important aspect of defining an enterprise’s identity. 

A business ethics program provides the essential core of the competitive

strategy of an RBE. Programs more limited in purpose—called ethics and

compliance programs—typically address the two lowest levels because compliance and risk management are the most obvious levels of identity.
However, a business ethics program addresses the higher levels as well—reputation enhancement and value added—in a systematic way. 

A business ethics program helps an enterprise establish the essence of its

identity in the community: its core purpose, core values, and envisioned

future. It is an effective tool for establishing standards and procedures to

ensure that enterprise values are reflected in all that employees and agents

think, say, and do. A business ethics program employs a systematic process

to reach a wide range of stakeholders more effectively so that it achieves its

expected program outcomes. See Appendix A for a sample outcomes-based

decision-making model. 

COMPLIANCE LEVEL

Compliance means meeting all legal requirements through an effective program to prevent and detect misconduct.10 The average business enterprise

faces myriad legal demands and constraints. Moreover, it is not enough

that an enterprise intends to be law abiding. Good intentions alone will not

safeguard an enterprise against the risks that its employees or agents will

make mistakes or misbehave. Increasingly, compliance requires that an

enterprise be able to demonstrate that it pursued management practices

that are reasonably calculated to prevent and detect misconduct as a matter of policy. Demonstrating this may take the form of describing the 

formal structures and systems in place (as in the United States), having a

compliance program with respect to competition law (as in the European

48 Business Ethics

Categories of Laws Affecting Business

Businesses must comply with these types of laws:

• Principal and agent relations

• Business organization and formation

• Real property law

• Personal property law

• Intellectual property law

• Fair competition law

• Environmental law

• Employment law

• Labor–management law

• Tax law

• Alternative dispute resolution provisions

• Political campaign financing law

• Anti–money laundering law

• Anticorruption law

• Judicial procedure, especially judicial privilege

• International law PRACTICE

NOTE
Union),11 or having an organizational culture that does not tolerate or

encourage misconduct (as in Australia).

In the United States, the Federal Sentencing Guidelines for

Organizations (FSGO) set forth seven minimum steps for an organization to

demonstrate that it has an effective program to prevent and detect criminal

activity.12 These steps have come to constitute the minimum characteristics

of an effective compliance program. In general, they require that an enterprise set forth adequate standards to guide its employees and agents. These

standards must reflect industry standards and government regulations. They

must be communicated effectively to employees and agents. The enterprise

must have means of knowing whether its employees and agents are following its standards. It must actually enforce them, and it must respond appropriately if they are violated. A high-level person must be responsible for executing the program. No high-level person can be involved in the misconduct.13 See Appendix H for extracts from the FSGO.

In a similar vein, U.S. law requires many enterprises to have an

anti–money laundering (AML) program, which has four elements: (1) standards and procedures, (2) a compliance officer, (3) training procedures, and

(4) an external or internal audit. Financial institutions are also required to

have a specific customer identification program. Under certain circumstances, foreign individuals and enterprises with no direct contact in the

United States will be affected by the procedures of an AML program, as discussed in more detail in Chapter 9. Moreover, many U.S. government agencies, including the Department of Justice, the Department of Health and

Human Services, and the Environmental Protection Agency, recommend, or

in some circumstances require, compliance programs similar to the FSGO.

Australia has an alternative approach that looks to the culture of the

enterprise. This approach is concerned with whether “a corporate culture

existed within the body corporate that directed, encouraged, tolerated, or led

to non-compliance with the relevant provision” or “failed to create and

maintain a corporate culture that required compliance with the relevant provision.”14 See Appendix I for extracts from the Australian Criminal Code on

corporate criminal responsibility.

It is generally recognized, however, that these standards and practices

are not enough to create an effective business ethics program. They do not

address, for example, whether an enterprise is effectively pursuing its core

purpose or whether its policies, procedures, and activities are congruent with

its core values. With the exception of standards that are designed to prevent

breaches of fiduciary duties, these standards and practices do not require that

the enterprise meet the reasonable expectations of its stakeholders effectively or well.

Chapter 3: Conduct as Strategy 49
RISK MANAGEMENT LEVEL

To make ethics and compliance programs more effective, practitioners argue

that enterprises should go beyond legal compliance and should systematically consider the industry and market risks that enterprises face. This involves

assessing customer, supplier, and competition risk; examining enterprise

policies, processes, and activities; and looking closely at organizational culture to establish whether there is a history of problems, disharmony, and

conflict.15 Often expressed in terms of protecting the reputation of the enterprise, risk management is an important next level.

The consequences for failing to address these risks include, but are not

limited to, criminal prosecution, regulatory action, debarment from government contracting, civil lawsuits, compromised strategic partnerships,

labor–management disagreements, stakeholder dissatisfaction, and calls

from civil society for more regulation.

REPUTATION ENHANCEMENT LEVEL

Damage to the enterprise’s reputation has always been viewed as a reason to

care about responsible business conduct. More recently, the kind and number of stakeholders that an enterprise needs to be concerned about has

expanded to include media, nongovernmental organizations (NGOs), and

international institutions. Some enterprises strive to be RBEs simply to

avoid criticism from this expanded stakeholder list. 

It is more positive and creative to enhance one’s reputation by making

choices and acting in a manner such that one deserves a good reputation.

Hence, enhancing one’s reputation among a larger and more diverse group of

stakeholders represents a third, more important level of enterprise identity.16

VALUE-ADDED LEVEL

Increasingly, responsible business conduct includes adding value to the

RBE’s community through its decisions and activities.17 It is understood

that the RBE strives to make a profit, but it is also expected to take into

account its impact on its stakeholders. For example, many enterprises have

quality assurance programs to meet their responsibilities to customers.

Though not often considered part of a business ethics program, producing

goods and services of low quality may constitute consumer fraud or violate

product liability laws (thus violating the compliance and risk management

levels). Producing low-quality goods does not enhance the enterprise’s reputation—or contribute to employee pride or morale (thus causing the

enterprise to fail to meet the reputation enhancement level). And ultimately, producing low-quality goods or services adds little value to the

50 Business Ethics
community for the resources devoted to it (so that the enterprise fails to

achieve the value-added level). 

As noted in Chapter 1, an enterprise may add value to its community in

many ways:

• Serving the most important needs of its customers and consumers

• Providing gainful employment for its employees and agents, so that they

can provide for their families and be responsible citizens

• Providing an adequate return to investors

• Purchasing goods and services from suppliers and service providers

• Competing intensely, but fairly

• Forming strategic partnerships and alliances to create new business

opportunities

• Supporting community infrastructure through taxes and fees

• Participating in the political process to improve market conditions

• Respecting the environment

To be truly responsible, an enterprise must fully embrace all four levels 

of identity. 

Chapter 3: Conduct as Strategy 51

Maintaining Reputation

Nestlé has had to deal with a number of highly contested and sometimes

quite acrimonious debates. . . . Yet I am struck by one fact: our corporate

reputation has not suffered in spite of decade-long campaigns and public

debate. I am convinced that two elements played in our favor: Nestlé has

managed to build that “institutional” trust in broad segments of the public, through an unquestionable priority given to the quality and security of

its products, and we have learned over time to show a high degree of

consistency in handling difficult issues in a transparent and responsive

manner. In other words, trust has been nurtured throughout this period.

Peter Brabeck-Letmathe, Chief Executive Officer

Nestlé

“The Search for Trust”

PRACTICE

NOTE
UNDERSTANDING AN ENTERPRISE’S STRENGTHS AND WEAKNESSES

There is no one-size-fits-all business ethics program. The business ethics

infrastructure should be designed to encourage responsible choices and

actions, such that they become part of the culture of the enterprise itself over

time. All enterprises have strengths and weaknesses. It is important to form

enterprise strategies with a clear understanding of each. 

As Figure 3.2 suggests, the business ethics infrastructure and alignment

practices selected by owners and managers must reflect enterprise strengths

and must deal with enterprise weaknesses. Owners and managers should

design a business ethics program that will accentuate enterprise strengths

and will reform enterprise weaknesses. Some apparent enterprise strengths

may even be weaknesses, when not kept in perspective. 

Consider, for example, a recently privatized enterprise’s reliance on

personal relationships with government regulators to propel its success. In

the short run, the enterprise may secure contracts or competitive advantages not warranted by the quality of its goods or services. As a result,

research and development, quality programs, and effective marketing will

tend to be undervalued and underused. When governments change or

markets are opened, however, the enterprise will inevitably find itself at a

competitive disadvantage.

Knowing the Structural Components of the Program

When an enterprise undertakes to design a business ethics program, it seeks

answers that go beyond what is required, at a minimum, to comply with law.

52 Business Ethics

FIGURE 3.2

Best Practices

Reflect Enterprise

Strengths and Deal

Business with Weaknesses

Ethics

Infrastructure 

and Alignment

Practices

STRENGTHS

WEAKNESSES
It seeks broader, more creative answers based on emerging global standards

and best practices. 

Every enterprise already has some or all of the structural components of

a business ethics program, even though no formal program may exist. All

enterprises set standards and procedures that they expect their employees

and agents to follow, communicate those standards and procedures, want to

know whether their standards are being followed, and respond when standards and procedures are violated or stakeholders complain. What distinguishes the RBE is that its management works consciously to find those

structures and systems that will ensure an effective program. 

A well-designed and implemented business ethics program provides

enterprise employees and agents with the guidance and information they

need for effective, efficient, and responsible choices and actions. Research

and experience over the past few decades suggest that an effective program

contains the following nine structural components:

1. Standards and procedures to guide member behavior and foster reasonable stakeholder expectations

2. Adequate structures and systems that provide for authority, responsibility, accountability, and sustainability

3. Communication of standards, procedures, and expectations to the enterprise’s members

4. Programs that monitor and audit member conduct

5. Encouragement of members to seek advice and report concerns

6. Due diligence in hiring, especially for sensitive positions in, for example,

management, finance, and contracting

7. Encouragement of members to follow standards and procedures

8. Appropriate responses when standards and procedures are violated

9. Regular evaluations of program effectiveness

These nine components are discussed further in the chapters that follow.

Planning the Business Ethics Program

Five principles should drive the planning process and be honored in implementation of the program itself.

DIFFERENTIATE BETWEEN GOVERNANCE AND MANAGEMENT

Owners and managers should sharply differentiate between the governance

and management of an enterprise by delineating clear roles, responsibilities,

Chapter 3: Conduct as Strategy 53
and areas of accountability for policy-makers and managers. Even if the

owner is the senior manager or if managers sit on a board of directors, the

different roles and responsibilities need to be respected. Governance, for

example, takes the broader view: setting policies to guide all employees and

agents, including the owners. 

The source of a corporate board’s authority is the owners of the enterprise.18 The board is the pivotal authority. Its authority is neither granted nor

defined by management. Policies generated by the board control everything,

both governance and management.

In practice, however, the board is often considered an adviser to management rather than its source of authority. Indeed, many recent corporate

ethics failures in the United States can be traced to the failure of boards to

exercise their authority as representatives of the owners. In emerging market economies, lack of a strong voice for shareholders may lead to asset

stripping and to rent diversion. As a result, corporate governance is under

different stages of review and reform in nations across the globe, and the

review is based largely on the distinction between governance on the part of

the board and management on the part of executives. 

BUILD ON STRENGTHS

An RBE strives to be effective, efficient, and responsible through constructive and creative engagement with its stakeholders. To this end, it is helpful

to identify and build on the core strengths of the organization. As Figure

3.2 illustrates, an enterprise is a bundle of strengths and weaknesses. The

54 Business Ethics

Corporate Leadership

Corporate governance is not so much leadership over others, as it is 

leadership on behalf of others.

John Carver with Caroline Oliver 

Corporate Boards That Create Value

PRACTICE

NOTE
ultimate goal of a business ethics program is to appreciate an enterprise’s

strengths. This does not mean that weaknesses are ignored. 

To the contrary, management applies what it knows about responsible

business conduct to compensate for weaknesses. For example, if an enterprise is vulnerable to employee misconduct, the enterprise uses a business

ethics program to prevent and detect wrongdoing. If employees are afraid to

speak up, the enterprise provides effective mechanisms for employees to seek

advice and report misconduct without fear of retaliation.

MOBILIZE THE ENTIRE ENTERPRISE AROUND CORE BELIEFS

Employees and agents can be empowered most effectively and safely when

they share core beliefs. In fact, this may be the only way to empower employees and agents responsibly. If becoming an RBE is an enterprise’s policy and

goal, the effort must be based on core beliefs. An objective of any business

ethics program is that every stakeholder, to the appropriate degree, knows

the core beliefs that should order the decisions and activities of the enterprise. Every employee and agent should be able to describe the core beliefs

that will always guide his or her choices and actions, and should be able to

define what constitutes success for the enterprise.19

A few inspiring goals can provide further direction to employees and

agents. They provide focus of effort and guide the allocation of resources.

They order every task and form every structure so that the people involved

know exactly how such tasks contribute to achieving the enterprise’s goals

and why such tasks are consistent with the core beliefs. Perhaps most important is for all people in the enterprise to use a common language that is based

on the core beliefs.

DELEGATE AUTHORITY ACROSS ALL LEVELS

To design and implement a business ethics program well, people at all levels

of the enterprise must embrace it. A core of people, who are dispersed

throughout the enterprise, must be personally responsible for seeing that the

project succeeds. 

Owners and managers must lead from the front, and it must be clear to

all that responsible business conduct is their personal project. The various

tasks of designing and implementing the business ethics program must be

assigned throughout the enterprise. To do this effectively, owners and managers must know the people and the organizational culture of the enterprise

well enough to know whom to assign leadership tasks to—and what results

to expect. Moreover, these dispersed leaders must have the authority and

resources they need to develop and exercise their responsibilities.20 Often,

Chapter 3: Conduct as Strategy 55
owners and managers will have to direct middle management and supervisors to gracefully release key employees from day-to-day operations to support the business ethics program.

56 Business Ethics

Authority

Most managers think about power too narrowly.To them, power is the

control that comes from formal authority associated with position: the

power to give orders to subordinates and know that their orders will be

followed.This power is, in fact, in increasingly short supply. In today’s environment, that kind of license is not likely to expand since it presumes a

static world in which leaders know all problems in advance and their

expertise perfectly matches their organizational position.

David L. Bradford and Allan R. Cohen

Power Up

PRACTICE

NOTE

BUILD IN CONTINUOUS IMPROVEMENT

A business ethics program involves so many levels of the enterprise and so

many of its operations and functions that the process itself must be designed

for continuous improvement. Moreover, other programs not usually considered part of a business ethics program should be integrated with it:

• Quality management programs

• Preferred supplier programs that help an enterprise integrate responsible suppliers into its operational “family” 

• Environmental, health, and safety programs to meet responsibilities to

employees and the environment

• Human resource programs to be fair to employees

• Sexual harassment programs to protect employees from abuse

• Labor–management programs to respect employee rights to collectively bargain 
Chapter 3: Conduct as Strategy 57

This process of continuous improvement requires built-in flexibility and

frequent reference to a plan of action, milestones, and interim objectives. As

is the case for the other principles, this process should be based on the core

beliefs of an RBE itself.

Engaging the Enterprise’s Stakeholders

For an enterprise to be responsible, its management must understand what

its stakeholders expect and work with them to form reasonable expectations.21

This is the case for every enterprise, whether it is an LCE or an SME. The

discussion that follows addresses specific functions in the business ethics program design and implementation process with the owners and managers of

an SME in mind. How they choose, in practice, to staff the functions will

depend on the size, complexity, and resources of the enterprise.

An RBE recognizes that its stakeholders cannot be easily labeled. Some

employees will also be customers or consumers of its goods or services. They

may hold stock or options on stock in the enterprise and may be owners.

They may live in communities affected by waste products leaked into the

environment by the enterprise. They will have neighbors who have strong

opinions about the way the enterprise does business. They look to government to provide good roads and other services, which may be compromised

by business bribery and corruption. As one scholar notes, “the notion of

‘stakeholder’ suggests discrete groups or entities, whereas the primary

source of dilemmas in business ethics is the fact that virtually all of us wear

(at least) two hats.”22

To be effective, efficient, and responsible, an enterprise must have core

beliefs that include an envisioned future of what its stakeholders can reasonably expect—and how it will be held accountable. The discipline of responsible business conduct helps owners and managers engage stakeholders to

foster their reasonable expectations.

ENGAGING STAKEHOLDERS IN THE DESIGN PROCESS

Before turning to the RBE Worksheets described in the following chapters,

we must discuss who should be involved in the project of designing and

implementing the business ethics program. Engaging stakeholders as early

as possible applies the core beliefs and principles of an RBE, leads to better

information on which to base design decisions, and builds goodwill with

stakeholders. This principle applies to all enterprises—whether large or

small. Although an SME may have far fewer stakeholders than an LCE,

each of its stakeholders may have far more influence in the success of the

SME as a result.23
Project objectives will be achieved only if the project is staffed with people who fully subscribe to them, have the knowledge they need when they

need it, and are trusted throughout the enterprise. These people undertake

a variety of roles and responsibilities, enter and exit the project at various

points, and can be thought of as key players, support staff, and stakeholder

representatives. They generally maintain their normal duties within the

enterprise during the design process. 

BRINGING TOGETHER THE KEY PLAYERS

In the early stages of the project, there should be a designated program catalyst—usually an owner or the chief executive of the enterprise—who drives

the project. His or her involvement will gradually decline as the project progresses, but he or she will retain responsibility to support the significance of

the project objectives.

A project officer is primarily responsible for developing good ideas and

approaches and inspiring people to embrace the eventual plan. He or she

plays a prominent and important role in the early stages of the project.

Ideally, the project officer is an employee familiar with the operations of the

enterprise—but often the skills, time, or effort required to drive the project

are not available within the enterprise. The enterprise might then retain a

trusted adviser, such as an accountant or attorney, or might employ an independent consultant.

It is valuable for owners and managers to create special working groups to

develop project objectives, scope of work, and roles and responsibilities.

58 Business Ethics

Note to LCEs: Outside Project Officers

Often political considerations argue against senior and middle managers

of an enterprise being involved as project officers. If so, the enterprise

may consider bringing in an outside project officer.

PRACTICE

NOTE
Such a group (sometimes called a “task force”) can serve as adviser, 

sounding board, and eyes and ears of the project as it progresses. With the

assistance of staff, the working group can draft key documents and 

concept papers. 

As the project progresses, the working group can serve as voice of the

project. The group can communicate progress to the other stakeholders and

test for reaction to date. Its members may be especially effective at evaluating the effectiveness of project communications. Indeed, if properly constituted, the working group can perform much of the reporting function that

might otherwise have to be placed on managers.

It is important to organize and build a project network to bring in more

varied perspectives. Such a network is composed of various designated

enterprise and external stakeholder consultants, who are individuals respected

for their subject matter expertise or are recognized leaders and opinion

molders. They become resources to whom the staff or working group can

turn for information or reaction.

It is valuable to have resource teams available to a working group on short

notice, such as legal counsel; environment, health, and safety personnel; and

an investor relations team. Individuals or teams can be assigned to research

particular elements as subject matter experts.

Chapter 3: Conduct as Strategy 59

Note to LCEs: Committees and Consultants

Global best practices suggest that the following committees be formed and consultants be hired:

• A decision-making committee is regularly briefed on the status of the project and makes the 

executive-level decisions that arise through the course of the project.

• A project steering committee serves as a standing committee to provide information and 

guidance to the various project agents.

• Management-level consultants present the management perspective on the project.

• Worker-level consultants present the shop-floor perspective on the project.

• External stakeholder consultants present the perspectives of stakeholders outside of the 

organization. PRACTICE

NOTE
USING THE RBE WORKSHEETS

At the heart of the design and implementation of a business ethics program is

a structured approach to (a) understand the pressures facing the enterprise, its

employees, and its agents, and (b) understand its organizational culture, and

(c) systematically enhance its strengths and reform its weaknesses through

appropriate standards, structures, systems, and practices. The RBE

Worksheets described in the following chapters help guide owners and managers through a systematic process of collecting and analyzing data about the

enterprise’s organizational context and culture. They can then use their findings to answer fundamental questions about how the enterprise should be

organized and operated.

To use an RBE Worksheet, representative members of the enterprise

and external stakeholders should form a working group. To include more

voices, owners and managers might choose additional stakeholder representatives. Role-playing employees are often preferable to external stakeholders

to preserve privacy and confidentiality. The average SME might simply

invite key stakeholders in for a talk over tea or coffee about their needs and

concerns—and how the enterprise might meet them better.

Generally, an RBE Worksheet is a table with multiple elements or cells

to stimulate dialogue and decision-making. The working group engages in

a facilitated dialogue about each element of an RBE Worksheet, from the

60 Business Ethics

Relevant Context Data Collection

RBE W ORKSHEET

2

RBE Worksheet 2 provides a tool to help owners and managers scan the external context issues an enterprise faces by 

context element—legal, economic, political, environmental, socio-cultural, and technological—and by the pressures faced in 

each element—threat, opportunity, demand, constraint, and uncertainty. 

In filling out this worksheet, as many stakeholder perspectives as possible should be obtained for each element. For example, 

the economic element might be filled out as follows:

Threat Opportunity Demand Constraint Uncertainty 

Economic New 

competition 

enters the 

market.

Competitor 

introduces new 

products.

Infrastructure is 

inadequate.

New market is 

available.

Tariffs have been 

reduced. 

Customer 

expects quality.

Industry has 

standards for 

certification. 

Value of currency 

and interest rates 

may change.

Supply chain is 

inadequate.

Infrastructure is 

weak. 

FIGURE 3.3

Extract of RBE

Worksheet 2
perspectives of the enterprise and its stakeholders. For each element in an

RBE Worksheet, there will be at least one item of information of value to

the enterprise. 

For example, “Relevant Context Data Collection,” RBE Worksheet 2

(Chapter 4), is composed of context element and stakeholder pressure

cells. In the portion of the worksheet extracted in Figure 3.3, there are cells

for five types of pressures: threat, opportunity, demand, constraint, and

uncertainty. As the typical enterprise scans its relevant context, it will find

threats from competition, potentially both foreign and domestic. Another

threat might be a stagnant economy or an anticipated rise in interest rates

or adverse currency fluctuation. There may also be opportunities, such as

new products, markets, or strategic alliances. There will be economic

demands to do certain things, such as meeting new quality standards. There

will be some things the enterprise cannot do—that is, constraints established by law, reglulations, or industry norms and standards. There will be

many economic factors that create uncertainties.

A working group should explore each cell, throwing out as many ideas as

possible. All members should participate, and no idea should be considered

unacceptable. Then they should go back over the ideas and discuss how the

ideas may relate to one another. When the ideas themselves have been

organized and evaluated, the group can work through their implications by

asking, “If _____ is true, what does it mean for our enterprise?”

If subject matter experts are engaged, they should contribute to, but not

dictate, the conditions of dialogue. After analyzing the data, the working

group should take adequate time to reflect on what it means. The participants might then appoint a smaller team to synthesize what was learned; to

make findings, conclusions, and recommendations; and to develop a report

for use as a planning document. Routing drafts of the report to all participants helps develop consensus and commitment.

The working group should expect to make a more or less formal presentation of the report to management. The approved report then becomes a

key planning document.

Chapter 3: Conduct as Strategy 61
62 Business Ethics

TABLE 3.1 Business Ethics Program Development Process

Step

1. A high-level decision or commitment to develop the

business ethics program is made.

2. A working group develops information requirements.

3. A working group develops an initial draft of a 

document or concept paper.

4. Senior managers review the draft.

5. A working group integrates the managers’ comments and

produces a second draft.

6. A representative stakeholder group reviews a later 

draft and provides comments.

7. A working group integrates the stakeholder group’s 

comments and produces a final draft.

8. Senior managers make a final review of the document

or concept.

9. Owners or their representatives review and approve 

the business ethics program as a whole.

Owners and managers communicate to the enterprise as a whole their commitment to the

project and give guidance to key players.

As the design and implementation project begins, a working group will accumulate data, determine what more information is needed, and identify sources for such information, including

external stakeholders.

When the working group has accumulated the information it needs or has arranged to receive

it in due time, it develops the initial draft of a document, such as a code of conduct or a

concept paper on, for example, how an ethics office might be structured. Consultant individuals

or groups as well as enterprise staff members provide input for the draft.

Senior managers review the draft and return it with comments. This step is an integral part of

the drafting process, and the comments provide a management perspective to the drafting.

The working group will redraft the document or concept paper and resubmit it to the senior

managers as many times as necessary. Often, the group will find that it needs more information or more perspectives.

When the document or concept paper nears its final state, the working group can present it

to representative stakeholder groups to gauge their reactions—and receive their feedback. This

step often provides an excellent opportunity to conduct interviews and focus groups.

By this point, the working group should have all the information it needs and should have

considered as many perspectives as possible.

Senior managers give the document or concept paper a final review and approve it before it

is presented to the owners or their representatives. Senior managers are charged with ensuring

that the document or concept is sound and consistent with enterprise core beliefs. Often their

approval is tentative, pending the development of other documents or concepts.

When all documents and concept papers have been assembled, the program should take form,

and the owners or their representatives should review and approve the paper.

Direction

Adopting a Design, Review, and Approval Process

This manual recommends the process shown in Table 3.1 for developing,

reviewing, and approving each element of a business ethics program. As

discussed in more detail in Chapters 5 through 8, such elements include a

code of conduct and concept papers on specific issues, such as a concept for

how a business ethics office might be structured. In the process of creating

these documents, any step along the way may be revisited, including the

first step, until the document or concept paper is approved as part of a

complete system.
SUMMARY

The RBE needs to take a number of practical steps before establishing a

business ethics program. Owners and managers must determine the

approach and orientation of its business ethics program. They must identify

and engage all of an enterprise’s stakeholders, foster their reasonable expectations, and order the enterprise’s business affairs so that it improves its business performance and increases the prosperity of its community by meeting

those expectations.

The responsible business enterprise operates at all four levels of identity: compliance, risk management, reputation enhancement, and value added.

It meets all legal requirements through an effective program to prevent and

detect misconduct. It works to ensure that its organizational culture does not

encourage or tolerate misconduct. It also works to identify and reduce the

risks it faces in its markets. In addition, an RBE goes beyond these two lower

levels to enhance its reputation and add value to its community.

A business ethics program has nine structural components that reflect

global standards and best practices of responsible business conduct:

1. Standards and procedures to guide member behavior and foster reasonable stakeholder expectations

2. Adequate structures and systems that provide for authority, responsibility, accountability, and sustainability

3. Communication of standards, procedures, and expectations to the enterprise’s members

4. Programs that monitor and audit member conduct

5. Encouragement of members to seek advice and report concerns

6. Due diligence in hiring, especially for sensitive positions in, for example,

management, finance, and contracting

7. Encouragement of members to follow standards and procedures 

8. Appropriate responses when standards and procedures are violated

9. Regular evaluations of program effectiveness

Many enterprises have published standards of responsible business behavior.

Over the past two decades, in particular, they have developed a body of best

practices that enterprises in emerging market economies can consider and

adapt for their circumstances.

Chapter 3: Conduct as Strategy 63
64 Business Ethics

RESPONSIBLE BUSINESS ENTERPRISE

Checklist

1. How adept is your enterprise at dealing with change? 

2. How many of the components of a business ethics program does

your enterprise have?

3. What level of identity is your enterprise most concerned about?

Compliance? Risk management? Reputation enhancement? Value

added? 

4. If your enterprise were to initiate a business ethics program, how

would it go about engaging its stakeholders?

5. How are important decisions made in your enterprise? Is there a

process of engaging stakeholders involved in such decisions?
65

4

This chapter is intended to introduce owners and

managers to the process of developing, reviewing,

and approving a business ethics program. It elaborates on the process for designing a business ethics

program described in Chapter 3.

The chapter first helps owners and managers

develop the measures through which they will evaluate program effectiveness. It will show how to

graphically portray the elements of the program in

a business ethics program logic model. It then turns

to developing a toolkit for owners and managers to

use in designing and implementing their business

ethics program.

Planning an Effective Business Ethics Program 

Before going forward in the design and implementation process, owners and managers need to decide

what they are trying to accomplish through their

business ethics program. An effective program will

have specific, action-oriented, relevant, and timely

performance measures. Also, essential to a business

ethics program are mechanisms to measure the program’s performance. Chapter 10 examines more

fully the design of a performance measurement system for a business ethics program.

For the responsible business enterprise (RBE), an

effective program is one that achieves expected outcomes and integrates well into the enterprise itself. As

one ethics officer in a recent study observed, “Ethics 

Creation of a Business

Ethics Program

• Planning an

Effective

Business Ethics

Program

• Understanding

the Program

Logic Model

• Scanning the

Relevant Context

• Scanning the

Enterprise’s

Internals
programs become truly effective to the extent that they can evolve and plug 

into where a company is going.”1 The study concludes that a well-integrated

program is one that (a) is aligned with an organization’s core beliefs; (b) fits

well with organization systems, policies, and practices; (c) addresses leadership priorities as well as employee expectations for ethics; (d) is used by

employees at all levels to guide decision-making and action; and (e) becomes

a central part of an organization’s culture over time.2

There are two principal areas to consider in setting business ethics

program objectives: (a) how owners and managers think the organizational culture will be affected and (b) what specific outcomes owners and managers desire from the program. Although it is difficult to measure directly

the extent to which values such as trust and integrity are shared, there are

a number of specific outcomes affecting the organization’s culture that can

be expected from such a program and that are valuable to monitor, track,

and report.

ESSENTIAL CHARACTERISTICS OF ENTERPRISES

A number of elements of organizational culture will give owners and managers a profile of the enterprise to help them design and implement an effective business ethics program. These include five characteristics of a highly

effective organization and eight influential cultural factors. When tracked

and measured over time, these elements will be extremely valuable in evaluating program success. 

Importance of Organizational Culture

The principal predictor of an effective business ethics program is the culture

of the organization itself. Responsible owners and managers will shape their

management, ethics, compliance, and social responsibility practices to

address nuances of the enterprise’s organizational culture.

Organizational culture is shaped by the organization’s origin and history as well as the values, norms, and attitudes of its owners, managers, and

other stakeholders. It is a bundle of assumptions about the way the world

works and the beliefs, values, symbols, languages, rituals, principles, rules,

and practices that consciously or unconsciously drive the thoughts, feelings,

and actions of the enterprise and its stakeholders.

Organizational culture influences what the organization senses, cares

about, and is capable of dealing with. It will influence how comfortable

employees and agents are with engaging the stakeholders. Culture also is a

source of conflict. As one noted scholar observed, “The world is full of confrontations between people, groups, and nations who think, feel, and act differently. At the same time these people, groups, and nations . . . are exposed

66 Business Ethics
to common problems which demand cooperation for their solution.”3

Responsible managers are challenged to find the common ground for enterprise stakeholders and to guide their employees and agents to meet their reasonable expectations.

Characteristics of Organizational Culture 

The first step in developing measures of an enterprise’s organizational culture is to develop a profile of the enterprise as a whole. This profile can be

captured in the following five characteristics:

1. Extent to which leaders and members alike embrace the organization’s

core purpose and values, and are adept at preserving them while stimulating progress

2. Extent to which leaders and members hold themselves responsible—and

others accountable—for high standards

3. Extent to which leaders encourage members—and members welcome

and accept the opportunity—to participate in organizational affairs

4. Extent to which leaders and members have the knowledge they need

when they need it

5. Extent to which conflict and mistakes made in good faith are seen as opportunities for learning and growth4

Indicators of Organizational Culture 

More specific than the profile described above are a number of measurable

indicators of organizational culture, which tend to be closely associated with

expected business ethics program outcomes. Eight such influential factors

are set forth below:

1. Perceiving that leadership cares about ethics and values as much as the

bottom line 

2. Feeling safe to deliver bad news

3. Feeling treated fairly

4. Feeling valued as an employee 

5. Not feeling pressured to compromise values 

6. Believing ethical behavior is rewarded

7. Believing unethical behavior is punished

8. Recognizing whether the enterprise has an employee, community, or

self-interest focus5

These factors reflect the styles of leadership and sense of fair play that characterize the enterprise. They are visible aspects of organizational culture.

Chapter 4: Creation of a Business Ethics Program 67
EXPECTED PROGRAM OUTCOMES

The primary purpose of a business ethics program is to help an enterprise

address all four levels of its identity as an RBE. The four levels, discussed in

detail in Chapter 3, are portrayed again in Figure 4.1. An effective business

ethics program will include a performance measurement system that captures program outcomes that reflect the goals and objectives of the enterprise. See Appendix A for a model that employees and agents can use to

make decisions with outcomes in mind. 

Tracking the following nine outcomes will help determine whether a business ethics program is effective for all four levels of identity:

1. How often violations of standards, including legal requirements, can be

observed (compliance and risk management levels)

2. How often responsible business conduct issues are raised at the workplace (all four levels) 

3. How often employees and agents speak in terms of core beliefs and standards (all four levels)

4. How often employees and agents make decisions based on core beliefs

and standards (all four levels)

5. How willing employees and agents are to seek advice on standards (all

four levels)

6. How willing employees and agents are to report observed or suspected

violations (compliance and risk management levels)

68 Business Ethics

COMPLIANCE

VALUE

ADDED

REPUTATION

ENHANCEMENT

RISK MANAGEMENT

FIGURE 4.1

Levels of an Enterprise’s

Identity
7. How satisfied those who reported observed or suspected violations are

with management’s response (compliance and risk management levels)

8. How committed employees are to the enterprise (value-added level)

9. How satisfied stakeholders are that the enterprise meets their expectations (reputation enhancement and value-added levels)6

BENCHMARKS AND BASELINES

When the data are collected and analyzed, they may be used in a number

of ways. They can give owners a picture of the culture, program processes, and business conduct of the enterprise. They can be used as baseline

data for comparison with subsequent data. They can also be used to compare the findings with those of other similarly situated enterprises (known

as benchmarking).

The first usage is helpful for owners and managers because it gives them

a sense of how their employees and agents view the fundamental workings of

the enterprise. Particularly valuable is comparing how managers, supervisors,

and workers answer the same questions. Often, the answers are so different

that one might wonder if the respondents work for different enterprises.

These data also permit comparison between different plants and locations.

For large, complex enterprises (LCEs), regional differences can be explored. 

Where program evaluation is done on a regular basis—every one to

three years, for example—the data serve as baseline data. Once a baseline of

organizational culture, processes, and expected program outcomes is established, owners and managers can compare later data with the baseline to

detect patterns and identify trends over time.

A final use is to compare the organizational culture, program processes,

or expected program outcomes with other enterprises that establish benchmarks of practices or conduct. Benchmarking can be an effective practice if

it compares program processes, such as code of conduct formats, business

ethics office organization, or help-line procedures. For analyzing organizational culture or expected program outcomes, however, benchmarking is

very difficult to do well, for a number of reasons. 

Very little data are available publicly beyond large national surveys for

program outcomes. Enterprises that do evaluate their programs for organizational culture and outcomes seldom share the data with the public.

Moreover, business ethics programs are so fundamental to the very identity

of an enterprise that it would be difficult to make meaningful comparisons

that take into account differing organizational culture, program process, and

expected program outcomes. 

Chapter 4: Creation of a Business Ethics Program 69
Moreover, the real question is why owners and managers would want to

spend valuable resources comparing their enterprise with other enterprises

since the goal of a responsible business is to meet the reasonable expectations

of their stakeholders, not to compare favorably with some other enterprise

having different stakeholders. For example, how much comfort will owners

and managers derive from finding that their employees observe half the

amount of misconduct found by the Ethics Resource Center described in

Box 4.1?7 A favorable comparison alone does not help the enterprise learn

what it is doing right, or even whether the data are accurately collected. In a

culture of distrust, for example, employees will often refuse to answer a question about misconduct or will answer it incorrectly.

Understanding the Program Logic Model

Before beginning to design and implement a business ethics program, owners and managers must have a firm understanding of what will be required

for the program to achieve its expected outcomes effectively, efficiently, and

responsibly. A simple, but powerful technique to capture and communicate

the who, what, and why of any program is the program logic model.8

All management programs have common components. Typically, a situation presents a challenge to the enterprise. Owners and managers establish

goals and objectives to meet the challenge. They develop a strategy and an

action plan or program to achieve those goals. The action plan or program

requires input in the form of resources, contributions, and investment.

These resources are used by employees and agents through activities with

participants to generate output: goods, services, events, and communications. These activities and their output lead to expected program outcomes,

the changes or results in people, enterprises, communities, or societies that

occur over the short to long term.9 See Appendix A for a sample outcomesbased decision-making model. 

70 Business Ethics

EMPLOYEE MISCONDUCT

According to the National Business Ethics Survey 2003, published

by the Ethics Resource Center, 22 percent of all employees surveyed reported having observed at least some misconduct within

the past year (4 percent frequently and 12 percent occasionally).

This finding represented a decline from the 31 percent of all

employees who observed misconduct in two previous surveys

(2000 and 1994).

Ethics Resource Center, 2003

National Business Ethics Survey

BOX 4.1
A program logic model helps planners organize their thinking and

encourage stakeholder engagement. It is a particularly effective means of

graphically describing the elements of a business ethics program to the owners (or their representatives), senior management, employees and agents, and

other stakeholders. A program logic model worksheet (RBE Worksheet 1) is

provided at the end of this chapter. Owners and managers can use the program logic model to stimulate dialogue and graphically portray how they

envision their business ethics program working. A business ethics program

logic model can be completed in four nonlinear steps:

1. Situation: Describe the specific problem or issue. For example, a large

customer may be requiring its downstream suppliers to comply with

global standards. Or, as is currently the case in the United States, regulatory authorities may require that a listed enterprise have some of the elements of a business ethics program.

2. Outcome: Determine what the expected program outcomes are. That

is, develop the measurable indicators that owners and managers want to

accomplish over time that will address the problems or issues of their situation (for example, increased issue awareness or reduced irresponsible

behavior). These are the reasons they are pursuing the program.

3. Process: Develop the action plans that owners and managers will pursue to

design and implement a business ethics program. They will want to address: 

a. Input: what they need to invest in terms of resources, including management attention 

b. Activities: what needs to be done to achieve the expected program

outcomes, such as establishing standards, procedures, and expectations and conducting training and education

c. Participants: the stakeholders who will be involved in each activity

d. Outputs: what will actually be produced, such as, a code of conduct,

three specific policies, or 50 percent of all employees trained within

the first year

4. Contributing factors, including assumptions: Describe the factors and

assumptions that owners and managers considered in designing the business ethics program, such as the enterprise’s capacity to draft a code of

conduct or conduct training, the industry standards that apply, and the aspects of the organizational culture that they need to be concerned about.

Scanning the Relevant Context

Whether an economy is already developed or emerging, owners and managers in that economy should scan the relevant context of their enterprise to

Chapter 4: Creation of a Business Ethics Program 71
identify the pressures it places on the enterprise, its employees, and its

agents. These pressures take five forms: threats, opportunities, demands,

constraints, and uncertainties. 

This section describes the process of collecting the essential items of

information about the relevant context that owners and managers need to

design and implement an effective business ethics program. It describes two

ways policy-makers, owners, and managers can analyze and synthesize these

data collected: by context element or by stakeholder.

IMPORTANCE OF CONTEXT

All enterprises—whether large or small—strive to meet enterprise goals and

objectives in a context of legal, economic, political, environmental, sociocultural, and technological elements. Known as the relevant context of the

enterprise, these elements bring pressures to bear on the enterprise, its

employees, and its agents.

Legal Element

Government creates the legal framework in which market processes operate.

As a sovereign entity, a state regulates private activities to protect or promote

the general welfare of its citizens and residents. Depending on the level of

state involvement in market processes, this regulation will involve, to one

degree or another, public health, safety, morality, and dispute resolution. 

Government regulation also defines how limited liability businesses,

such as corporations, limited partnerships, and joint stock companies, are

formed and what the limits of their liability are. Government regulations

define the generally recognized corporate governance roles and responsibilities of directors, managers, and shareholders. Indeed, it may be that this

tendency to define these roles and responsibilities in such detail is what discourages more discussion of corporate governance in terms of ethics and

public policy. The very law that establishes minimum standards often comes

to define the ceiling as well.

In emerging market economies, institutions are often not sufficiently

independent or strong to enforce the law consistently. Indeed, law enforcement engaging in petty corruption may be a part of the problem.10

Economic Element

An RBE must consider the nature of its market and the amount of trust that

characterizes exchange transactions. In emerging market economies, the

economic system is often unstable and characterized by frequent crises, causing businesses to seek short-term profits at the expense of long-term growth.

Instability and lack of trust increase the cost of each transaction as the par72 Business Ethics
ties take expensive steps to protect themselves or avoid entering into a transaction at all. Such a climate can also foster a high tolerance for activities that

are unethical, such as an individual using an enterprise’s assets for personal

gain or paying small bribes to move a transaction along. At the same time,

the cost of regulation is often so high that shadow markets emerge, making

it more difficult for the RBE to compete ethically. 

Consumer expectations are a key economic factor. For example, consumers may be more or less discriminating. High quality may be more or

less expected. Brand names may be more or less important. Employee economic expectations are also important. For example, employment security

and compensation expectations differ significantly depending on where an

enterprise is located. Privacy expectations for e-mail usage on company

time also differ, as do employee expectations about policies such as the hiring of relatives.11

Political Element

In scanning its relevant context, an RBE needs to understand the kind and

degree of government influence in the market, how laws and regulations

come about, who has practical access to influencing them, and the degree

of government control over the economy. Government presence in the

trade and investment sector often restricts trade: decreasing competition,

creating opportunities for corruption, and increasing costs to business.

Regulation in the form of decrees may distort the basic rules set by laws.12

A principal test is the extent to which consumer interests will be sacrificed

to protect producers.

Environmental Element

The physical world in which we live forms the widest relevant context for

the business enterprise to consider and its most controversial element. The

planet itself is a system of interdependent ecosystems that has evolved over

millennia in a process of creation and destruction. Human beings are an

integral part of this system and the first to influence consciously its evolution. An RBE is concerned with how to be a part of this process responsibly. It must be adept at recognizing environmental issues and consequences. As a leading textbook notes: “Each [environmental] case, involves

a highly individualized set of scientific facts, economic and political issues,

and social and natural consequences.”13

Socio-cultural Element

In addition to organizational culture, each enterprise and its members

operate within—and are products of—the broader cultures around them.

Culture creates collective patterns of thinking, communicating, and acting

that influence the decisions, processes, and activities of the enterprise

Chapter 4: Creation of a Business Ethics Program 73
Stakeholder Pressure Data Collection

RBE W ORKSHEET

3

Uncertainty 

Customers

• Major

• Minor

• Other

Employees

• Managers

• Supervisors

• Workers

• Organized

• Families

Investors

• Shareholders

• Board

• Pension 

Funds

• Activists

Suppliers

Competitors

Community

Government

Environment

Threat Opportunity Demand Constraint

83
itself. It influences the mental models that employees and agents bring to

the job regarding fundamental issues of concern to managers, including

the following five “dimensions of culture,” developed by Geert Hofstede:

1. Social inequality, including the relationship with authority

2. Relationship between the individual and the group

3. Concepts of masculinity and femininity

4. Ways of dealing with uncertainty, relating to the control of aggression

and the expression of emotions

5. Long-term versus short-term orientation14

Culture influences the decisions of owners and managers regarding a range

of specific issues, including policies regarding conflict of interest, privacy,

and nepotism. Culture also influences the willingness of employees to report

misconduct, and the nature of the reward and punishment they will receive.15

Technological Element

An important consideration in planning and implementing a business

ethics program is the technology available to the enterprise and its stakeholders. Particularly important are computer and telecommunications

capabilities. For example, computer capability will influence how easily

recordkeeping, monitoring, and auditing can be accomplished.

Telecommunications capability will influence how owners and managers

exercise control and relay communications. 

RELEVANT CONTEXT AND THE SMALL TO MEDIUM-SIZED ENTERPRISE

As we explore the importance of context in this section, it is important to

recognize that, while all enterprises need to have a clear understanding of the

elements of their relevant context, the issues facing an LCE and a small to

medium-sized enterprise (SME) may be dramatically different in kind and in

degree of relative severity. For example, Table 4.1 includes a representative

sampling of how differently an LCE and an SME might see the issues their

relevant contexts present to them.

DATA COLLECTION, ORGANIZATION, AND ANALYSIS

This manual provides two tools to help owners and managers scan the external context issues. RBE Worksheet 2 aids in collecting relevant context data

for each context element: legal, economic, political, environmental, sociocultural, and technological. Each of these elements is examined in light of

the pressures faced: threat, opportunity, demand, constraint, and uncertainty. RBE Worksheet 3 examines the external context by stakeholder category

74 Business Ethics
and by the pressures different types of stakeholders bring to the enterprise.

Both worksheets are found at the end of this chapter.

This manual recommends that the enterprise form a working group to

collect, organize, and analyze the data, using the worksheets as a tool, and to

present the findings to the owners and managers.

Scanning the Enterprise’s Internals

In addition to scanning the enterprise’s relevant context, owners and managers also need to scan the internal structure and dynamics of the enterprise.

This manual offers two major tools to help analyze an enterprise’s internals.

The first is a questionnaire that can be used to develop the organizational

Chapter 4: Creation of a Business Ethics Program 75

TABLE 4.1 Relevant Context Comparison Chart

Element

Legal

Economic

Political

Environmental

Socio-cultural

Technological

Lacking familiarity with domestic legal institutions, fearing

local bias, and paying for third-country arbitration

Complying with anticorruption legislation and anti–money

laundering regimes in multiple countries and competing with

companies in countries without such legislation or where it

is not enforced

Dealing with technology transfer restrictions and national

boycotts

Meeting diverse consumer needs

Dealing with advocacy group boycotts against globalization

or specific practices

Managing the supply chain and creating strategic alliances

with companies having shared core beliefs

Imposing proper limits to the influencing of government laws

and regulations

Dealing with the capture of regulatory government agencies

through inappropriate relationships or unduly close industry

influence

Applying home-country environmental standards when the

host country’s standards are lower

Preserving core beliefs of a multinational enterprise in 

multiple cultures

Respecting customer privacy in collecting data over 

the Internet

Lacking awareness of rights

Lacking access to court systems and coping with delays

Dealing with laws and regulations that are disproportionately

burdensome for SMEs

Dealing with lack of enforcement and administrative 

corruption in system

Lacking bargaining power and sufficient infrastructure

Lacking access to foreign markets and the ability to 

convert currency

Lacking resources to identify consumer needs

Having no voice in government decision-making

Remaining competitive when other companies abuse the

environment to avoid costly waste disposal

Coping with a low level of latent entrepreneurship

Lacking access to telecommunications and 

information technologies

Typical LCE Issues Typical SME Issues
culture profile (RBE Worksheet 4). The second is based on the eight questions listed in Table 2.2 in Chapter 2 (RBE Worksheet 5). Both worksheets

can be found in the back of this chapter.

RBE Worksheet 4 can be used as a survey. Owners and managers can

average the survey results to develop a profile of the enterprise as seen in

Figure 4.2.

RBE Worksheet 5 helps owners and managers answer the eight questions discussed in Chapter 2. Each question is followed by examples of global standards and best practices that can help the RBE adopt appropriate

answers.16 Specific best practices are outlined in the chapters that follow:

standards and procedures (Chapter 5), business ethics infrastructure

(Chapter 6), business ethics communications and feedback (Chapter 7),

enterprise alignment practices (Chapters 8 and 9), and business ethics program evaluation and organizational learning (Chapter 10).

76 Business Ethics

FIGURE 4.2

Organization

Culture Profile
SUMMARY

Before going forward in the design and implementation process, owners and

managers need to decide what they are trying to accomplish through their

business ethics program. An effective program will have specific, action-oriented, relevant, and timely performance measures of organizational culture

and expected program outcomes.

A program logic model helps planners organize their thinking and

encourage stakeholder engagement. A program logic model is a particularly

effective means of graphically describing the elements of a business ethics

program to the owners (or their representatives), senior management,

employees and agents, and other stakeholders. Using RBE Worksheet 1, one

may capture the essential elements of an entire business ethics program on

one page.

This chapter offers a number of worksheets for owner and manager use:

RBE Worksheets to scan the external context and the enterprise interior

(RBE Worksheets 2–5).

With these processes in mind, Chapter 5 turns to how owners and managers establish enterprise standards of conduct and foster reasonable stakeholder expectations.

Chapter 4: Creation of a Business Ethics Program 77

RESPONSIBLE BUSINESS ENTERPRISE

Checklist

1. How well does your enterprise understand its relevant context?

What elements offer the most threats and opportunities? 

2. How well does your enterprise understand its own culture?

3. How would your enterprise use the RBE Worksheets? 
78

Business Ethics Program Logic Model

RBE W ORKSHEET

1

Situation Process Outcomes

Input Ouput Goal

 

Contributing factors, including assumptions:

• Enterprise and individual capacity 

• Program orientation and level of identity 

(see Chapter 3)

• Applicable standards of responsible business 

conduct (see Chapter 2) 

The specific 

problem or 

issue as framed 

and deemed 

worthy of 

attention

What we 

invest, such as 

manager 

attention, 

infrastructure, 

staff, time, 

budget, 

reputation

What we do to 

achieve 

enterprise goals 

and objectives, 

such as engage 

stakeholders, 

conduct training, 

provide advice, 

monitor and 

audit, field 

inquiries, 

investigate

What we 

produce and 

whom we reach, 

such as code of 

conduct, training 

units, help-line, 

formal inquiries, 

management 

response, reports 

to stakeholders 

Measurable indicators of 

progress toward goals 

and objectives, such as 

reduced irresponsible 

conduct, and increased 

issue awareness, adviceseeking, reporting of 

misconduct, satisfaction 

with management’s 

response, employee 

commitment, and 

stakeholder satisfaction

 Responsible Business

• Relevant context 

(see Chapter 4)

• Organizational culture 

(see Chapter 4)

Activities and

Participants

Short

Term

Med.

Term

Long 

Term

A program logic model graphically depicts elements of a business ethics program. The model below will assist planners 

of a business ethics program to organize their thinking and encourage stakeholder engagement. Owners and managers can 

use the program logic model to stimulate dialogue and graphically portray how they envision their business ethics 

program working. 

A blank worksheet, which may be photocopied for use within your organization, follows on the next page.
79

Business Ethics Program Logic Model 

RBE W ORKSHEET

1

Situation Process Outcomes

Input Ouput Goal

 

Contributing factors, including assumptions:

Activities and

Participants

Short

Term

Med.

Term

Long 

Term
80

Relevant Context Data Collection

RBE W ORKSHEET

2

RBE Worksheet 2 provides a tool to help owners and managers scan the external context issues an enterprise faces by 

context element—legal, economic, political, environmental, socio-cultural, and technological—and by the pressures faced in 

each element—threat, opportunity, demand, constraint, and uncertainty. 

In filling out this worksheet, as many stakeholder perspectives as possible should be obtained for each element. For example, 

the economic element might be filled out as follows:

Economic New 

competition 

enters the 

market.

Competitor 

introduces new 

products.

Infrastructure is 

inadequate.

Civil society 

advocates 

against product 

or practices. 

New market is 

available.

Tariffs have been 

reduced. 

Customer 

expects quality.

Industry has 

standards for 

certification. 

Value of currency 

and interest rates 

may change.

Supply chain is 

inadequate.

Infrastructure is 

weak. 

Threat Opportunity Demand Constraint Uncertainty

A blank worksheet, which may be photocopied for use within your organization, follows on the next page.
81

Relevant Context Data Collection

RBE W ORKSHEET

2

Legal

Economic

Political

Environment

Sociocultural

Technological

Threat Opportunity Demand Constraint Uncertainty
82

Stakeholder Pressure Data Collection

RBE W ORKSHEET

3

RBE Worksheet 3 helps owners and managers scan the external context by stakeholder category and the pressures 

stakeholders bring to the enterprise. In this tool, employees are included for balance.

In filling out this worksheet, as many stakeholder perspectives as possible should be obtained for each element. For example, 

the customers category might be filled out as follows:

Customers ABC enterprise 

is a major 

customer, but it 

may begin doing 

more of its 

contract work 

in-house.

XYZ Enterprise 

is a strategic 

partner and is 

bidding on a 

major contract.

Higher quality is 

demanded by 

ABC, but also 

lower prices.

XYZ's financial 

status may be 

affected if it fails 

to win contract.

XYZ requires 

that suppliers 

meet all 

International 

Labor 

Organization 

Standards. 

Threat Opportunity Demand Constraint Uncertainty

A blank worksheet, which may be photocopied for use within your organization, follows on the next page.
84

Organizational Culture Questionnaire

RBE W ORKSHEET

4

RBE Worksheet 4 may be used in an anonymous survey or as a device to stimulate dialogue. People answering each question 

should consider the organizational culture extremes and select one number in the range from 1 to 9. The survey results will 

allow owners and managers to develop a profile of the enterprise.

Poor 1 2 3 4 5 6 7 8 9 Good 

Organization’s core 

purpose and values are 

unclear or not embraced 

by its leaders and 

members; stimulating 

progress requires 

sacrificing the core 

purpose and values.

Leaders and members alike 

understand and embrace 

the organization’s core 

purpose and values and are 

adept at preserving them 

while stimulating progress.

Embrace Core Beliefs

Poor 1 2 3 4 5 6 7 8 9 Good 

Leaders, members, and 

agents try to avoid 

responsibility for their 

decisions and actions; they 

are reluctant to hold 

others accountable for 

organizational standards.

Leaders, members, and 

agents hold themselves 

responsible—and others 

accountable—for 

organizational standards.

Accept Responsibility

Poor 1 2 3 4 5 6 7 8 9 Good 

Leaders discourage 

members from 

participating in 

organizational affairs, or 

members are 

uncomfortable with or 

reject the opportunity to 

participate in 

organizational affairs.

Leaders encourage 

members to participate in 

organizational affairs, and 

members welcome and 

accept the opportunity to 

do so.

Encourage Employee Participation

continued on the next page
Poor 1 2 3 4 5 6 7 8 9 Good 

Leaders and members 

avoid conflict and 

mistakes, even if made in 

good faith; they are afraid 

to deliver bad news.

Leaders and members see 

conflict and mistakes made 

in good faith as 

opportunities for learning 

and growth.

View Conflict as Opportunity

Poor 1 2 3 4 5 6 7 8 9 Good 

Knowledge isn’t shared; 

leaders and members do 

not have the knowledge 

they need when they 

need it.

Knowledge is shared; 

leaders and members have 

the knowledge they need 

when they need it.

Share Knowledge

Poor 1 2 3 4 5 6 7 8 9 Good 

Leaders and members do 

not trust one another and 

are polite, careful, closed, 

and guarded; they listen 

superficially but inwardly 

reject what others say; 

they are afraid to criticize 

or to be criticized.

Leaders and members trust 

one another; they reveal to 

the group what they would 

be reluctant to reveal to 

others; they respect and use 

the responses they get; they 

can freely express negative 

reactions without fearing 

reprisal.

Trust One Another

85
86

Questions for the Responsible Business Enterprise

RBE W ORKSHEET

5

Owners and managers use this RBE Worksheet to determine what strategies and action plans they should pursue to move 

from where they are currently to where they believe the enterprise should be. From the myriad standards and best practices 

known, the enterprise should determine which standards and best practices to adopt. For example, in answering Q.1 

regarding standards, the following may be used as a reference:

• Sound set of core beliefs including core purpose, core values, and envisioned future17

• Modified OECD Guidelines for Multinational Enterprise/Corporate Governance beyond domestic requirements

• Minimum requirements of U.S. Federal Sentencing Guidelines for Organizations, including all industry standards and 

government regulations

Owners and managers may find, while analyzing how to fill a gap, that they had set unreasonably high or unnecessarily low 

expectations in their reference standards. Then, they can go back and reconsider their answers to the question.

Current

Practices

Gap

Analysis

Q.1 What norms, values, 

and standards should we 

set to guide our members 

and foster reasonable 

expectations among our 

stakeholders?

• Sound set of core beliefs

• OECD Guidelines for Multinational 

Enterprise/Corporate Governance

• U.S. Federal Sentencing Guidelines

• Australian corporate culture

 

Q.2 What style, 

structure, and systems 

of authority and 

responsibility at all levels 

should we exercise?

• Sound set of core beliefs

• Leadership styles

• Board-level committees

• High-level person responsible 

for program

• Executive-level ethics committee

• Ethics office

• Individual duty to report misconduct

Q.3 How can we most 

effectively communicate 

our standards and 

procedures and foster 

reasonable expectations 

among our stakeholders?

• Executive modeling

• Formal communications

• Orientation

• Ethics training

• Posters

• Newsletter

Reference Standards

continued on the next page
Gap

Analysis

Q.4 How can we know 

that our members follow 

our standards and that 

reasonable stakeholder 

expectations are met?

• Independent audit committee

• Audit department

• Ethics office investigation resources/ availability

• Mechanisms free of fear of retaliation

• Organizational ombudsman

• Policy on retaliation

Q.5 How can we ensure 

that we have the right 

people in the right places 

while we pursue our 

purpose as an enterprise?

• Recruiting

• Hiring

• Skills training

• Assignment 

• Promotion

• Termination 

Q.6 How can we 

encourage our employees 

and agents to follow our 

standards and 

procedures?

• Recognizing ethical behavior equal to 

standards in tough situations

• Punishing behavior not to standards

• Consistent compensation schemes, 

especially bonuses and incentive pay

Q.7 What do we owe 

our stakeholders when 

mistakes, misconduct, or 

misunderstandings occur 

that involve our standards 

and procedures or their 

reasonable expectations?

• Voluntarily reporting mistakes and 

misconduct

• Cooperating with proper authorities

• Correcting harm caused

• Conducting training in required 

skills and knowledge 

Q.8 How should we 

monitor, track, and report 

our performance as an 

enterprise and continuously 

learn from it?

• Tracking, measuring, and reporting to 

stakeholders

• Establishing program goals and 

objectives

• Developing appropriate action plans

• Establishing performance indicators

• Developing performance 

measurements

• Instituting data recording, collection, 

and analysis 

• Establishing reporting frameworks 

and schedules

Reference Standards

Current

Practices

87

A blank worksheet, which may be photocopied for use within your organization, follows on the next two pages.
88

Questions for the Responsible Business Enterprise

RBE W ORKSHEET

5

Current Practices Gap Analysis

Q.1 What norms, values, 

and standards should we 

set to guide our members 

and foster reasonable 

expectations among our 

stakeholders?

Q.2 What style, 

structure, and systems 

of authority and 

responsibility at all levels 

should we exercise?

Q.3 How can we most 

effectively communicate 

our standards and 

procedures and foster 

reasonable expectations 

among our stakeholders?

Reference Standards

Q.4 How can we know 

that our members follow 

our standards and that 

reasonable stakeholder 

expectations are met?

continued on the next page
Q.5 How can we ensure 

that we have the right 

people in the right places 

while we pursue our 

purpose as an enterprise?

Q.6 How can we 

encourage our employees 

and agents to follow our 

standards and 

procedures?

Q.7 What do we owe 

our stakeholders when 

mistakes, misconduct, or 

misunderstandings occur 

that involve our standards 

and procedures or their 

reasonable expectations?

Q.8 How should we 

monitor, track, and report 

our performance as an 

enterprise and continuously 

learn from it?

Reference Standards Current Practices Gap Analysis

89

I I

The Business

Ethics Program

III

Structuring the

Business Ethics

Program

93

5

The responsible business enterprise (RBE) establishes appropriate standards of conduct for its

employees and agents and fosters reasonable expectations among its stakeholders. This chapter

describes basic principles and best practices to help

owners and managers develop, review, and approve

such standards, procedures, and expectations.

Standards and Procedures 

The first question owners and managers of an RBE

must ask themselves is, “What norms, values, and

standards should we set to guide our members and

foster reasonable expectations among our stakeholders?”1 Their answers define how the RBE will improve its performance, make profits, and increase the

prosperity of its community by learning to meet the

reasonable expectations of its stakeholders. Whether

an enterprise is large or small, the question of what

standards, procedures, and expectations to establish

touches all aspects of an enterprise. 

HOW THE RBE DIFFERS FROM OTHER

ENTERPRISES

All enterprises set standards and procedures and foster stakeholder expectations. What distinguishes an

RBE from other enterprises is that its owners and

managers consciously develop the RBE’s standards,

procedures, and reasonable expectations as the surest

Standards, Procedures, and

Expectations for the

Responsible Business

Enterprise

• Standards and

Procedures

• Responsible

Governance

• Principles for

Setting

Management

Standards,

Procedures, and

Expectations

• Management

Vision for the

Enterprise

• Management

Standards,

Procedures, and

Expectations

• Typical Code of

Conduct

Provisions
route to improving performance, making profits, and contributing to economic progress. 

A well-designed and well-implemented business ethics program provides all members of an enterprise with the guidance and information they

need for effective, efficient, and responsible choices and actions. Employees

and agents need to know what performance is expected of them. They need

to know what they should do—and what they shouldn’t do—to meet performance goals and objectives. All stakeholders, both internal and external,

have expectations of the enterprise, which are more or less reasonable. An

effective business ethics program helps owners and managers develop standards, procedures, and expectations that establish the following:

• Who has authority to do what within the enterprise

• Who is responsible for which decisions and activities 

• How people will be held accountable for their individual choices 

and actions

• What stakeholders can reasonably expect from the enterprise

An RBE develops standards, procedures, and expectations with complete

understanding of its relevant context and organizational culture.2

WHY STANDARDS AND PROCEDURES ARE IMPORTANT

There are many reasons for an enterprise to set standards and procedures for

its employees and agents and to foster reasonable expectations among its

stakeholders. Standards, procedures, and expectations help focus the energy

of employees and agents on achieving enterprise goals and objectives. They

let stakeholders know what they can expect.3 When standards and procedures

are clear and stakeholders hold reasonable expectations, relationships based

on trust are possible. The enterprise accumulates the social capital it needs to

compete effectively, efficiently, and responsibly in global markets.

When standards, procedures, and expectations are not well established,

owners and managers may not safely delegate their authority or expect stakeholders to be well served. The enterprise will often find its members operating at cross-purposes, because it is not clear what is expected of them. Its

strategies and action plans will lack focus and power. When standards, procedures, and expectations are unclear, it cannot readily measure its performance.

Holding an employee or agent accountable for bad faith or poor judgment is

unfair if the criteria are uncertain. Stakeholders, both internal and external,

may become frustrated, cynical, or distant because their expectations have not

been realized. Investor confidence, customer satisfaction, status as a preferred

supplier or strategic partner, and employee morale will be at serious risk.

94 Business Ethics
HOW EMPLOYEE CREATIVITY CAN BE PRESERVED

Standards, procedures, and expectations are more than just control mechanisms. They give the guidance employees and agents need so that they can

choose and act confidently. A well-developed set actually provides a sense of

stability. If owners and managers honor their own policies, employees and

agents can act freely and confidently within defined boundaries.

Considerable human potential can be realized because employees and agents

no longer fear being punished for violating some standard of which they are

not aware. They will have bounded freedom to use their considerable imaginations and talents to perform on behalf of the enterprise.4

Standards, procedures, and expectations establish criteria for the development of policies and performance measurement. They are the basis for

determining whether choices or actions were made or taken in good faith or

reflect good judgment. The confidence and creativity that standards, procedures, and expectations bring to an enterprise and to its employees and

agents build trust over time when everyone in the enterprise understands

them and acts consistently. 

Chapter 5: Standards, Procedures, and Expectations 95

Setting Employee Expectations

Employee relations at Nucor are based on four clear-cut principles:

1. Management is obligated to manage Nucor in such a way that

employees will have the opportunity to earn according to their

productivity.

2. Employees should feel confident that if they do their jobs properly,

they will have a job tomorrow.

3. Employees have the right to be treated fairly and must believe that

they will be.

4. Employees must have an avenue of appeal when they believe they

are being treated unfairly.

PRACTICE

NOTE

Nucor Fastener Division

“Nucor’s Management Philosophy”
Responsible Governance

There is a flow of authority, responsibility, and accountability throughout all

enterprises. At the top of this flow are the owners or their representatives.

The owners or representatives of an RBE follow a three-step process to

establish policy guidelines for responsible governance. First, they delegate

some measure of authority to managers. Next, they establish the purpose of

the enterprise, including the value it brings to its community.5 Third, they

establish clear limitations or constraints on the exercise of the authority they

granted. These policy categories are comprehensive: they embrace all choices and actions of the enterprise’s employees and agents—managers, supervisors, and workers.6

Following the responsible governance policies and procedures of the

owners or their representatives, managers define methods, activities, conduct, and tasks for employees at all levels and for agents. They define the

core beliefs of the enterprise and establish the guidance that employees and

agents need to meet reasonable stakeholder expectations.

Where there are owner representatives, such as a board of directors,

these representatives also define the purpose, functions, and character of

their own governance. These policies define how they will work together

and their commitment to doing so.

RESPONSIBLE GOVERNANCE PROCESS

The policy governance commitment statement in Box 5.1 is an example of a

general statement that describes the purpose of a board of directors.7 Three

96 Business Ethics

The purpose of the board, on behalf of the shareholders, is to

see to it that the company (a) achieves appropriate results for

shareholders and (b) avoids unacceptable actions and situations.

1. Accountability Philosophy: The board’s fundamental accountability is to the shareholders.

2. Social Responsibility: Although the board accepts as its primary

obligation to operate in the best interests of shareholders,

that fidelity is tempered by an obligation to the social order

and to be a good member of the community.

3. Directors’ Conduct: The board commits itself and its members

to ethical, businesslike, and lawful conduct, including members’

proper use of authority and appropriate decorum when acting

as directors.

John Carver with Caroline Oliver

Corporate Boards That Create Value

BOX 5.1

POLICY GOVERNANCE COMMITMENT
specific provisions are particularly important: accountability, social responsibility, and directors’ conduct. An accountability philosophy statement

affirms the board’s understanding that its primary responsibility is to the

shareholders it represents, not management. A social responsibility statement affirms the board’s understanding that, while the board owes faithful

attention to the interests of shareholders, it also must pay attention to social

order and must see that the enterprise is a good member of a community.

Finally, a director’s conduct statement commits individual board members to

ethical, businesslike, and lawful conduct. 

BOARD–MANAGEMENT DELEGATION

In situations when owners are not actively engaged in an enterprise, they or

their representatives will delegate a substantial amount of their authority to

management. Responsible governance calls for such authority to be delegated to one person. That person, whether called the chief executive officer

(CEO), president, or general director, is given the authority to manage

everyone else in the enterprise. A sample policy delegating authority to management is set forth in Box 5.2.8

Under this arrangement, the lines of authority are clear. The owner

representatives have one employee for operational purposes: the CEO.

The CEO, in turn, is accountable to the board itself. The CEO will delegate some of his or her authority to other employees through standards,

procedures, and expectations, but the CEO remains accountable to the

board for all decisions made and actions taken.

Chapter 5: Standards, Procedures, and Expectations 97

Delegation to the CEO

The board’s sole official connection to the operational company,

its achievements, and its conduct will be through a chief executive officer (CEO).

1. Unity of Control. Only officially passed motions of the board,

speaking authoritatively as a group, are binding on the CEO.

2. Accountability of the CEO. The CEO is the board’s only official

link to operational achievement and conduct, so that all authority and accountability of management is considered by

the board to be the authority and accountability of the CEO.

3. Nature of CEO Delegation. The board will instruct the CEO

through written policies that prescribe the shareholder benefit

to be achieved and describe organizational situations to be

avoided, allowing the CEO reasonable interpretation of 

these policies.

John Carver with Caroline Oliver

Corporate Boards That Create Value

BOX 5.2

POLICY GOVERNANCE MODEL DELEGATION OF AUTHORITY STATEMENT
OWNER EXPECTATIONS OF MANAGEMENT PERFORMANCE

Owner policies regarding management performance relate to the ends

sought for the enterprise. The CEO is not entitled to make any choices or

to take any actions that are not reasonably calculated to achieve the designated ends of the enterprise. 

Policies Defining Ends

Responsible governance calls for precise definition of the ends of the enterprise. There are three components to an effective ends statement: “first, the

results for which the [enterprise] exists; second, the recipients of those results;

and third, the relative worth of those results.”9

At first glance, the results component relates to financial performance.

Certainly for enterprises whose shares are actively traded results must be

related to financial performance. As one scholar, John Carver, notes, however, this is not always the case:

In some small start-up companies, for example, desired

results may include working independently with trusted

partners in an exciting field—plus satisfactory financial

return. In some family-owned companies, the value

owners want is satisfaction of having family members

working together in the same business—plus satisfactory

financial return.10

A range of performance results is possible: market share, long-term capital growth, profits, reliable income, and successful research and development. Owner representatives must take the desires of all owners into account

to determine what the desired results of the enterprise are and how to communicate them to employees and other stakeholders.

The recipients component seems clear enough, since the owners are the

recipients. However, as Carver notes, “owners do not all have the same

interests, and the board represents all owners.”11 The board must take into

account the diverse interests of the owners. The relative strength of blocs of

shareholders must also be considered. Although majority shareholders are

entitled to a proportionate share of enterprise results, the board must not

disproportionately benefit majority shareholders.

Finally, the relative worth component requires that the owner representatives prioritize among the results and recipients it has identified. Rarely

will all owners have the same desired performance results. Some, for example, may be willing to forgo current income in favor of capital investment in

research and development. Others may be certain that their majority interest entitles them to disproportionate returns or influence over the board.

Whatever a given ends statement might contain, management deserves a

98 Business Ethics
clear statement from the owners or their representatives as to what successful enterprise performance looks like.

Policies Defining Means

When the board is setting management limitations, Carver suggests they set

“basic executive constraints” (see Box 5.3).12 It is up to management to decide

how to achieve the ends of the enterprise within the authority granted to it

by the board.

Given that the ends of an RBE are ultimately to produce value for the

owners, what about the many other considerations of the RBE, such as

other stakeholders, the rule of law, and ethical conduct?

These are means issues. They are not the reason for the enterprise’s

existence, but they suggest how it may obtain its objectives. For example,

the enterprise’s legal obligations and its relationships with stakeholders,

while critical, are not the reason the enterprise exists. To preserve management flexibility, therefore, the board should establish policies that

define the boundaries of management authority, rather than offer prescriptions for action.13

Carver recommends that the board ask itself, “What management situations, activities, or decisions would be unacceptable to us even if they

worked? Even if the ends are being achieved, what risks, ethical violations,

and proprieties does the board want to put off limits?”14 When the board has

answered these questions, responsible governance requires that it specify all

the limitations it intends to place on management authority. See, for example, the sample means limitations in Box 5.4. The power of this approach is

that management authority not expressly limited is, in effect, authorized.

Management authority exercised within those boundaries—and reasonably

intended in good faith to achieve the ends of the enterprise—has bounded

freedom to be agile and creative.15

Chapter 5: Standards, Procedures, and Expectations 99

Delegation to the CEO

The CEO shall not cause or allow any practice, activity, decision,

or organizational circumstance that is unlawful, imprudent, or in

violation of generally accepted business and professional ethics or

generally accepted accounting principles.

John Carver with Caroline Oliver

Corporate Boards That Create Value

BOX 5.3

MODEL LIMITATIONS POLICY ON BASIC EXECUTIVE CONSTRAINTS
Principles for Setting Management Standards, Procedures, and Expectations

Just as responsible governance at the board level involves setting ends and

means for the executive, responsible management establishes a vision for the

enterprise; goals and objectives; and standards, procedures, and expectations

to guide enterprise employees and agents. As owners and managers establish

these, this manual recommends applying the principles described below.

STRIVE TOWARD HIGHER STANDARDS

An enterprise should always strive toward higher standards. Expectations of

an enterprise’s ethical behavior evolve constantly in response to changing

market conditions, both regionally and globally. New values and beliefs

emerge not only in the market, but also in the organizational culture and the

personal lives of employees. An enterprise should constantly solicit feedback

from both internal and external stakeholders to update and modify its business ethics program.

CONSIDER CULTURAL DIFFERENCES

Culture is difficult to measure, and dimensions of culture are even trickier to

use in setting standards, procedures, and expectations. However, an increasing number of studies suggest that ethical decision-making processes differ,

if not in the result, by country, nationality, and culture. Significant differences have been found in the matters of responsible business conduct, tone

taken in addressing issues, and appropriate management responses to

employee conduct.16

100 Business Ethics

1. Treatment of Stakeholders.With respect to interactions with

business partners, regulators, vendors, the local community,

and the environment, the CEO shall not cause or allow conditions, procedures, or decisions that are unsafe, undignified, or

unnecessarily intrusive.

2. Treatment of Employees.With respect to the treatment of 

employees, the CEO may not cause or allow conditions that

are unsafe, unfair, or undignified.

John Carver with Caroline Oliver

Corporate Boards That Create Value

BOX 5.4

MODEL MEANS POLICY LIMITATION
IDENTIFY EXCEPTIONS FROM HOME-COUNTRY STANDARDS

Globalization and the increase of cross-border trade and investment introduce enterprises to a wide range of cultures and values. The globalization

process includes increased pressure from civil society, the media, and governments from different nations. Enterprises are expected to abide by the

ethical values of their home countries. They must also take into account

standards introduced by the forces of globalization, particularly if they operate on a transnational basis. 

Sometimes, exceptions to standards, procedures, and expectations must

be made when working with actors outside of the enterprise’s home country.

To do business in other markets without sacrificing their own core beliefs,

enterprises must clearly identify when they are making exceptions to homecountry standards.

COMMUNICATE WHY

To ensure that the organizational culture is integrated and works toward an

enterprise’s goals and objectives, owners and managers should communicate

not only the enterprise’s standards, procedures, and expectations but also the

reasons behind them. They should explain why responsible business conduct

is important to improving business performance, to making a profit, and to

increasing prosperity in the enterprise’s community. 

Owners and managers should explain to employees and agents why

complying with standards, procedures, and expectations is necessary and

consistent with the enterprise’s core beliefs. For example, simply declaring

to an employee that it is unethical to provide confidential information to a

third party may be ineffective. Managers should explain that such information could undermine a competitive advantage held by the enterprise

and adversely affect its profitability. This explanation will impart perspective to the employee and help him or her understand the purpose behind

the rules.

INCLUDE EMPLOYEES IN SETTING STANDARDS

Dialogue is required to set responsible standards, procedures, and expectations that fit the needs of the enterprise and its employees and agents.

When developing or modifying a business ethics program, management

must understand which responsible business conduct issues are of central

importance to employees. Securing employee input is essential. Failure to

do so can result in employee cynicism and erosion of trust between

employees and management. Ultimately, employees may decide not to

comply with enterprise standards and procedures and may fail to pursue

Chapter 5: Standards, Procedures, and Expectations 101
the enterprise’s purpose, thus causing the enterprise to fail to meet reasonable stakeholder expectations.

CLARIFY OPERATIONAL AND ETHICAL RESPONSIBILITIES

The operational and ethical responsibilities of managers and other employees must be clearly expressed in codes of conduct and other aspects of a business ethics program. The relationship between employees and their supervisors should be governed by two central principles: authenticity and accountability. Authenticity requires honest communication about who is responsible for ethical practices, mistakes, and misconduct. Accountability requires

that each party to the relationship accept personal responsibility for what he

or she brings to the relationship. An effective business ethics program sets

forth these expectations and shows how the enterprise will address mistakes,

misconduct, and misunderstandings.

Management Vision for the Enterprise

Responsible management defines the enterprise’s core beliefs: its purpose

beyond profit, its core values, and its envisioned future. In addition, as developed at length in Chapter 4, owners and managers establish expectations for

the business ethics program itself by describing supportive cultural characteristics of the organization and expected program outcomes.

Two researchers, James Collins and Jerry Porras, found that what separates good companies from great ones, in large part, is the vision framework

they provide their employees and aligning their choices and actions to that

framework.17 The vision framework that they recommend has three components: a core purpose, core values, and an envisioned future.

CORE PURPOSE

Without losing sight of returning value to the owners, responsible management establishes the fundamental reason for the existence of the enterprise

in the form of a purpose statement that inspires its employees and agents. An

enterprise purpose beyond profit helps define the enterprise. Unlike goals

and objectives, the purpose is never actually achieved. As Collins and Porras

describe it, enterprise purpose “like a star on the horizon can never be

reached; it guides and inspires forever.”18

Purpose should be a succinct statement of how the enterprise intends to

meet some important need of its community. A purpose statement captures

the reasons that employees and agents are eager to go to work. It takes as

102 Business Ethics
given that owners want profits and that employees want livelihoods. But one

can be certain that most employees do not go to work eager to make more

money for the owners or even to earn their next paycheck. They go to work

eager to contribute because there is something in the purpose of the enterprise that excites them. 

Defining an enterprise’s purpose is not an easy process. Collins and Porras

suggest describing what the enterprise does in business—its mission, for example—and then asking five times: “Why is that important?” Though deceptively simple, asking “Why is that important?” will help establish the value the

enterprise brings to the community. This sense of value added becomes the

ordering principle of all subsequent decisions and activities.19

CORE VALUES

Responsible management defines four or five values to guide the choices and

actions for all employees and agents. These core values should be so fundamental to what the enterprise sees itself to be—and the way that it does business—that they will not be sacrificed for short-term gain.

There is no right set of values for an enterprise. Royal Dutch/Shell, for

example, has three core values: honesty, integrity, and respect for people.

Chiquita Brands, International, which has plantations around the globe, has

four core values: integrity, respect, opportunity, and responsibility. Alcatel, a multicultural company with employees in 130 countries, has four values as well:

customer focus, innovation, teamwork, and accountability.

Core values should reflect the fundamental qualities that the enterprise

wants to use to guide employee and agent decisions and activities, but they

should not be so far removed from the reality of the enterprise that they are

impossible to follow or that they breed cynicism. Moreover, the process of

defining core values will influence how they are understood, accepted, and

followed. The more stakeholders participate in developing the core values,

the more likely these core values are to reflect the enterprise and to be

accepted by its members and other stakeholders.

Some enterprises arrive at their core values through a carefully crafted survey of their employees, including interviews and focus groups.

Others establish advisory groups at various levels of the enterprise to work

with a small working group to draft a set of values for further dialogue. 

A few enterprises survey all or most of their members plus many 

other stakeholders.

To bring to the surface enterprise values among employees, ask a simple

question such as, “What would you tell a new employee who asks ‘What

does someone have to do to succeed around here?’” Following through on

Chapter 5: Standards, Procedures, and Expectations 103
employee and other stakeholder answers to these questions will lead eventually to four or five values that should guide members of the enterprise.

VISION OF A DESIRED FUTURE

Responsible owners and managers visualize enterprise goals and objectives

and the enterprise’s role in the community over the long term. Goals should

include responsibility to the community and to external stakeholders. They

should incorporate relevant political, economic, and socio-cultural considerations. From this vision flow the goals, objectives, and expected outcomes of

the enterprise’s strategies and action plans. 

Research suggests that there are two components to an effective envisioned future: (a) a specific goal that gives direction and meaning to enterprise decisions and activities and (b) a vivid description of the desired

future.20 Box 5.5 shows how Novo Nordisk describes embedding its vision

throughout the enterprise.21

A good example of describing an envisioned future is the vision of Sony,

portions of which are set forth in Box 5.6. This vision was formed in the

1950s, when Japan was still recovering from the devastation of World War

II. It contained an audacious long-term goal and a vivid description of the

desired future.22

104 Business Ethics

Vision 

• We will be the world’s leading diabetes care company.

• We will offer products and services in other areas where we

can make a difference.

• We will achieve competitive business results.

• A job here is never just a job.

• Our values are expressed in all our actions.

• Our history tells us, it can be done.

The Charter 

The Charter describes our Values, Commitments to the Triple

Bottom Line, Fundamentals and Methodology—our basic management principles. The full text can be found on the Novo

Nordisk corporate website.

Policies 

Our Vision expresses the company’s key business objectives and

guides a set of policies on bioethics, communication, engineering,

environment, finance, health and safety, information technology,

legal, patents, people, purchasing, quality, regulatory and risk

management.

Novo Nordisk

“Novo Nordisk Way of Management”

BOX 5.5

EMBEDDING VISION IN AN ENTERPRISE
Management Standards, Procedures, and Expectations

Enterprises of all sorts and sizes are experiencing increasing pressure from

home countries, international institutions, and nongovernmental organizations

to demonstrate responsible business conduct. Management standards, procedures, and expectations give specific guidance that demands certain activities

and restricts others, unlike board-level means limitations, which set limits only. 

As discussed in Chapter 3, an RBE functions at four levels of identity:

compliance, risk management, reputation enhancement, and value added to

the community. Responsible management sets standards, procedures, and

expectations at all four levels to give adequate guidance to employees and

agents. These standards, procedures, and expectations tend to foster reasonable external stakeholder expectations of enterprise performance.

Standards, procedures, and expectations are often set in a number of

basic documents: a set of guiding principles, a code of conduct,23 and specific policies. Although this chapter discusses how to draft a code of conduct and refers to a number of examples, there is no one right approach.

For example, an enterprise can draft the basic documents as separate documents or as a single document.

GUIDING PRINCIPLES

Enterprises will find value in establishing a number of general principles to

guide employees and agents. With the core beliefs providing the basis, a

statement of general principles aids employees and agents in making choices and taking action. A statement of general principles is more specific than

the core beliefs, but it is broader than a code of conduct. 

Chapter 5: Standards, Procedures, and Expectations 105

Purpose statement. To experience the sheer joy of 

innovation and the application of technology for the benefit and

pleasure of the general public.

Goal. Become the company most known for changing the

worldwide image of Japanese product as being of poor quality.

Vivid description. Fifty years from now, our brand name

will be as well known as any on earth...and will signify 

innovation and quality that rivals the most innovative companies

anywhere....“Made in Japan” will mean something fine,

not shoddy.

BOX 5.6

SONY CORPORATION’S VISION

James C. Collins and Jerry I. Porras

Built to Last: Successful Habits of Visionary Companies
For some enterprises, like Royal Dutch/Shell, its fundamental guiding

document is its “Statement of General Business Principles.”24 Another executive-level set of guiding principles to consider is the U.N. Global Compact.25

Statements of guiding principles tend to be accessible to employees and

agents because they are considerably shorter than the average code of conduct. These principles may be one-sentence statements or short paragraphs,

but usually no longer.

Using Royal Dutch/Shell as an example, an enterprise might set forth its

basic principles under nine topics: (1) objectives; (2) responsibilities to stakeholders; (3) economic principles; (4) business integrity; (5) political activities;

(6) health, safety, and the environment; (7) community, (8) competition; and

(9) full relevant disclosure. 

Shell begins with a general preamble that states the purpose of the principles themselves. The preamble reads in part as follows:

Shell companies recognize that maintaining the trust and

confidence of shareholders, employees, customers and

other people with whom they do business, as well as the

communities in which they work, is crucial to the

Group’s continued growth and success.

We intend to merit this trust by conducting ourselves

according to the standards set out in our principles.26

The first principle sets forth a general statement of the objectives of the

enterprise. These closely track its core purpose. The second principle sets

forth the responsibilities that it believes it owes its primary stakeholders:

shareholders, customers, employees, those with whom it does business,

and society as a whole, which includes the environment. These descriptions are, for the most part, one or two sentences each. The description of

the responsibilities it owes society incorporates a number of the principles

of the U.N. Global Compact. Shell sees these five areas of responsibility 

as inseparable.

The third principle sets economic principles to guide its employees and

agents (see Box 5.7).27 Shell notes that profitability and a strong financial

foundation are fundamental to meeting its responsibilities. It also notes that

pursuit of financial aspects is qualified by social and environmental considerations and an “appraisal of the security of the investment.” 

Shell’s fourth principle addresses its notion of business integrity. Shell

maintains that its companies “insist on honesty, integrity, and fairness in all

aspects of their business and expect the same in their relationships with all

those with whom they do business.”28 Going into somewhat more detail than

106 Business Ethics
Chapter 5: Standards, Procedures, and Expectations 107

a statement of principle, Shell’s business integrity principle expressly addresses bribery, conflicts of interest, and maintaining accurate books and records.

Shell’s fifth principle, regarding political activities, reinforces its sense of

social responsibility and restricts its companies and individual employees in

their political activities. However, Shell conspicuously reserves the right to

take a public position on matters that affect it or its primary stakeholders.

Shell’s sixth principle addresses its commitment to contribute to sustainable development and its “systematic approach to health, safety, and environmental management in order to achieve continuous performance

improvement.” Shell commits to “manage these matters as any other critical business activity, set targets for improvement, and measure, appraise

and report performance.”29

Shell’s seventh principle addresses its relationship with the community. It

expressly notes that its most important contribution is to pursue what we

term its core purpose and its envisioned future as a business as effectively as

possible. Shell then specifically authorizes community involvement going

beyond being a socially responsible business to include ultra-social responsibility where appropriate.30

Shell’s eighth principle is express support for the competition inherent in

free enterprise.

Finally, Shell commits to providing full relevant information about its

“activities to legitimately interested parties, subject to any overriding considerations of business confidentiality and cost.”31

Shell’s “Statement of General Business Principles” covers many aspects

of general business conduct and can serve as an excellent guide for an RBE,

3. Economic Principles

Profitability is essential to discharging these responsibilities and

staying in business. It is a measure both of efficiency and of the

value that customers place on Shell products and services. It is

essential to the allocation of the necessary corporate resources

and to support the continuing investment required to develop

and produce future energy supplies to meet consumer needs.

Without profits and a strong financial foundation it would not

be possible to fulfill the responsibilities outlined above.

Criteria for investment decisions are not exclusively economic in

nature but also take into account social and environmental considerations and an appraisal of the security of the investment.

Royal Dutch/Shell

“How We Work”

BOX 5.7

ROYAL DUTCH/SHELL’S ECONOMIC PRINCIPLES
even though it does not address a number of the emerging global standards

we described in Chapter 2. Nongovernmental organizations (NGOs), while

applauding Shell’s statement in general, have noted, for example, that it does

not specifically address a number of international conventions, notably the

Universal Declaration of Human Rights, as well as the Tripartite Declaration

of Principles of the International Labor Organization.32

Another common approach to a guiding set of principles is to list the

enterprise’s core values with a number of guiding principles or practices

below each value. See, for example, an extract from the Chiquita Brands,

International core values statement in Box 5.8.33 Another example is United

Technologies Corporation, which sets forth five “Commitments”: “performance, pioneering innovation, personal development, social responsibility, and shareowner value” (see Box 5.9).34 The value of this approach is

that it demonstrates the significance of a few core values, while using 

principles and practices to define them and to provide concrete examples

in one document.

Management may also consider any number of other general principles for

ideas. One set to consider is the “Principles for Business” of the Caux Round

Table, which are widely considered a good starting point for developing an

108 Business Ethics

Our customers have a choice, and how we perform determines

whether they choose us.We aim high, set ambitious goals and

deliver results, and we use customer feedback to recalibrate

when necessary.We move quickly and make timely, wellreasoned decisions because our future depends on them.We

invest authority where it needs to be, in the hands of the 

people closest to the customer and the work.

United Technologies Corporation

“Our Commitments”

BOX 5.9

UNITED TECHNOLOGIES’ PERFORMANCE

• We take pride in our work, in our products, and in satisfying

our customers.

• We act responsibly in the communities and environments in

which we live and work.

• We are accountable for the careful use of all resources 

entrusted to us and for providing appropriate returns to our

shareholders.

Chiquita Brands International

“Corporate Responsibility”

BOX 5.8

CHIQUITA BRANDS’ APPROACH TO CORPORATE RESPONSIBILITY
enterprise’s sense of ethical and responsible business conduct.35 Another set of

principles to consider is the Basic Guidelines for Codes of Business Conduct

(reprinted in Appendix B), which can be used as a foundation or guide for

developing codes of conduct.

CODE OF CONDUCT

A code of conduct is often the primary means by which management gives

guidance to its employees and agents as to what is expected of them by way

of business conduct. Indeed, among large enterprises globally, most now

have some form of code of conduct.36 

A code demonstrates management’s commitment to meeting all applicable industry practices and government regulations. Its target audience is the

enterprise as a whole. Other, more specific policies and procedures will be

directed at specific functions, such as procurement or contracting. 

A code of conduct addresses minimum standards of conduct and procedures to reduce the enterprise’s risk of liability and damage to its reputation.

A code of conduct also goes beyond these minimums to guide employees and

agents toward enhancing the enterprise’s reputation and adding genuine

value to its community. 

It is important not to place too much significance on a code of conduct

standing alone. Most research suggests that a code is important less for its

specific provisions than as part of a program or strategy to encourage

responsible business conduct. When examining the incidence of misconduct,

researchers have found relatively little difference between organizations that

have a code and those that do not.37

As part of a business ethics program, however, a code is a central component of a process by which the enterprise engages its stakeholders, both

internal and external. In recent years, the process of formulating codes of

conduct has become more interactive and inclusive. Increasingly, codes are

an essential part of an ongoing dialogue designed to shape programs. Indeed,

a senior official at Royal Dutch/Shell has declared:

Shell is increasingly focusing on dialogue, and we have

found many NGOs who are willing to enter into debate

with us. Discussion based on a broad framework of 

principles offers a constructive atmosphere for cooperation—and for the compromise that is sometimes 

necessary in the face of real-life ambiguities.38

An enterprise should carefully examine its relevant context when deciding on the scope of its code of conduct. It should consider the priorities of

Chapter 5: Standards, Procedures, and Expectations 109
its community and external stakeholders; the state of decrees, laws, and regulations; and industry standards. It should also show respect for national and

organizational culture.

Compliance with the Law

When designing a business ethics program, an enterprise must ensure that it

complies with all laws and regulations that govern its area of commerce:

local, foreign, and international. The codes themselves tend not to set forth

the details of the law. However, they will set the general policy of complying

with all laws, and they may refer to laws that have specific application to the

enterprise’s business conduct such as corporate governance, workplace practises, and relationships with government officials. Where more detail is

required, these matters will typically be treated in policies and procedures

documents. Working closely with legal counsel, an RBE will incorporate

changes and amendments to the law and regulations into its business ethics

program on a regular basis. 

The general nature of a code of conduct—as well as the issues

addressed—differ widely between the European Union and the United

States. Codes in the United States tend to be more compliance-oriented and

are even legalistic, because the laws in the United States tend to leave more

business matters to the private sector. They also address the significant risk

of litigation. Codes in the European Union tend to be more focused on

social responsibility. In part, this difference in focus arises because many

matters that are covered in codes tend to be addressed by law and regulation

in the United States or by individual or work council contract provisions in

the European Union.39

110 Business Ethics

Anti-corruption Provisions

Enterprises should have a clear and concise accounting policy that prohibits off-the-books accounts or inadequately identified transactions.

Boeing Company

Boeing Ethics and Compliance Program

PRACTICE

NOTE
Compliance with Industry Standards

An RBE is often a member of an industry as well as a community. Owners

and managers take into account industry-specific issues and standards and

procedures. In doing so, they should strive to achieve the highest standards

of compliance in their industry. Improved industry standards increase transparency and trust in the marketplace, and they enhance the reputation of the

industry as a whole. For an example of industry standards regarding the

scope of a code of conduct, see the New York Stock Exchange’s recently

promulgated exchange rules (Box 5.10).40

Protection of the Environment 

A code of conduct should address the enterprise’s standards, procedures, and

expectations regarding the environment. Governments, local communities,

Chapter 5: Standards, Procedures, and Expectations 111

In November 2003, in response to great turmoil in the U.S.

markets, the New York Stock Exchange (NYSE) promulgated a

series of requirements to improve the corporate governance

practices of companies listed on the NYSE. A listed enterprise is

now required to adopt and disclose a code of ethics addressing, at a minimum, the following issues:

• Conflict of interest: Defines conflicts of interest and requires

a policy proscribing conflicts and providing a means to 

report potential ones.

• Corporate opportunities: A policy should prohibit officers,

directors, and employees from taking corporate opportunities,

using corporate property, position, or information for personal gain, or competing with the company. All employees,

officers, and directors owe a duty to advance the legitimate

interest of their company.

• Confidentiality: Information entrusted to employees, directors,

and officers by the company or customers should be kept

confidential, except when disclosure is authorized or legally

mandated. Confidential information includes all non-public information that may be of use to competitors or harmful to

the company or clients of the company if disclosed.

• Fair dealing: Each employee, officer, and director should deal

fairly with the customers, suppliers, competitors, and other

employees of the company. None should take unfair advantage of anyone through manipulation, concealment, abuse of

privileged information, misrepresentation of material facts, or

any other unfair-dealing practice.

• Protection and proper use of company assets: Employees,

officers, and directors should protect company assets and 

ensure the efficient and legitimate use of all business assets.

• Compliance with laws, rules, and regulations (including 

insider trading laws): The company should actively promote 

compliance with laws, rules, and regulations, including insider 

trading laws.

• Encouraging the reporting of any illegal or unethical behavior: The company should encourage employees to talk to 

supervisors, managers, or other appropriate personnel about

the best course of action they should take when presented

with a particular situation. In addition, companies should 

encourage employees to report violations of laws, rules,

regulations, or the code of business conduct to appropriate 

personnel. To encourage employees to report such violations,

the company must ensure that employees know that the

company will not allow retaliation for reports made in 

good faith.

B O X 5 . 10

NEW YORK STOCK EXCHANGE RULES
NGOs, and international institutions are increasingly using their influence

to promote sound environmental practices by business. 

A code should include a statement that the enterprise will abide by both

local and international laws and regulations designed to protect the environment. It should address how the business balances production objectives

with environmental protection in general. In more detailed standards, procedures, and expectations, the enterprise might discuss how to reduce waste

products, how to avoid polluting air and water, and how to manage and

report chemical use and disposal.

An example of the flow from core values regarding the environment

through a basic principle and basic policies to principal activities (leading to

achieving goals and objectives) is set forth in the Japanese NTT (Nippon

Telegraph & Telephone) Group ethical code of environmental issues (see

Box 5.11).41

Respect for Cultural Norms

A code of conduct should demonstrate respect for the cultural norms of the

society in which the enterprise operates—especially if it is a transnational

112 Business Ethics

Basic Principle

To ensure the harmonious coexistence of people with nature

and to achieve sustainable growth, we will do our utmost to

protect the global environment in all our corporate activities.

Basic Policies

1. Compliance with laws and regulations and

fulfillment of social responsibilities

To observe all laws and regulations regarding environmental

protection issues and to carry out our responsibilities as

global corporate citizens.

2.Reducing environmental loads

To establish action plans for energy conservation (reduction

of greenhouse gas emissions), resource conservation (conservation of materials such as paper), and waste reduction, and

to strive to make continuous improvements.

3. Establishing and maintaining environmental

management systems

To establish an environmental management system enabling

each business unit to pursue voluntary environmental protection activities.

4. Developing environmental technologies

To contribute to the reduction of environmental load through

various areas of research and development, including multimedia services.

5. Social contribution efforts

To promote daily environmental protection efforts in coordination with citizens and government agencies.

6. Disclosure of environmental information

To enhance both internal and external communications

through the disclosure of environmental information.

B O X 5 . 11

FROM THE NTT GROUP GLOBAL ENVIRONMENTAL CHARTER
enterprise. Employees and agents bring their beliefs, values, and cultural

norms to the job. Each society has cultural practices that are unique, including practice of religion, gender relations, and power relationships in the

workplace. An RBE is sensitive to these practices and ensures that its business ethics program takes them into consideration without sacrificing its

core beliefs. Implementing and enforcing a code of conduct that does not

take these factors into consideration may be seen as unfair and may lead to

confusion and frustration.42

A number of responsible business conduct issues are unusually culturally sensitive: dealing with conflicts of interest, accepting and giving gifts and

gratuities, making facilitation payments, hiring relatives and friends, seeking

advice, and reporting misconduct. Reporting misconduct, in particular,

touches on deeply held cultural values and even relatively recent histories, as

discussed in Chapter 7.

A best practice for dealing with these cultural nuances is to require

regional divisions of an enterprise to formulate local policies and to submit

them for approval. Provided that the local policy reflects the spirit of the

general policy and is applied consistently, regional policies can be effective

ways to address cultural differences. Note, however, that the general rule

should apply unless a specific local policy has been proposed and approved.

An employee or agent should not be able to claim a regional difference without an approved local policy in place. 

Chapter 5: Standards, Procedures, and Expectations 113

Gifts Given by Motorola

Some business situations call for giving gifts. Motorola’s gifts must be legal, reasonable, and approved by

local management. Motorolans never pay bribes.

We understand that gift-giving practices vary among cultures. Our local gift policies and guidelines 

address this.

We will not provide any gift if it is prohibited by law or the policy of the recipient’s organization. For

example, the employees of many government entities around the world are prohibited from accepting gifts.

If in doubt, check first.

Motorola Corporation

“Code of Business Conduct”

PRACTICE

NOTE
Guidelines for Developing a Code 

The process for developing a code of conduct is as important as the code

itself. Engaging stakeholders, demonstrating management commitment, and

honoring core beliefs will lead to a clear statement of what the enterprise

values. Moreover, the process is an important step toward reinforcing the

desired aspects of organizational culture.

At the end of the process, the code must be comprehensive enough to

give guidance on all important matters to employees and agents. It must

have had enough participative feedback from internal stakeholders—especially the owners, managers, and workers—that they will recognize it as their

own, support it, and be willing to live by it. It must describe external stakeholder expectations well enough that they will recognize the enterprise as a

contributing member of the community.

One noted author in this field, W. Michael Hoffman, encourages

drafters to be particularly concerned with the tone of the code. He recounts

how he was once asked to review a code titled “Our Responsibilities.”

Though he thought it was a good title, “every rule that followed began with

‘it is your responsibility to . . . ’” He suggested changing every “your” to

“our” to convey the sense that the rules applied to everyone in the company.43

Style for a code also depends on the needs and culture of the enterprise.

The more readable codes use large type, color, often pictures, and examples

or text boxes for frequently asked questions. There are many fine examples

on the Internet. 

• WMC Resources Ltd., an Australian global mining company, has a very

straightforward, colorful, animated code of conduct. It has many pictures

and examples presented as drop down pages under five major topics.44

• NTT Group, a Japanese telecommunications company, has a detailed

environmental code as part of its “Environmental Report 2002.” It is

organized as eight questions and their answers.45

• Guardsmark LLC, a medium-sized U.S. firm, has a short code of conduct that lays out principles organized by values and major topics. All

employees review and acknowledge the code annually.46

• HCA Inc., a large U.S. health care company, has a comprehensive code

of conduct, as well as policies and procedures for implementing its

ethics, compliance, and corporate responsibility program.47

• United Technologies Corporation, a large, global manufacturing firm,

has a code of ethics translated into 27 languages, which describes multiple means for an employee or agent to seek advice or report concerns,

including regional and headquarters ombudsman offices.48

114 Business Ethics
A code of conduct should be a practical, easily accessible document. It

should be written in plain language, avoiding technical or legal terms. It

should be available in the languages key stakeholders understand.49

Aspirational versus Obligatory Provisions

Some authors distinguish between code provisions that are aspirational and

those that are obligatory. Aspirational provisions are said to be ones that

employees and agents are to strive for but for which they will not be held

accountable. Obligatory provisions are said to be ones for which employees

and agents can be held accountable and ones that will result in punishment

if violated. 

An enterprise’s standards, procedures, and expectations are intended to

guide employees and agents in dealing with real-life issues. Owners and managers should expect employees and agents to demonstrate awareness of all relevant standards and to use good judgment. If the underlying standard is to

apply good judgment, therefore, we are reluctant to say that any standard

worth putting in a code of conduct is purely aspirational. The better view is

that if a provision is worth putting in a code, then it should be followed. 

For the most specific standards—rules—good judgment seldom leads one

to violate a rule. When rules are violated, punishment is appropriate since a

clear intention to violate rules exists. For more general provisions such as valChapter 5: Standards, Procedures, and Expectations 115

Expecting Good Judgment from Employess

We are accountable for our actions and their consequences.

Question: I am a geologist in charge of an exploration project. A well-known local politician, who owns a

small bankrupt company, has asked me to hire some of the 70 employees he will have to dismiss. In

exchange, he has offered to facilitate local government permits for WMC. If I do not accept, he threatens

to do the opposite. Should I accept the proposition? Should I accuse him of blackmail?

Answer:You should not accept the proposition.Your discussion with the politician should be documented,

and you should seek guidance from the appropriate WMC manager as to the steps to take including going

to police or local authorities.

PRACTICE

NOTE

WMC Resources, Ltd.

“Illustrative Examples”
ues or principles, good judgment is still required, and it makes little sense to

describe such provisions as unenforceable. Although the employee may not

be punished as such, failure to use good judgment should not be tolerated. 

Adaptations, Updates, and Improvements to the Code 

Though a code of conduct is a fundamental document, it is not static. To be

effective, it must anticipate the guidance that employees and agents will need

to deal appropriately with the challenges they face. Laws and regulations

change. Stakeholder expectations change as well. Through commerce with

enterprises from different markets, businesses become exposed to new values

and beliefs that can affect the way employees view the enterprise and markets. All these tend to create new gray areas for employees. 

An RBE should plan in the code itself to monitor closely changes in its

relevant context, organizational culture, and stakeholder expectations and to

adapt, update, and improve the code accordingly. The RBE must be able to

react quickly to changes that affect the enterprise, its markets, and its communities. It must adapt its code to reflect its relationships with new suppliers, service providers, partners, competitors, and markets. 

Code Formats

An author who has tracked the trends in drafting codes of conduct has found

that most codes apply one or more of three basic formats: (a) compliance codes—

specific statements giving guidance and prohibiting certain kinds of conduct;

(b) corporate credos—broad general statements of corporate commitments to

constituencies, values, and objectives; and (c) management philosophy statements—

formal enunciations of the company or CEO’s way of doing business.50

An Australian author further distinguishes the formats and objectives of

corporate codes of ethics as being of three types: (a) codes of ethics—statements of the values and principles that define the purpose of an organization,

(b) codes of practice—which guide and direct decision-making, and (c) codes of

conduct or behavior—which prescribe or proscribe certain behavior. “In practice,” the author notes, “corporations tend to use varying mixes of each type

of code, under various labels.”51

RBE Worksheet 6, found at the end of this chapter, provides a sample

outline for a code of conduct.

RESPONSIBLE BUSINESS CONDUCT POLICIES

Once a set of guiding principles, a code of conduct, or both are developed,

the process of establishing adequate standards is not complete. To keep these

defining documents relatively concise, enterprises typically publish much of

the detail that surrounds specific offices or functions, such as internal audit

116 Business Ethics
or government contracting, as policies or procedures. An RBE also addresses specific risk areas and opportunities to enhance its reputation or add value

to the community. A number of fundamental issues are noted in RBE

Worksheet 6, such as ethics, compliance, and responsibility functions and

help-line policy and procedures. There may be many others.

Effective business ethics programs are designed specifically for the

day-to-day challenges of the individual enterprise, its management styles,

and its organizational culture. For example, the comprehensive business

ethics program of HCA Inc., a large U.S. health care company, has 20

ethics and compliance-specific policies and procedures and dozens more

related policies and procedures from other departments.52 These policies

include the following:

• Policy and procedure development

• Internal handling of ethics-line calls

• Self-reporting of violations of certain laws and regulations

• Business courtesies to potential referral sources

• Business entertainment

• Vendor-promotional training

• Approval of gifts in recognition of volunteer efforts

• Ethics and compliance officer

• Code of conduct distribution and training

• Records management

• Ethics and compliance program contracts

• Ethics and compliance office quarterly reports

• Training for senior management

• Reportable events

There is no set format for issuing policy and procedures. The form

shown in Figure 5.1 is provided courtesy of HCA Inc.53

Typical Code of Conduct Provisions

The best way to think about what standards, procedures, and expectations

to put in a code of conduct is to try to anticipate, from the points of view

of stakeholders, the tough decisions that employees and agents might

face. With this approach in mind, consider including the items described

below. Examples of how some enterprises addressed certain issues are also

included.54 Using RBE Worksheet 7, provided at the end of this chapter,

Chapter 5: Standards, Procedures, and Expectations 117
will help ensure that all necessary standards, procedures, and expectations

are considered.

INTRODUCTORY MATERIALS

What materials should be included? And why? Introductory materials are

highly dependent on the situation, needs, and culture of the enterprise.

They should begin with a declaration of the enterprise’s core beliefs, examples of which were described earlier. 

An advisable provision to include is a disclaimer. For example, Motorola

Corporation avoids creating unrealistic expectations—and unintended liabilities—by placing a disclaimer at the beginning of its code (see Box 5.12).55

Disclaimers are recommended because some courts have treated similar

documents as promises on which stakeholders may justifiably rely.56

118 Business Ethics

FIGURE 5.1

Format Used by HCA Inc. in Issuing Policy and Procedures

Department: Policy Description:

PAGE: x of y Replaces Policy Dated:

Approved: Retired:

Effective Date: Reference Number:

Scope:

Purpose:

Policy:

Procedures:

References:
OWNERS

What relationships and responsibilities to its owners should the enterprise

assume? And why? Consider the following:

• Maximizing shareholder value

• Minimizing business risk

• Using business resources prudently

• Engaging in legal and ethical behavior

• Preventing insider trading

• Being responsible to community and environment

CUSTOMERS OR CONSUMERS

What relationship and responsibilities to its customers should the enterprise

assume? And why? Here are some examples:

• Providing quality, safe goods and services

• Representing products or services

• Communicating clearly so that there is no misunderstanding

• Protecting confidential information

• Preventing bribes and kickbacks

• Regulating gifts and entertainment

• Including government customer provisions

• Including foreign government customer provisions

• Ensuring accurate billing procedures

• Safeguarding property of others

Chapter 5: Standards, Procedures, and Expectations 119

Basic Principle

This Code is neither a contract nor a comprehensive manual

that covers every situation Motorolans throughout the world

might encounter. It is a guide that highlights key issues and

identifies policies and resources to help Motorolans reach decisions that will make Motorola proud.

B O X 5 . 12

DISCLAIMER TO A CODE OF BUSINESS CONDUCT

Motorola Corporation

“Code of Business Conduct”
• Preventing the disparagement of competitors

• Ensuring fair competition

• Acquiring marketing data properly and legally

EMPLOYEES AND THE ENTERPRISE

What relationships and responsibilities to its employees should an enterprise assume? What do the employees owe the enterprise? And why? Issues

include these:

• Promoting respect for one another

• Promoting equal opportunity and anti-harassment

• Creating a hassle-free environment

• Respecting right to privacy

• Promoting workplace health and safety

• Maintaining skills and qualifications

• Preventing substance abuse

• Preventing workplace violence

• Regulating use of company funds

• Regulating company e-mail and computer use

• Preventing conflicts of interest

• Regulating outside business activities

• Regulating gifts and entertainment

• Regulating collective bargaining

• Promoting human rights 

• Excluding child labor

• Promoting business with the company

• Regulating employment outside the company

• Encouraging self-development and lifelong learning

• Regulating the hire of closely related people

• Ensuring accurate books and records

• Retaining records 

PARTNERS, SUPPLIERS, AND SERVICE PROVIDERS

What relationship and responsibilities to its partners, suppliers, and service

providers should the enterprise assume? And why? Consider these issues:

120 Business Ethics
• Treating all suppliers fairly

• Regulating the acceptance or offer of gifts and gratuities

• Respecting intellectual property of others

• Protecting proprietary data of others

• Using software for its intended purposes

• Requiring consultants and suppliers to act legally and ethically

COMPETITORS

What do we owe our competitors? And why? Issues include:

• Dealing fairly with competitors

• Winning on product and service merits

• Discouraging comparisons with and disparagement of competitors 

• Prohibiting inducement of others to break binding contracts with 

competitors 

• Discouraging the discussion of pricing, costing, marketing, or product

plans with competition

• Prohibiting illegal or unethical methods to gather competitive information

• Preventing unfair competition (antitrust)

• Promoting adherence to principles of free competition

Chapter 5: Standards, Procedures, and Expectations 121

Anticorruption

3. In its relations with governmental agencies, customers and suppliers, the Company

will not, directly or indirectly, engage in bribery, kick-backs, payoffs, or other corrupt

business practices. The use, directly or indirectly, of Company funds for political contributions to any organization or to any candidate for public office is strictly prohibited, where such contributions are forbidden by applicable law.Where such contributions are lawful, they must be made in a fair and prudent way and must be

approved by the most senior Alcatel officer in the country.

PRACTICE

NOTE

Alcatel Group

“Statement on Business Practices”
COMMUNITY, GOVERNMENT, AND THE ENVIRONMENT

What relationship and responsibilities to its communities, governments, and

the environment should the enterprise assume? And why?

• Obeying both the letter and the spirit of law

• Promoting good competitor relations

• Complying with local laws and customs

• Promoting anticorruption practices

• Excluding foreign corrupt practices 

• Regulating political contributions

• Regulating political activity

• Including indigenous peoples

• Promoting sustainable development

• Complying with anti–money laundering measures

• Complying with antiboycott laws

• Complying with import–export laws

• Voluntarily disclosing violations

• Cooperating with authorities

• Promoting charitable contributions

• Encouraging employee volunteer work

• Protecting the environment

122 Business Ethics

Business Integrity

Our commitment to business integrity is clear and unequivocal.We do not bribe,

nor do we accept bribes.We do not sanction illegal payments of any kind.We

investigate all suspicious circumstances. Any employee found to have breached our

firm “no bribes” policy is dismissed.We will also prosecute where possible.

PRACTICE

NOTE

Royal Dutch/Shell

“Our Approach to Business Integrity”
BUSINESS ETHICS PROGRAM

A business ethic program should cover these issues:

• Ethics and compliance structure and systems

• Responsibility of managers and supervisors

• Need to avoid even the appearance of impropriety

• Monitoring and auditing practices

• Employees’ duty to report violations

• Failure to comply

• Failure to detect misconduct

• Methods to seek advice and report misconduct

• Policy concerning false reports

• Enterprise response to reports

• Policy for customer, supplier, and contact agents 

• Confidentiality and anonymity policy

• Nonretaliation policy

• Policy for employee misconduct

• Policy for rewarding ethical behavior

• Records retention

• Media contact

• Individual accountability

• Obligation to sign acknowledgment

BUSINESS ETHICS PROGRAM RESOURCES

Resources may include these:

• Ethical decision-making model

• Case studies and examples

• Telephone contact numbers 

DESIGN, REVIEW, AND APPROVAL PROCESS

The design, review, and approval process for a code of conduct follows the

process described in Chapter 4. The code and supporting policies will not be

finally approved until all standards, procedures, and expectations as well as

implementing policies and infrastructure have been designed and approved. 

Chapter 5: Standards, Procedures, and Expectations 123
SUMMARY

Owners and managers establish standards, procedures, and expectations to

answer the fundamental question, “What norms, values, and standards

should we set to guide our members and foster reasonable stakeholder

expectations?” An effective business ethics program contains standards, procedures, and expectations that establish the following:

• Who has authority to do what within the enterprise

• Who is responsible for which decisions and activities

• How people will be held accountable for their individual choices 

and actions

• What stakeholders can reasonably expect from the enterprise

Standards, procedures, and expectations are set for all levels of the enterprise—from the owners to the independent agents. Core beliefs and reasonable stakeholder expectations set the fundamental aspirations of the enterprise. Standards, procedures, and expectations are liberating devices as well

as control mechanisms. They set boundaries for employees and agents that

limit what they can do in pursuit of the enterprise purpose. Provided

employees and agents choose and act in pursuit of the enterprise’s purpose

in good faith—and do not exceed these limits—they are free to use their

good judgment in making decisions and acting.

124 Business Ethics

RESPONSIBLE BUSINESS ENTERPRISE

Checklist

1. What is the core purpose of our enterprise beyond profit?

2. What are our core values—those three to five values that we 

never violate?

3. What is our envisioned future of this enterprise? What are our

goals and objectives over the next 30 to 50 years?

4. What management situations, activities, or decisions would be

unacceptable to us even if they worked? Even if the ends are being

achieved, what risks, ethical violations, and proprieties do we want

to put off limits?57
125

Sample Outline for a Code of Conduct

RBE W ORKSHEET

6

RBE Worksheet 6 provides a sample outline of a code of conduct. Discussion points are written to assist a working group 

tasked with drafting a code of conduct. The worksheet may be photocopied for use within your organization.

Discussion Points

Use a title page that captures the nature of the document and sets a theme to run 

throughout the document. Examples include “Living Our Values” (World Bank 

Group); “Leading with Integrity” (United Parcel Service); and “The Way We Do 

Business” (PricewaterhouseCoopers).

A good code is accessible. For even a relatively simple code, it is wise to include a 

detailed outline of the contents and page numbers to aid use.

A letter from the owner or chief executive demonstrates top management’s 

commitment to the ethics and compliance program and develops the theme of the 

title. 

A brief but clear statement of the purpose of the code—what it is intended to 

achieve—is important.

A one-page restatement of the core beliefs of the enterprise—core purpose and 

values, as well as the envisioned future—sets the essential foundation. Use this as 

another opportunity to reinforce the importance of core beliefs.

If the enterprise has developed a set of guiding principles, these may be included as a 

separate page for emphasis.

Background or explanatory materials may address a crisis that spurred code 

development, what responsible business conduct is all about in general, or the 

process by which the code was developed. Include anything that readers need to 

know to understand the importance of the code itself and its place in the broader 

ethics and compliance program.

There are many ways to arrange specific code provisions, but arranging by 

relationship or responsibilities to stakeholders provides a logical way of organizing 

guidance and reinforces the sense of responsibility to stakeholders.

A reason to refer to these provisions as describing the relationship to stakeholders is 

to avoid any private legal claims of obligation.

Specific issues will necessarily touch on human resource issues: fairness in promotion, 

termination, sexual harassment, and diversity. A temptation is to treat these issues as 

separate from ethics issues. They must be included in the ethics and compliance 

program for it to be effective, because to the employee, ethics often means fairness.

 

• Letter from owner or 

chief executive

• Statement of code 

purpose

• Statement of core 

beliefs 

• Statement of guiding 

principles

• Background or 

explanatory materials

• Customers

• Shareholders and 

Investors

• Suppliers and service 

providers

• Employees 

• Enterprise itself

• Community

• Government

• Environment 

Table of Contents

Introductory

materials

Title page

Topic

Specific guidance

provisions organized

by relationship or

responsibilities to

stakeholders

continued on the next page
126

Discussion Points

The code should specifically address ethics and compliance training 

and education. It should lay the essential foundation for all forms of 

communication regarding program issues.

The code should also encourage employees and agents to seek 

advice and report misconduct. Because they may turn to the code 

to make decisions, the code should fully describe the process, 

including the circumstances under which they can call anonymously 

or confidentially.

Also important is setting broad guidelines for tracking, measuring, 

and reporting enterprise performance, especially reporting to 

interested stakeholders.

Description of the ethics,

compliance, and responsibility

program

• Responsible executive

• Responsible staff

• Communications

• Monitoring and auditing

• How to seek advice and 

report misconduct

• Investigations

• Dispute-resolution process

• Tracking, measuring, and reporting

• Program evaluation and 

modification process

Supporting and related

policies and procedures

• Business ethics officer's 

duties and responsibilities

• Due diligence positions

• Monitoring and auditing policy

• Investigating policy and procedures

• Confidentiality policy

• Nonretaliation policy

• Confidentiality agreements

• Education and training policies

• Problem reporting and 

nonretaliation policies and 

procedures

• Help-line policy and procedures

• Response, follow-up, and 

resolution policy

Supporting Resources

• Guides to ethical decision-making

• Contact names and phone 

numbers

• Case studies

• Ethics games

• On-line resource links

• Quick reference guide

• Index

Topic

To be usable, a code of conduct needs to address only those 

matters of general interest or applicability to its stakeholders. 

Matters relating to specific duties or responsibilities, or more 

detailed policies or procedures, should be established in separate 

policies. However, it may be important to note in the code that 

there are more specific policies and procedures and how to 

access them.

An excellent guide to applicable policy statements, though its 

emphasis is on health care compliance policies in the United States, 

is Richard P. Kusserow and Andrew H. Joseph, Corporate Compliance 

Policies and Procedures: A Guide to Assessment and Development

(Marblehead, Mass.: Opus Communications, 2000). 

This portion of the code provides ready access to important 

supporting resources and quick reference materials.

If a code of conduct is very large or complex because of the needs 

and culture of the enterprise, consider providing an index.
127

RBE Standards and Expectations Worksheet

RBE W ORKSHEET

7

RBE Worksheet 7, which may be photocopied for use with your organization, provides a tool for ensuring that all necessary 

standards, procedures, and expectations are considered. Owners, managers, and staff members should engage their 

stakeholders to address each element of their standards, procedures, and expectations, along the vertical axis, to ensure that 

they are consistent with the enterprise's core beliefs and four levels of ethical identity, along the horizontal axis.

Introductory

materials

Owners

Customers 

or 

Consumers

Employees

and the

enterprise

Partners, 

suppliers,

and service

providers

Core 

Beliefs Compliance

Risk

Management

Reputation

Enhancement

Value 

Added

continued on the next page
Competitors

Community

Government

Environment

Business 

Ethics 

program

Special ethics, 

compliance, 

and social 

responsibility 

topics

Core 

Beliefs Compliance

Risk

Management

Reputation

Enhancement

Value 

Added

128
This chapter examines an essential element of a

business ethics program: business ethics infrastructure—the structures and systems that help enterprise owners and managers address issues of responsible business conduct. 

Designing Business Ethics Infrastructure

One of the most important questions owners and

managers of a responsible business enterprise (RBE)

must ask themselves is “What style, structure, and

systems of authority and responsibility at all levels

should we exercise?”1

This manual details the best practices that have

been developed, particularly over the past two

decades, by large, complex enterprises (LCEs).

These practices will be valuable for similarly situated enterprises in emerging market economies,

which may look to formal structures and systems to

help speed the evolution to a free market by improving their own business performance. 

Although developed by LCEs, these best practices are also valuable as models for small to medium-sized enterprises (SMEs). By considering the

best practices that LCEs, international institutions,

and nongovernmental organizations (NGOs) have

generated over countless hours of reflection, dialogue, and negotiation, SMEs can design business

ethics infrastructure that meets world-class standards but is tailored to the requirements of an SME.

129

6

Business Ethics

Infrastructure

• Designing

Business Ethics

Infrastructure

• Determining

Systems of

Authority,

Responsibility,

and

Accountability
IMPORTANCE OF BUSINESS ETHICS INFRASTRUCTURE

When designing business ethics infrastructure, owners and managers will

consider the nature of the enterprise—its size, its complexity, and the

resources available to it. As stressed in Chapter 3, an enterprise uses infrastructure and formal alignment practices to emphasize enterprise strengths

and to compensate for and reform enterprise weaknesses.

Over the past few decades, various offices and committees—for 

example, the business ethics officer and business ethics council—have developed to serve a number of necessary functions. These offices and committees meet the needs of LCEs, and it is valuable to describe them for those

designing and implementing a business ethics program of any size.

An example of how complicated these offices and committees can be is

the program of HCA Inc., a large, very complex health care provider.

Reflecting its complex organization, the program is overseen by a senior vice

president for ethics, compliance, and corporate responsibility, who supervises over 20 individuals in a corporate ethics and compliance department,

works with over 20 executives, and provides direction and oversight to over

200 ethics and compliance officers.2

At the other extreme, many enterprises have neither dedicated business

ethics personnel nor a separate business ethics program.3 In such cases, companies make business ethics a general management function. They provide

no dedicated mechanism for employees and agents to seek advice or report

concerns without fear of retribution, especially in cases where management

is unable or unwilling to help or is part of the problem. 

There is no right way to design and implement a business ethics program. However, formally addressing each of the seven levels of responsibility

that this manual discusses below will serve an enterprise and its stakeholders

well, especially in an emerging market economy. 

The reader should also remember that, in describing offices and committees, this manual is really addressing functions. It is important that these

functions be performed, not that any particular office or committee be

established. If owners and managers adequately address the functions, they

can design and implement an effective business ethics program that is relevant to their organizational culture and stakeholder expectations. Failure to

address any of these functions will often lead to a significant lack of perspective or capacity to respond to issues and problems related to ethics, compliance, and social responsibility. RBE Worksheet 8, at the end of this chapter, will help owners and managers ensure that all necessary levels of responsibility are considered.

130 Business Ethics
RESPONSIBILITY FUNCTIONS

Leading enterprises, government agencies, and NGOs have found that an

effective business ethics program addresses functions at seven levels 

of responsibility:

1. Overseeing the program at a high level (the responsible officer)

2. Performing or coordinating the specific functions of the business ethics

program (the business ethics officer)

3. Advising the responsible officer and business ethics officer and representing the enterprise as a whole (the business ethics council)

4. Advising the responsible officer, business ethics officer, and employees

and agents about specific professional ethics, compliance, and social

responsibility issues, such as biomedical, engineering, or community

issues (the professional ethics council)

5. Linking various levels of the enterprise with a central ethics office (business conduct representatives)

6. Performing related executive and department functions (the chief financial officer; legal counsel; human resources; internal audit; environment,

health, and safety; government procurement; and investor relations)

7. Abiding by standards and procedures and striving to meet reasonable stakeholder expectations (every employee and other agent of the enterprise)

Although these functions are discussed separately, the nature of the enterprise and its size, complexity, and resources may argue for combining any

number of them. Informal channels and reporting relationships can also be

integral parts of the design of a business ethics program. 

BUSINESS ETHICS INFRASTRUCTURE FOR THE SME

The average SME may not have enough staff members to dedicate an

employee or employees to each of the seven responsibility functions. For

example, if an enterprise is large and complex, such as HCA Inc., an RBE may

need a central coordinator and many high-level responsible individuals at dispersed facilities or regions. For an SME that has only one location, the function can be served by a high-level individual who has enough time to perform

the duties—and is sufficiently detached from the issues raised—that he or she

can be an effective channel for employees and agents seeking advice or

reporting concerns. Often, for these reasons, owners and managers of SMEs

will turn to trusted independent advisers, as Box 6.1, “Ten Ways Small

Business Owners Can Prevent and Detect Fraud,” suggests.4

Table 6.1 describes how a typical SME might staff the seven responsibility functions.

Chapter 6: Business Ethics Infrastructure 131
Determining Systems of Authority, Responsibility, and Accountability

Support for a business ethics program must start at the top of an enterprise.

The following general elements of leadership are typically found in successful programs:

• The owners or owner representatives ensure that the program provides

them with adequate information regarding enterprise performance.

• The owners and managers set a tone of support for responsible business

conduct.

• A high-level person is responsible for the business ethics program.

• The supervisors are responsible for how things are actually done in the

enterprise.5

INFRASTRUCTURE FOR OWNER REPRESENTATIVES

A business ethics program provides an information and reporting system for

both the owners and the managers. An emerging corporate governance standard is that owner representatives are responsible for ensuring that they

receive the information they need to prevent and detect wrongdoing. They

may be held individually liable for losses caused by noncompliance with

applicable legal standards.6

While delegating authority to the chief executive officer (CEO) to conduct day-to-day operations, an RBE’s board of directors must provide for

systematic and rigorous monitoring of enterprise performance through an

information and reporting system. Boards often delegate the authority to

132 Business Ethics

1. Hire a CPA to examine the books.

2. Have a written code of ethics.

3. Set a good example.

4. Have reasonable expectations.

5. Treat employees well.

6. Restrict bank account access.

7. Perform regular bank reconciliations.

8. Adequately secure inventory and supplies.

9. Adequately prescreen employee applicants.

10. Give employees a way to report fraud.

BOX 6.1

TENWAYS SMALL BUSINESS OWNERS CAN PREVENT AND DETECT FRAUD

Joseph T. Wells

“Protecting Small Business”
Chapter 6: Business Ethics Infrastructure 133

TABLE 6.1 Business Ethics Infrastructure: SME Conversion

Function

Overseeing the program at a high level 

(the responsible officer)

Performing or coordinating the specific functions 

of the business ethics program (the business 

ethics officer)

Advising the responsible officer and business ethics

officer and representing the enterprise as a whole

(the business ethics council)

Advising the responsible officer, business ethics 

officer, and employees and agents about specific

professional ethics, compliance, and social responsibility issues (the professional ethics council)

Linking various levels of the enterprise with a

central ethics office (business conduct 

representatives)

Performing related executive and department functions (the chief financial officer; legal counsel;

human resources; internal audit; environment,

health, and safety; government procurement; and

investor relations)

Abiding by standards and procedures and striving

to meet reasonable stakeholder expectations (every

employee and agent of the enterprise)

Often an owner performs this function, but another highly respected employee who has substantial

authority in the enterprise is preferable.

Typically, a respected staff member performs or coordinates the functions of the business ethics officer.

An SME can form or join a business association to develop training materials and provide a forum to

discuss issues, problems, and solutions related to ethics, compliance, and social responsibility.

The SME can employ an independent answering service to provide a mechanism for employees and

agents to seek advice or report concerns anonymously.

The SME can use an outside service to conduct a periodic evaluation of its business ethics program.

An SME can conduct regular meetings of all or representative employees for perhaps 30–60 minutes,

once a month, to discuss enterprise core beliefs; standards, procedures, and expectations; and current

issues of ethics, compliance, and social responsibility.

A medium-sized enterprise—especially one with multiple locations—can appoint members to a council

that meets regularly by telephone.

An SME can form or join a business association to provide a forum to discuss current issues, problems,

and solutions related to ethics, compliance, and social responsibility.

A college, university, or business development council might host a forum for SMEs.

A large enterprise can—and often should—host a forum for its suppliers and service providers.

An SME can conduct regular meetings of all or representative professionals, for perhaps 30–60 minutes,

once a month, to discuss core beliefs; standards, procedures, and expectations; and current issues of professional ethics, compliance, and social responsibility.

A medium-sized enterprise—especially one with multiple locations—can appoint members to a council

that meets regularly by telephone.

An SME can form or join a business association to develop training materials and provide a forum to

discuss current issues, problems, and solutions related to professional ethics, compliance, and social

responsibility.

A college, university, or business development council can host a forum for SMEs.

A large enterprise can host or sponsor a forum for its suppliers and service providers.

For the SME, these representatives may be respected, knowledgeable staff members at various levels or

locations who have the right to communicate directly with the owner, owner representatives, responsible

officer, or business ethics officer on issues of ethics, compliance, and social responsibility.

These business conduct representatives can also conduct training and education and assist in program

evaluation at local levels.

SMEs often use trusted, independent professionals to perform many of these functions. If so, they should

participate in the training programs for the enterprise’s responsible business conduct and, where practicable, its discussions of current issues of ethics, compliance, and social responsibility.

These independent professionals can form their own independent forums to discuss current issues of

ethics, compliance, and social responsibility.

They may also be engaged to advise SME owners and managers on how to design and implement a

business ethics program using this guide and other resources.

Individual responsibility of employees and agents applies in all enterprises, regardless of their size.

In SMEs, it may be difficult for employees to seek advice or report concerns confidentially and anonymously. Owners and managers of SMEs must work to develop an organizational culture in which employees and agents are able to speak up confidently and safely.

Typical SME Staffing
monitor enterprise performance to a committee, sometimes called an audit

committee, less often a responsible business conduct committee.7 Delegation

of authority, however, does not relieve the board as a whole of its responsibility.8 It is important that the audit committee have unrestricted access to

necessary records and personnel. A policy that authorizes direct but limited

access to the audit committee is set forth in Box 6.2.9

An audit committee is usually responsible for arranging for competent

independent auditing. In this regard, it should be alert to any conflicts of

interest that potential auditors might have, including conflicts stemming

from their role as consultants. 

Where managers sit on a board, an emerging best practice is for the

audit committee to be composed wholly or predominantly of independent

directors.10 If committee members are managers, or are closely allied with

managers, the board may be unable to represent the owners without bias in

favor of management. This situation is an inherent conflict of interest.

Moreover, the confidence of employees and agents to seek advice and report

concerns may be compromised for fear of retribution. 

HIGH-LEVEL RESPONSIBILITY

A first step toward an effective business ethics program is to assign responsibility for its operation to a specific individual or group of people, which this

guide calls a responsible officer. A responsible officer may be an individual, a

committee, or an individual supported by a committee. An RBE should

134 Business Ethics

Direct, but limited, access to the board by the Responsible

Officer, Business Ethics Officer, or Chair of the Business Ethics

Council (individually or collectively referred to as “Senior Ethics

Personnel”) are exceptions to the exclusive role of the CEO in

connecting governance and management.

1. If, after having brought to the CEO’s attention any impropriety discovered in the course of his or her work, Senior

Ethics Personnel deem that the CEO has failed to address

the impropriety (or if the CEO is materially involved therein)

he or she must report that impropriety to the Audit 

Committee [Business Ethics Committee]. Impropriety, in this

context, means a violation of law; material violation of board

policies prohibiting the treatment of stakeholders in an unsafe, undignified, or unnecessarily intrusive manner or causing

or allowing conditions that are unsafe, unfair, or undignified

to employees; and failure to address recommendations of any

external evaluation of the Business Ethics program itself.

2. Senior Ethics Personnel, in all other respects, are subject to

the CEO’s managerial authority over all staff and have no direct access to the board or board committee.

BOX 6.2

BOARD–MANAGEMENT LINKAGE POLICY
avoid creating a situation in which no one is responsible because everyone is

responsible. In the pressures of day-to-day operations, it is easy for employees and agents to focus on immediate tasks and goals. A single person needs

to be tasked with ensuring that responsible business conduct becomes the

norm at the enterprise.

For the business ethics program to be effective, the responsible officer,

whether an individual or a group, should have a number of basic characteristics:

• Be at a high level of responsibility in the organization

• Have unrestricted access to the CEO and the board, or a designated

board committee

• Have a high degree of trust and respect from senior management

• Have access to the resources necessary to ensure that the organization

has an effective program

• Be given incentives and rewarded for proactively carrying out the roles

and responsibilities of the office

• Have the skills to operate effectively with the media, public forums, government agencies, and the legal process11

Chapter 6: Business Ethics Infrastructure 135

Translating the Vision

It is the job of every single employee to translate the Vision, the Charter, and the Policies into action.

However, a particular responsibility for keeping the company’s actions attuned to stakeholders’ demands

lies with the Board of Directors, Executive Management, and cross-organisational committees.

Three committees, each chaired by a member of Executive Management, have specific responsibilities for

sustainable development:

• The Environment and Bioethics Committee 

• The Social and Industrial Relations Committee 

• The Health Policy Committee

These committees’ tasks are to identify issues, establish and revise policies, and devise strategies, targets,

and action plans within their specific areas.Triple Bottom Line issues are reviewed twice a year at the

Board of Directors’ meetings.

PRACTICE

NOTE

Novo Nordisk

“Translating the Vision”
It is important that the person or group assigned responsibility for the

business ethics program be at a high enough level to demonstrate the owners’ and managers’ commitment to the program. That person or group

should be heard when business strategy and other important enterprise decisions are discussed, because an integral part of management’s general

responsibility is to ensure that enterprise resources are applied to achieve its

goals and objectives. This requires that the person or group have substantial

control over the enterprise or a substantial role in making policy.12

The responsible officer has three major objectives:

1. Ensuring that the enterprise establishes adequate standards and procedures to guide employees and agents and to create reasonable stakeholder expectations

2. Ensuring that these standards and expectations are institutionalized and

enforced within the enterprise

3. Evaluating and reporting on the enterprise’s performance against these

standards, procedures, and expectations13

The reporting relationships of the responsible officer are critical. One

key way in which owners and managers demonstrate support for a business

ethics program is to demand regular reports on performance. Access of the

responsible officer to the board and CEO serves a number of functions: it

provides greater opportunity for responsible business conduct to be given

136 Business Ethics

Ethics and Business Conduct

The Ethics and Business Conduct Committee is responsible for oversight

of the ethics program.The committee is appointed by the Boeing Board of

Directors and its members include the company chairman and chief executive officer, president and chief operating officer, presidents of the operating groups, and senior vice presidents.The vice president of Ethics and

Business Conduct administers the ethics and business conduct program.

Boeing Company

Boeing Ethics and Compliance Program PRACTICE

NOTE
due attention; it reinforces the authority and credibility of the responsible

officer; and it provides resources to high-level decision-makers for guidance

and support in dealing with difficult issues.

The responsible officer function may be served from any number of

positions: an executive, a committee, an individual in charge of a business

unit or major function, or someone with a substantial ownership interest.14

The position may be full-time or part-time, depending on the enterprise. 

High-level responsibility may also be assigned for specific areas of

ethics, compliance, and social responsibility. For example, in enterprises

such as hospitals, one person may be responsible for the organizational

ethics program and a medical professional may be assigned responsibility for

the biomedical ethics program. In an enterprise that does a lot of government contracting, a high-level person may be assigned to monitor that specific function.

In a highly regulated enterprise, legal demands may be such that a compliance officer should be appointed to deal only with compliance issues, in

coordination with the ethics and social responsibility functions. This may be

the case, for example, in an economy where the enterprise must be especially diligent against corruption. In another enterprise, issues of responsibility

to external stakeholders may be so demanding that a social responsibility

officer should be appointed to deal with those issues, in close coordination

Chapter 6: Business Ethics Infrastructure 137

Responsible Executives for Particular

Areas of Risk

Individuals within the corporate office have been identified as the 

subject matter experts in particular areas of compliance risk and named

Responsible Executive for those areas of risk. As such, they are responsible for identifying compliance risks; overseeing development of policies

and procedures and training programs; performing monitoring; responding

to auditing efforts; assisting with response to concerns that are raised;

and providing support regarding their areas of expertise.

HCA Inc.

“Responsible Executives”

PRACTICE

NOTE
with the responsible business conduct functions. This may be the case, for

example, in an economy where environmental issues or relations with

indigenous tribes are common.

BUSINESS ETHICS OFFICER

Independent of high-level responsibility for the business ethics program, a

number of specific business ethics staff functions must be accomplished for

the program to be effective. It is critical that a specific individual or individuals be assigned responsibility for these functions. Responsibilities for

reporting to the owners (or their representatives) are typically retained by

the responsible officer. However, a best practice is for both the responsible

officer and the business ethics officer to have access to the CEO and board.

Roles and Responsibility of the Business Ethics Officer

The business ethics officer is the staff officer responsible for the day-to-day

operations of the business ethics program. Two practitioners have identified

the following 12 functions of a business ethics officer:

1. Coordinate development and implementation of the business ethics

program.

2. Establish and chair a business ethics council representing all levels of the

enterprise.

3. Develop and maintain standards of conduct and procedures, as well as

related policies, which will guide employees and agents and will foster

reasonable stakeholder expectations.

4. Establish internal reporting channels, including, but not limited to, a

help line that employees and agents may use to seek advice and report

concerns without fear of retribution.

5. Establish or coordinate monitoring controls and measures to ensure that

correct processes are established and followed.

6. Implement or coordinate enterprise-wide communication and training

programs to ensure that all employees, agents, and other stakeholders

are educated on the standards, procedures, and reasonable stakeholder

expectations.

7. Coordinate or conduct inquiries and investigations to ensure proper follow-up on reports and resolution.

8. Delegate authority to conduct appropriate inquiries and investigations

(for example, legal, human resources, internal audit) when necessary.

9. Monitor and evaluate the business ethics program for periodic modifications when needed.

138 Business Ethics
10. Maintain a working knowledge of relevant issues, laws, regulations, and

emerging standards of ethics, compliance, and responsibility through

periodicals, seminars, training programs, and peer contact, including

membership in professional associations.

11. Respond appropriately when a violation of these standards is uncovered,

including making a direct report to the board or external agency if a violation of law or regulation is involved.

12. Report quarterly to the appropriate board committees on the status of

the business ethics program, report to the CEO or appropriate board

committees whenever necessary, and report to stakeholders annually.15

Location and Centralization of Business Ethics Offices

The functions of the business ethics officer may be performed by one ethics

officer out of a central location or may be decentralized. For example, the

business ethics officer may be located at headquarters, or each plant may

have a business ethics officer. The significant differences relate to responsibility and reporting. In a decentralized program, the local business ethics

officer will be personally responsible for the conduct of the program at the

local level and be required—and entitled—to report to the CEO and board

on issues of responsible business conduct. He or she may also have more

responsibility for training and investigations.

The advantages of centralization include a more consistent message,

economies of scale in production and distribution, more effective monitoring of the program, and more uniform and efficient enforcement.

Advantages of a more decentralized approach include messages that are

more tailored to local circumstances, more employee involvement, and more

nuanced and inclusive decision-making.16

Business Ethics Officer Qualifications

Business ethics officers generally have extensive experience throughout the

enterprise over a number of years. They have developed personal networks

that allow them to understand and relate well to the enterprise as issues

arise.17 Owners and managers often bring in someone from the outside when

there has been a pattern of serious misconduct or when they see the need for

significant change in the organizational culture.

In terms of their operational experience, staff members from departments

such as general business, finance, internal audit, and human resources tend to

be tapped to be business ethics officers. Appointing a lawyer as business ethics

officer, especially where legal compliance is a significant program element,

often leads to responsible business conduct being treated as simply an extension of the legal function. However, as two lawyers write, “Compliance is not

just another legal matter. It is a management responsibility demanding a full

Chapter 6: Business Ethics Infrastructure 139
range of management resources and skills, and the exercise of those in the

day-to-day management of the business.”18

BUSINESS ETHICS COUNCIL

The business ethics council serves principally as an adviser on setting policy,

resolving issues, and monitoring the business ethics program. In larger

enterprises, it often consists of representatives of executive management,

including finance, general counsel, human resources, internal audit, quality,

and public affairs. It is typically chaired by either the responsible officer or

the business ethics officer. It is advisable that all levels of the enterprise be

represented so that the council’s advice fully reflects the enterprise as a

whole. Wider participation may also contribute to greater employee acceptance of the program and its message. 

A business ethics council should meet on a regular basis, perhaps monthly

or quarterly. It raises issues of concern in the enterprise, reviews disposition of

help-line requests for advice or reports of concerns, previews training materials, and recommends policy changes or program modifications. It meets on call

when there are urgent matters to address, such as unforeseen conduct issues or

a compliance violation that may require disclosure to government agencies.

If the business ethics officer is highly respected and has an extensive network of managers and specialists that he or she can turn to for advice, a business ethics council may not be especially valuable. The risk of not having

such a council, however, is that the business ethics program lacks the formal

acknowledgment that input from all levels of the enterprise is important to

management. Also, the lack of a council tends to identify the business ethics

program with one person, which may require restructuring the business

ethics program when he or she leaves the post.

140 Business Ethics

Application to SMEs

An SME can benefit from having a business ethics council composed of 

representative members of the enterprise. It serves as a forum to allow

members to raise their concerns and demonstrates the owners’ 

commitment to responsible business conduct.

PRACTICE

NOTE
PROFESSIONAL ETHICS COUNCIL

The business ethics council is concerned with standards of conduct that

affect the RBE as a whole. In many enterprises, well-developed bodies of

professional ethics standards guide day-to-day operations. For example,

biomedical ethics guide health care providers, especially physicians and

nurses. Other examples include legal, engineering, accounting, and 

environmental ethics, but there are many others, including specific social

responsibility issues.

In each of these areas, significant issues will arise that require the same

sort of consultation and advice process that the business ethics council provides on more general issues. To address these more specific issues, an RBE

might establish a professional ethics council. For example, biomedical ethics

is such a significant part of hospital operations that hospitals often have a

separate biomedical ethics council, which reports directly to senior management on biomedical issues.19

If an enterprise wants to contribute to the welfare of its community as a

whole, beyond its essential function as a business, it might appoint a community relations committee. Such a committee might identify specific community needs not met by government or civil society, coordinate with

NGOs, and organize voluntary employee work projects. It would usually

coordinate closely with the public affairs function to further enhance the

reputation of the enterprise. 

BUSINESS CONDUCT REPRESENTATIVES

An RBE must also determine how best to engage its employees and agents

in its business ethics program. If the enterprise is large or complex, local

personnel can be appointed to serve as advisers to local managers, employees, and agents and as channels for communication back to a central business ethics office. An SME will generally not make formal appointments of

business conduct representatives at individual units since the responsible

officer and business ethics officer will generally be able to give each unit

adequate attention.

Business conduct representatives generally report directly to both the

senior manager at the location and the business ethics officer. They advise

managers and other employees on standards, policies, procedures, and the

business ethics program as a whole (see Box 6.3). They facilitate the functions of responsible business conduct at the local unit, such as training; monitoring, auditing, and investigating; providing employee incentives and discipline; and evaluating the program. They are responsible for coordinating

with other functions at the local level such as legal; environment, health, and

safety; quality management; and human resources.

Chapter 6: Business Ethics Infrastructure 141
Business conduct representatives must be familiar with enterprise standards, procedures, and expectations and all communications channels.

They must be able to give unbiased advice that will not interfere with the

conduct of their primary duties. For this reason, they should not be

appointed from the human resources, procurement, or legal units of the

enterprise, which are often either the source of the issue or the unit

responsible for resolving the issue.

RELATED EXECUTIVE AND DEPARTMENT FUNCTIONS

The business ethics officer is responsible for coordinating the enterprise’s

ethics, compliance, and social responsibility programs. This task requires

that the business ethics program be integrated well with other enterprise

functions.

The chief financial officer, for example, is responsible for maintaining

the enterprise’s financial integrity, including all of its financial practices,

books, and records. He or she will also have significant influence in the allocation of resources for business ethics infrastructure, including training.

An enterprise’s internal auditor is closely involved in the enterprise’s

internal controls and processes. (LCEs will often have an audit department.)

The internal auditor will be able to provide significant support to the business ethics officer by providing advice on internal controls and processes and

by conducting inquiries and investigations.

142 Business Ethics

Business conduct representatives advise employees on standards,

policies, procedures, and the business ethics program as a

whole. The following question, from the Standards and Ethics

Web page of Raytheon, is typical of the issues a business 

conduct representative deals with:

Q: I was just assigned as the company’s in-country program

manager for a major foreign government contract. I want to

host a business lunch at a local restaurant for a senior official

of the Ministry of Defense for the purpose of reviewing contract/program status. Is this permissible?

A: Maybe.You need to review the company’s policy on offering

business courtesies to customers. Company policy requires that

the offer of any business courtesy (including meals) to a foreign government person meet a three element test. First, the

proposed gratuity must be legal under the laws and regulations

of the person’s home country. Second, the gratuity must be a

reasonable and bona fide expenditure incurred by or on behalf

of the foreign official. Third, the gratuity must be directly related to the promotion, demonstration, or explanation of

Raytheon’s products or services or performance of a contract

with a foreign government. In all cases, business meals being

offered to any foreign government person must be approved in

advance by your Legal Department Vice President.

BOX 6.3

BUSINESS CONDUCT REPRESENTATIVES

Raytheon

“Standards and Ethics”
Chapter 6: Business Ethics Infrastructure 143

The business ethics officer will often turn to the chief legal officer for

advice on legal requirements of a compliance program, due process requirements of inquiries and investigations, legal risk analysis, and possible program outcomes. 

In the minds of many employees, when one speaks of ethics one speaks

of “fairness.”20 Many ethics issues, therefore, involve human resources issues:

assignments, compensation and benefits, discipline, employee assistance,

and promotions. The business ethics officer will need to recognize human

resources issues and work with human resources personnel to resolve them.

Other enterprise functions that the business ethics officer will work

with closely are training, education, and development; environment, health,

and safety; security; quality management; and operations and administration in general.

INDIVIDUAL RESPONSIBILITY

To be a truly responsible business, the enterprise must articulate the responsibilities of all of its employees and agents in a positive, constructive manner.

For owners, managers, and supervisors, this effort may involve complete

awareness of the business ethics program itself. Owners, managers, and supervisors must demonstrate commitment to the program in all that they say and

do. They are responsible for maintaining an organizational climate in which

pressures to violate standards are minimized and incentives to achieve enterprise goals and objectives, pursue the enterprise purpose, and meet reasonable

Individual Responsibility Is Key

15. All officers, executives, and managers of Alcatel and its subsidiaries 

are responsible for the continuing enforcement of and compliance 

with this policy, including necessary distribution to ensure employee 

knowledge and compliance. Non-compliance with this policy will result 

in disciplinary measures.

16. Any employees meeting with difficulties in the application of this 

policy must consult with their management.

Alcatel Group

“Statement on Business Practices”

PRACTICE

NOTE
144 Business Ethics

stakeholder expectations are high. Managers and supervisors may be required

to certify regularly that they have no conflicts of interest and that they—and

those they manage—are following the business ethics program.

For all employees and agents, their specific responsibilities under the

business ethics program may require familiarizing themselves with the standards, certifying receipt of the code and compliance with code requirements,

attending scheduled training, participating in feedback sessions and investigations, and seeking advice and reporting concerns.21 They may also be

charged with contributing to an organizational climate in which all employees can work together to achieve the enterprise’s purposes.

SUMMARY

Responsible managers consider the strengths and practices of the enterprise

when designing business ethics infrastructure. Owners and managers of an

RBE design and implement business ethics infrastructure by answering this

question: “What style, structure, and systems of authority and responsibility at all levels should we exercise?”

To support employees and agents in their day-to-day conduct of responsible operations, owners and managers establish certain functions and positions, such as high-level oversight of the program; a business ethics staff to

administer the program; representative councils of the enterprise and professionals; legal, human resources, and internal audit linkages; and individual responsibilities of staff members. Such infrastructure may be particularly valuable for an enterprise as it participates in the evolution of an emerging market economy.
Chapter 6: Business Ethics Infrastructure 145

RESPONSIBLE BUSINESS ENTERPRISE

Checklist

1. How should a board of directors organize itself to best 

represent the shareholders and provide proper guidance and 

oversight to management?

2. What style, structure, and systems of authority, responsibility, and

accountability should we employ at each level of responsibility in

our enterprise?

3. What do we need to do to develop adequate systems to support

this infrastructure?

a. For communications and feedback mechanisms, see Chapter 7.

b. For management alignment systems and practices, see 

Chapter 8.

c. For program evaluation and organizational learning systems,

see Chapter 10.
146

Business Ethics Infrastructure Worksheet

RBE W ORKSHEET

8

RBE Worksheet 8, which may be photocopied for use within your organization, provides a tool for ensuring that all 

necessary levels of responsibility are considered. Owners, managers, and staff members should engage stakeholders to 

address each element of their level of responsibility along the vertical axis to ensure that they are consistent with their 

enterprise standards: their core beliefs and the standards, procedures, and expectations developed in Chapter 5. From 

this dialogue, they will be able to identify any required elements of the business ethics infrastructure.

Function

Owner representative governance 

Overseeing the program at a high level (the 

responsible officer)

Performing or coordinating the specific 

functions of the business ethics program (the 

business ethics officer)

Advising the responsible officer and business 

ethics officer and representing the enterprise 

as a whole (the business ethics council)

Advising the responsible officer, business 

ethics officer, and employees and agents 

about specific professional ethics, 

compliance, and social responsibility issues 

(the professional ethics council)

Linking individuals at various levels of the 

enterprise with a central ethics office 

(business conduct representatives)

Performing related executive and 

department functions (the chief financial 

officer; legal counsel; human resources; 

internal audit; environment, health, and safety; 

government procurement; and investor 

relations)

Abiding by standards and procedures and 

striving to meet reasonable stakeholder 

expectations (every employee and other 

agent of the enterprise)

Enterprise Standards Required Infrastructure
147

7

This chapter examines two essential elements of a

business ethics program: (a) communicating standards, procedures, and expectations and (b) learning

what is going on in the enterprise. Communication

in the responsible business enterprise (RBE) is

mutual—that is, owners and managers strive to

make sure employees and agents understand their

standards, procedures, and expectations, and owners, managers, supervisors, workers, and agents alike

have the information they need when they need it.

An RBE also engages its external stakeholders in

order to foster reasonable expectations and determine stakeholder satisfaction.

Communicating and Providing Feedback 

For an enterprise to be responsible, all stakeholders

must have a complete understanding of their roles

and responsibilities in the workings of its business

ethics infrastructure. Moreover, managers must

know whether the enterprise’s standards, procedures, and expectations are adequate to meet the

reasonable expectations of its stakeholders.1

This chapter describes the infrastructure and best

practices used by an RBE to communicate its standards, procedures, and expectations and to ensure

that they are being followed and met. Owners and

managers ask themselves two fundamental questions:

Business Ethics

Communications and

Feedback

• Communicating

and Providing

Feedback

• Communicating

Standards and

Fostering

Reasonable

Expectations

• Ensuring

Members Follow

Standards and

Meet

Expectations
1. How can we most effectively communicate our standards and procedures and foster reasonable expectations among our stakeholders?

2. How can we know that our members follow our standards and that 

reasonable stakeholder expectations are met?2

Communicating Standards and Fostering Reasonable Expectations 

A primary cultural characteristic of an enterprise is the extent to which

knowledge is shared.3 Communication within an RBE is not top-down but

instead flows in all directions. How the elements of a business ethics program are communicated is an integral part of the program itself. The manner in which owners and managers communicate the value they place in the

148 Business Ethics

Information Flow and Corporate Social

Responsibility

The central shortcoming of the current state-of-the-art in terms of 

corporate social responsibility stems from the weakness of the force that

drives and animates it—market-relevant, credible, comparable information.Without good-quality information, consumers and investors cannot

consistently and accurately voice preferences through markets, and 

managers cannot make efficient and strategic decisions about change in

production processes and product design.

Lyuba Zarsky

”Beyond Good Deeds”

PRACTICE

NOTE

program through the choices they make, the things they say, and what they

do or fail to do will define the program for most other stakeholders.

DEVELOPING A COMMUNICATIONS PROGRAM

For owners and managers to communicate about responsible business conduct, they must be working from a communications program that delivers a
clear and consistent message of what it means for the enterprise to be

responsible. It must include all enterprise employees and agents and reach

beyond them to include all other stakeholders, as appropriate.

Formal communications are the most obvious aspect: program

announcements, company newsletters, new employee orientation, training

programs, posters, annual and social responsibility reports, speeches, and

meetings. Informal communications may include managers explaining how

they arrived at a decision, experienced workers telling the newly hired “how

things really work around here,” and all forms of rumor and gossip. Owners

and managers must be alert to both forms of communication. If formal communications tell one story while informal communications tell another,

stakeholders often become frustrated and cynical. 

In planning the communications program, owners and managers need to

identify their stakeholders and prioritize communication efforts among

them. They must consider how best to reach particular stakeholders. As with

every other aspect of a business ethics program, the communications program must reflect an accurate understanding of the relevant context and

organizational culture. 

The communications program also needs to address how to solicit and

respond to feedback from employees and other stakeholders. Feedback helps

the enterprise track whether its standards and procedures are known and followed—and whether reasonable stakeholder expectations are being met. 

Know the Audience

For the RBE, the target audience includes all stakeholders. Stakeholders and

their interests are identified through the processes of scanning the relevant

context and organizational culture described in Chapter 4. Through these

processes, owners and managers gain a firm understanding of what is

required of the enterprise for its business ethics program to be effective. 

Stakeholders, whether internal or external, often have widely differing

perspectives on enterprise standards, procedures, and expectations.

Communications to stakeholders must be tailored to guide their behavior or

foster reasonable expectations accordingly. 

Internal stakeholders can be categorized in terms of their interest in ethics:

• Some employees are ethical enthusiasts. These employees hold views on

corporate responsibility that are strong enough to influence their choice

of employer.4

• Others are ethically committed. These employees have adopted enterprise

standards, procedures, and expectations in principle but still require support. They need to be assured that their choices and actions will meet the

Chapter 7: Communications and Feedback 149
enterprise’s expectations. They also need to know that if they follow

enterprise standards and procedures they can still succeed. For example,

most employees will be relieved to know that bribery and other corrupt

practices are prohibited by the enterprise, but they will be distressed if

owners and managers look the other way when fellow employees continue to bribe purchasing agents to meet quotas or gain bonuses.

• Other employees are ethically unaware. These employees are not aware

of—or have not yet embraced—these standards, procedures, and expectations and need to be educated about them, employees’ individual roles

and responsibilities, and the business ethics infrastructure built to ensure

that standards, procedures, and expectations are honored.

• Still other employees are ethically challenged. They have quietly rejected

enterprise standards and procedures because they make lucrative “business as usual” more difficult. These people need to be advised that (a) the

enterprise is dedicated to its standards, procedures, and expectations and

(b) deviation from them will not be tolerated. Often, these people will

self-select themselves out of the enterprise when they come to appreciate that owners and managers are genuinely committed. If not, owners

and managers need to lay the foundation to remove or isolate them, as

discussed in Chapter 8.

Much the same categorization can be made of external stakeholders.

The enterprise message needs to resonate with certain external stakeholders,

who can be thought of as potential allies. Some stakeholder advocacy groups,

for example, will work cooperatively with an RBE to help it better understand the impact of its activities on others, provided they are convinced that

the enterprise is interested in finding mutually satisfactory solutions.5

Other stakeholders are well intentioned but hostile to an enterprise

because they do not understand its purpose or the challenges facing it. An

example is an incident between the advocacy organization Greenpeace and a

unit of Royal Dutch/Shell, involving the disposal of a spent deep-sea oildrilling rig, known as Brent Spar. The conflict revolved around which

method of disposal would cause the least environmental damage.

Greenpeace was unwilling to consider any method other than land decommissioning. Royal Dutch/Shell had to make the scientific case for its method

of disposal and consider “social, ethical, aesthetic, legal and economic factors

... in addition to the scientific evidence.”6 In the end, Brent Spar was recycled into a ferry terminal,7 but all participants in the dispute lost financially

and had their reputations damaged: Royal Dutch/Shell, Greenpeace, and the

government of the United Kingdom, which had approved deep-sea disposal

of the oil-drilling rig.

Finally, some external stakeholders are hostile to capitalism in general.

Others object to specific business practices of a particular enterprise. In

150 Business Ethics
Islamic countries, for example, producing pork products or alcohol is unacceptable. Some stakeholder groups remain suspicious of Nestlé (the Swiss

food and beverage firm) for marketing infant formula in impoverished countries that did not have the hygiene capabilities and literacy to use the product properly. Other stakeholder groups will never accept tobacco manufacturers or defense contractors as responsible businesses. For an enterprise to

engage such stakeholders, an effective communications program must

address their concerns as directly as possible, without sacrificing core beliefs.

For example, the British American Tobacco social responsibility report

describes its social and environmental practices, while acknowledging that

some people will never see a tobacco company as inherently responsible.8

Assess the Needs 

Before designing a communications program, owners and managers must

conduct a needs analysis to find out what stakeholders need to know. In general, a need to communicate enterprise standards, procedures, and expectations to employees and agents is clear. It is not likely that most employees or

many stakeholders will read the various business ethics program documents

cover to cover. And even if some stakeholders do, owners and managers will

want to emphasize regularly their commitment to abiding by the program. 

Owners and managers need to know much more than the target audiences to design an effective communications program. As depicted in RBE

Worksheet 9, at the end of this chapter, management should use a number

of standard assessment tools such as interviews, focus groups, surveys, document review, and direct observation to ask the following questions:9

• What kinds of responsible business conduct issues do employees and

other stakeholders face or are they concerned about?

• What do employees and other stakeholders need to know to be able to

fulfill their roles and responsibilities and have reasonable expectations of

the enterprise?

• How do employees and other stakeholders learn what is expected of

them and what they can expect?

• What communications methods are available to the enterprise to reach

specific stakeholders?

• What are the criteria by which successful communications will be 

evaluated?

Using RBE Worksheet 9 in conjunction with other worksheets, such as

RBE Worksheet 2 and RBE Worksheet 4 (see Chapter 4), will help management determine what needs to be communicated to whom and how. With

Chapter 7: Communications and Feedback 151
the information obtained, a working group can develop a plan to design a

comprehensive communications program.

Typically, the most important stakeholders to reach will be customers,

employees, and agents. Next in priority may be financial stakeholders, such

as owners and investors, and then, specific stakeholder advocacy groups.

Management needs to conduct this analysis carefully to ensure that its message about standards, procedures, and expectations is communicated as

effectively and efficiently as possible. Perhaps most important for long-term

program success is consideration of the criteria that will be used to determine whether the program is successful. At a minimum, it should be clear to

management that the communications program contributes to achieving the

expected outcomes of the overall program.10

The product of this needs analysis should be a summary report describing the program situation, target audiences, objectives, program resources

and constraints, and expected outcomes. The next step is to design a communications program by using the summary report. 

COMMUNICATING STANDARDS, PROCEDURES, AND EXPECTATIONS

Standards, procedures, and expectations of responsible business conduct

should be communicated through as many means as are likely to be well

received by the target audience. Some means are dictated by law, such as

annual reports to shareholders or environmental impact assessments to government agencies. Others are dictated by custom or practice, such as an

enterprise newsletter or Web site. Some are emerging best practices, such as

the Global Reporting Initiative and AA1000S, a framework for accounting

for organizational performance.11

An important part of any communications program is training, education, and development. For the RBE, training must be comprehensive. For

an enterprise to be responsible as a whole, each of its employees and agents

must have the skills, knowledge, understanding, and attitudes necessary to

work together to achieve enterprise goals and objectives. 

Promoting the Program through Management Speeches 

There is no doubt that when owners and managers speak employees and other

stakeholders listen—at least to some degree. Employees and other stakeholders are also alert to what is not said, as much (or more) than what is said.

Owners and managers need to be particularly alert to the risk of mentioning

enterprise core beliefs or the business ethics program only on special occasions. Employees and agents will note that the enterprise’s purpose, values, and

standards are rarely discussed. For example, one chief executive officer (CEO)

was famous for referring to the business ethics program only once a year. It

152 Business Ethics
escaped few employees that, while he lauded the program on the day set aside

to honor it, he never referred to, or inquired after, it at any other time. 

Especially when introducing a business ethics program, managers need

to accept that their message may be greeted skeptically. That is a reason

Chapter 3 urges that the business ethics program be treated with all the seriousness of a strategy.

Distributing Statements, Codes, Standards, Procedures, and Expectations 

As stressed in Chapter 5, the documents that establish responsible business

conduct standards, procedures, and expectations are only the start of a business ethics program. To the extent employees and other stakeholders were

formally involved in writing the basic documents setting forth guidance and

establishing expectations, the communications process has begun. Indeed,

the mere act of appointing workers as project consultants, described in

Chapter 3, begins communicating how seriously management takes its business ethics program.

Distributing copies of the responsible business conduct standards, procedures, and expectations to each employee and agent, and requiring them

to acknowledge receipt, is a major step. For the newly hired in an enterprise, the documents establishing standards, procedures, and expectations

for responsible business conduct should be among the first matters

addressed during orientation. Some enterprises discuss their core beliefs as

early as the recruiting process. One enterprise, Guardsmark, includes a

copy of its code as a part of the employment contract. In the European

Union, where employee contracts are used to set forth employment terms

and conditions, employees often must stipulate compliance with a code for

it to be applicable.12

Some companies distribute wallet-size cards with enterprise core beliefs

and business ethics contact information to all employees. Others put such

information on the back of employee identification cards.

Posting Summaries or Lists of Principles 

A cost-effective means of reinforcing the message of responsible business

conduct is to post enterprise core beliefs in lobbies, meeting rooms, and

work spaces, as well as on bulletin boards. When one enterprise was

responding to a responsible business conduct crisis, a manager began each

meeting by reciting the enterprise business principles or core values. Other

enterprises have required that all meetings begin with specific safety briefings,

including designated escape routes, to reinforce the core values of employee

health and safety.

Posting is a means of communicating, but owners, managers, and

supervisors need to make sure the message is actually understood. For

Chapter 7: Communications and Feedback 153
example, one worker, when asked what “quality” meant, replied, “I don’t

know, but my supervisor told me that if anyone asked, I should point to the

poster on the wall.” 

Posting on a Web Site 

Increasingly, standards, procedures, and expectations for responsible business conduct are posted on the enterprise Web site or intranet. This information usually includes the enterprise core beliefs, statement of business

principles, and annual report. Increasingly, Web sites include the entire code

of conduct, contact information for key figures in the business ethics program, and information about how to seek advice and report concerns. A few

organizations now post a social responsibility report, which will be discussed

in more detail in Chapter 10.

Publishing Articles and Newsletters

Articles or columns about responsible business conduct can be placed regularly in enterprise publications. In larger enterprises, the business ethics program may have its own newsletter. Whatever the medium, articles may

address issues of particular concern to management. These issues include

areas of serious risk, patterns of behavior that cause concern, or opportunities for enhancing enterprise reputation or adding value that managers want

to be sure employees do not miss.

A particularly sensitive question is how to address incidents that have led

to the disciplining of an employee. There is no better way to demonstrate

management’s commitment to responsible business conduct standards, procedures, and expectations than to disclose publicly how managers dealt with

a difficult situation—particularly when the matter involved a senior executive. 

While recognizing the value in addressing real-life issues and describing

real-life responses, managers must consider the privacy rights of the employee before publishing details of the incident. It is often possible to describe the

situation and management’s response, including disciplinary action, without

including identifying information. If the enterprise is small enough, or the

event notorious enough, however, the employee’s identity may be clear to all

employees. The same may also be true when an employee is rewarded for

some ethically exemplary decision or action. In many organizational cultures,

individual rewards or rewards for reporting concerns about another member

of the group would degrade the harmony of the group itself.

Making Ethics Brochures Readily Available

Where there are matters of particular concern to management, employees

and agents may be given brochures to address them. Among many others,

topics may include dealing with conflicts of interest, accepting or declining

gifts and gratuities, meeting stakeholder expectations, and seeking advice

154 Business Ethics
and reporting concerns. Such brochures should be placed in racks located in

places where employees congregate. They may stimulate dialogue. The

numbers that are taken from racks are also a rough indicator of issues

employees want to know more about.

CREATING A TRAINING PROGRAM

Making speeches and distributing written materials are necessary elements

of getting the message out, but they are not enough. All employees—from

senior managers to workers—need time on the job to review responsible

business standards, procedures, and expectations; to explore issues of responsible business conduct; to learn how the program structures and systems

work; to understand their roles and responsibilities; and to develop the necessary ethical reasoning and dialogue skills. 

Designing a training program requires the same attention to objectives

and outcomes as does the design of the business ethics program as a whole.

It requires attention to the situation, resources available, activities and participants, target audiences, outputs, and expected outcomes. Without this

attention to detail, neither the business ethics program nor the communications program or training program has any criteria for evaluation. In short,

it is not clear to all what success looks like.

Demonstrating Management Commitment

Few decisions symbolize management’s commitment to its business ethics

program more than devoting time, on a regular basis, to training in responsible business conduct. Beyond the skills, knowledge, and understanding

developed through such training, the mere fact that management dedicates

valuable employee time to such training goes a long way toward demonstrating that it is serious about its standards, procedures, and expectations

becoming part of the organizational culture—instead of just a collection of

policies sitting on a shelf.

Rescheduling busy day-to-day operations to accommodate regular

employee training also conveys an important message from managers and

supervisors to their workers. Where training is treated as an integral part of

the enterprise, employees tend to value it more than where training is treated as an irritant or necessary evil.

Reinforcing Core Beliefs and Organizational Culture

Training should be designed as an essential link between the enterprise’s core

beliefs, the business ethics program, and the expected program outcomes. As

such, training in responsible business conduct is one of the key activities to

list in the program logic model developed in Chapter 4 (RBE Worksheet 1).

Chapter 7: Communications and Feedback 155
The training program should reflect the organizational culture of the

enterprise. The enterprise needs to project the expected behavior through the

training program. Training should also contribute to the expected outcomes of

the business ethics program. If an expected program outcome, for example, is

that employees come to recognize issues of responsible business conduct more

readily and talk about them in terms of enterprise core beliefs, standards, and

procedures, then training composed primarily of lectures will not succeed.

Where employees are not used to being asked how they would address important issues, let alone raise them, training will need to demonstrate how it is

done—and engage the employees as their comfort level increases.

Designing the Program

Training program objectives depend on relevant context, organizational culture, goals and objectives, and expected outcomes for the business ethics

program as a whole. Designing the training program begins with the summary report of the communications needs assessment (RBE Worksheet 9).

The training program should be based on enterprise core beliefs. It must

reflect the pressures of the enterprise’s context and its organizational culture.

Its primary objective is to make a positive contribution toward achieving

expected program outcomes.

At a minimum, training sessions should require employees to become

familiar with applicable laws and regulations, as well as with the enterprise’s

procedures for reporting and investigating concerns about responsible business conduct. The training should enhance the ethical awareness of employees and should uncover ethical issues and concerns that relate to their needs

as well as those of the enterprise. It should include an examination of the criteria for ethical decision-making. See Appendix A for an example of an outcomes-based decision-making model. 

A training program may cover a number of topics for each expected program outcome. Using RBE Worksheet 10, found at the back of this chapter,

program designers can ensure that training objectives contribute to achieving expected outcomes of the business ethics program. Put together a training program team composed of representative members of the enterprise

and representatives of external stakeholders such as customers.

All participants should leave the training program confident that they

know what the enterprise expects of them and what they can expect from the

enterprise in turn. They should be able to recognize issues of responsible

business conduct and have the confidence—and courage—to make the right

decision, explain that decision to the appropriate people, and act accordingly. They should understand how the business ethics program relates to

strategic issues for the RBE as a whole. 

156 Business Ethics
For a training program to contribute to expected outcomes, it requires a

heavy emphasis on dialogue and decision-making about issues of responsible

business conduct. Beyond developing listening and feedback skills and good

judgment in enterprise members, the training program must convey management’s sincere desire to know whether its standards and procedures are

being followed and whether its stakeholder expectations are being met. The

program must also convey management’s commitment to support employees

and other stakeholders who seek advice and report concerns. This task

requires not only encouraging individuals who are inclined to come forward

but also explaining to those who do not why their silence is detrimental to

enterprise performance. 

A typical expected outcome is that employees and agents will use good

judgment in addressing issues of responsible business conduct. For the RBE,

ethical decision-making is a form of action learning.13 It is a tool that employees and agents use to learn how to pursue the purpose of the enterprise and

meet the reasonable expectations of stakeholders. At a minimum, management might provide a decision-making process that, in a specific incident,

enables its employees and agents 

• To define the issues of ethics, compliance, and responsibility 

• To demonstrate a grasp of all relevant and material facts, including the

stakeholders involved and their interests

• To point to the applicable standards, procedures, and expectations,

including decrees, laws, and regulations

• To describe the range of options available 

• To explain why, based on these considerations, they made a particular

choice or acted in a particular manner

Many ethics and policy decision-making models are available on the

Internet. They range from simple, five-step models to multiphase frameworks that include decision criteria.14 The better models are based on welldeveloped skills in critical thinking. Trainers can introduce the process

through lecture and then break the participants into small groups to apply it

in a case study. See Appendix A for an approach to ethical decision-making

that reflects the approach recommended by this manual.

A long-term expected program outcome should be an organizational

culture in which owners and managers have the information they need to

make intelligent decisions for the enterprise. To achieve this, employees

must leave training believing that they will not be punished for bringing bad

news to management. 

Participants must also leave training firmly convinced that, should they

make a mistake, they will not be punished if they can demonstrate that they

Chapter 7: Communications and Feedback 157
followed the enterprise decision-making process. Employees or agents should

not be punished for making a mistake if they can demonstrate that they

• Recognized the issue

• Had a reasonable grasp of the relevant facts

• Considered enterprise standards, procedures, and expectations

• Explored the range of options available

• Could justify the choice they made or action they took

DELIVERING THE TRAINING PROGRAM

A number of principles characterize effective training programs on responsible business conduct. First, a program should project the core beliefs of the

enterprise—not just teach them. Second, owners and managers should be

involved in the training in significant, visible ways. Third, the program

should recognize the personal values of individual stakeholders but not rely

on them. Fourth, the program should be comprehensive, not limited to specific training in responsible business conduct. Finally, it should include

action planning and follow-up to reinforce the lessons learned.

Reflecting Core Beliefs

Where expected program objectives include issue recognition, dialogue,

and ethical decision-making, the training program should develop those

skills and provide the knowledge necessary to apply them. For adults, who

tend to learn best while doing, the best training method is often a balance

158 Business Ethics

Projecting Core Beliefs by Telling Stories

The business ethics officer of one large, complex enterprise tells the story

at training about how a regional manager let a large shipment sit on a pier

for weeks rather than pay a bribe—with the full support of the enterprise.

Another business ethics officer describes how managers must travel to

corporate headquarters when an accident occurs and an employee is seriously hurt.The manager must be able to describe what happened, why it

happened, and what he or she did to make sure it will not happen again.

PRACTICE

NOTE
of lectures—to introduce or review standards, procedures, and expectations—and facilitated case studies. 

In developing those skills and passing on this knowledge, the program

needs to project the core beliefs of the enterprise and the expected program

outcomes. Abstract standards, procedures, and expectations take on meaning

for employees when relayed in terms of the enterprise’s core beliefs. It is one

thing to discuss rules governing bribery and corruption because they are in

the code of conduct. It is another thing to tell stories about how those rules

are applied in practice. 

Involving Owners and Managers

Because all training must reflect the relevant context and organizational culture of the enterprise, the precise way to involve owners and managers cannot be specified. A key requirement is that stakeholders, especially employees, believe that management fully supports the training.

Management involvement takes many forms. Some enterprises use

cascade training, in which the CEO trains his or her direct subordinates.

They, in turn, train those who report to them and so on down the chain of

management until supervisors train their workers. This method has the

advantage of actively involving managers, which tends to demonstrate

commitment. A disadvantage may be that the presence of managers may

stifle active involvement of the employees when candid discussion of issues

is in order or when the culture of the enterprise is to remain silent on

important issues.

Another option is a video of the CEO introducing the training by declaring his or her personal commitment to the training program. Owners and

managers may also visit the training, observe it, or be available to answer questions as they arise during the course of the program. In any event, employees

are unlikely to value training that management does not appear to support. 

Recognizing Personal Values

One of the controversies surrounding training in responsible business conduct is whether one can—or should—teach ethics to adults. It is unlikely that

ethics training will change the outlook of most employees. Personal values

are usually set in youth—families, schools, churches, and peers subtly guide

children as they grow to adulthood. But the purpose of business ethics training is not so much to change adults as it is to support them, admonish them,

or reinforce their understanding of management’s commitment to enforcing

its standards, procedures, and expectations.

Trainers can be confident that what adults bring with them to the enterprise does not include knowledge of enterprise standards, procedures, and

Chapter 7: Communications and Feedback 159
expectations. Moreover, it is unlikely that most employees—including owners

and managers—are skilled at making the best choice among options where

the problem involves complex pressures arising from the relevant context.

For some employees and agents, no amount of training is going to change

them. Such cases are less a matter of training than of having the right people

performing the right tasks, which is addressed in Chapter 8.

For the training to be effective, it must appeal to what motivates the participants. The ideal situation permits an appeal to a participant’s sense of

community. Where participants feel that they share a purpose, values, and a

vision of a desired future, trainers may stress responsibilities to stakeholders.

But more often, participants respond to a sense of urgency. This sense can

be created by recounting stories about what happened when employees and

agents violated standards—and the impact on both the enterprise and the

individuals involved. 

One cost-effective way of creating a sense of urgency is to develop a

“parade of horribles” by collecting headlines of powerful enterprises and

individuals who have been prosecuted or held liable for misconduct. “The

Bigger They Are, the Harder They Fall,” said the headline of one recent

working paper, which estimated that “the loss of confidence following the

collapse of Enron and WorldCom will cost the U.S. economy $37 billion

to $42 billion” in reduced gross domestic product.15 Since these two enterprises, Enron and WorldCom, were accused of major accounting fraud,

their stock values have dropped to a fraction of their former values, and

senior executives have been indicted. Few responsible business conduct

trainers now miss an opportunity to refer to Enron to demonstrate what

can happen if managers act irresponsibly—what has come to be known as

the “Enron Effect.”

Making Training Comprehensive

Training should take place at all levels of the enterprise. From senior managers and owners to workers on the shop floor, every employee and agent

should receive training in responsible business conduct specific to his or her

level of responsibility. All employees and agents should review enterprise

core beliefs, standards, procedures, and expectations, including policies

relating to their individual responsibilities.

Managers and supervisors need additional training to reflect their roles

and responsibilities as integral parts of the business ethics program. They

may need to gain understanding of the issues that affect their performance

such as conflicts of interest, anticorruption measures, or emerging global

standards. In particular, they must understand that enterprise standards, procedures, and expectations are never to be violated to meet individual and

enterprise performance objectives. They must fully appreciate their roles

160 Business Ethics
Chapter 7: Communications and Feedback 161

and responsibilities in nurturing an organizational culture in which employees and agents can seek advice and report concerns so that management has

the information it needs to guide the enterprise. Finally, they must learn not

to fear evaluation of their units’ performance, if the enterprise is to learn

from experience.

Agents, including consultants, sales agents, brokers, partners, franchisees,

and closely allied suppliers and service providers, should be exposed to the

enterprise core beliefs; applicable standards, procedures, and expectations;

and specific policies relating to their roles and responsibilities. 

Training should address pursuing the enterprise’s purpose and meeting

stakeholder expectations. A training program begins with basic employee

recruiting materials and procedures, and never truly ends. Though the

emphasis of a business ethics program is on issues of ethics, compliance, and

social responsibility, this focus is primarily on reinforcing an enterprise-wide

sense of responsibility to the enterprise and its stakeholders in pursuit of the

enterprise’s purpose. 

For example, concerns such as customer service, quality management,

fair dealing with suppliers and service providers, environmental protection,

proper relationships with government officials, and individual responsibility

for developing a healthy workplace require attention to issues far beyond

business ethics. Nevertheless, such issues have substantial elements of

responsible business conduct. Although basic training in workplace skills is

not specifically training in responsible business conduct, ensuring that

employees and agents have the requisite skills, knowledge, understanding,

and attitudes to pursue the enterprise’s purpose and meet reasonable stakeholder expectations is responsible business conduct. Preaching a core value

of customer service when employees know they do not have the ability to

provide it will build, at best, frustration and cynicism.

In short, the training program should ensure that training in responsible business conduct begins with the earliest opportunity to orient the newly

hired or retained and continues to transfer to the workplace as long as the

employee remains a stakeholder.

Incorporating Action Planning and Action Learning

One way to make training meaningful is to have participants, individually or

as members of a team, develop an action plan for the next three to six

months based on what they learned. For senior employees, this action plan

may reflect an assessment that some aspects of an enterprise’s business ethics

program require more support in practice. An example might be recognition

that more training is required during the ensuing months on the issue of

gifts and gratuities. Another might be a need to develop a division policy on

wastewater disposal.
Copies of these action plans should be retained by the business ethics

officer or another appropriate officer. Follow-up questionnaires requesting

progress reports should be sent regularly. Tracking progress on action plans

can give indirect feedback or function as a performance evaluation item. It

also has the effect of reinforcing perceptions of management’s commitment.

An important way to demonstrate management commitment is to include

participation in the training and action planning as express elements of performance evaluation.

USING THE MODES OF TRAINING

The training program should use all modes appropriate to the organizational culture and stakeholder needs. In general, training should be as interactive, realistic, and relevant to day-to-day jobs as possible. In a recent

study, one researcher found that European “training objectives typically

include illumination of the company’s and individual’s values while in the

United States the emphasis is on increasing knowledge of company standards and/or the law.”16 The level of difficulty should challenge but not

overwhelm participants. 

Some modes of training that enterprises may consider include:

• Lectures and presentations. The classic method that adults are familiar with from their school days, lectures are the most effective way to

reach a number of people with fairly straightforward information. In the

initial rollout of a code, for example, lectures may be the most effective

mode of explaining where the code fits into business performance. This

mode is also an effective way to describe other resources and ways to

access them. If an objective of the training program is to develop dialogue and decision-making skills, it is doubtful that lectures will be effective. Indeed, this mode may be counterproductive if it reinforces an

organizational culture in which employees do what they are told and

avoid the risks of making decisions.

• Case studies and scenarios. After participants understand the purpose

of the training and the resources available, issues of responsible business

conduct can be effectively introduced through the study and analysis of

cases that have actually occurred to the enterprise or to other similarly

situated enterprises. Trainers might also develop their own scenarios to

raise a number of issues. Case studies and scenarios help develop dialogue and decision-making skills. Case studies take more time to pass on

information than do lectures. But analyzing a situation to isolate an

issue, to develop the realistic options available, and to justify a decision

to others in a relatively risk-free environment is invaluable. This mode

162 Business Ethics
also develops the important skills and attitudes of listening and of giving

and receiving feedback.

• Ethics games. Many larger enterprises, including Citigroup, Lockheed

Martin, and Boeing, have developed games to raise awareness of issues

of ethics, compliance, and social responsibility; to develop good reasoning skills and judgment; to stimulate dialogue; and to demonstrate management commitment.17 In general, the games involve dividing employees into small teams and placing before them a situation that raises a discrete issue of ethics, compliance, or social responsibility. The teams are

given a few minutes to reach a consensus choice among the four or five

alternative responses available to them. Teams are then asked to justify

their choice. These games usually stimulate heated discussion. Each

answer has a predetermined value in points. A particularly valuable element is that members of senior management sit as an “appeals board” in

the event a team disputes the correctness of the answers or their predetermined point values. Participants are then able to observe how senior

managers make and justify their decisions.

• Other modes. Many companies are now offering quite sophisticated

Web-based training.18 This mode may be relatively cost-effective. Videos

and self-paced studies may be purchased off the shelf and may expose participants to the basics. These products, while useful, lack the familiarity

that customized materials would offer. Yet, such materials do tend to reinforce the notion that the enterprise is engaging in an emerging global

effort, and thus they might add some sense of importance to the training. 

Chapter 7: Communications and Feedback 163

Sample Case Study

Ned’s manager,Will, has asked him to bill the general project he is working

on to an indirect work account. Ned questions if this goes against the company’s charging policy, but Will assures him that he has the authority to

approve this approach. Ned does as he is told, but he remains concerned.

Your challenge is to select three building blocks [company values] that

will help Ned resolve his concerns with Will.

Lockheed Martin Corporation

“The Twelve Building Blocks of Trust”

PRACTICE

NOTE
UPDATING AND MODIFYING THE TRAINING PROGRAM

The training program should be modified over time to ensure that its content contributes to pursuit of the enterprise’s purpose and helps meet reasonable stakeholder expectations. Also, it should be reviewed to ensure that

the delivery methods are the most effective available. As the relevant context

of an enterprise, its organizational culture, and its stakeholders’ expectations

change over time, the training program must adapt as well. This effort

requires considering feedback from the training program.

Training provides useful feedback to managers on the ways in which the

business ethics program is being received. It helps uncover sensitive areas

such as insufficient guidance for employees or unreasonable stakeholder

expectations, legal issues, unfair treatment of employees, and difficult working conditions. Feedback might reveal that trainers focus on issues that do

not reflect the real-life concerns of the participants. It might also show that

the sessions need more trainer–trainee interaction or that the materials are

dull and do not encourage interaction. If feedback shows that participants

need a better understanding of complicated issues, such as conflicts of interest, there may be specific real examples or case studies from the enterprise’s

experience that could address these concerns.

There are several methods for collecting feedback from training programs. Traditionally, training administrators ask trainees to fill out an evaluation form asking whether they found the training useful and what, if anything, they learned. At the end of the training, administrators should ask participants questions such as:

164 Business Ethics

Training Idea

An enterprise might develop a case study around a particularly challenging business ethics issue, such as accurate recordkeeping or acceptance of

gifts and gratuities, and train supervisors to conduct short weekly 

meetings to discuss the case.

A supervisor could capture the dialogue and report it to the business

ethics office, which could then compile summaries of what the enterprise

believes about the topic and report them back to the staff members.

PRACTICE

NOTE
• How would you rate the overall effectiveness of the training? 

• Were the materials helpful and relevant? 

• Were the right issues discussed? 

• What other topics would you like to discuss in the next training session?

Training administrators might also ask participants to take quizzes before,

during, and after the training to determine what they learned.

The action-planning process described earlier is probably the most valuable, though time-consuming, process of collecting feedback because it

tracks whether training actually transferred to the workplace.

MANAGING TRAINING ADMINISTRATION

Owners and managers demonstrate their commitment to the business ethics

program by managing the training program well. Good management requires

that adequate time be allocated to training, that training records be well

maintained, and that training participation be an element of performance

evaluation.

Generally, three to four hours of training per employee, at a minimum,

is required to roll out a new business ethics program. Thereafter, annual

training of from one to three hours is the norm. In the United States, it is

common for all employees and agents to be required to attend the training.

In Europe, training tends to be more targeted and to take place at higher

management levels.19 Whatever the target audience, no training exceptions

can be granted without bringing management’s commitment into question.

Additional training should be provided for people in sensitive positions, such

as government contracting, sales and marketing, and human resources.

Good records management requires that training administrators record

participation in training; participant feedback; action planning followthrough; and issues of ethics, compliance, and responsibility identified during

the training. 

Ensuring Members Follow Standards and Meet Expectations

IMPORTANCE OF FEEDBACK

Few stakeholders of an enterprise would disagree with the proposition that

owners and managers have legitimate needs for information about compliance

with its standards, procedures, and expectations. They need this information to

guide employees and agents and to foster reasonable stakeholder expectations. 

Chapter 7: Communications and Feedback 165
The abiding issue for a business ethics program is how to garner this

information through processes that are consistent with the enterprise’s core

beliefs. The ideal form is free-flowing communication between owners and

managers, employees and agents, and other stakeholders about all the matters

needed for the enterprise to meet the reasonable expectations of its stakeholders effectively and efficiently. Often, however, either mechanisms to accommodate free-flowing communication are not readily available or there is not

enough trust between stakeholders for such communication to take place.

Under such circumstances, owners and managers must design and implement

other control mechanisms. This section describes the issues, policies, and

processes of maintaining internal control and engaging external stakeholders. 

In general, owners and managers use five methods to track what is going

on in the enterprise: 

1. Monitoring ongoing operations

2. Auditing books, records, and process documentation

3. Responding to employees and agents seeking advice and reporting concerns

4. Investigating incidents and reports

5. Engaging stakeholders 

All these methods require infrastructure. Management needs to design a

monitoring, auditing, and investigation framework that is consistent with the

management alignment processes described in Chapter 8. Engaging external

stakeholders is not as well defined as the other methods, but enterprises have

found a few techniques, such as stakeholder surveys, to be valuable. RBE

Worksheet 11, at the end of this chapter, is also a useful tool for ensuring an

effective infrastructure is in place. 

MONITORING

Monitoring enterprise performance is an essential management task. An

RBE plans its work by assigning individual and group responsibility. It sets

performance expectations for individuals and groups to guide their efforts

toward achieving the enterprise’s goals and objectives. Employees and agents

are held accountable as individuals and groups for achieving assigned objectives while following the enterprise’s standards, procedures, and expectations. Whether set for individuals or for groups, performance expectations

must be specific, measurable, achievable, relevant, and time-specific. 

In an RBE, processes and projects may be monitored continually. Good

monitoring requires consistently measuring performance and providing

ongoing feedback to employees and agents as to how well their performance

166 Business Ethics
complies with enterprise standards and procedures and meets stakeholder

expectations. Continual monitoring enables unacceptable performance to be

identified before it fails to meet stakeholder expectations. 

The best operational example is the total quality management process,

whereby individuals and teams set performance standards, continually collect data, and use quality tools to measure performance and analyze the data

to resolve problems and improve processes. 

Issues of responsible business conduct may be approached in a similar

manner. Where risks have been identified, such as conflicts of interest,

fraudulent consumer transactions, inaccurate books and records or expense

accounting, or bribes and corruption, an RBE establishes structures and systems to monitor performance on a regular basis. It does not wait for reports

of misconduct. It requires regular reports, examines accounts and records,

and tracks patterns and trends as good management practice. Other forms of

monitoring are performance evaluations and exit interviews. 

AUDITING

Whereas monitoring is an aspect of good management practice for all managers and supervisors, auditing is a more formal process. It is a review of

employee or agent performance by an independent agent. This independent

agent may be either internal or external to the enterprise, but it is not a part

of the enterprise’s operational management.

Internal audit serves as the primary means by which owners and managers review and evaluate the enterprise’s internal control structure.

Chapter 7: Communications and Feedback 167

Monitoring Suppliers

Although suppliers and service providers do not carry the same compliance exposure as employees and agents, behavior that can be linked to

another enterprise may severely increase its business risks. Owners and

managers should take care to exercise due diligence in selecting, monitoring, and auditing their suppliers and service providers.

Lyuba Zarsky

“Beyond Good Deeds” PRACTICE

NOTE
Although this charter is very broad, in practice the traditional focus had

been on financial data. External auditors perform formal audits of financial

statements to meet the needs of external stakeholders: investors, creditors,

and regulators.

More recently, the traditional focus has expanded to include reviewing

the systems established to ensure compliance with an enterprise’s standards,

procedures, and expectations. Operational audits are often performed by

internal auditors, to determine whether the enterprise complies with its

standards and procedures. They may be done on a regular basis or in

response to specific reports or concerns.

EMPLOYEES SEEKING ADVICE AND REPORTING CONCERNS

Among the surest sources of information about what is going on in an enterprise—especially behavior that violates enterprise core beliefs, standards,

procedures, and expectations—are employees and agents. Most employees

and agents recognize management’s legitimate need for such information, if

the enterprise is to meet the reasonable expectations of its stakeholders.

Nonetheless, standards, procedures, and expectations that encourage

employees and agents to seek advice and report concerns can raise issues of

conflicting loyalties to the enterprise and to peers, and, in many emerging

market economies, may raise historical memories of betrayal. 

Reporting concerns about the business conduct of co-workers is hard for

most employees. Indeed, research suggests that substantial numbers of

employees, even in developed economies, are extremely reluctant to report

their concerns.20 Many put loyalty to friends and colleagues above loyalty to

the enterprise. Many do not trust that managers—or their peers—will not

retaliate against them if they report their concerns.

168 Business Ethics

Anticorruption Provision

Enterprises monitor and audit their accounts for inaccuracies and for

ambiguous or deceptive bookkeeping entries that may disguise bribery.

PRACTICE

NOTE
As two authors have observed:

Both the law and popular opinion have always been

ambivalent about whistleblowers, whether in the elementary school yard, universities, the military or other government agency, or in private life. Are they malcontents,

troublemakers, and snitches? Or are they brave, ethical

individuals who, unlike their fellow beings, coworkers, or

superiors, want their company to act legally and ethically

as well?21

A business ethics program helps employees and agents understand why

it is important that they communicate their concerns to management, how

they should report their concerns, and why it is safe to do so. 

Under a business ethics program, employees and agents are more sensitive to the types of behavior that constitute misconduct or illegality. They

are more likely to view reporting misconduct as one of their obligations to

the enterprise, their fellow employees, and enterprise stakeholders. As recent

research displayed in Figure 7.1 demonstrates, if enterprises have in place at

least four elements of a business ethics program, 78 percent of employees are

willing to report misconduct. Only 52 percent are willing to do so where

only written standards are in place, and only 39 percent where none of the

four elements were present.22 (The four elements were written standards of

business conduct, training on standards of conduct, an ethics office or telephone advice line, and a means to report misconduct anonymously.)

In an organizational culture that encourages dialogue, questions, and

delivery of bad news, employees find it easier to confront issues of responsible business conduct, to seek advice and report concerns, and to make ethical

decisions. In many enterprises, however, employees are uncomfortable with

coming forward, especially to report their concerns involving other employees. Owners and managers need to make the case for coming forward in terms

that resonate with their employees. For example, a manager in a Far Eastern

cultural context explained why employees should report their concerns about

business conduct by analogy, pointing to how employees would take action to

protect their families if there was broken glass in their homes.23

Reporting Violations

Ideally, owners, managers, and supervisors maintain an open-door policy for

employees and agents who have concerns that involve responsible business

conduct. Often, however, employees and agents are reluctant to bring “bad

news” to managers and supervisors. To encourage them to come forward, an

enterprise should establish discreet procedures for employees to seek advice

and report concerns.

Chapter 7: Communications and Feedback 169
Suggestion boxes, help-lines, and whistle-blowing protection all facilitate reporting of questionable conduct. Reports may also be received from

individuals who come to the business ethics office and register a concern.

The identity of reporters should be kept confidential (to the extent that the

law provides), and sources should not be held liable, discriminated against,

or harassed for reporting their concerns. 

Once the business ethics officer receives a report, it is important that the

enterprise follow through. The officer should

• Record the reported concern

• Evaluate the concern and develop an action plan for dealing with it

• Initiate or coordinate an investigation or inquiry, if appropriate

• Take appropriate action on findings and conclusions

• Track reported concerns for patterns and trends

• Make recommendations based on lessons learned

Critical to the success of the business ethics program is feedback to the

reporting source of the steps taken to investigate the matter, what was found,

and what corrective steps—if any—were or will be taken. In many surveys of

employee attitudes, when reasons are given for why an employee observing

170 Business Ethics

FIGURE 7.1

Variations in Employee

Willingness to Report

Misconduct
misconduct did not report it, second only to fear of retaliation is the sense

that management would not do anything with the information anyway.24

Protecting Employees and Agents from Retribution

All reporting procedures should be designed to leave reporters free from fear

of retribution. Managers, supervisors, and other employees should understand that direct or indirect retribution for voicing a concern or complaint is

not to be tolerated. Retribution by either managers or peers discourages others from reporting their concerns. An RBE, therefore, should have a strict

policy that discipline will be imposed for any instance of retribution. 

Occasionally, an employee or other agent reporting concerns may make

a mistake or abuse the reporting process and cause an investigation that does

not lead to further action. Behavior that abuses the reporting process will

often violate enterprise core beliefs; however, managers should counsel, but

not punish, such a reporter. Maintaining absolute certainty among employees and agents that they can report concerns without fear of retribution is so

important that managers should not risk losing that confidence by punishing

anyone who used a reporting process. If the enterprise reserves the right to

punish those who abuse the process, the published standards, procedures,

and expectations will have to leave that possibility open. Where trust in management is not the norm, reporting sources may be uncertain about just how

safely they can make reports. 

Moreover, it is difficult, at best, to prove that a reported concern was an

abuse of the process. Even if a case can be made, it may raise significant

questions in the minds of potential sources about just how safe the process

is. In Box 7.1, the last sentence may be seized on by employees as a reason

not to report their concerns unless they are certain of all the facts. In short,

for all the satisfaction owners and managers may retain in being able to

punish someone who abuses the process, the cost in terms of employee confidence in the reporting process is too high to pay.

Although the individual should not be punished to preserve confidence

in the business ethics program, other steps can be taken to limit harm to

other individuals or to the enterprise. The abusing person or the victim may

be reassigned, for example.

Using a Help-Line

A help-line is a dedicated telephone line that gives employees and agents

direct access to the business ethics officer. It should be free of charge to the

caller. The number should be widely distributed; everyone should have

access to the number. If the enterprise uses an answering machine for the

number after normal business hours, the machine should be placed in a private, secure location. 

Chapter 7: Communications and Feedback 171
A help-line may be operated by a commercial service with instructions

from the enterprise. Typically, under such a service, a source may call

anonymously to report concerns. If the source is willing to be contacted for

more information but wishes to maintain his or her anonymity, he or she

will be given an identification number and will be told to call back at a particular time.

Maintaining Confidentiality and Security

It is difficult for an employee or agent to choose fidelity to enterprise standards, procedures, and expectations over loyalty to his or her friends or colleagues. When an employee or agent decides to report concerns, he or she

must believe that it is the right thing to do. Managers owe reporting employees and agents as much security as possible when they report their concerns.25

An emerging best practice is to establish a policy authorizing certain

business ethics personnel to promise reporting employees and agents that

their identities and information will remain confidential. Whether they can

make a promise of confidentiality that courts of law will respect, known as a

privileged communication, depends on the laws of the jurisdiction. Managers

must consider that if they promise confidentiality to a reporting source but

are then required to disclose the source’s identity, others may not come forward to report their concerns.26

Distinguishing between Ethics and Personnel Issues

Experience with help-lines demonstrates that more than half of all calls will

be about personnel matters. Owners and managers will be tempted to

require that such callers be directed to call human resources. They should

resist this temptation for two reasons. First, in the minds of employees, when

managers speak of ethics, they are talking about fairness, so employees see

personnel matters as ethics issues. Second, when management rejects a call

to the help-line for whatever reason it risks the reputation of the help-line as

172 Business Ethics

Taking action to prevent problems is part of the Motorola 

culture. If you observe possible unethical or illegal conduct, you

are encouraged to report your concerns.

Retaliation against any employee who honestly reports a 

concern to Motorola about illegal or unethical conduct will not 

be tolerated. It is unacceptable to file a report knowing it to

be false.

BOX 7.1

REPORTING CONCERNS

Motorola Corporation

“Code of Business Conduct”
an effective and safe way for employees and agents to seek advice or report

concerns. Other employees will only hear that a fellow employee made a call

to the help-line and was rejected, but not learn management’s reasons why,

however valid. 

In establishing reporting guidelines, however, management must distinguish between matters of responsible business conduct and grievances of

union-represented employees. A grievance issue arises when there is a difference in interpretation or implementation of a collective bargaining agreement or an individual labor contract. A department other than the business

ethics officer will typically address grievances. 

THE ORGANIZATIONAL OMBUDSMAN

In a number of large, complex enterprises (LCEs), a specific office, called the

ombudsman, has been established to advise employees and agents of their

rights and duties regarding responsible conduct. In the business enterprise

context, the ombudsman is a separate means by which employees and agents

can seek advice and report their concerns.27

The ombudsman was originally a Scandinavian office created to investigate citizen complaints against governments or otherwise trusted to look after

the affairs of others. Today, the position of an organizational ombudsman in

a business ethics program has evolved to be an independent, neutral, and

alternative office where employees and agents can go to seek advice and

report concerns. Independent means the ombudsman is not a part of day-today staff or operations management. Neutral means it does not function as an

advocate for the enterprise or individual. Alternative means the ombudsman

does not duplicate any other enterprise function, such as investigations. With

few exceptions, the ombudsman is authorized to refer reports of misconduct

for investigation only with the express consent of the reporting source.

In some jurisdictions, enterprises can claim that the ombudsman can

make an enforceable promise of confidentiality. The enterprise will not be

deemed to have notice of the concern until the source registers his or her

concerns with the enterprise or authorizes the ombudsman to do so.

However, as managers review standards, procedures, and expectations, an

ombudsman may contribute what he or she has learned about employee concerns, provided that he or she does not compromise the anonymity and confidentiality of the sources.

POLICIES AND PROCEDURES FOR INVESTIGATIONS

It is critical to the success of a business ethics program that reported concerns be investigated. Managers may learn of concerns suggesting that a

Chapter 7: Communications and Feedback 173
violation of standards, procedures, and expectations has occurred from a

variety of sources, including the help-line. Once on notice, an RBE must

take all reasonable steps to determine what happened and how the problem

might be avoided in the future.

In developing an investigative plan, managers need to consider the laws

of the jurisdiction in which they operate. These laws will affect who conducts

the investigation and what rights are afforded to the subjects of the investigation. Investigations should always be conducted with a view to possible

government prosecution or civil litigation.

Investigations will typically involve document review and witness interviews. Employees should be instructed to cooperate fully with the investigation, including preserving all relevant documents and materials. The investigator must be alert to avoiding the appearance of influencing witnesses or

appearing to speak for the enterprise or another witness. A typical procedure

is shown in Box 7.2.

EXTERNAL STAKEHOLDER ENGAGEMENT

Increasingly, nongovernmental organizations (NGOs) hold enterprises

accountable for unethical behavior and demand best practices. International

institutions are developing policies requiring greater transparency and

174 Business Ethics

A typical investigative procedure works as follows:

• A call is made to the business ethics officer to report 

misconduct.

• The business ethics officer registers the report.

• The business ethics officer creates a plan for resolving 

the matter.

• The plan includes analyzing facts, developing assignments,

conducting interviews, and disclosing information to select 

individuals.

• If the business ethics officer requires additional help from

special departments, he or she coordinates other resources,

such as legal, internal audit, human resources, or security.

• The business ethics officer devises a written schedule for

completing the investigation and standards for the disclosure

of information.

• The business ethics officer remains in close contact with

individuals involved in the investigation and periodically

requests information and details on proceedings.

• At the conclusion of the investigation, the business ethics 

officer presents a summation of the findings to the 

enterprise’s managers and the board of directors.

• Owners or senior managers decide what corrective action

should be taken, including whether the matter should be

voluntarily disclosed to a government agency or other

stakeholders.

BOX 7.2

INVESTIGATIVE PROCEDURES
encouraging official investigations of misconduct. Local communities are less

willing to host an enterprise known for corrupt or irresponsible practices. 

These trends provide owners and managers with the incentive and

opportunity to secure feedback from external stakeholders. Feedback mechanisms include media reviews, stakeholder satisfaction surveys, conferences,

and discussion groups. The focus of such efforts should be to ascertain how

well the enterprise is fostering and meeting stakeholder expectations. Also

important is public perception about how responsible the enterprise is or

how consistent its business practices are with its core beliefs. 

Anita Roddick, founder and CEO of The Body Shop, described an integrated process recently:

So how can loyalty be built and maintained by British

business and what, if any, is the role of government in

assisting this process? I believe the key to loyalty is trust,

and trust flows from a high level of commitment to transparency and a genuine desire to engage on a human level.

In The Body Shop this means putting a lot of effort into

assessing the quality of relationships with stakeholders,

through systematic dialogue involving opinion surveys

and focus groups. It also means active, audited disclosure

of social and environmental performance so that everyone

involved with the business can judge progress (or lack of

it) for themselves. It means being open about our company values, campaigning on issues such as human rights

and animal welfare—issues we know our customers and

employees care about. Make no mistake, this is not done

simply for the fun of it. It works for us because it is genuine, but it also helps us run a better and a more successful company, with very loyal employees and customers.28

Meetings with external stakeholders are an effective way to secure feedback. An RBE can sponsor such meetings to demonstrate its initiative and

interest. An owner or senior manager should lead the meetings. Local community, government, and NGO representatives may be invited. Questions,

comments, and suggestions should be encouraged. 

Monitoring media coverage of business is an essential means of securing

feedback from the public and making appropriate adjustments to the business ethics program. In recent years, the media have become better informed

about how to measure whether leaders of an enterprise are committed to

responsible business conduct. Through the media, a business can capture the

perceptions of the public regarding its expectations of business and its role

in the community. 

Chapter 7: Communications and Feedback 175
Finally, as discussed in Chapter 10, an RBE engages its stakeholders by

monitoring, tracking, and reporting its performance in areas of concern to

its stakeholders, especially civil society. The reaction of civil society and the

media to the enterprise’s social responsibility reports is valuable information

and invites further dialogue.

SUMMARY

It is vital to the welfare of the enterprise and its ability to meet the reasonable expectations of its stakeholders that owners and managers know

whether enterprise standards and procedures are being followed and

whether reasonable stakeholder expectations are being met. The source of

this information, in all cases, is the stakeholders of the enterprise: employees, agents, customers, suppliers, and regulators, to name but a few.

Owners and managers of an RBE should develop a plan to communicate

with stakeholders the enterprise’s standards, procedures, and expectations.

They can do so by answering two fundamental questions:

1. How can we most effectively communicate our standards and procedures and foster reasonable expectations among our stakeholders?

2. How can we know that our members follow our standards and reasonable stakeholder expectations are met?

To communicate enterprise standards, procedures, and expectations, owners and managers use all manner of vehicles: formal and informal communications; training, education, and development; and stakeholder engagement.

176 Business Ethics

Gaining Public Feedback

Establishing formal mechanisms to monitor public feedback may be difficult because of lack of resources. Informal meetings with NGOs and

other enterprises in the industry may be cost-effective alternatives for

assessing public concerns.

PRACTICE

NOTE
To ensure that management knows what is going on in the enterprise,

owners and managers establish various mechanisms, as appropriate to the

relevant context and organizational culture: monitoring, auditing, reporting,

and stakeholder surveys.

Chapter 7: Communications and Feedback 177

RESPONSIBLE BUSINESS ENTERPRISE

Checklist

1 Who in our enterprise has responsibility for ensuring that the core

beliefs of the enterprise are documented and disseminated to

employees, agents, and other stakeholders?

2. How do our owners and managers communicate enterprise standards, procedures, and expectations to our employees, agents, and

other stakeholders?

3. Can owners and managers reasonably expect employees and agents

to report observed misconduct? If not, why not? If not, what other

mechanisms are in place, or should be in place, so that owners and

managers know what is going on in the organization?
Communications Needs Assessment Worksheet

RBE W ORKSHEET

9

Focus

Groups Surveys

Document

Review

Direct

Observation

What kinds of 

responsible business 

conduct issues do 

employees and other 

stakeholders face or are 

they concerned about?

What do employees and 

other stakeholders need 

to know to be able to 

fulfill their roles and 

responsibilities and have 

reasonable expectations 

of the enterprise?

How do employees and 

other stakeholders learn 

what is expected of them 

and what they can 

expect? 

What communications 

methods are available to 

the enterprise to reach 

specific stakeholders?

What are the criteria by 

which successful 

communications will be 

evaluated?

RBE Worksheet 9, which can be photocopied for use with your organization, assists owners and managers in conducting a 

needs analysis to find out what stakeholders need to know. Use the standard assessment tools (interviews, focus groups, 

surveys, document review, and direct observation) to answer the questions listed.

Interviews

178
179

Training Program Outcomes Worksheet

RBE W ORKSHEET

10

General Training Topics

Performance

Measures Specific Topics

Training 

Objectives

Amount of observed 

violation of 

enterprise standards, 

including legal 

requirements 

• Enterprise core beliefs

• Risks to the enterprise when 

standards are violated

• Personal and organizational 

responsibility and accountability

• Difference between personal 

morality and enterprise 

standards

• Policy on rewarding responsible 

behavior and punishing 

irresponsible behavior

• Enterprise expectations for 

employee behavior

• Stakeholder expectations

• Enterprise standards and policies

• Recognition of ethics, compliance, 

and responsibility issues 

• Ethics and policy theory

• Dimensions of culture

• Value of diversity

• Listening and giving feedback

• Ethics, compliance, and 

responsible decision-making

• Strategic planning based on 

core beliefs

• Individual responsibility to 

seek advice

• Communication channels

Using RBE Worksheet 10, training program designers can work from expected outcomes of the business ethics program 

through general and specific training topics to formulate specific training program objectives. In filling out RBE Worksheet 10, 

which may be photocopied for use within your organization, treat each cell opposite a program outcome separately.

How often 

employees and 

agents make 

decisions in terms 

of core beliefs and 

standards

How willing 

employees and 

agents are to 

seek advice on 

standards

Awareness 

of issues 

of responsible 

business conduct 

at work

How often 

employees and 

agents speak in 

terms of core 

beliefs and 

standards

continued on the next page
Training Program Outcomes Worksheet (continued)

RBE W ORKSHEET

10

How willing 

employees and 

agents are to report 

observed or 

suspected violations 

How satisfied 

those who reported 

observed or 

suspected violations 

are with 

management’s 

response

How committed 

employees are to the 

enterprise

How satisfied 

stakeholders are that 

the enterprise meets 

their expectations

• Individual responsibility to 

report concerns

• Communication channels

• Policy on confidentiality

• Policy against retaliation

• Manager or supervisor training 

on advising employees 

• Policies on confidentiality and 

nonretaliation

• Help-line protocols

• Core beliefs about stakeholder 

expectations

• Individual and enterprise roles 

and responsibilities to 

stakeholders

• Opportunities to enhance 

enterprise reputation

• Opportunities to add value to 

the community

• Individual or team skills, 

knowledge, understanding, and 

attitude development

• Core beliefs about stakeholder 

expectations

• Individual and enterprise roles 

and responsibilities to 

stakeholders

• Opportunities to enhance 

enterprise reputation

• Opportunities to add value to 

the community

• Individual or team skills, 

knowledge, understanding, and 

attitude development

General Training Topics

Performance 

Measures Specific Topics

Training 

Objectives

180
181

Communications Infrastructure Worksheet

RBE W ORKSHEET

11

Enterprise

Core Beliefs

Reference

Standards or

Best

Practices

Current

Structure

and

Practice

Required

Infrastructure

Means of 

communicating 

standards and 

procedures and 

establishing 

expectations

RBE Worksheet 11, which may be photocopied for use within your enterprise, provides a tool for ensuring consideration of 

all necessary infrastructure to communicate and solicit feedback about enterprise standards, procedures, and expectations. 

Owners, managers, and staff members should discuss with their stakeholders each issue along the vertical axis to ensure that 

they are consistent with their core beliefs and the reference standards and best practices developed in this chapter. From 

this dialogue, they will be able to identify any required business ethics infrastructure.

Monitoring and 

auditing procedures 

and dialogue 

mechanisms

II

The Business

Ethics Program

IV

Putting Business

Ethics into

Practice

185

8

This chapter discusses the basic concepts and

practices of responsible management. The responsible business enterprise (RBE) aligns its management practices with its core beliefs, standards, procedures, and expectations, supported by its business

ethics infrastructure. 

Understanding the Importance of Alignment

Core beliefs, standards, and procedures; reasonable

stakeholder expectations; and business ethics infrastructure alone do not make an enterprise a responsible business. The essence of an RBE is that it consistently improves its business performance, makes

profits, and increases the prosperity of its community

by meeting the reasonable expectations of its stakeholders in pursuit of its purpose as an enterprise.

BUSINESS ETHICS PROGRAMS AND BUSINESS

PLANNING

Research and experience suggest that the most helpful

aspect of a business ethics program may be that it supports management practices that align enterprise

strategies and management practices with core beliefs,

standards, procedures, infrastructure, and expectations.1 A business ethics program is a fundamental

aspect of organizational development that provides

the foundation for other important aspects of business

planning such as a business plan, marketing strategy,

investment prospectus, and proposal for a strategic

Aligning the Responsible

Business Enterprise

• Understanding the

Importance of

Alignment

• Getting the Right

People in the Right

Places

• Encouraging

Employees to 

Follow Standards

and Procedures

• Dealing with

Mistakes,

Misconduct, or

Misunderstandings
alliance. In all these instances, the enterprise must be able to demonstrate a

consistent theme in thought, communication, and action. Each of the five elements below, for example, should be based on the preceding ones and, ultimately, on the core beliefs of the enterprise as developed in Chapter 5:

1. Mission

2. Goals and objectives

3. Strategies, programs, and action plans

4. Performance measures

5. Decisions and activities

In the case of a business plan, for example, all of the elements lead to an

integrated approach to the four components of a business plan: (a) description of the business, (b) marketing plan, (c) financial management plan, and

(d) management plan. A business plan not based on these elements would be

necessarily incomplete.

FUNDAMENTAL QUESTIONS

Three fundamental questions address the alignment practices of an RBE:

1. How can we ensure that we have the right people in the right places

while we pursue our purpose as an enterprise?

2. How can we encourage our employees and agents to follow our standards and procedures?

3. What do we owe our stakeholders when mistakes, misconduct, or misunderstandings occur that involve our standards and procedures or their

reasonable expectations?2

Owners and managers can use Worksheet 12, the enterprise alignment

worksheet, to assist in answering these questions. 

186 Business Ethics

Alignment: the Ultimate Measure of

Success

Success for a business ethics program comes when the core beliefs,

standards, procedures, and stakeholder expectations desired by owners and managers become an integral part of everything that owners,

managers, supervisors, other employees, and agents think, say, and do:

when core beliefs, standards, procedures, and stakeholders’ expectations become “the way we do things around here.”

PRACTICE

NOTE
Getting the Right People in the Right Places 

Having the right people in place allows an enterprise to face a changing

world confident that it can succeed, regardless of the pressures its relevant

context might present. To accomplish this, management needs to attract the

right people, train them properly, position them well, and treat them fairly.

It also needs to see that the “wrong” people are not in a position to distract

the enterprise from pursuing its purpose and meeting the reasonable expectations of its stakeholders.

HAVING RESPONSIBLE OWNERS, MANAGERS, AND SUPERVISORS

Emphasis on having the right people in the right places begins with owners,

managers, and supervisors. Responsible owners and managers need to be

people who embrace an RBE’s core beliefs. If an RBE’s purpose is to be a

global energy company, as at Royal Dutch/Shell, then they are passionate

about delivering energy on a global scale. If the enterprise’s values are

integrity, contribution to society, responsibility to customers and employees,

and the unequivocal pursuit of quality and excellence, those values naturally

guide everything owners and managers think, say, or do. If the envisioned

future of the enterprise is to become the company that most changes the

worldwide image of Japanese products as being of poor quality, as at Sony,

that is the owners and managers’ picture of where the enterprise is going and

their part in it.

Owners, managers, and supervisors set the tone for all that happens—

and does not happen—in their enterprise. Employees and agents watch to

see if they “pay attention to ethics, take ethics seriously, and care about ethics

and values as much as the bottom line,” as one recent study confirmed.3 Over

time, their behavior molds the organizational culture that orders “the way

we do things around here,” regardless of what the formal documents of the

enterprise might say. 

Owners, managers, and supervisors are in positions that have authority

and require discretion. The decisions they make and the activities they sponsor or condone involve great risk and opportunity for the enterprise. As a

result, mistakes, misconduct, or misunderstandings involving owners, managers, and supervisors—especially senior managers—may have far-reaching

implications at all four levels of enterprise identity:

1. Compliance level. Prosecutors are far more likely to prosecute an enterprise for criminal misconduct if senior managers are involved; they are

more likely to find that the organizational culture of the enterprise is a

Chapter 8: Aligning the Responsible Business 187
factor, as well. In the United States, a disproportionate number of small

to medium-sized enterprises (SMEs) are prosecuted for misconduct.

2. Risk management level. Risk to the enterprise may be dramatically

higher if senior managers or those with substantial discretion are 

involved, often costing into the millions of dollars.

3. Reputation enhancement level. The damage to the reputation of the

enterprise, especially when senior managers are involved, may be 

irreparable. In recent years, for example, enterprises with household

names have ceased to exist or are struggling to recover from lapses in 

responsible business conduct at the level of senior management. Such

lapses are even more devastating for the SME closely connected to its

community, where word travels fast.

4. Value-added level. An RBE strives to add value to its community while

drawing on the resources of the community. If senior managers violate

the trust placed in them by an enterprise’s stakeholders, the enterprise

may never be able to repair the damage done to the trust, social capital,

or resources of the community.

What makes any person a “right person” for a particular enterprise,

then, are the responsible criteria of the enterprise itself: its core beliefs, its

established standards and procedures, and the reasonable expectations of its

stakeholders. Applying these responsible criteria to all hiring, placement,

and retaining decisions leads to consistency in action and fairness.

HIRING THE RIGHT PEOPLE

Where the responsible criteria of the enterprise are clear, owners and managers can use people who exemplify the criteria to recruit and evaluate

188 Business Ethics

Anticorruption Practices

Enterprises should exercise due diligence in hiring employees and agents

who will be exposed to situations in which they may benefit through corruption, conflicts of interest, or undue influence.They should conduct

background checks and even inquire into applicants’ financial status to

avoid placing any employee into a situation he or she cannot resist.

PRACTICE

NOTE
potential employees. By hiring people who embrace the responsible criteria

of an enterprise, owners and managers take a large step toward having an

effective business ethics program. It takes only one employee or agent to

destroy the reputation of an enterprise. Hiring the wrong people increases

the risk of criminal and civil liability and increases the costs of defending the

enterprise or correcting any harm done. All of these risks adversely affect the

prospects for improving business performance, making a profit, and increasing prosperity in the community. In some cases, as recent examples in Asia,

Europe, and the United States, have shown, the bad acts of a few employees

(often senior managers) can bring an enterprise to near financial ruin.

To exercise due care, an enterprise must balance the reasonable expectations that applicants, employees, and agents have that an RBE will respect

their privacy as individuals. Depending on the applicable employment protection laws, an RBE may screen prospective employees. Owners and managers should carefully research what screening processes an RBE may use in

considering applications. 

Owners and managers should also exercise due diligence in selecting

their strategic alliances, the entities with which they merge, the entities they

acquire, their joint venture partners, and their suppliers and service

providers. See Appendix E for a sample supply chain management questionnaire, which one company uses to qualify its suppliers.

Chapter 8: Aligning the Responsible Business 189

Hewlett-Packard Company

“Supply Chain Social and Environmental Responsibility”

Supply Chain Social and Environmental

Responsibility

HP has had a long-standing commitment to social and environmental

leadership around the world. Our global and corporate citizenship commitment is not only limited to what goes on inside our company walls

but also extends to our suppliers.We expect our suppliers to act as

responsible corporate citizens and take a positive, proactive stance

regarding environmental, occupational health and safety and labor issues.

PRACTICE

NOTE
PLACING PEOPLE IN THE RIGHT POSITIONS

All enterprise positions are not the same as far as level of responsibility is

concerned. Owners and managers must take care to ensure that their people

are able to assume the level of responsibility that their positions demand. As

the level of responsibility increases, so too must the competency and responsibility of the person occupying the position.

This is particularly the case if the position has substantial discretionary

authority, such as the high-level personnel discussed in Chapter 6: a director, an executive, an individual in charge of a business unit or major function,

or someone with a substantial ownership interest. But this principle also

applies to other positions such as plant and sales managers and employees

who advise the public or have authority to set price levels or negotiate contracts, especially for government contracts.

Where high-level personnel are involved in misconduct, the enterprise

itself is at greater risk. Government prosecutors, sentencing judges, the

media, and the public, which might be inclined to treat an isolated incident

of misconduct by lower-level personnel as an individual shortcoming, are

more apt to attribute the misconduct of senior personnel to the enterprise

as a whole.

190 Business Ethics

FIGURE 8.1

Observed Misconduct

by Actions of Top

Management
Moreover, the conduct of managers and supervisors is a key indicator of

the effectiveness of the business ethics program. As recent research displayed

in Figure 8.1 shows, where top management demonstrates four ethics-related actions, only 15 percent of employees say that they observed misconduct.

The number climbs to 28 percent where management demonstrates fewer

ethics-related actions and jumps to 56 percent where top managers only talk

about ethics or take no action at all.4 (The four ethics-related actions are

talking about the importance of ethics, keeping promises and commitments,

setting a good example, and keeping employees informed.) 

Figure 8.2 shows that the outcomes are even more dramatic for supervisors: only 17 percent of employees observed misconduct where supervisors

demonstrated all four ethics-related actions, but 35 percent observed misconduct where supervisors demonstrated fewer ethics-related actions, and 70

percent observed misconduct where supervisors only talked about ethics or

took no action at all.5 (The four ethics-related actions for supervisors are

slightly different from those for top management: supporting employees

who follow ethics standards is substituted for keeping employees informed.) 

These associations between the ethics-related actions of managers and

supervisors and expected program outcomes held true for the following

Chapter 8: Aligning the Responsible Business 191

FIGURE 8.2

Observed Misconduct

by Actions of

Supervisors
outcomes as well: less feeling of pressure to compromise standards, more

satisfaction with management’s response to reported concerns, more sense

that managers and supervisors are held accountable, and more satisfaction

with the enterprise as a whole. Having the right people in the right places

is essential for an enterprise to be a responsible business enterprise. Figure

8.3 addresses employee satisfaction with the organization.

RETAINING THE RIGHT PEOPLE

Responsible people want to use their skills and knowledge in pursuit of a

purpose they value. Compensation is important, but the sense of being a

responsible member of a responsible enterprise has value in and of itself. As

one researcher noted, “The right people will do the right things and deliver

the best results they are capable of, regardless of the incentive system.”6

Having hired the right people, an RBE strives to assign them work they

find worthwhile and challenging. It is irresponsible to assign a person who

lacks the required capabilities to a responsible position.

Often the people most taken for granted are the good people who are trying to do the right thing and succeed. Owners and managers must be alert to

practices that reward unscrupulous employees, while leaving conscientious

192 Business Ethics

FIGURE 8.3

Employee Satisfaction

with Organization by

Actions of Supervisors
employees feeling unrecognized and frustrated. Examples of this situation

abound: sales commissions based on total sales that do not account for customer returns or complaints are but one. Managers who engage in “creative

bookkeeping” to meet enterprise goals or objectives—and are consistently

rewarded for their “performance”—are another.

DEALING WITH THE WRONG PEOPLE

From time to time, owners and managers make mistakes and hire or retain

someone who does not share the reasonable criteria of the enterprise. He or

she may be unable or unwilling, even with intense management guidance

and training, to follow enterprise standards and procedures or contribute to

meeting reasonable stakeholder expectations. 

When owners and managers make mistakes in hiring, an RBE does neither these employees, their fellow employees, nor the enterprise any favor by

having them remain in place. Where management’s commitment is clear,

employees and agents will often “self-select” themselves out of the enterprise. If they do not, owners and managers must take steps to remove them

from the enterprise. This task is not a matter of discipline, although enforcing standards and procedures through discipline is one way to encourage

responsible behavior.

Often, the owner or senior manager is the “wrong person.” This situation is a particular challenge for those who rely on SME goods or services,

Chapter 8: Aligning the Responsible Business 193

Values

Defining who we are and how we are different from other companies is important to us.These values

define our differences and give meaning to our work.They begin to describe what we mean by the

“Herman Miller Way.” Our future depends on how well we live out these fundamental values. As we do

business in an increasingly competitive environment, will our deeds match our words? We believe that if

these values become second nature to us and guide our actions, we will deliver extraordinary value to our

customers. Moreover, if we make a meaningful contribution to their businesses and their lives, we will

flourish and thrive.

PRACTICE

NOTE

Herman Miller Japan Ltd.

“A Different Kind of Company”
especially if the good or service requires the expertise of the owner. Large,

complex enterprises (LCEs) may lose a critical part of their supply chains.

Here, of course, the entire enterprise is at risk of being prosecuted or

debarred from preferred supplier lists. More often, the best employees and

agents seek employment elsewhere rather than have their livelihoods placed

at risk, if they have the chance.

Sometimes other stakeholders, such as suppliers and even customers,

may be the wrong people. As discussed in Chapter 9, it is responsible management to know your customer. See Appendix E for a sample supply chain

management questionnaire.

Encouraging Employees to Follow Standards and Procedures

Many management practices support responsible business conduct. These

supportive management practices fall in three categories:

1. Recognizing employee contributions

2. Rewarding ethical behavior

3. Punishing unethical behavior

NEED FOR RECOGNITION

The single most important thing that responsible owners and managers can

do to encourage responsible business behavior is to recognize the contributions their employees and agents make in pursuit of the purpose of the enterprise. Where managers have tasked employees with challenging work, they

should recognize and commend successful completion. Even failure, where

it is the result of a good faith effort to contribute, should be addressed favorably, especially if the employee has learned something from it and has shared

the experience with other employees.

Performance evaluations are an important means of recognizing

employee and agent behavior. Core beliefs, standards and procedures, and

reasonable stakeholder expectations should be important elements of the

evaluation process. Employees will notice if owners and managers say these

are important but do not care enough to have reports on whether their subordinates comply with them. Managers and supervisors will also notice that

they are not evaluated on whether they promote the responsible criteria

among their subordinates.

194 Business Ethics
REWARD SYSTEMS

An important principle of management is that employees tend to do what is

rewarded. If managers want responsible employee and agent behavior that

meets standards and procedures and that contributes to meeting reasonable

stakeholder expectations, they should pay close attention to what they

reward. Few managers plan to reward unethical behavior, but many do. Few

managers plan to discourage ethical behavior, but many often do.

Commission schemes are the classic way that managers reward unethical

behavior and discourage ethical behavior. If a value of the enterprise is customer service or excellence, the enterprise should aspire to customer satisfaction. However, sales agents and their managers are often compensated not by

how well their customers are satisfied, but by how much product is sold. For

example, there are numerous instances of sales agents receiving large bonuses based on the volume of their sales, without regard for the number of product returns or customer complaints (see Table 8.1). In one case, a sales agent,

knowing that he was being transferred to another region, colluded with customers to order more products than were needed so that he would receive a

bonus that the agent following him would otherwise have received. It is obvious that this “reward system” discourages ethical behavior and encourages

unethical behavior.

Employees are quite skilled at finding out what is required for success in

an enterprise. Although a code of conduct may say that customer service is a

value, even one manager saying, “Do whatever it takes,” dilutes the message.

Sometimes the signal may be more subtle. For example, when an employee’s

success results from unethical behavior, recognizing his or her efforts can

lead to cynicism at best, and other employees joining in at worst.

There is much opposition to rewarding ethical behavior explicitly. First,

there is a widespread sense that one should not reward people for doing what

Chapter 8: Aligning the Responsible Business 195

TABLE 8.1 Compensation Scheme Comparison

Poor compensation scheme: Employees

paid a commission based on their sales irrespective of

product returns or customer complaints.

Good compensation scheme: Employees

paid a year-end bonus that requires reaching targets

of quality, customer satisfaction, and customer feedback

for product improvement set 9 to 12 months in

advance.

Ethical result: Employees may use any tactic necessary to increase volume because this scheme rewards

quantity over quality. Such schemes can lead to lowquality service, high product returns, channel stuffing,7

and in some cases fraud.

Ethical result: Employees are rewarded for focusing on projects that produce long-term results. Such

schemes encourage employees to consider the big picture

and to work with other employees during their day-today work life.
they should be doing anyway. Second, in organizational cultures that have a

strong group orientation, as discussed in Chapter 4, rewards to an individual

may be resented and may even make the individual uncomfortable. In such

cultures, a reward to an individual may disrupt the harmony of the group. 

The first point merits some further thought. As the sales bonus scheme

above reflects, managers often reward people for doing what they should

have done all along—in this case, selling products. What is the justification

for such incentives? Perhaps to spur employees beyond what would otherwise be the minimum acceptable standard of performance. Here is where

rewards for ethical behavior make a lot of sense. 

If employees honestly fill out expense reports, as some authors suggest,

the behavior is so much the norm, that it makes no sense to reward it.8

However, consider the employee who reports an apparent violation of

standards and procedures for the welfare of the enterprise when other

employees do not. Without reports from employees who know what is

actually going on in the enterprise, owners and managers might learn of

problems too late to prevent serious misconduct or lessen the harm done.

Although reporting concerns may be expected of all employees, it is not

the norm in most enterprises. Substantial minorities of employees say they

would never report misconduct they observed to managers.9 Many others

are as concerned about retaliation from their peers as they are about retaliation from managers. 

Whatever the specific circumstances may be—and with due regard to

the organizational culture—ethical behavior that goes beyond the norms of

196 Business Ethics

Employee Reporting

It is every employee’s responsibility to:

Review not just the results of subordinate’s work, but how those results

were obtained.

Guardsmark LLC

“Guardsmark Code of Ethics”

PRACTICE

NOTE
conduct in the enterprise should be rewarded. Rewarding employees for

reporting concerns makes a lot of sense if it is not the norm, and owners and

managers should plan for it. The reward may be as simple as recognition.

The reward may also need to be made in private. The behavior should certainly be reflected in performance evaluations. 

DISCIPLINE SYSTEMS

Recognition and reward are two means of encouraging employees and agents

to follow standards and procedures. But what should owners and managers do

when standards and procedures are violated? They need to take all necessary

steps to get the violator’s attention and to prevent further violations, up to and

including dismissal and reporting to law enforcement. They need to do this to

protect the enterprise and its stakeholders from further harm.

Take the example of a sales agent who earns bonuses through collusion or

by offering improper discounts. Fairness requires that the violator knew or

should have known that the choice or action was inconsistent with enterprise

core beliefs, standards and procedures, or reasonable stakeholder expectations. It is not fair to discipline an employee or agent for violating norms he

or she had no reason to know existed. Fairness also requires that the employee or agent be given the opportunity to explain his or her actions. The discipline, if any, must be proportionate to the offense and legally administered.

But fairness is a concept that has a broader application. It is not fair to

the enterprise or its stakeholders, including fellow employees, to fail to

enforce standards and procedures. First, irresponsible behavior does not

help other employees meet the reasonable expectations of stakeholders.

Second, a single act of misconduct may result in prosecution of the enterprise, civil claims, loss of reputation, and removal from preferred provider

lists and strategic partnerships. Finally, if environment, health, and safety

standards and procedures are violated, the welfare of other employees and

the community is put at risk.

Allowing standards and procedures to be violated with impunity sends a

powerful message. When managers fail to enforce their own standards, they

signal that they do not believe in those standards. Moreover, there is no reason why stakeholders should believe that the one violated standard is the

only one in which managers do not believe. The whole set of values may

come into question because of one failure to act. 

Such questions arise particularly where employees perceive a double

standard. Recent research suggests that employee perception of a business

ethics program as primarily protecting owners and managers is the single

most harmful factor to the prospects of the program’s success.10 If ordinary

employees are punished for violating a standard but senior managers are not,

Chapter 8: Aligning the Responsible Business 197
the entire business ethics program may be regarded as simply one more way

to protect owners and managers. 

One final consideration is to avoid the temptation to punish all employees for the violations of some of them by setting new standards or procedures. Often, if managers are uncomfortable with confronting an employee

or agent about his or her behavior, they instead admonish the group as a

whole or establish another standard or procedure designed to encourage the

desired behavior. 

Dealing with Mistakes, Misconduct, or Misunderstandings

Despite the best efforts of owners and managers, sometimes things go

wrong. Even the most responsible business enterprises make mistakes.

Standards and procedures will be violated, and reasonable stakeholder

expectations will be dashed. Owners and managers deal with these challenges. In the words of one author, “they don’t kid themselves.”11

Owners and managers need to plan for mistakes, actual misconduct, and

stakeholder misunderstanding of the enterprise’s decisions and actions. At a

minimum, they need to establish standards and procedures for dealing with

such matters. Managers should be trained on how to exercise crisis management. And when something goes wrong, owners and managers need to

determine what happened—and why. They need to determine what steps to

take to mitigate further harm or exposure: corrective action, restitution, voluntary disclosure, or any number of other remedial actions to compensate

harmed stakeholders or prevent further violations.

Moreover, stakeholders that have been harmed by an enterprise’s misconduct expect that they will be informed of a violation of standards that

affects them, as well as that all harm done will be corrected, if possible.

Failing to meet those expectations sends an undesirable message from owners and managers: Our core beliefs are negotiable. Our standards apply only if they

are not too costly. Failing to meet the reasonable expectations of our stakeholders is

acceptable, if we can avoid getting caught.

DEALING WITH MISTAKES AND FAILURES

In many offices, one will find a sign that reads “To err is human, to forgive

divine—neither of which is the policy of this company.” However, an RBE

recognizes that the employee who never fails is probably not contributing his

or her fullest in pursuit of the enterprise’s purpose. Much can be learned

from failure, provided that the effort was intended to achieve enterprise ends

and that the means were well chosen and within enterprise boundaries. 

198 Business Ethics

In one plant where a

number of employees

were consistently late,

the supervisors gave lectures nearly every day to

the team as a whole

about the importance of

being on time. Eventually,

they began to demand

that employees arrive

early just so that the late

ones would be “still late,

but on time.”

This practice was considered unfair by the responsible employees and was

ignored by the irresponsible ones, who continued

being late.

What does this tell us

about the culture of the

enterprise?

You Decide
Chapter 8: Aligning the Responsible Business 199

An RBE fosters an environment in which the creativity and enthusiasm

of its employees and agents are encouraged even in the face of mistakes and

failure. There is no surer way of preventing creativity than to punish

employees for mistakes made in good faith. 

The policy statement in Box 8.1 affirms management’s commitment to

expect the best from employees and agents while providing responsible criteria for evaluating their choices and actions. It reinforces the responsibility

that employees and agents assume: to make responsible choices and to take

responsible actions to achieve the ends of the enterprise. It is also a liberating policy, which tends to free employees and agents from the fear of unfair

criticism or punishment if they make mistakes or fail. 

A responsible response to mistakes of employees includes an evaluation

of what happened, and why. It includes a sincere effort to learn from mistakes or failure. Managers may need to modify the standards and procedures

that failed to prevent the misconduct. They may choose to retrain or educate the employee or other agent, or they may reassign the person, especially if that person is in a position that has substantial discretionary authority. 

DEALING WITH MISCONDUCT OR SERIOUS HARM TO STAKEHOLDERS

It is important to distinguish mistakes from misconduct. Misconduct is

intentional, negligent, or reckless disregard for the core beliefs, established

standards and procedures, and reasonable expectations of the stakeholders of

the enterprise. It also involves violating standards or procedures, including

the admonition to obey the letter and spirit of the law. 

For example, it is no excuse that a choice or action, such as bribing a government official to make a sale, might contribute to achieving the financial

ends of the enterprise in the short run. First, it is not clear that making sales

through bribery ever contributes to the welfare of an enterprise in either the

short or the long run. Bribery often benefits only the employee. Second,

owners and managers set the standard precisely because they decided that

Employees and agents are expected to accept full responsibility

for their decisions and activities on behalf of the enterprise,

but management will support choices or actions applying the

standards and procedures of the enterprise in good faith, even

if they result in mistake or failure.

BOX 8.1

MODEL POLICY STATEMENT
bribery raises an unacceptable risk to the enterprise. To fail to enforce the

standard is to accept a risk that they had determined was unacceptable.

Owners and managers respond to misconduct in the same way they

respond to a mistake—by evaluating what happened and why. This response

includes a sincere effort to learn from what went wrong. In addition, the perpetrator may be disciplined or terminated as the law permits. 

When the misconduct is a violation of law or a stakeholder is seriously

harmed, a number of other steps must be considered.

Voluntary Disclosure

When an employee or agent violates the law on behalf of the enterprise,

both the individual and the enterprise may be open to prosecution. As a matter of responsible policy, owners and managers must consult with local counsel regarding the advisability of voluntary disclosure to the government.

Voluntary disclosure is not an easy step to take if it appears that the government is unaware of the violation or if the rule of law is not the norm. There

are good reasons in most economies, however, for an RBE to establish a policy of voluntary disclosure. 

First, employees need to know what the policy is and how seriously

owners and managers take their admonition to obey the law. Without such

clarity, owners and managers may be encouraging a pattern of misconduct

from which they will be unable to escape. Second, in many jurisdictions,

voluntary disclosure will be treated as good corporate citizenship, and punishment may be limited to the individual alone. In some places, the law of

a jurisdiction mandates disclosure and lack of disclosure is a separate violation. In other places, the government promises more lenient treatment if

disclosure is voluntary. 

Finally, the risk of prosecution and harsh penalties against the enterprise

often increases dramatically if the government discovers the violation and

learns that the enterprise concealed it. 

As two authors note, there are a number of potential dangers in failing to voluntarily disclose a violation: if the government discovers a violation, damage to the credibility of the enterprise may be irreparable.

Government agencies are more likely to prosecute if the government discovers a violation. The failure to disclose is more likely to be seen as a

cover-up, perhaps to protect senior management. If a subsequent violation

occurs, the failure to disclose may be used against the enterprise at the

later trial. The authors conclude, “Accordingly, even where the [enterprise] believes that the government is unlikely to eventually discover the

violation, it is often in [its] best long-term interest to report the violation

to the government.”12

200 Business Ethics
Where the rule of law is not the norm, owners and managers must carefully examine the relevant context of the enterprise in establishing its policy

and seek professional advice. There are situations, to be sure, in which voluntary disclosure will simply open the enterprise to more administrative corruption. Nevertheless, owners and managers must also consider the organizational culture and the effect that failing to take responsibility for misconduct will have on the attitudes of employees. 

Where extortion by agency officials can be expected when an RBE

reports its’ misconduct, it is important that an RBE not deal with this situation in isolation. If extortion is expected, owners and managers should plan to

work with trade associations and nongovernmental organizations (NGOs) to

reduce their exposure. Since a primary tool in the fight against corruption is

transparency, trade associations and NGOs can support enterprises that voluntarily disclose their misconduct by issuing their public statements targeting the offending agency or by otherwise bringing pressure to bear on the

agency to reduce extortion. In a climate of such intense attention, especially

media scrutiny, an RBE may be less vulnerable to agency extortion. 

In any event, responsible managers must establish a policy to govern

how they will deal with misconduct before it happens, when their judgment

is clearest. In this way, they can identify gaps in capability. In addition to

developing a crisis action plan, for example, owners and managers may identify a critical need for a spokesperson or adviser on media relations. 

COOPERATION WITH THE GOVERNMENT

Accepting responsibility and voluntarily disclosing misconduct to the government may be followed by a government inquiry or investigation. Or the

government may make unannounced visits to the enterprise. Responsible

managers establish policies to address these contingencies and set procedures for employees and agents to follow. 

How the enterprise responds to government requests has potentially serious legal implications. Responsible managers will establish a policy that governs

how the enterprise will respond to government requests. Such a policy supports

employees and agents in making the responsible decision to cooperate. 

The standards and procedures should be developed with legal counsel

familiar with the laws and practices of the jurisdictions in which the enterprise

does business. If there is substantial potential for government investigations,

audits, or compliance visits, owners and managers should ensure that responsible employees are identified and that their responsibilities are clear. Whom

they should contact for advice, including legal counsel, should be clear as

well. Having such policies and procedures helps ensure that employees act

responsibly and avoid mistakes that may be costly to the enterprise.

Chapter 8: Aligning the Responsible Business 201
Corrective Action

As a general principle, an RBE takes all appropriate steps to cure any harm

it has caused stakeholders. These steps include compensating victims, stopping operations, recalling products, restoring the environment to its previous condition, and taking steps to prevent future harm. The enterprise may

undertake community service to repair the harm caused by the misconduct.

Where further harm can be predicted, such as health problems that can

take decades to manifest themselves, an RBE may set up a trust fund for

stakeholders damaged by its misconduct.

HANDLING MISUNDERSTANDINGS AND OTHER CRISES

Sometimes a crisis is not of the enterprise’s making. What does an RBE do

when accused of shortcomings it did not commit? Responsible management

works through such misunderstandings. The general principle is to learn

how to pursue the enterprise’s purpose and meet reasonable stakeholder

expectations by engaging stakeholders when appropriate. 

For example, in a famous case in the United States in 1982 involving the

pain remedy Tylenol, the manufacturer, Johnson & Johnson, was faced with

seven deaths linked to adulterated Tylenol capsules. It chose to avoid risk to

its customers, consumers, and reputation by removing millions of dollars of

the product from the market. 

During an intense period of information gathering and deliberation,

two independent management teams considered as many as 150 alternatives for dealing with the crisis. Managers took the dramatic step of recalling 31 million bottles, which cost the enterprise more than $100 million.

Johnson & Johnson redesigned the packaging of its product, and just six

weeks later Tylenol was back on the shelves. Eventually, it recovered and

even increased its market share. Although the experts were predicting that

Tylenol, as a brand, would not last a year, “What those experts failed to

anticipate was the public reaction to what was perceived as a deliberate act

of corporate responsibility that was beautifully executed and skillfully followed up with a well-designed recovery plan.”13

The decision to recall Tylenol was based on the Johnson & Johnson

“Credo,” first drafted in 1943 (see Box 8.2).14 Although the decision was made

by the chief executive officer, it reflected the organizational culture of the

enterprise as a whole. As one observer noted, “Without a set of values and

guiding principles deeply ingrained throughout the organization, it is doubtful that [Johnson & Johnson’s] response would have been as rapid, cohesive,

and ethically sound.”15

202 Business Ethics
MODIFYING THE BUSINESS ETHICS PROGRAM

Finally, where mistakes, misconduct, and misunderstandings occur, the

responsible business constantly evaluates its performance. It uses such incidents as opportunities to learn how the business ethics program is performing. The essential question is, “Does this enterprise have an effective business ethics program?”

The questions for self-governing organizations discussed in Chapters 2

and 4 also apply to a review of any significant incident:

• Were adequate standards, procedures, and expectations established? 

• Were responsible managers involved or did they meet their responsibilities?

• Were the standards, procedures, and expectations effectively communicated? 

• How did the enterprise detect the incident and could it have been prevented or detected earlier?

Chapter 8: Aligning the Responsible Business 203

We believe our first responsibility is to the doctors, nurses and

patients, to mothers and fathers and all others who use our

products and services. In meeting their needs everything we do

must be of high quality.We must constantly strive to reduce

our costs in order to maintain reasonable prices. Customers’

orders must be serviced promptly and accurately. Our suppliers

and distributors must have an opportunity to make a 

fair profit.

We are responsible to our employees, the men and women who

work with us throughout the world. Everyone must be considered as an individual.We must respect their dignity and recognize their merit. They must have a sense of security in their

jobs. Compensation must be fair and adequate, and working

conditions clean, orderly, and safe.We must be mindful of ways

to help our employees fulfill their family responsibilities.

Employees must feel free to make suggestions and complaints.

There must be equal opportunity for employment, development,

and advancement for those qualified.We must provide competent management, and their actions must be just and ethical.

We are responsible to the communities in which we live and

work and to the world community as well.We must be good

citizens—support good works and charities and bear our fair

share of taxes.We must encourage civic improvements and better health and education.We must maintain in good order the

property we are privileged to use, protecting the environment

and natural resources.

Our final responsibility is to our stockholders. Business must

make a sound profit.We must experiment with new ideas.

Research must be carried on, innovative programs developed,

and mistakes paid for. New equipment must be purchased, new

facilities provided, and new products launched. Reserves must 

be created to provide for adverse times.When we operate

according to these principles, the stockholders should realize 

a fair return.

BOX 8.2

JOHNSON & JOHNSON’S CREDO

Johnson & Johnson

“Our Credo”
• Are the employees and agents involved capable of meeting the standards,

procedures, and expectations? Do they have the necessary skills, knowledge, understanding, and attitudes?

• What was done to encourage employees and agents to comply with the

standards, procedures, and expectations? What more could be done?

• Was the enterprise’s response appropriate?

• How should the incident be treated when evaluating the overall business

ethics program?

SUMMARY

Responsible management practices are critical to the success of an RBE in

improving its business performance, increasing the prosperity of its community, and contributing to the social capital in its markets by learning to

meet the reasonable expectations of its shareholders. Owners and managers

of an RBE develop responsible management practices by answering these

three questions:

1. How can we ensure that we have the right people in the right places

while we pursue our purpose as an enterprise?

2. How can we encourage our employees and agents to follow our standards and procedures?

3. What do we owe our stakeholders when mistakes, misconduct, or misunderstandings occur that involve our established standards and procedures or their reasonable expectations?

To have the right people in the right places in the enterprise involves

using the enterprise’s core beliefs, standards and procedures, and reasonable

stakeholder expectations to establish responsible criteria. An RBE uses these

responsible criteria to recruit, hire, retain, assign, and dismiss employees and

agents, especially managers and supervisors.

To encourage employees and agents to follow enterprise standards and

procedures, pursue the enterprise’s purpose, and meet reasonable stakeholder expectations, responsible managers evaluate decisions and activities

according to the responsible criteria, and they reward and discipline employees and agents as appropriate.

When things go wrong for an RBE, responsible managers address mistakes, misconduct, and misunderstandings. They learn from mistakes and

failures made in good faith. They confront misconduct and respond appropriately. They discipline employees and agents, and they voluntarily disclose

to, and cooperate with, government authorities, as appropriate.

204 Business Ethics
Chapter 8: Aligning the Responsible Business 205

RESPONSIBLE BUSINESS ENTERPRISE

Checklist

1. How carefully do we align our management practices with our core

values?

2. What are our policies regarding recruiting, hiring, training, and

employing our work force?

3. What risks do we foresee in our business climate, and what is our

plan for dealing with them in the event of a crisis?

4. What strategic alliances can we forge to see that we do not have to

deal with these crises in isolation?
206
207

9

Using the tools contained in this manual, the responsible business enterprise (RBE) has set standards

and procedures to guide employees and agents, 

fostered reasonable expectations among its stakeholders, built supporting business ethics infrastructure,

and aligned its management practices with its core

beliefs. This chapter applies these elements of a business ethics program as the foundation for five specific areas of business conduct and practice that challenge an RBE, especially, but not exclusively, in

emerging market economies. By developing responsible business practices in those five areas, the RBE

can be part of the solution to the challenges facing

business in all markets.

Challenges to the Responsible Business Enterprise

There are a number of issues of responsible business

conduct to which the owners and managers of an

RBE need to give special attention: 

1. Relationships with government officials and

entities

2. Role of the private sector in the regulatory

process

3. Government contracting and procurement

4. Role of voluntary action

5. Relationships with foreign governments and 

businesses

Responsible Business

Conduct and Practices

• Challenges to 

the Responsible

Business

Enterprise

• Relationships

with

Government

Officials and

Entities

• Role of the

Private Sector in

the Regulatory

Process

• Government

Contracting and

Procurement

• Role of

Voluntary Action

• Relationships

with Foreign

Governments

and Businesses
These five issues are central to what it means to be a responsible business

enterprise. The discussion in this chapter, along with RBE Worksheet 13

at the end of the chapter, will help owners and managers establish responsible standards, procedures, and expectations and compensate for weaknesses through business ethics infrastructure, communications and feedback, and enterprise alignment. The chapter will also help create reasonable expectations for external stakeholders: government, other businesses,

civil society, and the community as a whole. 

Relationships with Government Officials and Entities

Governments establish the necessary conditions for economic stability,

social progress, and environmental protection by adopting laws, policies,

and practices that help markets perform independently, free of undue government interference. These conditions, sometimes referred to as “good

public governance,” help an economy grow according to market principles.

Just as an RBE has a vital interest in good corporate governance, the private

sector as a whole has a vital interest in supporting trustworthy, stable,

accountable, and reliable governments capable of good public governance. 

Good public governance respects human and property rights, supports

the sanctity of contracts, protects residents, provides infrastructure that

speeds the transportation of goods and services and supports the transmission of knowledge, and establishes a market-oriented legal framework and

reliable judicial institutions that allow its residents to resolve conflicts. Good

public governance is founded on a transparent relationship between government and the private sector. 

REDUCING CORRUPTION, BRIBERY, AND EXTORTION

To create the conditions necessary for good public governance, one must

address the problem of corruption, from both the demand side and the supply side. Both government and the private sector are responsible for creating conditions for transparent business, and they should repudiate all corruption, bribery, and extortion. Leaders in business and government should

work together to combat corruption. 

One means of private–public sector cooperation is for business enterprises to recommend standards, procedures, and expectations to help the government administer laws and regulations in a transparent, accountable, and

fair manner. Business leaders and government officials should have an ongoing public dialogue about issues that contribute to corruption, such as

monopoly practices, discretionary fees, onerous taxes, and regulations and

licenses that impede business and entrepreneurship. This dialogue should

208 Business Ethics
aim to ensure that government administrative processes at all levels are fair,

transparent, competitive, and informed. Box 9.1 lists some of the anticorruption and good governance policies that emphasize transparency, due

process, and accountability.1 See also Appendix F for a more comprehensive

list of guiding principles for fighting corruption in government.

Government administrative, licensing, inspection, and certification procedures intended to regulate business often create obstacles to business. For

example, governments sometimes require several official signatures to complete the simple act of registering and opening a business. Such administrative obstacles increase opportunities for public officials to demand bribes

and favors. As Table 9.1 shows, while opportunities for bribery and extortion

vary somewhat from market to market, the average proportion of bribes

spent on each type of public service varies substantially.2

Bribery, kickbacks, and other forms of illegal or corrupt conduct increase

costs for an enterprise not only because of the payments involved but also

because it requires management time and effort to work with officials, maintain secret accounting books, and address threats of extortion and blackmail.

To reduce such obstacles, business leaders and government officials should

work together to establish regulatory practices that reduce administrative discretion and promote transparency and efficiency. 

Chapter 9: Conduct and Practices 209

Government anticorruption policies take many forms:

• Commercial codes governing contracts and dispute settlement

• Law enforcement and judicial procedures promoting due

process and the rule of law

• Independent systems promoting and ensuring the integrity

and efficiency of agencies

• Civil service reforms and competitive wages

• Systems promoting integrity of capital markets and transparency on issuance of securities

• Systems promoting predictable and transparent procurement

and privatization

• Improved and standardized public accounting, auditing, and

management systems

• Effective bankruptcy and insolvency laws

• Limits on discretionary authority tending to administrative

corruption

• Oversight mechanisms and appellate remedies

• Protection for whistleblowers and the media

• Disclosure of and access to public records

• Encouragement of civil society participation in 

anticorruption efforts

BOX 9.1

GOVERNMENT ANTICORRUPTION POLICIES

U.S. Department of State

“Recognizing and Making Anticorruption Issues Part of the

Business–Government Dialogue”
Business associations in some emerging market economies have succeeded in influencing governments to adopt one-stop registration for new

businesses. In the Russian Federation, for example, the Business Partnership

of Seversk (Tomsk Oblast), a nongovernmental organization (NGO), has

worked with municipal authorities to increase transparency and to reduce

administrative barriers. With input from the NGO, government authorities

simplified procedures for leasing public property, which included streamlining procedures to resolve disputes and eliminating illegal fees. A database of

federal and local laws and regulations was developed, and the business community has received training in current laws and regulations related to business operations and business rights and responsibilities.3

To facilitate good public governance, the RBE can adopt standards, procedures, and expectations for conducting business with government officials

and entities as part of its business ethics program. They should be based on

knowledge of and respect for the specific rules that govern the conduct of

210 Business Ethics

TABLE 9.1 The Average Proportion of Bribes Spent on Each “Service”

Connection

to Public Government Health/Fire Legislation

Country Services Licenses Taxes Contracts Customs Courts Inspections Influence Other Total

Armenia 10.9 9.8 30.6 5.8 14.0 4.7 2.9 3.2 18.0 100.0

Azerbaijan 9.2 20.2 31.6 17.4 8.6 6.0 4.3 2.4 0.1 100.0

Belarus 9.6 30.4 28.2 7.3 7.1 3.6 13.6 0.2 0.0 100.0

Bulgaria 17.7 22.6 14.1 6.6 11.9 13.6 8.2 2.8 2.6 100.0

Croatia 9.1 6.7 7.3 44.7 10.7 8.8 4.1 4.0 4.5 100.0

Czech Republic 8.3 16.3 7.2 43.0 6.4 6.5 9.2 1.6 1.6 100.0

Estonia 2.0 26.5 6.4 34.5 15.2 2.5 4.2 5.9 2.8 100.0

Georgia 11.0 18.3 29.3 3.6 9.6 11.3 10.4 6.6 0.0 100.0

Hungary 7.3 43.6 10.9 11.1 14.2 3.1 3.3 1.4 4.9 100.0

Kazakhstan 10.7 23.2 20.3 5.3 14.4 12.7 9.5 1.3 2.8 100.0

Kyrgyzstan 5.0 15.2 53.5 6.5 6.8 4.5 7.4 1.1 0.0 100.0

Lithuania 14.0 8.5 16.3 5.0 15.1 8.7 17.6 4.3 10.6 100.0

Moldova 14.9 29.7 21.4 3.9 10.4 9.0 7.0 1.6 2.2 100.0

Poland 7.4 26.1 8.8 17.7 15.8 9.9 5.7 4.3 4.3 100.0

Romania 16.1 39.8 6.3 7.8 15.2 5.2 5.7 3.4 0.6 100.0

Russia 11.7 20.4 18.5 11.3 8.8 11.1 11.6 2.8 3.7 100.0

Slovakia 5.7 33.2 10.1 18.3 11.8. 12.9 4.3 1.3 2.5 100.0

Slovenia 6.5 24.9 4.3 36.3 8.7 5.3 5.8 8.2 0.0 100.0

Ukraine 10.3 21.3 25.8 10.4 12.2 6.8 9.7 2.5 1.1 100.0

Uzbekistan 8.5 18.0 27.9 15.4 10.9 5.2 12.0 0.9 1.2 100.0

Overall 10.6 22.0 19.4 14.6 12.2 7.9 7.8 2.6 2.9 100.0

Source: Joel S. Hellman et al., “Measuring Governance, Corruption, and State Capture” Policy Research Paper 2312

(Washington, D.C.: World Bank, 2000)
public officials.4 These standards, procedures, and expectations should make

clear that employees and agents must abide by all laws and regulations, especially refraining from bribery and other forms of corrupt conduct intended

to influence official decisions.

ENCOURAGING GOVERNMENT STANDARDS AND PROCEDURES

Responsible business leaders should encourage governments to adopt formal

programs to guide the choices and actions of civil servants through established standards, procedures, and codes of conduct. These standards and

procedures should address issues such as values of public service, conflicts of

interest, use of public office for private gain, and acceptance of political contributions and bribes. Government standards and procedures help ensure

that government officials uphold the law and avoid even the appearance of

impropriety. Creating clear standards and procedures to which public officials are held accountable helps instill respect and public confidence in government institutions.

Government officials should be encouraged to go beyond simply setting

standards and procedures. Civil servants should be hired and assigned transparently and should receive compensation adequate to support their families

Chapter 9: Conduct and Practices 211

Transparency and Government Revenue

In 1998, when Newmont Mining Corporation began its joint-venture Batu Hijau copper mine in Indonesia, it

created a program to promote transparency in revenue-sharing payments to host governments. With its first

royalty payment, Newmont placed a full-page advertisement in local and regional newspapers detailing the

amount of money transferred to the national government. For subsequent payments, totaling more than $38

million by the first quarter of 2002, the company generated news coverage detailing the royalty payment,

transfer documents, and deposit account number. Legally, a percentage of royalties is to flow back to the

region of impact but, in reality, it is often delayed or not sent at all. At first, regional authorities, whose receipt

of mining royalties was suddenly exposed to public scrutiny, reacted by attempting to deny the payments.

Over the course of a year, however, both local and regional authorities used the increased transparency and

P

media coverage to pressure the national government to return funds more quickly to the region.

RACTICE

NOTE

Juliette Bennett

“Multinational Corporations, Social Responsibility, and Conflict”
properly without resorting to corruption. Training and education should be

provided to raise awareness of the devastating impact of corrupt practices on

the functioning of public governance, as well as on economic growth and

social capital. Oversight mechanisms to monitor and audit government functions at particular risk to corruption are essential, especially where civil 

servants are reluctant to report their concerns. Finally, these standards and

procedures must be enforced, and the government must respond appropriately when bribery and corruption are uncovered. 

Business leaders must also recognize, however, that good public governance requires resources. Reasonable civil servant compensation, for example, tends to reduce corruption, but it must be paid, in part, with the taxes

that businesses pay. Failure to pay business taxes when the government is

trying to reform makes reform efforts virtually fruitless. Being part of the

solution to this challenge of developing a market economy requires paying

the enterprise’s fair share of the cost of government.

Role of the Private Sector in the Regulatory Process

The ultimate objective of good public governance is to create conditions

under which markets function independently and facilitate fair competition.

These conditions help innovative, effective, and efficient enterprises succeed

and grow while preventing inefficient enterprises from looting public

resources. They create opportunities for increased investment and trade. 

Under conditions of good public governance, the private sector has a

vital role in influencing the government to adopt laws, regulations, and practices designed to enable the market to function independently. This activity

should be conducted on a transparent basis designed to benefit all stakeholders in the development of a market economy and civil society.

IMPROPERLY INFLUENCING GOVERNMENT

There are several obstacles to good public governance, including practices

that enable enterprises to influence government policy improperly.

Enterprises operating in many markets have adopted the practice of forming

patron relationships with individual public officials as a means of securing

government contracts and preferential treatment. 

Many large and successful enterprises strive to “capture” the state by

securing the passage of laws or obtaining licenses that benefit them over

other enterprises. What many think of as state capture is the effort of a firm

to shape the laws, policies, and regulations of the state to its own advantage

by providing illicit, illegitimate, and non-transparent private gains to public

212 Business Ethics
officials.5 Such practices may offer short-term gains, but they are a major

source of business risk and market instability. 

State capture is also a cause of poor public governance, because decrees

issued to benefit one enterprise or organization injure the economy as a

whole by undermining competition. An enterprise that engages in state capture has a stake in maintaining conditions of poor public governance, including weak state institutions and ambiguous laws and regulations. State capture

seriously impedes the development of the rule of law. It creates conditions

under which effective and efficient enterprises support ineffective and inefficient enterprises. World Bank studies show an association between state

capture and poor governance in emerging market economies.6

PROPERLY INFLUENCING GOVERNMENT

To foster stable conditions for economic growth, responsible business leaders should help establish clearly defined laws and practices regulating how

businesses might influence government decision-making. RBEs conduct

their business with government on a transparent basis. They organize themselves around issues of mutual concern with other enterprises to lobby the

government under applicable laws and procedures. 

Business associations provide a structure that enables private-sector

leaders to find one voice and coordinate efforts. They provide the opportunity and leverage to influence lawmakers in an ethical and democratic

Chapter 9: Conduct and Practices 213

Barry Z. Posner and Warren H. Schmidt

“The Values of Business and Federal Government 

Executives: More Different Than Alike”

Goals of Business and Government

Executives

Greater emphasis on morale, productivity, stability, efficiency, and growth

is placed by business executives than government executives. Government

executives place more importance than business executives on such goals

as quality, effectiveness, public service, and value to community. Goals like

customer service, leadership, and innovativeness are rated similarly

important by business and government executives.

PRACTICE

NOTE
manner. RBE leaders work with their business associations and trade

groups to demand accountability of government and to create conditions

for fair competition. 

To maximize their leverage and influence, RBE leaders develop a national business agenda that promotes the goals and incorporates the interests of

both large enterprises and small to medium-sized enterprises (SMEs)—and

the public interest.7 This agenda identifies policy and legal reforms that are

required of government to create the conditions necessary for all transparent enterprises to compete and succeed. RBEs publish their goals and strategies in the media in order to reach out to other businesses and solicit feedback from external stakeholders and civil society. 

Private-sector lobbying efforts by RBEs promote and instill good public

governance and respect for the rule of law. When a particular law or regulation is damaging to the market, RBEs seek to amend or replace it in a manner that respects the legislative process. 

To strengthen this process, business associations often adopt a legislative

advisory program, which analyzes current legislation and assesses whether it

meets the requirements and the needs of business. As part of such a program,

the associations provide legislators with objective and accurate information

regarding market conditions to assist in their decision-making processes. For

an example of such a program, see Box 9.2.8

RBE leaders work closely with civil society—including chambers of

commerce, trade associations, industry associations, community advocacy

groups, public interest groups, and other NGOs—to form alliances that help

promote the national business agenda. Civil society “includes organizations,

structures, and networks separate from the legislative, administrative, and

judicial power of the state and, many would argue, from business but inter214 Business Ethics

The International Center for Entrepreneurial Studies has established an innovative program in Romania called the Strategic

Alliance of Business Associations (SABA). SABA consists of 44

chambers of commerce and trade groups. SABA brings together

large enterprises and small to medium-sized enterprises (SMEs)

that have similar concerns and priorities. It helps these enterprises create a national platform for their objectives. It also

educates members on changes in business laws and regulations.

SABA has helped establish an SME development agency in

Romania with wide participation from entrepreneurs. The SABA

program is a model for promoting the collective private-sector

interests of large enterprises and SMEs in economic reform.

BOX 9.2

INTERNATIONAL CENTER FOR ENTREPRENEURIAL STUDIES
acting with both in a variety of ways.”9 The groups that make up civil society often act collaboratively for the common good to “stimulate democratic

action, and to analyze and educate public debate.”10

NGOs have a stake in the success of RBEs as entities that operate on a

legal and transparent basis and fulfill their social responsibilities. Some

NGOs specialize in working with the private sector to shape legal and government reform. NGOs also bring business and government leaders together to educate and train them in areas where they should work together on a

more cooperative basis. On controversial issues, NGOs can serve as mediators between private- and public-sector representatives.

Government Contracting and Procurement

When an RBE conducts business directly with a government official or

entity, whether as a contractor, supplier, or in some other capacity, it

should take steps to ensure that its relationships are transparent and ethical. It should abide by all laws; refrain from engaging in bribery, cronyism,

or coercion; and avoid even the appearance of impropriety. By so doing,

the RBE minimizes the risk of penalties, fines, and other forms of sanction

for misconduct.

The success of public projects rests on sound government procurement

practices that promote integrity, respect, fairness, and transparency. These

practices also help create conditions for good public governance and the

development of a market economy. See Box 9.3 for a sample policy.

CHALLENGES IN GOVERNMENT CONTRACTING

The process of government contracting and procurement poses a risk of corruption from both the demand side and the supply side. Corruption distorts

the process by favoring one enterprise or group of enterprises over another. An

obvious example is a contract for government procurement awarded to an

enterprise in response to a bribe. Corruption can occur at any point in the

process, starting from design and preparation, when selection of the technical

criteria, the due date for submission of offers, the time of delivery of the 

project, and the parties invited to tender may distort the process. 

Under such conditions, a responsible enterprise cannot compete successfully for government contracts, even when it outperforms other companies in

terms of quality and price. Nevertheless, when seeking a government contract, an RBE abides by all applicable laws, regulations, and stipulations of the

tender. It ensures that all statements, communications, and representations to

government officials are truthful and accurate.

Chapter 9: Conduct and Practices 215
MODEL PROCUREMENT STANDARDS

The World Bank Group, which lends to governments to finance major

restructuring of industries and development of infrastructure, has five basic

guidelines that govern its procurement policies: 

1. All goods and services needed to carry out the project must be procured

with special consideration for economy and efficiency. 

2. The loan must be used to purchase only those goods and services needed to carry out the project. 

3. All qualified bidders from the bank’s member countries have an equal

opportunity to compete to participate in the bank’s projects. 

4. The borrower must encourage the development of local contractors and

manufacturers in borrowing countries. 

5. The procurement process must be transparent.11

Other examples of government procurement policies that ensure transparency and due process in government contracting can be found in some

international procurement agreements, most notably the World Trade

Organization (WTO) Agreement on Government Procurement (GPA).12

The GPA is an accord entered into by 28 WTO member countries to

provide market access to each other’s government procurement of goods

and services. It calls for governments to maintain transparency in government procurement by establishing standards in procurement procedures. These standards are designed to ensure consistency and predictability for enterprises. For example, the GPA sets guidelines for governments to publish notices of procurement opportunities. The notices

are required to contain basic information necessary for enterprises to

assess their interest in an opportunity and to prepare meaningful bids.

The GPA sets out minimum time periods—usually 40 days—in which

interested suppliers must submit bids. It also requires that technical specifications be prepared in terms of performance rather than design or

descriptive characteristics and not be developed or applied as inappropriate obstacles to international trade. 

The GPA addresses other procurement procedures, including qualification procedures, contract award decisions, and publication of procurement

laws and regulations. It also seeks due process for suppliers, who are provided the right to learn from procuring entities the reasons that their bids

or qualification applications are unsuccessful. The GPA also requires governments to maintain independent and impartial review bodies to hear supplier complaints. 

216 Business Ethics
INTEGRITY PACTS

Another means of ensuring more transparency in government procurement

and contracting is called an integrity pact, a concept developed by the NGO

Transparency International in the mid-1990s. In the context of government

procurement, an integrity pact is a formal pact or agreement between a government office inviting tenders and the enterprises intending to participate.

By signing such an agreement, an enterprise commits itself to participate in

Chapter 9: Conduct and Practices 217

10. Government rules on gifts and gratuities (broadly defined to

include entertainment and business meals) are very restrictive.

Employees shall not offer or give a gift or gratuity to any government employee, except where clearly permitted by applicable

government regulations (for example, 32 Code of Federal

Regulations Part 40). Guidance with respect to the applicable

regulations can be obtained from the operating unit Business

Practices/Compliance Officer. Furthermore, employees shall not

offer or give, directly or indirectly, anything to a government

employee who is a procurement official or who performs a procurement function except: (a) beverages at a business meeting,

(b) light snacks for a business meeting where government

employees in travel status are in attendance, and (c) promotional items displaying the company logo and having a truly

nominal value, such as baseball caps or pads of paper. Any

exceptions must be approved in writing by the UTC Vice

President, Business Practices.

14. Employees shall not offer or give entertainment, gifts, or

gratuities to representatives or employees of higher tier government contractors other than customary business courtesies that

are reasonable in frequency and value. Offering or giving any

payment, gift, or other thing of value to such a person for the

purpose of obtaining or acknowledging favorable treatment (a

“kickback”) is a crime.

15. Even though not otherwise prohibited, employees will not

offer or give to any representative or employee of a higher tier

government contractor any entertainment, gift, gratuity, or anything else of value that such representative or employee is

known to be prohibited from accepting under the policies of

the higher tier government contractor.

16. Consultants performing work related to a government contract or subcontract shall be required by contract to comply

with the laws and regulations relating to government contracting and with this Policy Statement. This Policy Statement shall

be incorporated in the standard terms and conditions for all

such consultant contracts, and each such contract shall expressly

provide for termination in the event the consultant violates

either the laws or regulations relating to government contracting or this Policy Statement.

Implementation

All organizations in the Corporation that contract directly or

indirectly with the federal government of the United States are

required promptly to maintain current, detailed procedures and

policies, including an ongoing program of communication and

training, to insure compliance with this Policy Statement and

with the laws and regulations governing contracting with the

government. Such procedures and policies shall expressly designate the department or activity responsible for implementing

each element of the detailed policies and procedures.

BOX 9.3

BUSINESS ETHICS AND CONDUCT IN CONTRACTING WITH THE UNITED

STATES GOVERNMENT

United Technologies Corporation

“Code of Ethics”
the tendering process in a legal and transparent way. In particular, it pledges

not to offer, pay, accept, or seek bribes of any kind during the tender. The

government office, in turn, commits that its officials will not demand or

accept any bribes.

The key component of an integrity pact is transparency. All offers and

payments made by an enterprise should be reported to members of the pact.

The pact has preapproved sanctions for violations. Sanctions include denial

or loss of the contract, forfeiture of bid security, liability for damages, or

blacklisting by the government office.13

Use of the integrity pact is slowly developing on a global basis, hindered

by the expertise and funds needed to encourage governments and enterprises to enter into the agreement. Transparency International has facilitated

integrity pacts in Argentina, Benin, Colombia, and Panama.14 See Appendix

C for a sample integrity pact.

Role of Voluntary Action

The private sector has an economic interest in creating a trustworthy, stable,

and reliable government capable of good public governance. Business enterprises, in general, have the potential to be powerful and influential members

of their communities. 

Beyond the contributions they make in producing goods and services to

meet the needs of customers and consumers, businesses provide livelihoods

for employees, other agents, and suppliers. Business enterprises pay taxes

that support good public governnance, but they can do much more as

responsible members of their communities.

LEVELING THE BUSINESS PLAYING FIELD

Declarations of integrity are a form of voluntary action by enterprises

designed to help promote a transparent business environment through

responsible business conduct. They document a coalition of enterprises that

are committed to fair business practices and showing leadership in this direction. Such declarations offer a means of bringing enterprises together with

civil society and government officials and entities with the goal of developing a more transparent investment climate. See Appendix D for an example

of a declaration of integrity. 

Industry-specific declarations of integrity may be an especially effective means of promoting responsible business conduct. In developing market economies, many industries, professions, and chambers of commerce

218 Business Ethics
accomplish much the same effect through codes of conduct that they voluntarily adopt and follow. 

A prominent example in the United States is the Defense Industry

Initiative, which was formed in 1986 to improve the responsible business

conduct of defense contractors following a series of defense contracting

scandals. To avoid further government regulation, prominent defense contractors voluntarily subscribed to designing and implementing business

ethics programs, to reporting on their performance, and to meeting to share

best practices annually.

In emerging market economies, codes of conduct are being developed in

many industry sectors, including engineering and banking.

PARTICIPATING IN COMMUNITY DEVELOPMENT

An RBE may also contribute to its community by participating in community economic development projects. Such projects promote cooperation

between business and the local community. An enterprise that engages in a

community economic development activity designs programs to train and

employ local citizens. Through such projects, a multinational enterprise

partners with locally owned enterprises and franchises to help develop successful business strategies. Such actions enhance an enterprise’s reputation

and goodwill in the community.

Chapter 9: Conduct and Practices 219

Louise Fréchette, Deputy Secretary-General

United Nations

“A New Development Agenda”

Community-Driven Development

It is increasingly being recognized in the debate over the approach to

development that countries have to own their own development.The

catch phrase is that they have to be “in the driver’s seat.” The imposition

of solutions from the outside or the ad hoc injections of support here

and there will not add up to long-term development.

PRACTICE

NOTE
Another avenue for an RBE is to work with a community foundation and

local government to support community-driven development. Development

projects are designed to meet important community needs by engaging the

community itself with help from donors to a local community foundation.

The role of enterprises, both foreign and local, is increasing as foreign

donors, in particular, see the value in local communities fashioning their own

solutions to local problems.15

An RBE may encourage its employees to support philanthropic initiatives or to take part in volunteer programs. The RBE might also institute a

release-time policy, giving employees paid leave to take part in voluntary initiatives during business hours. Such an initiative will reinforce the enterprise’s commitment to supporting employees and the community. 

FORMING CHARITABLE FOUNDATIONS

Leading multinational enterprises establish charitable foundations that

donate funds to entities whose missions are consistent with the enterprise’s

values and vision. Such foundations provide funding for educational institutions and students through grants and scholarships, to improve the quality of education.

Relationships with Foreign Governments and Businesses

When engaging in international business, enterprises face government officials and entities, laws, customs, and cultural practices different from those

in home markets. An enterprise will face new and different ethical dilemmas, which are shaped by local law, customs, and practices. An enterprise

that seeks to conduct business in a foreign market or to form a joint venture with a foreign partner must first become knowledgeable of the local

customs and practices. Differences in values and notions of responsible

business conduct between joint venture partners, for example, often lead to

“communication, cooperation, commitment, and conflict resolution problems . . . , which in turn cause interaction problems that adversely influence

joint venture performance.”16 

While consciously striving to understand cultural and legal differences,

an RBE remains focused on and committed to its core beliefs and standards,

procedures, and expectations of responsible business conduct. It abides by

the laws of its home country and all applicable foreign laws, whichever are

stricter. It develops a strategy to remain loyal to its core beliefs and standards

while adapting to the culture and expectations of local markets.

220 Business Ethics
Chapter 9: Conduct and Practices 221

COMBATING BRIBERY OF FOREIGN OFFICIALS

When doing business abroad, an enterprise should be aware of the strict

rules and regulations that govern bribery in international transactions. In

1997, 34 nations signed the Convention on Combating Bribery of Foreign

Public Officials in International Business Transactions. This convention,

established by the Organization for Economic Cooperation and

Development (OECD), went into effect in 1999, and requires signatory

nations to make the payment of bribes to foreign government officials a

criminal offense. Before the adoption of the OECD convention and its

implementing legislation, many nations allowed their enterprises to deduct

the costs of bribing foreign government officials from their taxes.

Now enterprises operating in foreign markets are under increasing

scrutiny and regulation in their home countries. For example, U.S. firms are

governed by the Foreign Corrupt Practices Act (FCPA), which makes it

unlawful to bribe foreign government officials to gain a business advantage.

U.S. firms that conduct business internationally usually find it advisable to

maintain rigorous corporate compliance programs to ensure that they comply with the FCPA and the laws of the other nations that are party to the

OECD Convention.

The FCPA prohibits U.S. enterprises from using intermediaries such as

an independent agent, joint venture, or foreign enterprise to make corrupt

payments on the U.S. enterprise’s behalf. These provisions require U.S.

enterprises to develop business relationships with reputable and qualified

partners and representatives. They encourage these enterprises to practice

due diligence when working with foreign enterprises. 

Due diligence may come in the form of investigating foreign representatives and joint venture partners to determine their status as a local business. The FCPA encourages enterprises to be aware of red flags. These indicators include unusual payment patterns or financial arrangements, a history of corruption, a refusal to pledge to uphold legitimate business practices,

and a lack of transparency. Failure to comply with these provisions could

lead to fines or imprisonment under U.S. law. See Appendix F for a detailed

description of the Foreign Corrupt Practices Act.

ADHERING TO ANTI–MONEY LAUNDERING PROVISIONS

Using legitimate business to conceal the illegitimate origins of large sums of

money—money laundering—has a destabilizing effect on the enterprises

involved, on domestic financial institutions, and on society as a whole. An

economy that enables laundering of illegitimate funds is vulnerable to

organized crime infiltrating financial institutions and legitimate businesses

and aggravating corruption in government. An emerging market economy
may be tempted to risk these disasters for the immediate flow of cash

through the economy. However, having an image as a haven for money laundering will make it much harder to develop a reputation as a stable and

secure environment for investment.17

Enterprises working with a foreign partner, or even with a domestic partner that has connections with U.S. financial institutions, should be aware that

the anti–money laundering regimes and reporting of suspicious activity that

have been required for several years have been extended to additional categories of financial institutions. Under U.S. Treasury regulations that have

been promulgated, have been proposed, or are pending, financial institutions

required to have an anti–money laundering program include not only banks,

savings associations, and credit unions, but also securities brokers and dealers,

casinos, operators of credit card systems, businesses engaged in vehicle sales,

pawnbrokers, private bankers, and a number of other entities.

While many countries, including emerging market economies, have

similar anti–money laundering provisions, the U.S. provisions may affect

foreign operations through requirements for due diligence for correspondent accounts and private banking accounts. Under these regulations, a

broad range of financial institutions outside of the United States are subject

to exercising due diligence under the U.S. anti–money laundering regime if

they maintain a correspondent account in the United States. Under some

circumstances of enhanced due diligence, U.S. and other financial institutions may be required to gather detailed information before doing business

with enterprises or individuals. 

Even when an RBE is not technically a financial institution, the basic

“know your customer” rule is responsible business conduct. This rule is

important for an emerging market economy, in particular, to gain international acceptance. For example, an international body combating money

laundering, the Financial Action Task Force on Money Laundering, advocates countermeasures that would restrict financial transactions with some

countries. It has recommended or considered such restrictions for a number

of countries thus far.18

PROTECTING THE ENVIRONMENT

Finally, when engaging in business in a foreign market, an enterprise should

be particularly sensitive to issues involving protection of the environment. At

a minimum, an RBE abides by the local laws and regulations designed to

protect the environment. An enterprise has a social responsibility to examine the impact its operations may have on the local environment and adopt

global best practices for protecting the environment. 

222 Business Ethics
Global best practices may be more demanding than local practices, but

in a global environment, an RBE is expected to adopt the more stringent

environmental protection requirements of the host government or its home

government. Doing so often requires an RBE to self-regulate, because in

emerging market economies the desire to attract foreign direct investment

may encourage governments to be somewhat less inclined to enforce their

own standards.19

SUMMARY

Responsible owners and managers apply all the perspectives, practices, and

principles developed in the earlier chapters to meet the challenges that their

markets present. Five issues are particularly challenging for enterprises in

emerging market economies, although they are present in all markets:

1. Relationships with government officials and entities

2. Relationships with foreign governments and businesses

3. Role of the private sector in the regulatory process

4. Government contracting and procurement 

5. Role of voluntary action 

Business leaders and government must work together to develop the

institutions, laws, regulations, and practices that contribute to good public

governance and independent markets. Particular attention should be given to

reducing corruption in the forms of bribery and extortion. Government must

reduce the opportunities and motivations for corruption. This objective can

be achieved through both good corporate governance and good public governance, applying the lessons of Chapters 5 through 8 of this manual.

An RBE is alert to opportunities to improve the business environment

through its own responsible business conduct and through its association

with other enterprises, civil society, and government. All enterprise decisions

and activities aim to improve the RBE’s business performance; to help build

social capital in its economy; and to work with leaders in business, government, and civil society to develop the essential market-oriented legal framework and reliable judicial institutions.

Chapter 9: Conduct and Practices 223
224 Business Ethics

RESPONSIBLE BUSINESS ENTERPRISE

Checklist

1. What is our policy for working with government officials 

and entities?

2. What does an evaluation of our government’s policies tell us?

3. How are we involved in working with other enterprises, civil society

organizations, and government to improve market conditions?
225

Responsible Business Practices Worksheet

RBE W ORKSHEET

13

Compliance

Risk

Management

Reputation

Enhancement

Value

Added

Relationships 

with government 

officials and entities

RBE Worksheet 13 provides a tool to help owners and managers consider the responsible business practices discussed in 

this chapter. The worksheet may be photocopied for use within your organization. Owners, managers, and staff members 

should work together to compare and contrast current management practices with enterprise standards, procedures, and 

expectations or the reference standards discussed in this chapter. Expect significant give and take about what the relevant 

current standards and practices actually are; this discussion is part of the dialogue and engagement process an RBE wants 

to foster.

Role of the private 

sector in the 

regulatory process

Government 

contracting and 

procurement

Role of voluntary 

action

Relationships with 

foreign governments 

and businesses

I I

The Business

Ethics Program

V

Achieving

Responsible

Business Conduct

229

10

This manual concludes by discussing the basic concepts and practices of evaluating a business ethics

program as an integral part of organizational learning. The purpose of this chapter is to demonstrate

the power of program evaluation and to re-emphasize the role of the individual enterprise as part of

the solution to the challenges facing business in all

markets, especially emerging market economies. 

Ensuring Organizational Learning

Organizational learning is an integral part of how a

responsible business enterprise (RBE) improves its

business performance, makes profits, and increases

the prosperity of its community through its decisions and activities. For an RBE, organizational

learning is a way of life that enables it to adapt to the

conditions facing it and learn how to “continuously

expand its capacity to create the future it truly

desires to live.”1 Organizational learning is essentially a characteristic of an RBE’s organizational culture, as described in Chapter 4. Organizations share

this information consciously on one level, record it

in documents on another, but ultimately store it in

their cultures.2 If the drive to learn has not developed in the organizational culture, then management admonitions to generate, share, or access

knowledge will be for naught.

This chapter addresses the last of the eight fundamental questions owners and managers must ask 

Program Evaluation and

Organizational Learning

• Ensuring

Organizational

Learning 

• Importance of

Program

Evaluation

• Developing a

Data Collection

Plan

• Reporting

Program

Performance

• Conclusion— 

and New

Beginning
themselves: “How should we monitor, track, and report our performance as

an enterprise and continuously learn from it?”3

A business ethics program is an integral part of how an enterprise

learns as an organization. It is a form of action learning—a process and

culture of learning by doing.4 By evaluating program performance, an

enterprise determines:

• How it learns what it needs to know (relevant context and internal

scanning),5

• How it gathers, stores, and shares information and knowledge (standards and procedures, infrastructure, communications, program evaluation, and organizational learning),6

• How it uses information and applies that knowledge to pursue the enterprise purpose and meet reasonable stakeholder expectations (enterprise

alignment practices).7

The goal of a business ethics program is to help owners, managers,

employees, and agents work together to pursue the purpose of the enterprise

and to achieve its goals and objectives. As the author cited in Box 10.1

argues, this is an essential management process.8

To benefit from a business

ethics program, then, an RBE needs to have a firm understanding of how its

decisions and activities affect its stakeholders. 

Specific expected program outcomes were developed in Chapter 4 and

are discussed later in this chapter. Once a business ethics program is in place

for some period of time, owners and managers need to ask themselves how

the enterprise performed. This manual recommends that owners and managers ask a number of questions, including the following:

• How well did we face the pressures of our relevant context, and what

pressures will we face in the years ahead?

• How well did our organizational culture perform, and how has it

changed over the relevant period?

• Did we set and adequately communicate appropriate standards and procedures for our employees and agents, and are they following them?

• Have we fostered reasonable expectations among our stakeholders, and

have we satisfied them?

• Is our business ethics infrastructure supporting our strengths and compensating for our weaknesses?

• Are our management practices aligned with our core beliefs and consistent with our standards, procedures, and expectations?

• Have our expected program outcomes been realized?

230 Business Ethics
• What have we learned through the business ethics program over the relevant period?

• Where do we go from here?

An effective business ethics program will have the necessary feedback

mechanisms built into the program through its evaluation processes. These

mechanisms enable an RBE to collect new information; integrate that information with existing skills, knowledge, understanding, and attitudes; and put

what has been learned into practice. The measure of success for a business

ethics program is an organizational culture fully committed to enterprise core

beliefs, standards, procedures, and expectations, as they develop over time.9

Importance of Program Evaluation

An RBE undertakes the design and implementation of a business ethics program in order to perform certain processes and achieve certain outcomes.

Responsible owners and managers evaluate and learn from these processes

and outcomes. They track how well the processes work, how many of the

expected program outcomes are achieved, and what the enterprise learns

along the way to justify the time, effort, and resources the enterprise puts

into the program. They are also concerned with the quality of the enterprise’s stakeholder engagement.10

ENTERPRISES SHOULD EVALUATE THEIR PROGRAMS

As a matter of good management, owners and managers should regularly

evaluate any strategy, program, or plan of action they undertake. It is 

Chapter 10: Evaluation and Organizational Learning 231

A central conundrum of performance measurement is that the

most readily calculated and by far the most visible of all performance measures are those related to historical shareholder

value creation; yet the most important measures relate to the

future—those that define the firm’s competitive position and

ability to create long-term value—and are difficult to gauge

and dependent on the future actions of employees, customers,

and competitors. Corporate leaders have a responsibility to

ensure that the management processes achieve a balance

among the goals that reflects the priorities embodied in the

corporate purpose and counteracts the tendency of short-term

financial goals to dominate longer-term strategic ones.

BOX 10.1

PERFORMANCE MEASUREMENT

Richard R. Ellsworth

Leading with Purpose
irresponsible to dedicate significant management attention and resources

to a program without evaluating its performance to determine whether it

is a worthwhile endeavor.

Owners and managers can use an outcomes-based evaluation of a business ethics program in at least four ways: to provide accountability to stakeholders, to monitor and track changes in the organizational culture, to

improve program quality, and to reallocate resources toward more or less

intensive programs.

PROGRAM EVALUATION AND THE SMALL TO MEDIUM-SIZED

ENTERPRISE

Because of resource limitations, most program evaluations in a small to

medium-sized enterprise (SME) will be informal. Owners and managers will

be less apt to use formal teams and processes to set objectives and evaluate

performance. They will adapt the processes that follow to meet their circumstances. For example, often they will have spoken to people they trusted

to establish objectives instead of convening a team. They will work with

small groups or individuals to evaluate performance.

The test of an effective evaluation is not whether any specific process is

followed, but whether adequate information and essential knowledge is

gained. Provided that owners and managers ask the questions this manual

recommends and engage their stakeholders as effectively as possible, they

can be sure that they can work within their resources and with their staff to

have as effective, efficient, and responsible an enterprise as possible.

232 Business Ethics

Definition of Accountability

To account for something is to explain or justify the acts, omissions, risks,

and dependencies for which one is responsible to people with a legitimate interest.

PRACTICE

NOTE

Institute of Social and Ethical Accountability
MEASURING PROGRAM PERFORMANCE

To sustain the confidence of stakeholders in any business ethics program, an

enterprise should evaluate the process and outcomes on a routine basis.

Evaluating program processes answers the question, “Did we do what we

said we would do?” Evaluating program outcomes adds the question, “Did

the changes we expected occur?”11

Evaluation processes reflect the same dynamics addressed in designing

and implementing the business ethics program. They depend on the relevant

context and organizational culture of the enterprise and the reasonable

expectations of its stakeholders. They can be of varying intensity. They can

be more or less informal.

DEFINING THE PURPOSE OF PROGRAM EVALUATION

The first step for owners and managers to take in evaluating a business ethics

program is to agree on the questions they want answered. In the early years

of the business ethics program, owners and managers may be primarily concerned about process: “Is the enterprise establishing standards, procedures,

and expectations?” “Is the training being accomplished effectively?” “Are

reports to stakeholders being well received?” 

Management’s ultimate purpose in having a business ethics program,

however, is not simply to have a code of conduct or to conduct ethics, compliance, and responsibility training. Owners and managers will eventually

want to know the answers to outcome questions:12 

• Is there less misconduct?

• Are employees and agents able to recognize responsible business conduct issues?

• How often do employees and agents speak in terms of standards, procedures, and expectations?

• How often are decisions made with reference to standards, procedures,

and expectations?

• How willing are employees and agents to seek advice?

• How willing are employees and agents to report concerns?

• How satisfied are those who report their concerns with management’s

response? 

• How committed are employees to the enterprise? 

• How satisfied are stakeholders with the enterprise? 

Chapter 10: Evaluation and Organizational Learning 233
SCANNING THE RELEVANT CONTEXT

Before proceeding to determining which aspects of process and program

outcomes to evaluate, owners and managers need to conduct a scan of the

enterprise’s relevant context. A significant part of the scanning process is

engaging stakeholders and determining their reasonable demands for information. Only by being alert to the demands of stakeholders can the enterprise determine which outcomes should be evaluated, which indicators will

be most effective (and credible), and how and to whom to report its findings.

The AA1000S framework, discussed in more detail at the end of this chapter, provides a standard for quality in engaging stakeholders.

TRACKING ORGANIZATIONAL CULTURE

Although changing organizational culture need not be a reason for having a

business ethics program, by its very nature such a program will make subtle

changes to the organizational culture. Moreover, certain cultural aspects will

influence the process and its prospects for success. For example, there is a

close relationship between program success and perceptions that owners and

managers care as much about ethics and values as the economic bottom line.13

For these reasons, it is critical that the enterprise track a number of key

aspects of organizational culture. In Box 10.2 are eight factors that can be

tracked routinely. Factors such as these can be tracked using the organizational worksheet provided at the end of this chapter (RBE Worksheet 14).

EVALUATING THE PROCESS

Process evaluation looks at how the program works: whether resources are

being used well, whether assigned activities are being performed, and

whether specific outputs are produced. 

Many general management evaluation models, especially in the arena of

continuous quality improvement, are process models, including the

International Organization for Standardization (ISO) management systems

models. The ISO 9000 series for quality certification does not define quality; instead, it examines whether the processes that have been shown to lead

to quality goods and services have been followed. The same is true for the

ISO 14000 series for environmental management. It does not define what

protecting the environment is; instead, it determines whether management

systems are in place to protect the environment.

In the arena of social reporting, the Global Reporting Initiative also does

not set standards, but it does provide a comprehensive, even exhaustive,

framework for what should be reported.14 AccountAbility, formally known as

234 Business Ethics
the Institute of Social and Ethical AccountAbility, sets no specific standards

for a responsible business enterprise either, but it does provide a framework

for planning and reporting in a manner designed to give external stakeholders confidence in the report (AA1000S).15 

The process evaluation worksheet (RBE Worksheet 15) at the end of this

chapter can be used by evaluators to develop a plan to collect and analyze information. For example, when communicating standards and procedures is the

process the enterprise is evaluating, RBE Worksheet 15 helps examine a number of specific questions: who was involved and affected, when, and where. It

can be used to look at training expenses, the number of employees trained per

year, participant satisfaction with the training, and performance on action plans

following training. Process evaluation also leads to consideration of more subjective indicators, such as activity successes, challenges, unexpected developments, and insights. 

DEFINING EXPECTED PROGRAM OUTCOMES

Owners and managers need to define outcomes they can measure. As discussed in Chapter 4, there are at least nine commonly expected outcomes for

the time and effort that managers put into a business ethics program (see Box

10.3). At the end of this chapter is an outcomes evaluation worksheet (RBE

Worksheet 16) to assist owners and managers in developing an outcomes

evaluation plan.

A number of emerging global standards discussed in Chapter 2 set specific

standards for enterprises to meet. Among them are the Caux Round Table

Principles for Business, U.N. Global Compact, Organization for Economic

Cooperation and Development (OECD) Guidelines for Multinational Enterprises,

U.S. Department of Commerce Basic Guidelines for Codes of Business Conduct, and

Chapter 10: Evaluation and Organizational Learning 235

These eight factors can be tracked routinely:

1. Perceiving that leadership cares about ethics and values as

much as the bottom line 

2. Feeling safe to deliver bad news

3. Feeling treated fairly 

4. Feeling valued as an employee

5. Not feeling pressure to compromise values 

6. Believing that ethical behavior is rewarded

7. Believing that unethical behavior is punished

8. Recognizing whether the enterprise has an employee,

community, or self-interest focus

BOX 10.2

MEASURABLE FACTORS OF ORGANIZATIONAL CULTURE
Interfaith Declaration Principles for Global Corporate Responsibility. From

these standards, the responsible business can derive outcomes for its business ethics program. 

Developing a Data Collection Plan

There are a number of classic data collection methods for evaluators to consider in collecting data for the relevant context scan, organizational culture

tracking, and process and outcome valuation. As indicated in Table 10.1,

these methods include interviews (including focus groups), surveys, document review, and direct observation. Each has its strengths, weaknesses, and

resource demands.16

236 Business Ethics

1.Violating enterprise standards 

2. Being aware of ethics, compliance, and responsibility issues

3. Speaking in terms of core beliefs and standards

4. Making decisions in terms of core beliefs and standards

5. Being willing to seek advice on standards

6. Being willing to report observed or suspected violations 

7. Being satisfied with management’s response

8. Increasing employee commitment to enterprise

9. Increasing stakeholder satisfaction with the enterprise

(including a proxy for the environment)

BOX 10.3

MEASURABLE PROGRAM OUTCOMES

• How often did you refer to this company’s code of responsible business conduct in the past year?

• If you attended responsible business conduct training in the

past year, how useful did you find it?

• How often would you say this company—as a whole—

lives up to its own values? [List values]

• How committed to living the values of this company would

you say senior management is?

• If you had questions about whether a choice or action

meets this company’s standards, procedures, or expectations

of responsible business conduct, where would you go for

advice? [List available sources]

• If you observed employee or agent conduct that violated

the law or this company’s code of responsible business 

conduct, what was it? [List major types of misconduct]

• If you did report your concerns about misconduct, how 

satisfied were you with management’s response?

BOX 10.4

MODEL SURVEY QUESTIONS
The primary concern is to develop a cost-effective collection plan that

encourages employees and agents to be forthcoming and give evaluators,

owners and managers, and stakeholders a clear picture of what is going on in

the enterprise. Surveys and document review are valuable for collecting standardized data very cost-effectively (Box 10.4 lists some model survey questions).17 However, they offer no opportunity to follow through on the information gathered. Where the evaluators need the opportunity to follow leads

gained from initial impressions or responses, interviews, focus groups, and

direct observation are better methods, though generally more expensive.

Unless people outside the enterprise are involved in collecting the data, it is

difficult to ensure the anonymity or confidentiality often required to secure

candid responses. 

It is beyond the scope of this manual to discuss issues of validity, reliability, and cultural sensitivity or how to construct questions for surveys and

interviews, but excellent discussions are available, including the work that

this subsection is based on.18

Reporting Program Performance

As they develop a plan to evaluate business ethics program performance,

owners and managers need to determine whether the evaluation is intended

only for internal consumption or for wider distribution. Since the enterprise

Chapter 10: Evaluation and Organizational Learning 237

TABLE 10.1 Commonly Used Data Collection Methods

Interviews (including focus groups)

Surveys

Document review

Direct observation

Interviews are a series of questions—typically semistructured or unstructured—conducted in person or over the

telephone. Focus group interviews are an approach that takes advantage of small-group dynamics to conduct interviews with a small group of people (usually eight to 12 individuals). Interviews are useful for in-depth information

and are particularly appropriate for investigating sensitive topics.

Surveys are standardized written instruments that contain several questions about the issues to be evaluated. These

questions can include a combination of types of questions—for example, single, direct questions; a series of questions about the same topic; and unstructured open-ended questions. Surveys can be conducted by mail, in person,

over the telephone, through the Internet, or in a centralized activity as part of an event. Surveys are usually considered an efficient data collection strategy.

Document review is a review of enterprise records that provide both descriptive and evaluative information of the

program process and its outcomes. These reviews can focus on the frequency with which specific behaviors occur.

Director observation is firsthand observation of interactions and events that provide descriptive or evaluative information. Observations are usually guided by predetermined protocols or observation guides to focus the information

gathered. Observations will be valuable in situations in which self-reports or existing data may not be accurate or

in which professional judgment is helpful.

Source: Adapted from Reisman and Mockler, A Field Guide to Outcome—Based Program Evaluation
cannot report on performance that it has not evaluated, owners and managers must determine the outcomes of legitimate interest to stakeholders and

the methods of evaluation and reporting that stakeholders will trust.

REPORTING TO EXTERNAL STAKEHOLDERS

Coupled with the increased activism of civil society, there is an emerging

trend among enterprises to report more about their impact on society to

more people. One term for this is triple bottom-line reporting. Triple bottomline reporting requires enterprises to evaluate their social and environmental performance to the same degree that they evaluate and report economic performance.19

Reporting on an enterprise’s performance and impact on society is

becoming more common—and expected. Beyond publicizing the enterprise’s role in the economic, social, and environmental evolution of its

community, expanded reporting requires the enterprise to integrate

social and environmental considerations into its strategic and operational

decision-making. Considering what outcomes to measure and report,

what indicators to measure, how to analyze the data, and how to report

data can produce synergies that can be quite energizing—in the long

run—for the enterprise.

BUILDING REPORTING CREDIBILITY

There are no generally accepted standards for reporting on business

ethics program performance, especially the topics of social and environmental performance. A number of international initiatives are under way

238 Business Ethics

AA1000S Definition of Inclusivity

Inclusivity concerns the reflection at all stages of the process of the aspirations and needs of all stakeholder groups.

Stakeholder views are obtained through an engagement process that allows

them to be accurately and fully expressed without fear or restriction.

Inclusivity requires the consideration of “voiceless” stakeholders, including

future generations and the environment.

PRACTICE

NOTE

Institute of Social and Ethical Accountability
to develop such standards, but it will take years to develop a consensus, if

one is even possible.

AccountAbility’s AA1000S framework is intended to standardize evaluation reporting processes and assurance. It does not provide a prescriptive

framework for the resolution of conflicts between an enterprise and its stakeholders (and conflicts between its stakeholders), but it does provide a process

for enterprises to begin engaging their stakeholders in order to find common

ground and build trust. 

AA1000S is based on the fundamental principle of accountability to

stakeholders. From that principle, a number of evaluation principles and

processes flow. These principles are listed in Box 10.5. Although AA1000S

does not have outcome standards per se, the stakeholder engagement process

itself will affect an RBE and its community. 

DETERMINING FORMAT

Program evaluation is of most value to an enterprise and its stakeholders

when presented in a high-quality, useful format. In drafting the evaluation, it is important to remember that many people will see program

evaluation as a threat, because it may reflect adversely on their performance. Evaluators should expect to meet such resistance unless the enterprise has developed an organizational culture of continuous learning and

sharing of information.

There is no established format for the evaluation report. A typical format is shown in Box 10.6.20

Chapter 10: Evaluation and Organizational Learning 239

Fundamental Principle

Accountability

Operating Principle 

Inclusivity 

Scope and Nature of Process

Completeness 

Materiality

Regularity and timeliness 

Meaningfulness of Information

Quality assurance

Accessibility

Information quality

Management of Process on an Ongoing Basis

Embeddedness

Continuous improvement

BOX 10.5

AA1000S PROCESS PRINCIPLES

Institute of Social and Ethical Accountability
240 Business Ethics

1. Executive summary. Give a one to four-page 

summary of the key points of the report. Since many 

people will read only the executive summary, it is important to include all of the important points. Include basic

information on the purpose of the evaluation, key findings,

any recommendations, and contact information. Refer to 

the body of the report for other information.

2. Purpose. Explain why the evaluation was conducted.

What are the broad questions the evaluation is trying to

answer? Who requested or initiated it?

3. Background. Provide readers with adequate background information about the program’s structure, history,

and goals and objectives.What do they need to know in

order to understand the evaluation?

4. Methodology. Explain the evaluation design, including

the data collection tools and sampling method (include 

data collection instruments as attachments).

5. Summary of results. Start with the bottom line:

What are the summary conclusions? What are the answers

to the key questions the evaluation set out to answer?

6. Principal findings. Provide more detail on the findings that support the summary conclusions. This section will

probably include charts or tables illustrating the findings.

7. Considerations or recommendations. Draw

from the findings their implications for the program, the

enterprise, or its stakeholders.

8. Attachments. Include attachments as appropriate.

BOX 10.6

MODEL REPORT FORMAT

REPORTING CONTENT

The content of an evaluation report is driven by the purpose of the evaluation. The Global Reporting Initiative sets forth an exhaustive set of elements

for enterprises to report on, as described in Box 10.7.21 Few organizations,

even the largest multinationals, issue such an exhaustive report, but this

framework is a useful checklist for planning purposes even for SMEs. 

Conclusion—and New Beginning

The question, “How should we monitor, track, and report our performance

as an enterprise and continuously learn from it?” tests the resolve of an RBE.

Often owners, managers, and supervisors are not confident or courageous

enough to want to know how they are really doing.

ORGANIZATIONAL LEARNING

An RBE measures its performance as an enterprise for at least four reasons:

to provide accountability to stakeholders, to monitor and track changes in

the organizational culture, to improve program quality, and to allocate

resources toward more or less intensive programs. 

Jane Reisman and Richard Mockler

A Field Guide to Outcome-Based Program Evaluation
An RBE can use the worksheets in this manual to develop a plan to monitor, track, and report on its performance as an enterprise. The plan should

address the quality of the evaluation process itself as well: how well it was

planned and executed, whether it secured the intended information, how

well the information secured was used, and what the impact of the evaluation process was on all stakeholders.

In the final analysis, however, an RBE benefits from learning how to deal

with the myriad changes confronting it. Through a business ethics program,

an RBE becomes adept at organizational learning. It learns how to constructively influence its relevant context, develop its organizational culture,

improve its business performance, contribute to the social capital of its community, and work with community leaders to encourage the development of

a market-oriented legal framework and reliable judicial institutions. 

NEW BEGINNING

An RBE uses its business ethics program to learn how to contribute to developing social capital in emerging market economies, rather than being a part

of the problem. This may well be the most important value that any citizen

can contribute to any community. 

We hope this manual inspires owners and managers to see themselves as

part of the solution to the problems in their economies. It provides them

with a process and toolkit to develop a road map to guide their employees

and agents and to meet the reasonable expectations of their stakeholders.

Then, when they have decided what makes sense for their enterprises in

Chapter 10: Evaluation and Organizational Learning 241

1. Vision and strategy. Description of the reporting

organization’s strategy with regard to sustainability, including

a statement from the chief executive officer.

2. Profile. Overview of the reporting organization’s structure

and operations and of the scope of the report (22 items).

3. Governance structure and management

systems. Description of organizational structure, policies,

and management systems, including stakeholder engagement

efforts (20 items).

4. Content index. A table supplied by the reporting

organization identifying where the information listed in the

Sustainability Reporting Guidelines 2002 is located within

the organization’s report.

5. Performance indicators. Measures of the effect 

of the reporting organization divided into integrated,

economic (10 core, 3 additional); environmental (16 core,

19 additional); and social performance indicators (24 core,

25 additional).

BOX 10.7

GLOBAL REPORTING INITIATIVE REPORT CONTENT

Global Reporting Initiative

Sustainability Reporting Guidelines 2002
their communities, they may use the 16 RBE Worksheets and best practices

to develop their core beliefs, standards and procedures, infrastructure, communications, and management practices. By putting a business ethics program in place, RBEs can improve business performance, make profits, and

contribute to economic progress in their communities by meeting the reasonable expectations of their stakeholders.

242 Business Ethics

RESPONSIBLE BUSINESS ENTERPRISE

Checklist

1. What processes do we have in place to determine whether the programs we have designed and implemented are being accomplished?

2. What processes do we have in place to monitor and track our organizational culture?

3. What processes do we have in place to determine whether our business ethics program has achieved our expected program outcomes?
243

Organizational Culture Worksheet

RBE W ORKSHEET

14

Interviews

Focus

Groups Surveys

Document

Review

Direct

Observation

Evaluators can use RBE Worksheet 14, which may be photocopied for use within your organization, to develop a plan to 

monitor, track, and measure the organizational culture. Evaluators will work with enterprise stakeholders to determine 

which cultural factors might be measured and how they might be measured. For example, to measure whether “leadership is 

perceived to care about ethics and values as much as the bottom line,” evaluators may determine that three indicators apply: 

1. Employee perceptions of leadership, determined through interviews, focus groups, and a survey

2. Statements made by leadership, determined through a review of leadership communications and interviews in its 

communications department

3. Intentions of leadership, determined through interviews with key personnel

Factor of 

organizational 

culture:

Indicator 1:

Indicator 2:

Indicator 3:
244

Process Evaluation

RBE W ORKSHEET

15

Interviews

Focus

Groups Surveys

Document

Review

Direct

Observation

Evaluators can use RBE Worksheet 15, which may be photocopied for use within your organization, to develop a plan to 

collect and analyze information about a specific process, such as communicating standards and procedures or training. The 

worksheet asks a number of specific questions, such as who was involved or affected, what was achieved, when, and where. 

It also asks about successes, challenges, barriers, unexpected developments, and insights. By using the worksheet, evaluators 

can determine the best means of answering these questions.

Who:

Stakeholders 

involved in 

activity

Stakeholders 

affected by 

activity

What:

Activities

Output produced

When:

Timeline

Milestones

Where:

By location

By division

By region

Developments

Successes

Challenges

Barriers

Unexpected 

developments

Insights
245

Outcomes Evaluation

RBE W ORKSHEET

16

Interviews

Focus

Groups Surveys

Document

Review

Direct

Observation

Evaluators can use RBE Worksheet 16, which may be photocopied for use within your organization, to develop a plan to 

collect and analyze information about the expected program outcomes developed through the Program Logic Model (RBE 

Worksheet 1). For each expected program outcome, evaluators should work with the enterprise to determine which 

measurable factors indicate the extent to which an outcome has been realized. When indicators for each expected 

program outcome have been identified, evaluators can design a plan using the five methods of collecting data across the top 

of the worksheet: interviews, focus groups, surveys, document review, and direct observation.

Expected 

program 

outcome

Indicator 1:

Indicator 2:

Indicator 3:

APPENDICES

G

I

D

B

C

A

F

E

H

SAMPLE ETHICAL DECISION-MAKING

MODEL

BASIC GUIDELINES FOR CODES OF

BUSINESS CONDUCT

SAMPLE INTEGRITY PACT

SAMPLE DECLARATION OF INTEGRITY

IN BUSINESS CONDUCT

SAMPLE SUPPLY CHAIN MANAGEMENT

QUESTIONNAIRE

BASIC INFORMATION ON THE U.S.

FOREIGN CORRUPT PRACTICES ACT

FIGHTING CORRUPTION AND

SAFEGUARDING INTEGRITY

EXTRACTS FROM U.S. FEDERAL

SENTENCING GUIDELINES FOR

ORGANIZATIONS

EXTRACTS FROM THE AUSTRALIAN

CRIMINAL CODE

APPENDIX A SAMPLE ETHICAL DECISIONMAKING MODEL

This appendix outlines a step-by-step procedure for ethical decision-making by the

responsible business enterprise. It is based on a number of approaches that are detailed in

the works cited at the end of this appendix.

Preliminary Considerations

There are at least five matters that a decision-maker must be clear about in his

or her own mind when beginning the formal process of ethics and policy decision-making:

1. What motivated the need for choice?

2. Is the decision-maker framing a question, developing an argument, or deciding how to act?

3. For purposes of this choice only, what can be reasonably assumed to be true?

4. What are the applicable enterprise core beliefs, standards, procedures, and

expectations?

5. What will constitute a quality judgment or quality action under those 

circumstances?

Outcomes-Based Decision-Making 

Step 1: Identify the desired result.

• A vision of a desired future?

• A question to pursue?

• An argument to support a position?

• A resolution of a dilemma?

• A solution to a problem? 

Describe the desired result clearly. If it is to solve a problem, be sure there is a

problem, not just a symptom. 

Step 2: Describe the conditions or criteria that the result must meet to be satisfactory. List the essential criteria for a successful outcome, as well as the other

conditions that it would be desirable for a result to meet: 

249
250 Business Ethics

• Minimum essential criteria include that the result be a quality judgment or

quality action that is feasible, suitable, and cost-acceptable, specifically taking into account opportunity cost.

• An organizational essential requirement is that the result be consistent with

the enterprise’s core beliefs: its purpose, values, and envisioned future.

Include the specific enterprise standards, procedures, and expectations that

might apply at all four levels of identity: compliance, risk management, reputation enhancement, and value added. 

Step 3: Identify all stakeholders—that is, those who are involved in, affected by,

or in a position to influence the decision-making process or the result.

• Determine their relationships.

• Analyze cultural differences, using Hofstede or another approach.

• Analyze organizational culture differences. 

• If the decision is an organizational or community decision, categorize the

stakeholders as either internal or external.

• Prioritize among the stakeholders.

Step 4: Search for all reasonably promising results and list them: 

• Use brainstorming.

• Consider the points of view of as many stakeholders as possible.

• Use different frames of reference to develop new and better ways of looking

at the decision.

• Ask, “What else is possible?” 

Step 5: Obtain all the relevant facts concerning the extent to which each of the

proposed alternatives would or would not meet the criteria for an acceptable

result—or be likely to do so. Consider stakeholders’ viewpoints:

• What are the stakeholders’ perspectives? 

• How do they understand the facts of the matter?

• What do they value concretely and in the abstract?

• What do they understand the key concepts to mean? 

Step 6: Evaluate all the alternatives by examining them in terms of the criteria

or conditions that a result must meet (essentials) and also in terms of those that

are considered desirable (desirables): 
Appendix A: Sample Ethical Decision-Making Model 251

• What alternatives best meet the criteria of the desired result? 

• What are the numbers behind the alternatives? What will they cost? How

probable are they? How long will they take? How long will they last?

• Are they feasible, suitable, and cost-acceptable?

After evaluating each alternative, ask, “And then what?” Expect there to be at

least one unwanted consequence. Be prepared to support your evaluations with

reasons and justifications.

Step 7: Compare the alternatives, and choose the one that best meets the essential and desired criteria: 

• First, eliminate all the alternatives that do not meet the essential conditions. 

• Then eliminate, progressively, those alternatives that meet the desirable

conditions least satisfactorily.

• Remember that the object is to make a good choice with the information

available, not to make a perfect choice.

Step 8: Carry the choice forward: 

• Share the vision. 

• Pursue the question. 

• Make the argument. 

• Act on the resolution. 

• Begin implementing the solution. 

Ethics and policy choices presume action, though a decision to do nothing

when one has the power to act is also action. Find the courage to act on the

hard choices. Take responsibility for the choice, the action required to take it

forward, and the consequences. Be willing to be held accountable—and to hold

others accountable.

Step 9: Reflect on the consequences of the choice and the actions implementing it. Learn from both the processes and the consequences: 

• What questions are raised? 

• What arguments can be made for staying the course or changing? 

• What could have been done better in arriving at the result? 

• What could have been done better in implementing the result?

• What did you learn from the processes and the consequences?
252 Business Ethics

Works Consulted 

Altier, William J. The Thinking Manager’s Toolbox: Effective Processes for Problem Solving and

Decision Making. Cambridge, United Kingdom: Oxford University Press, 1999. 

Collins, James C., and Jerry I. Porras. Built to Last: Successful Habits of Visionary Companies.

New York: HarperBusiness, 1994. 

Eccles, Henry E. Logistics in the National Defense. Westport, Conn.: Greenwood Publishing Group, 1981. 

Hardin, Garrett. Filters against Folly: How to Survive Despite Economists, Ecologists, and the

Merely Eloquent. New York: Penguin Books, 1985.

Hofstede, Geert. Cultures and Organizations: Software of the Mind. London: McGraw-Hill,

1991. 

Krolick, Sanford. Ethical Decision-Making Style: Survey and Interpretive Notes. Reading,

Mass.: Addison-Wesley Training Systems, 1987. 

Leavitt, Harold. “Management and Management Education in the West: What’s Right

and What’s Wrong?” In The Management of Organizations: Strategies, Tactics, Analyses,

edited by Michael L. Tushman, Charles O’Reilly, and David A. Nadler. New York:

Harper & Row, 1989. 

Likert, Rensis, and Jamie Gibson Likert. New Ways of Managing Conflict. New York: McGraw-Hill, 1976. 

Paul, Richard W. Critical Thinking: What Every Person Needs to Survive in a Rapidly Changing World. 2nd rev. ed. Santa Ana, Calif.: Foundation for Critical Thinking, 1992.

Robertson, Chris, and Paul A. Fadil. “Developing Corporate Codes of Ethics in Multinational Firms: Bhopal Revisited,” Journal of Managerial Issues 10, no. 4 (1998): 454,

available at <http://www.questia.com>, accessed June 7, 2003. 

Mises, Ludwig von. Human Action: A Treatise on Economics. 3rd rev. ed. Chicago: Contemporary Books, 1966. 
APPENDIX B BASIC GUIDELINES FOR

CODES OF BUSINESS

CONDUCT

This text, titled “Basic Guidelines for Codes of Business Conduct,” was developed by the

U.S. Department of Commerce in cooperation with the Russian Chamber of Commerce

and Industry and the U.S.–Russia Business Development Committee. The guidelines

are intended to assist organizations in developing their own codes of conduct. Questions

may be addressed to Igor_Abramov@ita.doc.gov.

Basic Guidelines for Codes of Business Conduct

INTRODUCTION

In today’s interconnected and interdependent world, where borders between

states are becoming increasingly transparent, principles in business conduct are

becoming criteria for building a good reputation in the international business

community; they are the basis on which first impressions are formed and ongoing relationships maintained. 

The purpose of this set of guidelines is to articulate general principles and standards that have been accepted in international business transactions. Although

these principles apply generally, they are not intended to be an all-encompassing set of business practices and corporate principles. They must be adopted and

implemented on a sector-by-sector and enterprise-by-enterprise1 basis to take

into account applicable laws, regulations, and other specific circumstances (such

as the size of the enterprise). 

PRINCIPLES IN PERSONAL AND PROFESSIONAL RELATIONS

No laws or contracts can anticipate the possible vicissitudes of life. Very often an

entrepreneur must make a decision based on the prompting of common sense

and conscience. The key is to embody ethical and moral principles into personal and professional relations, and remember to:

• always do business within one’s means; 

• have respect for the partners and participants in a shared business venture; 

253

1 “Enterprise” as used in this document means both a legal entity such as an “enterprise,” “company,” “firm,” or “organization,” and an individual or small entrepreneur.
254 Business Ethics

• refrain from violence or the threat of violence as methods of achieving business success; 

• resist crime and corruption, and do one’s part to see that crime and corruption become unprofitable for everyone; and 

• live up to the trust placed in you; trust is the foundation of entrepreneurship and a key to success; 

• endeavor to earn a reputation for integrity, competency, and excellence. 

CORPORATE GOVERNANCE: RELATIONSHIPS WITH SHAREHOLDERS

A trusting relationship between management and shareholders is critical.

Investors and lenders must be satisfied with the manner in which shareholders

oversee the performance of management and participate in key decisions.

Sound principles of corporate governance include the following:

• delineating in the company charter the respective roles and responsibilities

of both management and shareholders; 

• transparency of voting rules; 

• respect for the rights of minority shareholders; 

• open communications with shareholders through the provision of audited accounts, and information about the progress and operations of the company;

and 

• a well-functioning board of directors who have the skills, the time, and the

access to information needed to discharge its responsibilities effectively.

The board will act in a fiduciary capacity on behalf of all the shareholders.

RELATIONSHIP WITH EMPLOYEES

Enterprises have an important responsibility towards their employees. A number of basic principles typically guide the attitudes of successful enterprises

toward their employees:

• due regard for labor laws; 

• commitment to adequate standards of worker health and safety; 

• non-discrimination in the recruitment, compensation, and promotion of

employees; 

• respect for the rights of workers to engage in union activity; 

• effective systems for consultation with employees on employment conditions and other issues that affect the employees; 

• clearly stated and transparent policies relating to compensation, benefits,

promotions, and other employment conditions; and 
Appendix B: Basic Guidelines for Codes of Business Conduct 255

• commitments by the enterprise for contributions to pension plans; and

strict protection of the integrity of company-sponsored pension plans. 

These principles do not limit the right of an enterprise to enforce discipline on

its labor force or to terminate workers in accordance with applicable law.

RELATIONSHIP WITH OTHER ENTERPRISES

A relationship of mutual trust in which all parties benefit is the most significant

aspect of relations between partners in joint ventures, contractual arrangements,

or business relations with other enterprises. The reputation of a company is its

most valuable asset. Once the reputation of an enterprise is tarnished, it is very

difficult to gain trust with the same or other business relations. A number of

basic principles that typically promote mutual trust in business relations include:

• commitment to excellence in products and services; 

• commitment to gain respect and trust in all business relations; 

• respect for the sanctity of contracts and business relations; 

• in case of a commercial dispute, a willingness to negotiate and compromise

in order to reach an amicable solution; and 

• respect for the sanctity of rule of law, including abiding in a timely manner

with decisions of any court, arbitral panels, or other administrative bodies. 

RELATIONSHIP WITH THE GLOBAL COMMUNITY

As a company is an integral part of the community in which it operates, a sound

relationship with the community is essential. Caring for the environment is a

responsibility of the enterprise towards the immediate community, but it also

extends to all communities and areas whose environment may be affected by the

enterprise’s activities. Enterprises must:

• be sensitive to concerns of the local population; 

• communicate with the local population; 

• abide by all applicable environmental laws and regulations; and 

• show tolerance for people of other cultures, races, beliefs, and countries. 

RELATIONSHIP WITH GOVERNMENT AUTHORITIES

Well-managed enterprises are law abiding enterprises. To maintain a sound relationship with governmental authorities, enterprises must:

• pay all taxes that are owed and due; 

• abide by all mandatory government and local regulations; 
256 Business Ethics

• obtain all governmental permits, licenses, and approvals required to do

business; 

• deal with government authorities on an arm’s length basis, and make no attempts to improperly influence governmental decisions; 

• establish transparent procedures regarding transactions engaged in by enterprises with any government agency or official or in dealings with any enterprise owned or controlled by a government agency or official; and 

• in transactions with any government agency or officials or with any enterprise owned or controlled by a government or government official, include

appropriate provisions to ensure compliance with international or national

codes against extortion and bribery. 

PROPER CHECKS AND BALANCES

A proper system of checks and balances is necessary to ensure the ongoing

integrity of the enterprise and of its relationship with its constituencies. Such a

system must be based on the general principles of full disclosure, management

accountability, separation of responsibility, and sound internal controls. 

An enterprise should have a full disclosure policy concerning:

• statements of the enterprise’s strategic aims and policies, how these have

been achieved in the past reporting period, and how the enterprise will act

in the future; 

• prompt reports to the enterprise’s constituencies on events that could have

a material effect on the enterprise; and 

• prompt disclosure of all important relationships between officials of the enterprise and other parties. 

The key element of a system of checks and balances is that the shareholders are

able to monitor management’s performance and to condemn poor performance,

including through the removal of management.

PREVENTION OF EXTORTION AND BRIBERY

Principles concerning prevention of extortion and bribery are intended as a

method of self-regulation by businesses. The voluntary acceptance of these principles by enterprises will not only promote high standards of integrity in business transactions, whether between enterprises and public bodies or between

enterprises themselves, but will also protect enterprises that are subject to

attempts at extortion. 

The business community objects to all forms of extortion and bribery. The

highest priority should be directed to ending extortion and bribery involving
Appendix B: Basic Guidelines for Codes of Business Conduct 257

politicians and senior officials. Bribery and extortion threaten democratic institutions and cause grave economic distortions.

All enterprises should observe both the letter and spirit of the following rules:

• no one may, directly or indirectly, demand or accept a bribe; 

• no enterprise may, directly or indirectly, offer or give a bribe, and any demands for such a bribe must be rejected; 

• enterprises should take measures reasonably within their power to ensure

that any payment made to any agent represents no more than an appropriate remuneration for legitimate services rendered by the agent; that no part

of any such payment is passed on by the agent as a bribe or otherwise in

contravention of these principles; 

• all financial transactions must be properly, accurately, and fairly recorded in

appropriate books of account available for inspection by the board of directors as well as by auditors. Enterprises must take all necessary measures to

establish independent systems of auditing in order to bring to light any

transactions that contravene these principles. The enterprise must then

take appropriate corrective action; 

• the board of directors of the enterprise should periodically review compliance with these principles, and take appropriate action against any director

or employee who acts in a manner inconsistent with these principles; and 

• contributions to political parties or to individual politicians may be made

only in accordance with applicable law, and in accordance with all applicable requirements for public disclosure of such contributions. 

CREATION OF A CULTURE THAT FOSTERS SOUND BUSINESS STANDARDS

AND CORPORATE PRACTICES

Ultimately, for an enterprise to live by sound business standards and ethical

practices it must develop a culture that fosters such standards of integrity. This

effort must be led by management and key shareholders. Steps that management

and key shareholders may take to promote this positive attitude throughout the

company include:

• the preparation and dissemination within the company of a code of conduct

for employees; 

• employee training; 

• encourage proper conduct and sanctions against misconduct; and 

• creation of an ethics office and ethics officers to advise and educate employees, and provide guarantees for confidential counseling. 
258 Business Ethics

RECOMMENDATIONS FOR IMPLEMENTATION OF THESE GUIDELINES

All enterprises that wish to become part of the international business community are recommended to:

• draft their own codes of business conduct consistent with these principles

and apply them to the particular circumstances in which their business is

carried out; and 

• develop clear policies, guidelines, and training programs for implementing

and enforcing the provisions of their codes. 

The extent to which enterprises decide to incorporate the above listed guidelines

may depend on the size, specific circumstances, and the business of the company.
APPENDIX C SAMPLE INTEGRITY PACT

This appendix contains the text of an integrity pact that was written with the help of

Transparency International and subsequently signed with the government of Colombia

in June 2000. Its purpose was to strengthen transparency in the bidding process for government-financed projects.

Integrity Pact for Strengthening Transparency in the

Procurement Process No. 02/01 MDN–ARC for the

Acquisition of Two Sea Bound Patrol Aircraft for the

Ministry of Defense—National Navy of Colombia

Before domestic and international public opinion, we the undersigned, on one

side, the Legal Represntatives and Managing Officers of the Offerors

Participating in the Subject Procurement Process acting on our own

behalf and in representation of the legal entities that we represent as offerors,

as well as in the name of all the officers and advisors who have either (1)

directly, indirectly, formally or accidentally determined our participation in

procurement process No. 02/01 MDN-ARC for the acquisition of two sea

bound patrol aircrafts for the Ministry of National Defense—National Navy

of Colombia (herein referred to as the “Subject Procurement”); (2) intervened

in the preparation of our proposals to participate in the Subject Procurement;

or (3) assessed our officers or companies in the Subject Procurement (hereinafter referred to individually or collectively as the “Participating Entities”)

and, on the other side, the Officers and Advisors of the Colombian

Ministry of Defense, of the Colombian Navy and of the Colombian Air

Force, who directly, indirectly, formally or accidentally have participated in

the technical, economical and legal structuring of the Subject Procurement or

in its procedures, promotion, revision and definition, have together agreed to

subscribe to this Integrity Pact, upon having considered that in Colombia

any and all corruption forms are illegal and that the Colombian Government

prosecutes and will continue prosecuting transgressors. 

Notwithstanding due compliance with Colombian laws, this Pact focuses upon

a non-bribery commitment for purposes of obtaining or retaining a contract or any

other improper advantage. This includes the commitment not to collude with third parties for purposes of limiting competition in the award of this contract, as well as the obligation not to engage in unfair practices and acts contrary to free competition and an

objective award within the procurement process (hereinafter referred to as the

“Non-bribery Commitment”). 

259
260 Business Ethics

The Non-bribery Commitment includes any type of payment, gift or other favor,

whether offered or granted and whether, in a direct or indirect manner or through third

parties, to officials or advisors of the Colombian Ministry of Defense, the

Colombian Navy and the Colombian Air Force, for purposes of: 

1. Attempting to have the project, or segments of it, structured in such a way as

to advantage one or more Participating Entity;

2. Securing any undue advantage to any Participating Entity in the evaluation

and selection process leading to the award of the contract;

3. Being awarded the contract;

4. Achieving substantial changes in the contract through adjustment of its

specifications, terms or any other material component thereof; 

5. Having public officials, advisors or the receiver or supervisor of the contract

(or their personnel, advisors and subcontractors) approve proposals for (or

otherwise accept) substandard performance of parameters, which have been

proposed by a Participating Entity and accepted by the Colombian Ministry of Defense

6. Having public officials, advisors or the receiver or supervisor of the contract

(or their personnel, advisors and subcontractors) refrain from a) duly monitoring project implementation, b) reporting violations of contract specifications or other forms of non-compliance in a timely fashion, or c) holding

contractors fully accountable for compliance with their legal obligations;

7. Evading taxes, duties, levies, rights, licenses or any other legal obligation;

8. Inducing any public officer to breach his official duties in any manner. 

Within the above framework and in full compliance with Colombian laws, the

undersigned fully commit to the following: 

1. The Participating Entities and The Colombian Minstry of Defense place

importance on the submission of proposals within a free, impartial, competitive and abuse-free environment. Within this scope, the Participating Entities are pleased to confirm that: 

a. They have neither offered to grant, granted or facilitated any improper

inducement or reward nor attempted to offer, grant or facilitate any inducement or improper reward, nor will they offer, grant, or facilitate any

inducement or improper reward, whether directly or indirectly through

agents or third parties, to any official or advisor of the Colombian Ministry of Defense, the Colombian Navy or the Colombian Air Force,

including their relatives or business associates, for purposes of being

awarded this contract, or retaining it or any other undue advantage, and 

b. They have neither colluded with others, nor will so collude, for the

undue limiting of competition for the award of this contract. 
Appendix C: Sample Integrity Pact 261

c. The Participating Entities understand the material relevance of the foregoing commitments for the Colombian Ministry of Defense and their

consequent seriousness. 

On their own behalf, the Officials and Advisors of the Colombian Ministry

of Defense—Colombian Navy and Air Force confirm that they have neither

requested nor accepted, nor shall they request or accept, whether directly or

indirectly through third parties, any payment or favor from the Participating

Entities in exchange for favoring them in the award of the contract or its retention. In this same sense, the abovementioned officers declare that the service has

a present and actual need for goods meeting the precise technical specifications

described in the Subject Procurement.

2. The Participating Entities hereby commit to performing their activities

within a framework of principles for ethical behavior and to taking all necessary measures to ensure that this Non-bribery Commitment be observed by

all their managers and employees as well as by all third parties working with

the company on this project, including their agents, consultants and subcontractors. This framework shall be recorded in each Participating Entity's

ethical code, which should demonstrate that each corresponding entity will

perform under internal compliance systems capable of detecting corruption

risks and preventing the payment of bribes. As a condition of participation,

each Participating Entity shall file their corresponding ethics code with the

Colombian Ministry of Defense.

3. This commitment is submitted in the name and on behalf of the Presidents

and/or General Managers of each Participating Entity. All those participating as a Consortium (“consorcio” as defined in article 7 of the Law 80 of

1993) or temporary union (“unión temporal” as defined in article 7 of the

Law 80 of 1993) do also subscribe to this Pact in their own name and on behalf of each and all the Presidents and/or General Managers of the associated companies. 

4. Each international company participating in the Subject Procurement hereby assumes this commitment in the name and on behalf of the President and /

or General Managers of the company's parent companies, and this commitment shall include all managers and personnel of their Colombian subsidiaries, should the latter exist.

5. Regarding the submission of bids, Participating Entities hereby commit to

presenting a serious tender, including reliable information, and not to present an artificially low price seeking to compensate such price during the execution of the contract by claiming additional payments. This commitment

is understood as not limiting the possibility that additions to the contracts

for other items may be accepted, whenever they are fair and duly supported.

6. Regarding business-related payments, the Participating Entities agree that:
262 Business Ethics

a. Payments to agents and other third parties will be limited to reasonable

compensation for clearly business-related services.

b. In the event of a claim related to non-compliance of the Non-bribery

Commitment made in this Pact and the existence of serious evidence of

such non-compliance assessed for this purpose by the Arbitrator designated under number 10 herein, the involved or successful Participating

Entities hereby commit to furnishing to the Arbitrator, if so demanded,

all information under their control, directly or indirectly, on (1) payments

relating to the preparation of the tender and/or contract, (2) contract

beneficiaries, and (3) all other the contract-related documentation.

c. Upon the completion of the performance of the contract, the legal representative of the successful Participating Entity will formally certify that

no bribes or other illegal fees have been paid in order to obtain or retain

this contract. The final accounting shall include brief details of the goods

and services provided sufficient to establish the legitimacy of the payments made.

7. In the event of non-compliance with the ethical commitments made herein

by officials and Participating Entities, a decision shall be issued by an Arbitrator, called the “Tender's Transparency Defender,” in order to achieve the

purposes of this Pact. His or her decisions shall be fair pursuant to Law 446

of 1998. 

The Arbitrator shall hear the above-mentioned matters upon request of the

Government, Transparency International, or any of the Participating Entities.

The above-mentioned Arbitrator shall have the qualifications provided for in the

National Constitution to hold the position of Supreme Court or Constitutional

Court Justice and shall be selected from the list of arbitrators of the Chamber of

Commerce of Bogotá, through the public impaneling system.

8. Should a declaration of guilt be issued by the Arbitrator for the default of

any Participating Entity's under its Non-bribery Commitment, the following legal effects will be triggered, in addition to all other processes contemplated under Colombian legislation and under any legislation corresponding

to the jurisdiction of the contractual process: 

a. Should the defaulting Participating Entity be the party to whom the contract was awarded (“Defaulting Contractor”), any of the remaining parties to this Pact shall be entitled to request, before a competent Judge,

total nullity of the underlying contract on the basis that it lacks licit cause;

b. Where the party involved is a Defaulting Contractor, the underlying

contract will be terminated immediately for due cause attributable to

that party. The Defaulting Contractor is hereby obligated to unconditionally and irrevocably accept termination of the contract for due cause
Appendix C: Sample Integrity Pact 263

immediately upon the declaration of default issued by the Arbitrators.

The Defaulting Contractor will assume the contractual consequences

derived from such termination. 

c. Any defaulting Participating Entity shall be required to pay economic

satisfaction equivalent to ten percent (10.00%) of the value of the contract, as an estimation of damages inflicted on the Participating Entities

who have not defaulted under their Non-bribery Commitments. Should

there be more than one complying Participating Entity, the resulting

amount shall be distributed equally among them. 

d. Any defaulting Participating Entity will abstain from participating in

contracting processes of any nature with public entities of the Republic of

Colombia for a period of five (5) years. 

In order to ensure the effectiveness of the above-stated provisions, this Pact shall

be included as an integral part of the contract to be signed by the chosen

Participating Entity. The legal effects contemplated in letters a) and b) of this

numeral shall solely be applicable to the Participating Entity awarded with the

contract. The legal effects provided for in letters c) and d) shall be applicable to

the awarded party or to any other Participating Entity. 

9. All chiefs at the Colombian Ministry of Defense, the Colombian Navy

and the Air Force, shall be obliged to undertake each and every action required to ensure that the competent entities promote and perform such investigations as may be required into the conduct of officers of any

Participating Entity, or of their external advisors, who could have acted in

default of the provisions of this Pact and of any applicable law. 

10. In event of proven default to the Non-bribery Commitment, as established

in numeral 8 of this Integrity Pact, the Colombian Ministry of Defense

should exclude the defaulting Participating Entity from future eligibility for

participation in direct contracting processes. 

11. The Participating Entities hereby declare publicly that they know and accept the conditions of total transparency and equity, as established in the

Documents of the Subject Procurement process and all their amendments.

Thus, they commit not to seek to disqualify other Participating Entities

using any argument concerning default of conditions not specifically included herein, throughout the period of evaluation of the proposals.

12. The Participating Entities do hereby accept that, throughout the period of

evaluation of proposals, the criteria used will favor substantive aspects over

formal ones, always seeking to favor free competition and the participation

of the largest possible number of bids in the Subject Procurement process. 

13. Additionally, the Colombian Government has established the Presidency's

Program Against Corruption, with the purpose to serve as a channel for

processing any investigation on any possible form of extortion or bribery
264 Business Ethics

through public contracting. Participating Entities shall voluntarily report

before this Program any information on irregular doings of which they have

knowledge, which bears relation to the Subject Procurement process. 

As evidence of acceptance of the foregoing, the officials of the Colombian

Ministry of Defense, the Colombian Navy and the Colombian Air Force sign

the present document on the ____________________________________ 

Officials and Advisors of the Colombian Ministry of Defense

Colombian Minister of Defense and other senior officer's signatures appear.

Officers and Advisors of the Colombian Navy

Names and functional position of additional signing officer follow.

Air Force Officers Participant in Technical Advisory of the Project

Names and functional position of several Air Force officers follow.

Legal Representatives and Officers of Particpitating Entities signing the

present document on the date of submission of their respective proposals.

Witnesses

Names and position of several senior government officials, the Executive

Director of Transparencia por Colombia and the Director of the Presidency's

Program Against Corruption.
APPENDIX D SAMPLE DECLARATION OF

INTEGRITY IN BUSINESS

CONDUCT

This appendix reproduces the text of the Declaration of Integrity in Business Conduct in

St. Petersburg, Russia. The Declaration was developed by the Center for Business Ethics

and Corporate Governance with financial support from the U.S. Agency for

International Development through the Eurasia Foundation. For more information

about the declaration, see www.ethicsrussia.org/declaration.html.

Declaration of Integrity in Business Conduct in 

St. Petersburg, Russia

PRINCIPLES

The undersigned representative of the St. Petersburg business community

(“Party to the Declaration”) recognizes the following international principles of

business conduct as the basis of this Declaration of Integrity in Business

Conduct (“Declaration”):

Transparency. The functioning of a market economy presumes that each market participant conducts business with transparency, exchanging accurate information with other market participants on an efficient basis while respecting

norms of confidentiality.

Sanctity of Contract. Respect for the sanctity of contract and the honoring of

oral commitments lead to commercial ties built on goodwill, trust, and reputation for honesty.

Competition. A competitive economy provides transparent rules and opportunities for market participants, rewards quality of performance, and deters reproachable methods of obtaining advantages over other market participants.

Repudiation of Corrupt Practices. Corruption inflicts damage on market relations and on economy as a whole. Repudiation of corruption as a method of

business facilitates the process of stabilizing the market. 

Legal Settlement of Disputes. A civil market presumes the rejection of illegal

and dangerous methods to defend economic interests. Any use of violence

against a person in a business dispute, including the use of physical or psychological coercion, is impermissible.

265
266 Business Ethics

DECLARATION

NOW, THEREFORE, in order to integrate the Declaration’s principles fully

into the business culture of St. Petersburg, by applying the principles consistently in concert with other members of the business community, each Party to

the Declaration declares that:

ARTICLE I. CODE OF BUSINESS CONDUCT

A. The Party to the Declaration has adopted or shall adopt a Code of Business

Conduct based upon the principles set forth in this Declaration (“Code”).

B. The Party to the Declaration, which has adopted a Code, shall present the Secretary of the Governor of St. Petersburg’s Council on Investment (“Depository”) with a copy of the Code at the time of signing this Declaration.

C. The Party to the Declaration, which shall adopt a Code, shall present the Depository with a copy of the Code as soon as practicable but no later than ninety

(90) days after signing this Declaration. In order to ensure that the Code conforms with the principles set forth in this Declaration, each Party to this Declaration which shall adopt a Code can utilize the Model Code of Ethics in Business

Conduct attached to this Declaration.

D. The Party to the Declaration shall ensure that the Party’s employees are familiar

with the provisions of the Party’s Code and systems of control that prevent actions by employees that are contrary to the provisions of the Party’s Code.

E. The Party to the Declaration shall present the Depository a letter affirming that

the Party has faithfully conducted business in accordance with the Party’s Code

on an annual basis.

ARTICLE II. PUBLICATION

A. By signing the Declaration, the Party to this Declaration hereby agrees to be included on a Register of Parties to the Declaration (“Register”), which shall be

maintained and publicized by the Depository. The Register shall include the

name of the Party to the Declaration and the dates the Party’s representatives

signed this Declaration. 

B. The Depository shall update the Register regularly to include each new Party to

the new Declaration.

ARTICLE III. MISCELLANEOUS

A. The Party to the Declaration is signing and executing the Declaration voluntarily.

B. Two duly authorized representatives of the Party to the Declaration shall sign

and seal two (2) copies of this Declaration. One (1) copy shall remain with the

Party to this Declaration and the second shall be submitted to the Depository.
APPENDIX E SAMPLE SUPPLY CHAIN

MANAGEMENT

QUESTIONNAIRE

The U.S. company Hewlett-Packard requires its suppliers to answer the questions posed

in this questionnaire regarding their compliance with the company’s Supplier Code of

Conduct. The company also requires its suppliers to complete three other self-assessment

questionnaires: an environmental questionnaire, an occupational safety and health questionnaire, and a labor and employment questionnaire. (Text reproduced courtesy of

Hewlett-Packard Company Supply Chain Operations. For more information, go to the

Hewlett-Packard Web site, www.hp.com/hpinfo/globalcitizenship/environment/

supplychain/index.html.)

HP Supplier Code of Conduct Questionnaire

Suppliers are requested to provide candid answers to the following questions.

HP encourages its suppliers to accurately identify any areas in which their operations do not conform to the requirements of the HP Supplier Code of

Conduct. As indicated in HP’s Supplier Code of Conduct, HP expects to work

collaboratively with its suppliers to achieve these standards.

Date: 

HP Contract Number(s), if applicable: 

Company Name: Contact Name: 

Address: Position: 

Telephone Number: 

Fax: 

E-mail: 

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268 Business Ethics

Purpose of the Questionnaire 

This questionnaire is part of the annual performance report for HP suppliers under HP’s Supplier 

Code of Conduct and Supplier Social and Environmental Responsibility Agreement. It provides a 

mechanism for HP to gather information about the environmental, occupational health and safety, 

and labor and employment practices and performance of its suppliers. 

Scope of Questionnaire 

Questions that ask for information about the “company” should be answered for the company as 

a whole. 

Questions that ask for information about the “facility” should be answered for each company facility 

at which products supplied to HP are manufactured. 

1. Does your company have a company representative for Corporate Social and Environmental

Responsibility, or someone who otherwise has responsibility for addressing in your company the

requirements set out in HP’s Supplier Code of Conduct? 

❒ Yes ❒ No If “yes,” please provide contact information below. 

Name: Position: 

Address: Telephone Number: 

Fax:

E-mail:

2. Does your company have procedures in place designed to ensure that the requirements set out in

HP’s Supplier Code of Conduct are met in your company? 

❒ Yes ❒ No

2.1 If yes, please attach copy of Attachment Title: 

procedures or provide URL. URL: 

3. Does your company have procedures for internal reporting of any non-conformances with these

requirements that may occur within your company? For correcting any non-conformances as they are

identified by your company? 

❒ Yes ❒ No

3.1 If yes, please attach copy of Attachment Title: 

procedures or provide URL. URL: 
4. Does your company have a code of conduct or similar standards to which you expect your suppliers 

to adhere? 

❒ Yes ❒ No

4.1 If yes, please attach copy of Attachment Title: 

procedures or provide URL. URL: 

5. Is your company currently subject to any enforcement action by any governmental authority for 

non-compliance with environmental, safety, or labor requirements at any facility at which products 

supplied to HP are manufactured?

❒ Yes ❒ No

5.1 If yes, please describe briefly the nature of the action and what steps your company is taking to

resolve it.

Appendix E: Sample Supply Chain Management Questionnaire 269
APPENDIX F BASIC INFORMATION ON THE

U.S. FOREIGN CORRUPT

PRACTICES ACT

This material appeared as Appendix A of Fighting Global Corruption: Business Risk

Management, a booklet published in May 2001 by the U.S. Department of State’s

Bureau for International Narcotics and Law Enforcement Affairs. (The full text of the

booklet is available at www.state.gov/g/inl/rls/rpt/fgcrpt/2001.) For further information about the Foreign Corrupt Practices Act, see the US Department of Commerce and

US Department of Justice websites: www.ita.doc.gov/legal; www.usdoj.gov/

criminal/fraud.html.

Appendix A: Foreign Corrupt Practices Act—Antibribery

Provisions (U.S. Department of Justice and U.S. Department

of Commerce)

The following information is intended to provide a general description of the

FCPA and is not intended to substitute for the advice of private counsel on specific issues related to the FCPA. Moreover, this information is not intended to

set forth the present enforcement intentions of the U.S. Department of Justice,

the U.S. Securities and Exchange Commission (SEC), or any other U.S. government agency with respect to particular fact situations. 

INTRODUCTION

The 1988 Trade Act directed the Attorney General to provide guidance concerning the Department of Justice’s enforcement policy with respect to the

Foreign Corrupt Practices Act of 1977 (“FCPA”), 15 U.S.C. §§ 78dd-1, et seq.,

to potential exporters and small businesses that are unable to obtain specialized

counsel on issues related to the FCPA. The guidance is limited to responses to

requests under the Department of Justice’s Foreign Corrupt Practices Act

Opinion Procedure (described below) and to general explanations of compliance

responsibilities and potential liabilities under the FCPA. The following information constitutes the Department of Justice’s general explanation of the FCPA. 

U.S. firms seeking to do business in foreign markets must be familiar with the

FCPA. In general, the FCPA prohibits corrupt payments to foreign officials for

the purpose of obtaining or keeping business. The Department of Justice is the

chief enforcement agency, with a coordinate role played by the Securities and

Exchange Commission (SEC). The Office of General Counsel of the

270
Department of Commerce also answers general questions from U.S. exporters

concerning the FCPA’s basic requirements and constraints. 

BACKGROUND

As a result of SEC investigations in the mid-1970s, over 400 U.S. companies

admitted making questionable or illegal payment in excess of $300 million to

foreign government officials, politicians, and political parties. The abuses ran

the gamut from bribery of high foreign officials to secure some type of favorable

action by a foreign government to so-called facilitating payments that allegedly

were made to ensure that government functionaries discharged certain ministerial or clerical duties. Congress enacted the FCPA to bring a halt to the bribery

of foreign officials and to restore public confidence in the integrity of the

American business system. 

The FCPA was intended to have and has had an enormous impact on the way

American firms do business. Several firms that paid bribes to foreign officials

have been the subject of criminal and civil enforcement actions, resulting in

large fines and suspension and debarment from federal procurement contracting, and their employees and officers have gone to jail. To avoid such consequences, many firms have implemented detailed compliance programs intended

to prevent and to detect any improper payments by employees and agents. 

Following the passage of the FCPA, the Congress became concerned that

American companies were operating at a disadvantage compared to foreign companies who routinely paid bribes and, in some countries, were permitted to

deduct the cost of such bribes as business expenses on their taxes. Accordingly, in

1988, the Congress directed the Executive Branch to commence negotiations in

the Organization of Economic Cooperation and Development (OECD) to obtain

the agreement of the United States’ major trading partners to enact legislation

similar to the FCPA. In 1997, almost ten years later, the United States and thirty-three other countries signed the OECD Convention on Combating Bribery of

Foreign Public Officials in International Business Transactions. The United

States ratified this Convention and enacted implementing legislation in 1998. 

The antibribery provisions of the FCPA make it unlawful for a U.S. person,

and certain foreign issuers of securities, to make a corrupt payment to a foreign official for the purpose of obtaining or retaining business for or with, or

directing business to, any person. Since 1998, they also apply to foreign firms

and persons who take any act in furtherance of such a corrupt payment while

in the United States. 

The FCPA also requires companies whose securities are listed in the United

States to meet its accounting provisions. See 15 U.S.C. § 78m. These accounting

provisions, which were designed to operate in tandem with the antibribery provisions of the FCPA, require corporations covered by the provisions to make and

keep books and records that accurately and fairly reflect the transactions of the

Appendix F: U.S. Foreign Corrupt Practices Act 271
272 Business Ethics

corporation and to devise and maintain an adequate system of internal accounting controls. The information below discusses only the antibribery provisions. 

ENFORCEMENT

The Department of Justice is responsible for all criminal enforcement and for

civil enforcement of the antibribery provisions with respect to domestic concerns and foreign companies and nationals. The SEC is responsible for civil

enforcement of the antibribery provisions with respect to issuers. 

ANTIBRIBERY PROVISIONS

BASIC PROHIBITIONS

The FCPA makes it unlawful to bribe foreign government officials to obtain or

retain business. With respect to the basic prohibition, there are five elements

which must be met to constitute a violation of the Act: 

A. Who—The FCPA potentially applies to any individual, firm, officer, director,

employee, or agent of a firm and any stockholder acting on behalf of a firm. Individuals and firms may also be penalized if they order, authorize, or assist someone else to violate the antibribery provisions or if they conspire to violate those

provisions. 

Under the FCPA, U.S. jurisdiction over corrupt payments to foreign officials

depends upon whether the violator is an “issuer,” a “domestic concern,” or a foreign national or business. 

An “issuer” is a corporation that has issued securities that have been registered

in the United States or who is required to file periodic reports with the SEC. 

A “domestic concern” is any individual who is a citizen, national, or resident of

the United States, or any corporation, partnership, association, joint-stock company, business trust, unincorporated organization, or sole proprietorship which

has its principal place of business in the United States, or which is organized

under the laws of a State of the United States, or a territory, possession, or commonwealth of the United States. 

Issuers and domestic concerns may be held liable under the FCPA under either

territorial or nationality jurisdiction principles. For acts taken within the territory of the United States, issuers and domestic concerns are liable if they take an

act in furtherance of a corrupt payment to a foreign official using the U.S. mails

or other means or instrumentalities of interstate commerce. Such means of

instrumentalities include telephone calls, facsimile transmissions, wire transfers,

and interstate or international travel. In addition, issuers and domestic concerns

may be held liable for any act in furtherance of a corrupt payment taken outside

the United States. Thus, a U.S. company or national may be held liable for a

corrupt payment authorized by employees or agents operating entirely outside
the United States, using money from foreign bank accounts, and without any

involvement by personnel located within the United States. 

Prior to 1998, foreign companies, with the exception of those who qualified as

“issuers,” and foreign nationals were not covered by the FCPA. The 1998

amendments expanded the FCPA to assert territorial jurisdiction over foreign

companies and nationals. A foreign company or person is now subject to the

FCPA if it causes, directly or through agents, an act in furtherance of the corrupt payment to take place within the territory of the United States. There is,

however, no requirement that such act make use of the U.S. mails or other

means or instrumentalities of interstate commerce. 

Finally, U.S. parent corporations may be held liable for the acts of foreign subsidiaries where they authorized, directed, or controlled the activity in question,

as can U.S. citizens or residents, themselves “domestic concerns,” who were

employed by or acting on behalf of such foreign-incorporated subsidiaries. 

B. Corrupt Intent—The person making or authorizing the payment must have a

corrupt intent, and the payment must be intended to induce the recipient to misuse his official position to direct business wrongfully to the payer or to any other

person. You should note that the FCPA does not require that a corrupt act succeed

in its purpose. The offer or promise of a corrupt payment can constitute a violation of the statute. The FCPA prohibits any corrupt payment intended to influence any act or decision of a foreign official in his or her official capacity, to induce

the official to do or omit to do any act in violation of his or her lawful duty, to obtain any improper advantage, or to induce a foreign official to use his or her influence improperly to affect or influence any act or decision. 

C. Payment—The FCPA prohibits paying, offering, promising to pay (or authorizing to pay or offer) money or anything of value. 

D. Recipient—The prohibition extends only to corrupt payments to a foreign official, a foreign political party or party official, or any candidate for foreign political office. A “foreign official” means any officer or employee of a foreign government,

a public international organization, or any department or agency thereof, or any

person acting in an official capacity. 

You should consider utilizing the Department of Justice’s Foreign Corrupt

Practices Act Opinion Procedure for particular questions as to the definition of

a “foreign official,” such as whether a member of a royal family, a member of a

legislative body, or an official of a state-owned business enterprise would be considered a “foreign official.” In addition, you should consult the list of public

international organizations covered under the FCPA that is available on the

Department of Justice’s FCPA website. 

The FCPA applies to payments to any public official, regardless of rank or position. The FCPA focuses on the purpose of the payment instead of the particular

duties of the official receiving the payment, offer, or promise of payment, and

Appendix F: U.S. Foreign Corrupt Practices Act 273
274 Business Ethics

there are exceptions to the antibribery provision for “facilitating payments for

routine governmental action” (see below). 

E. Business Purpose Test—The FCPA prohibits payments made in order to assist

the firm in obtaining or retaining business for or with, or directing business to, any person. The Department of Justice interprets “obtaining or retaining business”

broadly, such that the term encompasses more than the mere award or renewal of

a contract. It should be noted that the business to be obtained or retained does not

need to be with a foreign government or foreign government instrumentality. 

THIRD-PARTY PAYMENTS

The FCPA prohibits corrupt payments through intermediaries. It is unlawful

to make a payment to a third party, while knowing that all or a portion of the

payment will go directly or indirectly to a foreign official. The term “knowing”

includes conscious disregard and deliberative ignorance. The elements of an offense

are essentially the same as described above, except that in this case the “recipient” is the intermediary who is making the payment to the requisite “foreign

official.” 

Intermediaries may include joint venture partners or agents. To avoid being

liable for corrupt third-party payments, U.S. companies are encouraged to

exercise due diligence and to take all necessary precautions to ensure that they

have formed a business relationship with reputable and qualified partners and

representatives. Such due diligence may include investigating potential foreign

representatives and joint venture partners to determine if they are in fact qualified for the position, whether they have personal or professional ties to the

government, the number and reputation of their clientele, and their reputation

with the U.S. Embassy or Consulate and with local bankers, clients, and other

business associates. 

In addition, in negotiating a business relationship, the U.S. firm should be aware

of so-called “red flags,” i.e., unusual payment patterns or financial arrangements,

a history of corruption in the country, a refusal by the foreign joint venture partner or representative to provide a certification that it will not take any action in

furtherance of an unlawful offer, promise, or payment to a foreign public official

and not take any act that would cause the U.S. firm to be in violation of the

FCPA, unusually high commissions, lack of transparency in expenses and

accounting records, apparent lack of qualifications or resources on the part of

the joint venture partner or representative to perform the services offered, and

whether the joint venture partner or representative has been recommended by

an official of the potential governmental customer. 

You should seek the advice of counsel and consider utilizing the Department of Justice’s

Foreign Corrupt Practices Act Opinion Procedure for particular questions relating to

third-party payments. 
PERMISSIBLE PAYMENTS AND AFFIRMATIVE DEFENSES

The FCPA contains an explicit exception to the bribery prohibition for “facilitating payments” for “routine governmental action” and provides affirmative

defenses which can be used to defend against alleged violations of the FCPA. 

FACILITATING PAYMENTS FOR ROUTINE GOVERNMENTAL ACTIONS

There is an exception to the antibribery prohibition for payments to facilitate or

expedite performance of a “routine governmental action.” The statute lists the

following examples: obtaining permits, licenses, or other official documents;

processing governmental papers, such as visas and work orders; providing police

protection, mail pick-up and delivery; providing phone service, power and water

supply, loading and unloading cargo, or protecting perishable products; and

scheduling inspections associated with contract performance or transit of goods

across country. 

Actions “similar” to these are also covered by this exception. If you have a question

about whether a payment falls within the exception, you should consult with

counsel. You should also consider whether to utilize the Justice Department’s

Foreign Corrupt Practices Opinion Procedure, described below. 

“Routine governmental action” does not include any decision by a foreign official to award new business or to continue business with a particular party. 

AFFIRMATIVE DEFENSES

A person charged with a violation of the FCPA’s antibribery provisions may

assert as a defense that the payment was lawful under the written laws of the foreign country or that the money was spent as part of demonstrating a product or

performing a contractual obligation. 

Whether a payment was lawful under the written laws of the foreign country

may be difficult to determine. You should consider seeking the advice of counsel or utilizing the Department of Justice’s Foreign Corrupt Practices Act

Opinion Procedure when faced with an issue of the legality of such a payment. 

Moreover, because these defenses are “affirmative defenses,” the defendant is

required to show in the first instance that the payment met these requirements.

The prosecution does not bear the burden of demonstrating in the first instance

that the payments did not constitute this type of payment. 

SANCTIONS AGAINST BRIBERY

CRIMINAL

The following criminal penalties may be imposed for violations of the FCPA’s

antibribery provisions: corporations and other business entities are subject to a

fine of up to $2,000,000; officers, directors, stockholders, employees, and agents

Appendix F: U.S. Foreign Corrupt Practices Act 275
276 Business Ethics

are subject to a fine of up to $100,000 and imprisonment for up to five years.

Moreover, under the Alternative Fines Act, these fines may be actually quite

higher—the actual fine may be up to twice the benefit that the defendant sought

to obtain by making the corrupt payment. You should also be aware that fines

imposed on individuals may not be paid by their employer or principal. 

CIVIL

The Attorney General or the SEC, as appropriate, may bring a civil action for a

fine of up to $10,000 against any firm as well as any officer, director, employee,

or agent of a firm, or stockholder acting on behalf of the firm, who violates the

antibribery provisions. In addition, in an SEC enforcement action, the court

may impose an additional fine not to exceed the greater of (i) the gross amount

of the pecuniary gain to the defendant as a result of the violation, or (ii) a specified dollar limitation. The specified dollar limitations are based on the egregiousness of the violation, ranging from $5,000 to $100,000 for a natural person

and $50,000 to $500,000 for any other person. 

The Attorney General or the SEC, as appropriate, may also bring a civil action

to enjoin any act or practice of a firm whenever it appears that the firm (or an

officer, director, employee, agent, or stockholder acting on behalf of the firm) is

in violation (or about to be) of the antibribery provisions. 

OTHER GOVERNMENTAL ACTION

Under guidelines issued by the Office of Management and Budget, a person or

firm found in violation of the FCPA may be barred from doing business with the

Federal government. Indictment alone can lead to suspension of the right to do business with the government. The President has directed that no executive agency

shall allow any party to participate in any procurement or nonprocurement

activity if any agency has debarred, suspended, or otherwise excluded that party

from participation in a procurement or nonprocurement activity. 

In addition, a person or firm found guilty of violating the FCPA may be ruled

ineligible to receive export licenses; the SEC may suspend or bar persons from

the securities business and impose civil penalties on persons in the securities

business for violations of the FCPA; the Commodity Futures Trading

Commission and the Overseas Private Investment Corporation both provide for

possible suspension or debarment from agency programs for violation of the

FCPA; and a payment made to a foreign government official that is unlawful

under the FCPA cannot be deducted under the tax laws as a business expense. 

PRIVATE CAUSE OF ACTION

Conduct that violates the antibribery provisions of the FCPA may also give rise

to a private cause of action for treble damages under the Racketeer Influenced

and Corrupt Organizations Act (RICO), or to actions under other federal or
state laws. For example, an action might be brought under RICO by a competitor who alleges that the bribery caused the defendant to win a foreign contract. 

GUIDANCE FROM THE GOVERNMENT

The Department of Justice has established a Foreign Corrupt Practices Act

Opinion Procedure by which any U.S. company or national may request a statement of the Justice Department’s present enforcement intentions under the

antibribery provisions of the FCPA regarding any proposed business conduct.

The details of the opinion procedure may be found at 28 CFR Part 80. Under

this procedure, the Attorney General will issue an opinion in response to a specific inquiry from a person or firm within thirty days of the request. (The thirty-day period does not run until the Department of Justice has received all the

information it requires to issue the opinion.) Conduct for which the Department

of Justice has issued an opinion stating that the conduct conforms with current

enforcement policy will be entitled to a presumption, in any subsequent enforcement action, of conformity with the FCPA. 

Appendix F: U.S. Foreign Corrupt Practices Act 277
APPENDIX G FIGHTING CORRUPTION AND

SAFEGUARDING INTEGRITY

This material appeared as Appendix C of Fighting Global Corruption: Business Risk

Management, a guide published in May 2001 by the U.S. Department of State’s

Bureau for International Narcotics and Law Enforcement Affairs. (The full text of the

booklet is available at www.state.gov/g/inl/rls/rpt/fgcrpt/2001.)

Appendix C: Guiding Principles for Fighting Corruption and

Safeguarding Integrity among Justice and Security Officials

The following Anticorruption Principles were developed and approved by the

United States Government in the preparation of the First Global Forum on

Fighting Corruption and Safeguarding Integrity among Justice and Security

Officials, held in Washington, D.C., in February 1999. Discussion at this

Conference, among the many participants from around the world, addressed

most of these principles. Today they continue to serve as an effective checklist in the fight against corruption and safeguarding integrity among government officials. 

NOTE: Annotated Version. In this document, each of the practices is followed

by a parenthetical letter or letters indicating from which source or sources the

statement of the practice was derived, including agreements, documents, and

other sources in existing international literature or experience regarding corruption, public integrity, or related matters of crime. Sources including those

from the UN, OECD, OAS, GCA, EU, and CoE are identified in the listing at

the end of this document. 

Corruption, dishonesty, and unethical behavior among public officials represent

serious threats to the basic principles and values of government, undermining

public confidence in democracy and threatening to erode the rule of law. The

aim of these Guiding Principles is to promote public trust in the integrity of officials within the public sector by preventing, detecting, and prosecuting or sanctioning official corruption and unlawful, dishonest, or unethical behavior. 

It is anticipated that these guiding principles will be implemented by each government in a manner appropriately tailored to the political, legal, economic, and

cultural circumstances of the country. Due to the different functions and missions of different judicial, justice, and security officials, not all practices are

applicable in all categories. This document does not prescribe a specific solution

to corruption among justice and security officials, but rather offers a list of

potentially effective corruption-fighting practices for consideration. 

278
The list of practices, which may apply to other sectors of government in addition to justice and security officials, is intended to help guide and assist governments in developing effective and appropriate means to best achieve their specific public integrity ends. 

1. Establish and maintain systems of government hiring of justice and security officials that assure openness, equity, and efficiency and promote

hiring of individuals of the highest levels of competence and integrity. 

Effective practices include: 

• Systems for equitable compensation adequate to sustain appropriate

livelihood without corruption (I, K, O); 

• Systems for open and merit based hiring and promotion with objective

standards (C, I, J); 

• Systems which provide assurance of a dignified retirement without recourse to corruption (I, K, O); 

• Systems for thorough screening of all employees for sensitive positions (M); 

• Systems for probationary periods after initial hiring (M); 

• Systems which integrate principles of human rights with effective measures for preventing and detecting corruption (M). 

2. Adopt public management measures that affirmatively promote and

uphold the integrity of justice and security officials. 

Effective practices include: 

• An impartial and specialized institution of government to administer

ethical codes of conduct (C, D, I, J, K); 

• Training and counseling of officials to ensure proper understanding of

their responsibilities and the ethical rules governing their activities as

well as their own professionalism and competence (C); 

• Training addressed to issues of brutality and other civil rights violations that often correlate with corrupt activity among justice and security officials (O, substantial international literature relating to human

rights issues); 

• Managerial mechanisms that enforce ethical and administrative standards of conduct (B, D, H, I, J, K); 

• Systems for recognizing employees who exhibit high personal integrity

or contribute to the anti-corruption objectives of their institution (O); 

• Personnel systems that include regular rotation of assignments to reduce

insularity that fosters corruption (B, D, J, K, O); 

• Systems to provide appropriate oversight of discretionary decisions and of

personnel with authority to make discretionary decisions (B, D, J, K, O); 

Appendix G: Fighting Corruption and Safeguarding Integrity 279
280 Business Ethics

• Systems that hold supervisors accountable for corruption control (B, D,

J, K, O); 

• Positive leadership which actively practices and promotes the highest

standards of integrity and demonstrates a commitment to prevent and

detect corruption, dishonesty, and unethical behavior (I, O); 

• Systems for promoting the understanding and application of ethical values and the standards of conduct required (I, O); 

• Mechanisms to support officials in the public sector where there is evidence that they have been unfairly or falsely accused (O). 

3. Establish ethical and administrative codes of conduct that proscribe

conflicts of interest, ensure the proper use of public resources, and

promote the highest levels of professionalism and integrity. 

Effective practices include: 

• Prohibitions or restrictions governing officials participating in official

matters in which they have a substantial direct or indirect financial interest (I, J, O); 

• Prohibitions or restrictions against officials participating in matters in

which persons or entities with whom they are negotiating for employment have a financial interest (I, J, O); 

• Limitations on activities of former officials in representing private or personal interests before their former governmental agency or department,

such as prohibiting the involvement of such officials in cases for which former officials were personally responsible, representing private interests by

their improper use of influence upon their former governmental agency or

department, or using confidential knowledge or information gained during

their previous employment as an official in the public sector (O); 

• Prohibitions and limitations on the receipt of gifts or other advantages

(F, I, J, O); 

• Prohibitions on improper personal use of government property and resources (C, F, O). 

4. Establish criminal laws and sanctions effectively prohibiting bribery,

misuse of public property, and other improper uses of public office for

private gain. 

Effective practices include: 

• Laws criminalizing the giving, offer, or promise by any party (“active”)

and the receipt or solicitation by any official (“passive”) of a bribe, and

criminalizing or sanctioning the giving or receiving of an improper gratuity or improper gift (A, C, E, F, G, J, others); 

• Laws criminalizing or sanctioning the illegal use by officials of government information (C, F); 
• Laws affirming that all justice and security officials have a duty to provide honest services to the public and criminalizing or sanctioning

breaches of that duty (J); 

• Laws criminalizing improper use of official power or position, either to

the detriment of the government or for personal enrichment. 

5. Adopt laws, management practices and auditing procedures that make

corruption more visible and thereby promote the detection and reporting of corrupt activity. 

Effective practices include: 

• Systems to promote transparency, such as through disclosing the financial circumstances of senior officials (C, I, J, K). 

• Measures and systems to ensure that officials report acts of corruption,

and to protect the safety, livelihood, and professional situation of those

who do, including protection of their identities to the extent possible

under the law (F, I, J); 

• Measures and systems that protect private citizens who, in good faith, report acts of official corruption (C, D, E, F, I, J, M); 

• Government revenue collection systems that deter corruption, in particular by denying tax deductibility for bribes or other expenses linked to

corruption offenses (B, C, D, K); 

• Bodies responsible for preventing, detecting, and eradicating corruption,

and for punishing or disciplining corrupt officials, such as independent

ombudsmen, inspectors general, or other bodies responsible for receiving and investigating allegations of corruption (B, D, I, J); 

• Appropriate auditing procedures applicable to public administration and

the public sector (D, I, J, K); 

• Appropriately transparent procedures for public procurement that promote fair competition and deter corrupt activity (B, C, D, F, I, K); 

• Systems for conducting regular threat assessments on corrupt activity (O). 

6. Provide criminal investigators and prosecutors sufficient and appropriate powers and resources to effectively uncover and prosecute corruption crimes. 

Effective practices include: 

• Empowering courts or other competent authorities to order that bank,

financial, or commercial records be made available or be seized, and that

bank secrecy not prevent such availability or seizure (C, E, K, L, M); 

• Authorizing use under accountable legal supervision of wiretaps or other

interception of electronic communication, or recording devices, in investigation of corruption offenses (E, F, K, M); 

Appendix G: Fighting Corruption and Safeguarding Integrity 281
282 Business Ethics

• Authorizing, where appropriate, the admissibility of electronic or other

recorded evidence in criminal proceedings relating to corruption 

offenses (E, F, K, M); 

• Employing where appropriate systems whereby persons charged with

corruption or other corruption-related criminal offenses may secure

more advantageous treatment in recognition of assisting in the disclosure

and prosecution of corruption offenses (E, F, L, M); 

• The development of appropriate information gathering mechanisms to

prevent, detect, and deter official corruption and dishonesty (O). 

7. Ensure that investigators, prosecutors, and judicial personnel are sufficiently impartial to fairly and effectively enforce laws against corruption. 

Effective practices include: 

• Personnel systems to attract and retain high-quality corruption 

investigators (O); 

• Systems to promote the specialization and professionalization of persons

and organizations in charge of fighting corruption (D, E, K); 

• Establishment of an independent mechanism within judicial and security

agencies with the duty to investigate corruption allegations, and with the

power to compel statements and obtain documents from all agency personnel (I, O); 

• Codes of conduct or other measures that require corruption investigators, prosecutors, and judges to recuse themselves from any case in which

their political, financial, or personal interests might reasonably raise

questions about their ability to be impartial (O); 

• Systems that allow for the appointment, where appropriate, of special

authorities or commissions to handle or oversee corruption investigations and prosecutions (O); 

• Standards governing the initiation of corruption investigations to ensure that public officials are not targeted for investigation for political

reasons (O).

8. Ensure that criminal and civil law provide for sanctions and remedies

that are sufficient to effectively and appropriately deter corrupt activity. 

Effective practices include: 

• Laws providing substantial criminal penalties for the laundering of the

proceeds of public corruption violations (A, C, E, K, M); 

• Laws providing for substantial incarceration and appropriate forfeiture

of assets as a potential penalty for serious corruption offenses (A, C, E,

G, others); 
• Provisions to support and protect whistleblowers and aggrieved private

parties (B, D, I, K). 

9. Ensure that the general public and the media have freedom to receive

and impart information on corruption matters, subject only to limitations or restrictions which are necessary in a democratic society. 

Effective practices include: 

• Establishing public reporting requirements for justice and security agencies that include disclosure about efforts to promote integrity and combat corruption (D, H, J, K); 

• Enacting laws or other measures providing a meaningful public right of

access to information about corrupt activity and corruption control activities (D, H, I, J, K). 

10. Develop to the widest extent possible international cooperation in all

areas of the fight against corruption. 

Effective practices include: 

• Systems for swift and effective extradition so that corrupt public officials

can face judicial process (A, C, E, G, I, M, others); 

• Systems to enhance international legal assistance to governments 

seeking to investigate and prosecute corruption violations (A, C, E, G,

I, M, others); 

• Systems to facilitate and accelerate international seizure and repatriation

of forfeitable assets associated with corruption violations (A, C, E, F, G,

I, M, others); 

• Inclusion of provisions on combating corruption in appropriate bilateral

and multilateral instruments (I, O). 

11. Promote, encourage, and support continued research and public discussion in all aspects of the issue of upholding integrity and preventing corruption among justice and security officials and other public

officials whose responsibilities relate to upholding the rule of law. 

Effective practices include: 

• Appointment of independent commissions or other bodies to study and

report on the effectiveness of efforts to combat corruption in particular

agencies involved in justice and security matters (O); 

• Supporting the efforts of multilateral and non-governmental organizations to promote public integrity and prevent corruption (O); 

• Promoting efforts to educate the public about the dangers of corruption

and the importance of general public involvement in government efforts

to control corrupt activity (C, I, J, K, O). 

Appendix G: Fighting Corruption and Safeguarding Integrity 283
284 Business Ethics

12. Encourage activities of regional and other multilateral organizations

in anti-corruption efforts. 

Effective practices include: 

• Becoming parties, as appropriate, to applicable multilateral legal instruments containing provisions to address corruption (I); 

• Cooperating in carrying out programs of systematic follow-up to monitor and promote the full implementation of appropriate measures to

combat corruption, through mutual assessment by governments of their

legal and practical measures to combat corruption, as established by pertinent international agreements (A, E, L, I, O); 

• Participating actively in future international conferences on promoting

integrity and combating corruption among justice and security officials. 

LISTING OF SOURCES FOR GUIDING PRINCIPLES

A. OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions. 

B. OECD Council Recommendations against Corruption, May 1997. 

C. OAS Inter-American Convention against Corruption. 

D. Council of Europe Committee of Ministers 20 Recommendations against Corruption, November 1997. 

E. Council of Europe Criminal Law Convention on Corruption. 

F. Council of Europe Conclusions of the Second European Conference of Specialized Services in the Fight against Corruption, October 1997. 

G. European Union Convention on Corruption of EU or Member Officials, May 1997. 

H. European Parliament Resolution on Combating Corruption in Europe, 1995. 

I. Global Coalition for Africa, Principles to Combat Corruption in African Countries, February 1999. 

J. United Nations Secretariat Manual: Practical Measures against Corruption, July

1990. 

K. United Nations Commission on Crime Prevention and Criminal Justice: Report

of Expert Group on Action against Corruption and Bribery, March 1997. 

L. United Nations Convention against Illicit Trafficking in Narcotic Drugs or Psychotropic Substances. 

M. United Nations Convention against Transnational Organized Crime, 2000. 

N. Financial Action Task Force, 40 Recommendations. 

O. Observed experience of governments (“common sense”). 
APPENDIX H EXTRACTS FROM THE U.S.

FEDERAL SENTENCING

GUIDELINES FOR

ORGANIZATIONS

These sentencing guidelines for organizational defendants were published as Chapter 8,

“Sentencing of Organizations,” in United States Sentencing Commission, Guidelines

Manual (Washington, D.C.: U.S. Sentencing Commission, November 2002). The full

text of the manual can be found at www.ussc.gov/2002guid/TABCON02.htm.

Chapter 8: Sentencing of Organizations

INTRODUCTORY COMMENTARY

The guidelines and policy statements in this chapter apply when the convicted

defendant is an organization. Organizations can act only through agents and,

under federal criminal law, generally are vicariously liable for offenses committed by their agents. At the same time, individual agents are responsible for their

own criminal conduct. Federal prosecutions of organizations therefore frequently involve individual and organizational co-defendants. Convicted individual agents of organizations are sentenced in accordance with the guidelines

and policy statements in the preceding chapters. This chapter is designed so

that the sanctions imposed upon organizations and their agents, taken together, will provide just punishment, adequate deterrence, and incentives for organizations to maintain internal mechanisms for preventing, detecting, and reporting criminal conduct.

This chapter reflects the following general principles: First, the court must,

whenever practicable, order the organization to remedy any harm caused by the

offense. The resources expended to remedy the harm should not be viewed as

punishment, but rather as a means of making victims whole for the harm caused.

Second, if the organization operated primarily for a criminal purpose or primarily by criminal means, the fine should be set sufficiently high to divest the

organization of all its assets. Third, the fine range for any other organization

should be based on the seriousness of the offense and the culpability of the

organization. The seriousness of the offense generally will be reflected by the

highest of the pecuniary gain, the pecuniary loss, or the amount in a guideline

offense level fine table. Culpability generally will be determined by the steps

taken by the organization prior to the offense to prevent and detect criminal

285
286 Business Ethics

conduct, the level and extent of involvement in or tolerance of the offense by

certain personnel, and the organization’s actions after an offense has been committed. Fourth, probation is an appropriate sentence for an organizational

defendant when needed to ensure that another sanction will be fully implemented, or to ensure that steps will be taken within the organization to reduce

the likelihood of future criminal conduct.

SECTION 8A1.2 APPLICATION INSTRUCTIONS—ORGANIZATIONS

COMMENTARY

Application Notes:

3. The following are definitions of terms used frequently in this chapter:

...

(b) “High-level personnel of the organization” means individuals who have substantial control over the organization or who have a substantial role in the making of policy within the organization. The term includes: a director; an executive officer; an individual in charge of a major business or functional unit of the

organization, such as sales, administration, or finance; and an individual with a

substantial ownership interest.

(c) “Substantial authority personnel” means individuals who within the scope of

their authority exercise a substantial measure of discretion in acting on behalf of

an organization. The term includes high-level personnel, individuals who exercise substantial supervisory authority (e.g., a plant manager, a sales manager),

and any other individuals who, although not a part of an organization’s management, nevertheless exercise substantial discretion when acting within the scope

of their authority (e.g., an individual with authority in an organization to negotiate or set price levels or an individual authorized to negotiate or approve significant contracts). Whether an individual falls within this category must be

determined on a case-by-case basis.

(d) “Agent” means any individual, including a director, an officer, an employee,

or an independent contractor, authorized to act on behalf of the organization.

(e) An individual “condoned” an offense if the individual knew of the offense and

did not take reasonable steps to prevent or terminate the offense.

(f) “Similar misconduct” means prior conduct that is similar in nature to the

conduct underlying the instant offense, without regard to whether or not such

conduct violated the same statutory provision. For example, prior Medicare

fraud would be misconduct similar to an instant offense involving another type

of fraud.

...
(k) An “effective program to prevent and detect violations of law” means a program that has been reasonably designed, implemented, and enforced so that it

generally will be effective in preventing and detecting criminal conduct. Failure

to prevent or detect the instant offense, by itself, does not mean that the program was not effective. The hallmark of an effective program to prevent and

detect violations of law is that the organization exercised due diligence in seeking to prevent and detect criminal conduct by its employees and other agents.

Due diligence requires at a minimum that the organization must have taken the

following types of steps:

(1) The organization must have established compliance standards and procedures to be followed by its employees and other agents that are reasonably

capable of reducing the prospect of criminal conduct.

(2) Specific individual(s) within high-level personnel of the organization

must have been assigned overall responsibility to oversee compliance with

such standards and procedures.

(3) The organization must have used due care not to delegate substantial

discretionary authority to individuals whom the organization knew, or

should have known through the exercise of due diligence, had a propensity

to engage in illegal activities.

(4) The organization must have taken steps to communicate effectively its

standards and procedures to all employees and other agents, e.g., by requiring participation in training programs or by disseminating publications that

explain in a practical manner what is required.

(5) The organization must have taken reasonable steps to achieve compliance with its standards, e.g., by utilizing monitoring and auditing systems

reasonably designed to detect criminal conduct by its employees and other

agents and by having in place and publicizing a reporting system whereby

employees and other agents could report criminal conduct by others within

the organization without fear of retribution.

(6) The standards must have been consistently enforced through appropriate disciplinary mechanisms, including, as appropriate, discipline of individuals responsible for the failure to detect an offense. Adequate discipline

of individuals responsible for an offense is a necessary component of enforcement; however, the form of discipline that will be appropriate will be

case specific. 

(7) After an offense has been detected, the organization must have taken all

reasonable steps to respond appropriately to the offense and to prevent further similar offenses—including any necessary modifications to its program

to prevent and detect violations of law.

The precise actions necessary for an effective program to prevent and detect

violations of law will depend upon a number of factors. Among the relevant

factors are:

Appendix H: Extracts from U.S. Federal Sentencing Guidelines 287
288 Business Ethics

(i) Size of the organization—The requisite degree of formality of a program to prevent and detect violations of law will vary with the size of the

organization: the larger the organization, the more formal the program

typically should be. A larger organization generally should have established written policies defining the standards and procedures to be followed by its employees and other agents.

(ii) Likelihood that certain offenses may occur because of the nature

of its business—If because of the nature of an organization’s business

there is a substantial risk that certain types of offenses may occur, management must have taken steps to prevent and detect those types of offenses. For example, if an organization handles toxic substances, it must

have established standards and procedures designed to ensure that those

substances are properly handled at all times. If an organization employs

sales personnel who have flexibility in setting prices, it must have established standards and procedures designed to prevent and detect price-fixing. If an organization employs sales personnel who have flexibility to

represent the material characteristics of a product, it must have established standards and procedures designed to prevent fraud.

(iii) Prior history of the organization—An organization’s prior history

may indicate types of offenses that it should have taken actions to prevent. Recurrence of misconduct similar to that which an organization has

previously committed casts doubt on whether it took all reasonable steps

to prevent such misconduct.

An organization’s failure to incorporate and follow applicable industry practice or the standards called for by any applicable governmental regulation

weighs against a finding of an effective program to prevent and detect violations of law.

SECTION 8C2.5 CULPABILITY SCORE

(a) Start with 5 points and apply subsections (b) through (g) below.

(b) Involvement in or Tolerance of Criminal Activity 

If more than one applies, use the greatest:

(1) If —

(A) the organization had 5,000 or more employees and

(i) an individual within high-level personnel of the organization participated in, condoned, or was willfully ignorant of the offense; or

(ii) tolerance of the offense by substantial authority personnel was pervasive throughout the organization; or

(B) the unit of the organization within which the offense was committed

had 5,000 or more employees and 
(i) an individual within high-level personnel of the unit participated in,

condoned, or was willfully ignorant of the offense; or

(ii) tolerance of the offense by substantial authority personnel was pervasive throughout such unit, add 5 points; or

...

(f) Effective Program to Prevent and Detect Violations of Law

If the offense occurred despite an effective program to prevent and detect violations of law, subtract 3 points.

Provided, that this subsection does not apply if an individual within high-level

personnel of the organization, a person within high-level personnel of the unit

of the organization within which the offense was committed where the unit had

200 or more employees, or an individual responsible for the administration or

enforcement of a program to prevent and detect violations of law participated in,

condoned, or was willfully ignorant of the offense. Participation of an individual

within substantial authority personnel in an offense results in a rebuttable presumption that the organization did not have an effective program to prevent and

detect violations of law.

Provided, further, that this subsection does not apply if, after becoming aware of

an offense, the organization unreasonably delayed reporting the offense to

appropriate governmental authorities.

Appendix H: Extracts from U.S. Federal Sentencing Guidelines 289
APPENDIX I EXTRACTS FROM THE

AUSTRALIAN CRIMINAL

CODE

Reproduced here are sections of the Australian Criminal Code relating to corporate criminal responsibility. The full text, prepared by the Office of Legislative Drafting,

Attorney-General’s Department, Canberra, is available at www.ausimm.com/ohs/

crimcode.pdf.

Part 2.5 Corporate criminal responsibility: Division 12

12.1 GENERAL PRINCIPLES

(1) This Code applies to bodies corporate in the same way as it applies to individuals. It so applies with such modifications as are set forth in this Part, and

with such other modifications as are made necessary by the fact that criminal liability is being imposed on bodies corporate rather than individuals.

(2) A body corporate may be found guilty of any offence, including one punishable by imprisonment.

12.2 PHYSICAL ELEMENTS

If a physical element of an offence is committed by an employee, agent, or officer of a body corporate acting within the actual or apparent scope of his or her

employment, or within his or her actual or apparent authority, the physical element must also be attributed to the body corporate.

12.3 FAULT ELEMENTS OTHER THAN NEGLIGENCE

(1) If intention, knowledge or recklessness is a fault element in relation to a

physical element of an offence, that fault element must be attributed to a body

corporate that expressly, tacitly, or impliedly authorised or permitted the commission of the offence.

(2) The means by which such authorisation or permission may be established

include:

(a) proving that the body corporate’s board of directors intentionally, knowingly, or recklessly carried out the relevant conduct, or expressly, tacitly, or

impliedly authorised or permitted the commission of the offence; or

290
(b) proving that a high managerial agent of the body corporate intentionally,

knowingly, or recklessly engaged in the relevant conduct, or expressly, tacitly, or

impliedly authorised or permitted the commission of the offence; or

(c) proving that a corporate culture existed within the body corporate that

directed, encouraged, tolerated, or led to non-compliance with the relevant provision; or

(d) proving that the body corporate failed to create and maintain a corporate culture that required compliance with the relevant provision.

(3) Paragraph (2)(b) does not apply if the body corporate proves that it exercised

due diligence to prevent the conduct, or the authorisation or permission.

(4) Factors relevant to the application of paragraph (2)(c) or (d) include:

(a) whether authority to commit an offence of the same or a similar character had been given by a high managerial agent of the body corporate; and

(b) whether the employee, agent, or officer of the body corporate who committed the offence believed on reasonable grounds, or entertained a reasonable expectation, that a high managerial agent of the body corporate would

have authorised or permitted the commission of the act.

(5) If recklessness is not a fault element in relation to a physical element of an

offence, subsection (2) does not enable the fault element to be proved by proving that the board of directors, or a high managerial agent, of the body corporate recklessly engaged in the conduct or recklessly authorised or permitted the

commission of the offence.

(6) In this section:

board of directors means the body (by whatever named called) exercising the executive authority of the body corporate.

corporate culture means an attitude, policy, rule, course of conduct, or practice

existing within the body corporate generally or in the part of the body corporate

in which the relevant activities takes [sic] place.

high managerial agent means an employee, agent, or officer of the body corporate with duties of such responsibility that his or her conduct may fairly be

assumed to represent the body corporate’s policy.

12.4 NEGLIGENCE

(1) The test of negligence for a body corporate is that set out in section 5.5. 

(2) If:

(a) negligence is a fault element in relation to a physical element of an offence, and

Appendix I: Extracts from the Australian Criminal Code 291
292 Business Ethics

(b) no individual employee, agent, or officer of the body politic has that fault

element;

that fault element may exist on the part of the body corporate if the body

corporate’s conduct is negligent when viewed as a whole (that is, by aggregating the conduct of any number of its employees, agents, or officers).

(3) Negligence may be evidenced by the fact that the prohibited conduct was

substantially attributable to:

(a) inadequate corporate management, control, or supervision of the conduct of one or more of its employees, agents, or officers; or

(b) failure to provide adequate systems for conveying relevant information to relevant persons in the body corporate.

12.5 MISTAKE OF FACT (STRICT LIABILITY)

(1) A body corporate can only rely on section 9.2 (mistake of fact [strict liability] in respect of conduct that would, apart from this section, constitute an

offence on its part if:

(a) the employee, agent, or officer of the body corporate who carried out the

conduct was under a mistaken but reasonable belief about facts that, had

they existed, would have meant that the conduct would not have constituted

an offence; and 

(b) the body corporate proves that it exercised due diligence to prevent the

conduct.

(2) A failure to exercise due diligence may be evidenced by the fact that the prohibited conduct was substantially attributable to:

(a) inadequate corporate management, control, or supervision of the conduct of one or more of its employees, agents, or officers; or

(b) failure to provide adequate systems for conveying relevant information

to relevant persons in the body corporate.

12.6 INTERVENING CONDUCT OR EVENT

A body corporate cannot rely on section 10.1 (intervening conduct or event) in

respect of the physical element of an offence brought about by another person if

the other person is an employee, agent, or officer of the body corporate.
NOTES

CHAPTER 1 NOTES

1 Peter F. Drucker, “The Delusion of ‘Profits’: A Company That Loses Money Is Socially

Irresponsible,” OpinionJournal (June 2, 2003), available at <http://www.opinionjournal.

com/extra/?id=110003570>, accessed June 2, 2003.

2 See, for example, Richard R. Ellsworth, Leading with Purpose: The New Corporate Realities (Stanford,

Calif.: Stanford University Press, 2002), and James C. Collins and Jerry I. Porras, Built to Last:

Successful Habits of Visionary Companies (New York: HarperBusiness, 2002).

3 Ellsworth, Leading with Purpose, p. 122.

4 The four levels of identity are developed in more detail in Chapter 3.

5 See, for example, SustainAbility, Developing Value, available at <http://www.sustainability.com/

developing-value/contents.asp>, accessed June 4, 2003.

6 Maria Livanos Cattaui, “Responsible Business Conduct in a Global Economy,” available at

<http://www.iccwbo.org/home/global_compact/business_conduct.asp>, accessed May 23, 2003. 

7 See, for example, Muhammad Musleh-Ud-Din, Economics and Islam, 2nd ed. (Lahore, Pakistan:

Islamic Publications, 1980).

8 See, for example, Bodo B. Schlegelmilch and Diana G. Robertson, “The Influence of Country and

Industry on Ethical Perceptions of Senior Executives in the U.S. and Europe,” Journal of International

Business Studies 26, no. 4 (1995), available at <http://www.questia.com>, accessed June 7, 2003.

9 For a discussion of riba, “excess over the principal,” and mudaraba, a type of agency relationship,

see Musleh-Ud-Din, Economics and Islam, pp. 66–69.

10 Cattaui, “Responsible Business Conduct.”

11 There are many definitions of the SME, especially the small enterprise. The World Bank definition of a small enterprise is fewer than 300 employees, whereas the U.S. Small Business

Administration sets the limit at 500 employees. Uzbekistan, on the other hand, defines the microfirm (up to 10 employees in manufacturing and 5 in others); the small enterprise (not exceeding 40 in

industry or 20 in construction, agriculture, and other manufacturing and not exceeding 10 in all others); and the medium enterprise (fewer than 100 in industry and fewer for other sectors). See

International Finance Corporation, Business Environment in Uzbekistan (Washington, D.C.:

International Finance Corporation, 2002), p. 15, available at <http://www1.ifc.org/pep/files/

pdf/Uzbek_SME_ survey_eng.pdf> , accessed May 23, 2003.

12 See, for example, Judith Kenner Thompson and Howard L. Smith, “Social Responsibility and

Small Business: Suggestions for Research,” Journal of Small Business Management 29, no. 1 (1991),

available at <http://www.questia.com>, accessed June 6, 2003.

13 Ibid., p. 23.

14 Hubbards Foods Ltd., “CEO’s Statement,” Triple Bottom Line Report: Financial Web page, 

available at <http://www.hubbards.co.nz/triple_bottom_line/triple_financial.html>, accessed 

July 9, 2003.

293
294 Business Ethics

15 See Saul Estrin, “Competition and Corporate Governance in Transition,” William Davidson

Institute Working Paper Series 431 (William Davidson Institute, 2001), available at

<http://eres.bus.umich.edu/docs/workpap-dav/wp431.pdf>, accessed May 23, 2003.

16 The legacy of central planning was not identical in each country. It depended on (a) the extent and

effectiveness of planning, (b) the openness of markets, and (c) the institutions and legal traditions.

See Estrin, “Competition and Corporate Governance in Transition,” pp. 5–7. 

17 Mark K. Dietrich, Legal and Judicial Reform in Central Europe and the Former Soviet Union: Voices

from Five Countries (Washington, D.C.: World Bank, 2000), available at <http://www4.worldbank.org/

legal/publications/LJR_ECA.pdf>, accessed May 23, 2003.

18 Steven J. Norton and Lynda L. Maillet, “Mistakes Were Made: The ‘Tabula Rasa Syndrome’ and

Russian Reform,” reprint from East–West Letter 7 (September 1998), available at

<http://www.okno.com/ewltr/archive/vol7/ru-trsyn.pdf>, accessed May 23, 2003.

19 See, for example, Estrin, “Competition and Corporate Governance in Transition,” Table 3: Cost

of Entry.

20 Ibid., p. 19. According to a survey cited by the author, latent entrepreneurship is highest in Poland

(80 percent) compared with the United States (70.8 percent), Germany (64 percent), the United

Kingdom (45 percent), the Czech Republic (36.8 percent), Russia (33.2 percent), and Norway 

(26.9 percent). 

21 Ellsworth, Leading with Purpose, p. 110.

22 World Bank, Anticorruption in Transition: A Contribution to the Policy Debate (Washington, D.C.:

World Bank, 2000), pp. xv–xvi, and Joel Hellman and Daniel Kaufmann, “Confronting the Challenge

of State Capture in Transition Economies,” Finance & Development (September 2001), p. 31.

23 Dietrich, Legal and Judicial Reform, p. 18. 

24 See, for example, ibid.

25 Ibid., p. 21. 

26 U.S. Department of Commerce, Handbook on Commercial Dispute Resolution in the Russian

Federation (Washington, D.C.: U.S. Department of Commerce, 2000), p. 1.

27 See, for example, Estrin, “Competition and Corporate Governance in Transition,” p. 4.

28 World Bank, Anticorruption in Transition, p. xvii.

29 Ibid., p. 9.

30 Ludwig von Mises, Human Action: A Treatise on Economics, 3rd rev. ed. (Chicago: Contemporary

Books, 1963), pp. 257–59.

31 Arthur Seldon, Capitalism (London: Basil Blackwell, 1990), p. 107.

32 See discussion in Estrin, “Competition and Corporate Governance in Transition,” pp. 16–17;

Michael Camdessus, “Challenges Facing the Transition Economies of Central Asia,” available at

<http://www.imf.org/external/np/speeches/1998/052798.htm>, accessed May 23, 2003; and Carana

Corporation, The Environment for Business in Tajikistan—A Disincentive to Private Sector Growth and

Investment (Arlington, Va., March 2001). 

33 World Bank, Anticorruption in Transition, p. 25.

34 See also Ellsworth, Leading with Purpose, pp. 30–34.
Notes 295

35 Estrin, “Competition and Corporate Governance in Transition,” p. 1.

36 Stanley Kober, “The Purpose of NGOs,” available at <http://www.civnet.org/journal/issue6/

ftskober.htm>, accessed May 23, 2003.

37 F. Neil Brady, Ethical Managing: Rules and Results (New York and London: Macmillan, 1990), 

pp. 2–3.

CHAPTER 2 NOTES

1 There are too many variables in business for researchers to find conclusively that being a responsible business, as we have defined it, leads an enterprise to become more profitable. However, Paine

has made a comprehensive survey of studies exploring various aspects of business ethics and business

performance. See Lynn Sharp Paine, Value Shift: Why Companies Must Merge Social and Financial

Imperatives to Achieve Superior Performance (New York: McGraw-Hill, 2003), Chapters 2 and 3.

2 See, for example, Anita Roddick, “A Third Way for Business, Too,” New Statesman (April 3, 1998),

available at <http://www.questia.com>, accessed June 6, 2003.

3 Paine, Value Shift, p. 8, citing Association of Certified Fraud Examiners, “Report to the Nation on

Occupational Fraud and Abuse 1996,” available at <http://www.cfenet.com/media/2002RttN>,

accessed May 23, 2003. See also Joseph T. Wells, “Protect Small Business: Small Companies without Adequate Internal Controls Need CPAs to Help Them Minimize Fraud Risk,” Journal of

Accountancy 195, no. 3 (2003), available at <http://www.questia.com>, accessed June 2003.

4 Paine, Value Shift, p. 36. Paine also notes the activity of customers as recorded by the Millennium

Poll. See pp. 110–11.

5 Gap Inc., “Our Vendor Code of Conduct,” available at <http://www.gapinc.com/social_resp/

sourcing/vendor_code.htm>, accessed May 23, 2003.

6 Linda K. Treviño, et al., “Managing Ethics and Legal Compliance: What Works and What Hurts,”

California Management Review 41 (Winter 1999): 131–51, at pp. 142–43.

7 Joshua Joseph, National Business Ethics Survey 2000 (Washington, D.C.: Ethics Resource Center,

2000), pp. 42–44.

8 These levels of social identity are adapted from Kenneth W. Johnson, “Ethical Complexity or

Ethical Chaos? A Prescription for Integrating Applied Ethics,” Ethical Management 7 (August 1997):

1, 3–4. Available at <http://www.Ethics-Policy.net/Integrating_Applied_Ethics.html>, accessed May

23, 2003.

9 Susan A. Aaronson and James T. Reeves, Corporate Responsibility in the Global Village: The Role of

Public Policy (Washington, D.C.: National Policy Association, 2002), p. 2.

10 Komatsu Ltd., “Komatsu Code of Worldwide Business Conduct,” available at <http://www.komatsu.co.jp /en/CompanyInfo/profile/conduct>, accessed May 23, 2003.

11 See, for example, Muhammad Musleh-Ud-Din, Economics and Islam, 2nd ed. (Lahore, Pakistan:

Islamic Publications, 1980), pp. 77–79.

12 Stephen S. Cohen and Gary Fields, “Social Capital and Capital Gains in Silicon Valley,” California

Management Review 41 (Winter 1999): 108–130. 
296 Business Ethics

13 Sociologist James Coleman as quoted in Francis Fukuyama, Trust: The Social Virtues and the

Creation of Prosperity (New York: Free Press, 1995), p. 10. See also Robert D. Putnam, “The

Prosperous Community: Social Capital and Public Life,” American Prospect 13 (Spring 1993): 37–38.

14 Fukuyama, Trust, p. 31.

15 Paine, Value Shift, pp. 42–43.

16 Ludwig von Mises, Human Action: A Treatise on Economics, 3rd rev. ed. (Chicago: Contemporary

Books, 1963), p. 165; Paine, Value Shift, p. 79 (“a trusting community is a thief’s paradise”).

17 Enterprise, as used in this guide, means both a legal entity (such as an enterprise, company, firm,

or organization) and an individual or small entrepreneur.

18 Caux Round Table, Principles for Business, available at <http://www.caux.org>, accessed May 23, 2003.

19 International Chamber of Commerce, Web site available at <http://www.iccwbo.org>, accessed

May 23, 2003.

20 Coalition for Environmentally Responsible Economies, “CERES Principles,” available at

<http://www.ceres.org>, accessed May 23, 2003.

21 International Electrical and Electronic Engineers, “Code of Ethics,” available at

<http://www.ieee.org/portal/index.jsp?pageID=corp_level1&path=about/whatis&file=code.xml&xsl

=generic.xsl>, accessed May 23, 2003.

22 International Electrical and Electronic Engineers, “Software Engineering Code of Ethics 

and Professional Practice,” available at <http://computer.org/certification/ethics.htm>, accessed

May 23, 2003.

23 An Interfaith Declaration: A Code of Ethics on International Business for Christians, Muslims, and Jews,

available at <http://astro.ocis.temple.edu/~dialogue/Codes/cmj_codes.htm>, accessed May 23, 2003.

24 Task Force on Churches and Corporate Responsibility, “Principles for Global Corporate

Responsibility: Benchmarks for Measuring Business Performance,” available at

<http://www.web.net/~tccr/benchmarks/index.html>, accessed June 7, 2003.

25 Global Reporting Initiative, Sustainability Reporting Guidelines, available at <http://www.globalreporting.org>, accessed May 23, 2003.

26 Social Accountability International, Web site available at <http://www.cepaa.org>, accessed May

23, 2003.

27 “Global Sullivan Principles,” available at <http://www.globalsullivanprinciples.org/>, accessed

May 23, 2003.

28 International Corporate Governance Network, Web site available at <http://www.icgn.org/>,

accessed May 23, 2003.

29 Institute of Directors in Southern Africa, Web site available at <http://www.iodsa.co.za>, accessed

May 23, 2003.

30 Institute of Social and Ethical AccountAbility, Web site available at <http://www.

AccountAbility.org.uk>, accessed May 23, 2003.

31 International Labor Organization, Web site available at <http://www.ilo.org/>, accessed 

May 23, 2003.
Notes 297

32 For more detail, see Kathryn Gordon, The OECD Guidelines and Other Corporate Responsibility

Instruments: A Comparison, available at <http://www.oecd.org>, accessed May 23, 2003, and David

Grayson and Adrian Hodges, Everybody’s Business: Management Risks and Opportunities in Today’s

Global Society (London and New York: DK Publishing, 2002), p. 294. A table of global corporate

responsibility standards maintained by the Ethics & Policy Integration Centre for the Ethics Officer

Association is updated periodically and available at <http://www.Ethics-Policy.net/global/

index.html/>.

33 Table 2.2 is provided courtesy of Kenneth W. Johnson. For more information and similar table,

see <http://www.Ethics-Policy.net/SGO_questions.html>, accessed May 23, 2003. 

CHAPTER 3 NOTES

1 There appears to be a significant cultural component to setting business goals and objectives as

well as to making ethical decisions. See, for example, Geert Hofstede and others, “What Goals Do

Business Leaders Pursue? A Study in Fifteen Countries,” Journal of International Business Studies 33,

no. 4 (2002), available at <http://www.questia.com>, accessed June 6, 2003. 

2 See, for example, Judith Kenner Thompson and Howard L. Smith, “Social Responsibility and

Small Business: Suggestions for Research,” Journal of Small Business Management 29, no. 1 (1991),

available at <http://www.questia.com>, accessed June 6, 2003. Thompson and Smith examined the

relatively little research into SME social responsibility.

3 The RBE Worksheets are provided courtesy of Kenneth W. Johnson, Ethics & Policy 

Integration Centre.

4 Linda K. Treviño, et al., “Managing Ethics and Legal Compliance: What Works and What Hurts,”

California Management Review 41 (Winter 1999): 131–51 at p. 131.

5 Ibid., pp. 141 (consistency) and 143–44 (reward systems).

6 Ibid., p. 139.

7 See, for example, Diana E. Murphy, “The Federal Sentencing Guidelines for Organizations: A

Decade of Promoting Compliance and Ethics,” 87 Iowa Law Review 697 (2002), available at

<http://www.ussc.gov/corp/Murphy1.pdf>, accessed May 23, 2003.

8 Treviño, et al., “Managing Ethics and Legal Compliance,” pp. 135–38.

9 Ibid., p. 139.

10 The U.S. Department of Justice specifically considers whether a corporation has a corporate

compliance program. In a memorandum dated Jan. 20, 2003, the department directs its prosecutors to ask two questions: (a) “Is the corporation’s compliance program well designed?” and (b)

“Does the corporation’s compliance program work?” Although the department has no formal

guidelines for corporate compliance, it specifically refers to the “Guideline for Sentencing

Organizations” of the United States Federal Sentencing Guidelines, Guidelines Manual, §8A1.2,

Commentary (n.3[k]) (November 1997). See also United States Sentencing Commission

§8C2.5(f).

11 Lori Tansey, “Corporate Compliance Programs: International Implications,” Corporate Conduct

Quarterly 4, no. 2 (1995). Cited in Dove Izraeli and Mark S. Schwartz, “What Can We Learn from

the U.S. Federal Sentencing Guidelines for Organizational Ethics,” available at <http://www.itcilo.it/English/acttrav/telearn/global/ilo/code/whatcan.htm>, accessed May 23, 2003.
298 Business Ethics

12 See, for example, Murphy, “The Federal Sentencing Guidelines for Organizations.” 

13 The enterprise must also voluntarily disclose any violations to the appropriate agency.

Cooperation is encouraged, but not required. The FSGO have other, more specific requirements,

but these have come to define what it means to have an effective program.

14 Australia Criminal Code (Criminal Code Bill 1994, Part 2.5, Division 12, Section 12.3[2] [c and d]).

Australia has also established the AS 3086 Compliance Standard. 

15 Dawn-Marie Driscoll and W. Michael Hoffman, Ethics Matter: How to Implement Values-Driven

Management (Waltham, Mass.: Center for Business Ethics, 2000).

16 Linda K. Treviño and Katherine A. Nelson, Managing Business Ethics: Straight Talk about How to

Do It, 2nd ed. (New York: John Wiley & Sons, 1999), pp. 33–35, 144–45.

17 See, for example, five recent works: Lynn Sharp Paine, Value Shift: Why Companies Must Merge

Social and Financial Imperatives to Achieve Superior Performance (New York: McGraw-Hill, 2003);

Sandra Waddock, Leading Corporate Citizens: Vision, Values, Value Added (Boston: McGraw-Hill, 2002);

Simon Zadek, The Civil Corporation: The New Economy of Corporate Citizenship (London and Sterling,

Va.: Earthscan, 2001); David Grayson and Adrian Hodges, Everybody’s Business: Management Risks and

Opportunities in Today’s Global Society (London and New York: DK Publishing, 2002); and Malcolm

McIntosh, et al., Corporate Citizenship: Successful Strategies for Responsible Companies (London: Financial

Times Management, 1998).

18 John Carver with Caroline Oliver, Corporate Boards That Create Value: Governing Company

Performance from the Boardroom (San Francisco: Jossey-Bass, 2002), pp. xxi–xxii.

19 Frances Hesselbein, “When the Roll Is Called in 2010,” in On Creativity, Innovation, and Renewal,

edited by Frances Hesselbein and Rob Johnson (San Francisco: Jossey-Bass, 2002), p. 2; James C.

Collins and Jerry I. Porras, Built to Last: Successful Habits of Visionary Companies (New York:

HarperBusiness, 2002); and James C. Collins, Good to Great: Why Some Companies Make the Leap . . .

and Others Don’t (New York: HarperBusiness, 2001).

20 David L. Bradford and Allan R. Cohen, Power Up: Transforming Organizations through Shared

Leadership (New York: John Wiley & Sons, 1998), quoted in Janet Zich, “Ideas: We’re All in This

Together,” available at <http://www.gsb.stanford.edu/community/bmag/sbsm9809/ideas.html>,

accessed May 23, 2003.

21 Archie B. Carroll and Ann K. Buchholtz, Business & Society: Ethics and Stakeholder Management, 4th

ed. (Cincinnati, Ohio: South-Western, 2000).

22 Robert C. Solomon, A Better Way to Think About Business: How Personal Integrity Leads to Corporate

Success (New York and Oxford, England: Oxford University Press, 1999), p. 46. See also R. Edward

Freeman, Strategic Management: A Stakeholder Approach (New York: Basic Books, 1984), and Brian K.

Burton and Craig P. Dunn, “Feminist Ethics as Moral Grounding for Stakeholder Theory,” Business

Ethics Quarterly (April 1996): 133–47.

23 This approach to business ethics program design and implementation is an application of three of

the better works in the field: David A. Nadler, Champions of Change: How CEOs and Their Companies

Are Mastering the Skills of Radical Change (San Francisco: Jossey-Bass, 1998). Nadler’s work is a very

good guide to the theory of organizational change from a systems perspective. Tony Grundy,

Implementing Strategic Change (London: KoganPage, 1993), which is a very good practical guide to

organizational change. And, Robert W. Jacobs, Real Time Strategic Change: How to Involve an Entire

Organization in Fast and Far-Reaching Change (San Francisco: Berrett-Koehler, 1994) suggests a

process for involving an entire organization in strategic change.
Notes 299

CHAPTER 4 NOTES

1 Joshua Joseph, “Integrating Business Ethics Programs: A Study of Ethics Officers in Leading

Organizations,” Business and Society Review (Fall 2002): 309–47, at p. 310. 

2 Ibid., pp. 310–11.

3 Geert Hofstede, Cultures and Organizations: Intercultural Cooperation and Its Importance for Survival

(New York: McGraw-Hill, 1997), p. 3.

4 Kenneth W. Johnson, “The Role of Culture in Achieving Organizational Integrity, and Managing

Conflicts between Cultures,” available at <http://www.Ethics-Policy.net/quest_5.html>, accessed

May 27, 2003.

5 This list is based on the experience of the principal author. Certain of the items are more fully discussed in Linda K. Treviño, et al., “Managing Ethics and Legal Compliance: What Works and What

Hurts,” California Management Review 41 (Winter 1999): 131–51, at pp. 141–51; and Joshua Joseph,

National Business Ethics Survey 2003 (Washington, D.C.: Ethics Resource Center, 2003).

6 These program outcomes are based on the experience of the principal author and are an adaptation and extension of those used in Treviño, et al., “Managing Ethics and Legal Compliance,” and

Joseph, National Business Ethics Survey 2003.

7 Joseph, National Business Ethics Survey 2003, pp. 27–28. 

8 A plan of action and milestones integrates these into specific steps and includes the when element.

9 This discussion of program logic models is adapted from University of Missouri Extension and

Outreach, “Program Planning and Development—Program Logic Model,” available at <http://outreach.missouri.edu/staff/programdev/plm>, accessed May 23, 2003.

10 Bong-Ahn Yoo, “Korea’s Police Anti-Corruption Plan,” in Progress in the Fight against Corruption

in Asia and the Pacific (Manila: Asian Development Bank, 2001), pp. 93–96.

11 See, for example, Chris Robertson and Paul A. Fadil, “Developing Corporate Codes of Ethics in

Multinational Firms: Bhopal Revisited,” Journal of Managerial Issues 10, no. 4 (1998): 454, available

at <http://www.questia.com>, accessed June 6, 2003.

12 See, for example, Miroslav Prokopijevic ́, editor, Two Years of Reform in Serbia: A Wasted Opportunity

(Belgrade: Free Market Center Team, 2002), p. 8, available at <http://www.fmc.org.yu/

studies/en/atlas-eng.pdf>, accessed May 23, 2003.

13 Zygmunt J. B. Plater, Robert H. Abrams, and William Goldfarb, Environmental Law and Policy:

Nature, Law, and Society (St. Paul, Minn.: West Publishing, 1992).

14 Hofstede, Cultures and Organizations, pp. 13–14, 164–65. See also Christopher J. Robertson and

James J. Hoffman, “How Different Are We? An Investigation of Confucian Values in the United

States,” Journal of Managerial Issues 12, no. 1 (2000): 34, available at <http://www.questia.com>,

accessed June 7, 2003.

15 See, for example, Richard D. Lewis, When Cultures Collide: Managing Successfully across Cultures

(London: Nicholas Brealy, 1996).

16 This table is updated periodically and is available at <http://www.Ethics-Policy.net/SGO_

questions.html>, accessed May 23, 2003.

17 See, for example, James C. Collins and Jerry I. Porras, Built to Last: Successful Habits of Visionary

Companies (New York: HarperBusiness, 2002), pp. 46–79.
300 Business Ethics

CHAPTER 5 NOTES

1 This question is developed in detail in Chapters 2 and 4.

2 See, for example, the worksheets in Chapter 4. 

3 See, for example, “Nucor’s Management Philosophy,” available at <http://www.nucor-fastener.com/

nucor.html>, accessed June 5, 2003.

4 See also Dawn-Marine Driscoll and W. Michael Hoffman, Ethics Matters: How to Implement ValuesDriven Management (Waltham, Mass.: Center for Business Ethics, 2000), p. 78. 

5 John Carver with Caroline Oliver, Corporate Boards That Create Value: Governing Company

Performance from the Boardroom (San Francisco: Jossey-Bass, 2002), p. 22. Referred to here as responsible governance, the approach ensures that all operating policies, decisions, and actions set, made, and

taken by employees of the enterprise are consistent with the enterprise’s core beliefs. See also Lynn

Sharp Paine, Value Shift: Why Companies Must Merge Social and Financial Imperatives to Achieve

Superior Performance (New York: McGraw-Hill, 2003), p. 142.

6 Carver with Oliver, Corporate Boards That Create Value, p. 23 (Exhibit 2.2).

7 The policy statements in Boxes 5.1 through 5.4 are provided courtesy of John Carver and Caroline

Oliver. These statements are set forth in more detail in Carver with Oliver, Corporate Boards That

Create Value, pp. 40–41 (Exhibit 3.2). 

8 Courtesy of John Carver and Caroline Oliver. See Carver with Oliver, Corporate Boards That Create

Value, p. 53, extract from Exhibit 4.1, Board-Management Delegation Policy, “Delegation to the CEO.”

9 Ibid., p. 63.

10 Ibid.

11 Ibid. 

12 Ibid., pp. 74–75.

13 Ibid., pp. 61–62.

14 Ibid., pp. 66–67.

15 Ibid., p. 67.

16 See, for example, Chris Robertson and Paul A. Fadil, “Developing Corporate Codes of Ethics in

Multinational Firms: Bhopal Revisited,” Journal of Managerial Issues 10, no. 4 (1998): 454, available

at <http://www.questia.com>, accessed June 6, 2003.

17 James C. Collins and Jerry I. Porras, Built to Last: Successful Habits of Visionary Companies

(New York: HarperBusiness, 2002), pp. 219–39.

18 Ibid., p. 234.

19 Ibid., pp. 226–27.

20 Ibid., Chapter 11.

21 “Guided by Values,” available at <http://www.novonordisk.com/sustainability/sustainability_

strategy/guided_by_values.asp>, accessed June 7, 2003.

22 Collins and Porras, Built to Last, p. 237. 
Notes 301

23 The term code of conduct refers to written guidance to employees and agents that sets forth the standards they are to meet in making decisions and in acting on behalf of the enterprise with regard to

the enterprise’s core beliefs, commitments to stakeholders, and specific compliance requirements.

Such guidance may be described by terms such as standards of conduct, code of ethics, corporate credo, or

code of business conduct.

24 Royal Dutch/Shell, “Statement of General Business Principles,” available at <http://www.

shell.ca/code/values/commitments/principles.html>, accessed May 23, 2003. These principles are

augmented by “management primers” that “offer background on key commitments made in the

[principles] and guidance on how to apply them.”

25 U.N. Global Compact, available at <http://www.unglobalcompact.org>, accessed May 23, 2003.

26 Royal Dutch/Shell, “Statement of General Principles.”

27 Ibid.

28 Ibid.

29 Ibid.

30 These concepts of social responsibility for businesses are developed in detail in Chapter 2.

31 Royal Dutch/Shell, “Statement of General Principles.”

32 Amnesty International and Pax Christi Netherlands, press release, “Shell’s Revised ‘Statement of

General Business Principles’: A Significant but First Step Ahead,” available at <http://www.paxchristi.

net/PDF/AF02E97.pdf>, accessed May 23, 2003.

33 Chiquita Brands International, “Corporate Responsibility: Living Our Core Values,” available at

<http://www.Chiquita.com>, accessed May 23, 2003.

34 United Technologies Corporation, “Our Commitments,” available at <http://www.utc.com/

profile/profile/commitments/index.htm>, accessed May 23, 2003.

35 Caux Round Table, “Principles for Business,” available at <http://www.cauxroundtable.org/

PRIN4.HTM>, accessed May 23, 2003.

36 This subject is beyond the scope of this guide, but adopting a code is often a matter that must be

negotiated under an individual employment contract or work council (European Union) or with

organized labor (United States). For European Union considerations, see Lori Tansey Martens and

William Miller, “Ethics and Compliance: European Update,” Ethikos (July/August 1999): 4–5. For

U.S. considerations, see American Electric Power Co., Decisions of the National Labor Relations

Board, 302 NLRB No. 161 (1991).

37 See, for example, M. Cash Mathews, Strategic Intervention in Organizations: Resolving Ethical

Dilemmas (Thousand Oaks, Calif.: Sage, 1988); Joshua Joseph, National Business Ethics Survey 2003

(Washington, D.C.: Ethics Resource Center, 2003); and Linda K. Treviño, et al., “Managing Ethics

and Legal Compliance: What Works and What Hurts,” California Management Review 41 (Winter

1999): 131–51. 

38 Phil Watts, a managing director at Royal Dutch/Shell, quoted in Ronald E. Berenbeim, Global

Corporate Ethics Practices: A Developing Consensus (New York: Conference Board, 1999).

39 For a matrix covering many of the European legislation and initiatives regarding corporate social

responsibility as of October 2002, see United States Council for International Business, “Corporate

Responsibility Initiatives in Europe,” available at <http://www.uscib.org/docs/EUCSRMatrix.pdf>,

accessed June 25, 2003.
302 Business Ethics

40 New York Stock Exchange, “Final NYSE Corporate Governance Rules,” available at

<http://www.nyse.com/pdfs/finalcorpgovrules.pdf>, accessed January 23, 2004. Demonstrating the

close relationship between government regulation and free markets, these rules reflect the requirements of recent legislation in the United States known as the Sarbanes-Oxley Act of 2002, available

at <http://news.findlaw.com/hdocs/docs/gwbush/sarbanesoxley072302.pdf>, accessed May 23, 2003.

41 NTT Group, “NTT Group Ethical Code on Environmental Issues,” available at

<http://www.ntt.co.jp/kankyo/e/2002report/qa/chapter1/q04_2.html>, accessed May 23, 2003.

42 See, for example, Robertson and Fadil, “Developing Corporate Codes of Ethics in Multinational

Firms,” p. 454.

43 W. Michael Hoffman, “Writing a Company’s Code of Ethics,” available at <http://www.iit.edu/

departments/csep/perspective/persp_v19_fall99_5.html>, accessed May 23, 2003.

44 WMC Resources Ltd., “Code of Conduct,” available at <http://www.wmc.com.au/about/conduct/

index.htm>, accessed May 23, 2003.

45 NTT Group, “NTT Group Ethical Code on Environmental Issues.”

46 Guardsmark LLC, “Ethics,” available at <http://www.guardsmark.com/approach/approach_

sec.asp?nav=1&subnav=3&content_id=8>, accessed May 23, 2003.

47 HCA Inc., “Introduction to Ethics, Compliance and Corporate Responsibility,” available at

<http://ec.hcahealthcare.com>, accessed May 23, 2003.

48 United Technologies Corporation, “Welcome to Social Responsibility,” available at

<http://www.utc.com/social/ethics>, accessed May 23, 2003.

49 For more detail about code styles, see Driscoll and Hoffman, Ethics Matters, Chapter 8.

50 Ronald E. Berenbeim, “Codes of Conduct,” in Compliance Programs and the Corporate Sentencing

Guidelines: Preventing Criminal and Civil Liability, edited by Jeffrey M. Kaplan, Joseph E. Murphy,

and Winthrop M. Swenson (Deerfield, Ill., New York, and Rochester, N.Y.: Clark Boardman

Callaghan, 1993–2003), Chapter 7, § 7.4.

51 William P. Birkett, “Ethical Codes in Action,” in “Articles and Speeches,” International

Federation of Accountants, available at <http://www.ifac.org/Library/SpeechArticle.tmpl?

NID=96261008030>, accessed May 23, 2003. 

52 HCA Inc., “Code of Conduct,” available at <http://ec.hcahealthcare.com>, accessed May 23,

2003. HCA’ s policies can be downloaded from the site.

53 See also Stephen B. Page, Establishing a System of Policies and Procedures (Mansfield, Ohio:

Bookmasters, 1998).

54 These samples are included as representative examples. Each enterprise must decide for itself what

specific provisions to include in its codes and policies. 

55 Motorola, “Code of Business Conduct,” available at <http://www.motorola.com/code/code.html>,

accessed May 23, 2003.

56 See, for example, Berenbeim, “Codes of Conduct,” § 7.5. 

57 Carver with Oliver, Corporate Boards That Create Value, pp. 66–67.
Notes 303

CHAPTER 6 NOTES

1 This question is developed in detail in Chapters 2 and 4.

2 HCA Inc., “Ethics and Compliance Web Site,” available at <http://ec.hcahealthcare.com>,

accessed May 23, 2003.

3 Lori Tansey Martens and William Miller, “Ethics and Compliance: European Update,” Ethikos

(July/August 1999): 4–6.

4 Joseph T. Wells, “Protect Small Business: Small Companies without Adequate Internal Controls

Need CPAs to Help Them Minimize Fraud Risk,” Journal of Accountancy 195, no. 3 (2003), available

at <http://www.questia.com>, accessed June 6, 2003.

5 Linda K. Treviño, et al., “Managing Ethics and Legal Compliance: What Works and What Hurts,”

California Management Review 41 (Winter 1999): 131–51, at pp. 141–42.

6 In a 1996 opinion, In re Caremark, (C.A. 13670), the influential Delaware Chancery Court held

that, “A director’s obligation includes a duty to attempt in good faith to assure that a corporate

information and reporting system... exists and that failure to do so under some circumstances may

... render a director liable for losses caused by noncompliance with applicable legal standards.” This

standard has been adopted by the U.S. Department of Justice in deciding whether to prosecute an

enterprise for misconduct on the part of its employees or agents. Department of Justice memorandum, “Principles of Federal Prosecution of Business Organizations,” dated Jan. 20, 2003, available

at <http://www.ethics-policy.net/prosecution_2003.html>, accessed May 23, 2003.

7 The U.S. Securities and Exchange Commission has published regulations governing the conduct

of the audit committee and a code of ethics for senior financial officers. Securities and Exchange

Commission, “Final Rule: Disclosure Required by Sections 406 and 407 of the Sarbanes-Oxley Act

of 2002, 17 CFR Parts 228, 229, and 249, Release Nos. 33-8177; 34-47235,” available at

<http://www.sec.gov/rules/final/33-8177.htm>, accessed May 23, 2003.

8 Other committees that might be appointed include compensation and nominating committees. 

9 Box 6.2 is a policy statement adapted from an e-mail communication with John Carver, author

(with Caroline Oliver) of Corporate Boards That Create Value: Governing Company Performance from the

Boardroom (San Francisco: Jossey-Bass, 2002).

10 See, for example, the International Corporate Governance Network. This principle also applies

to compensation and nominating committees. Available at <http://www.icgn.org>, accessed 

May 23, 2003.

11 Adapted from Christopher Martin Bennett and Graydon R. Wood, “Assigning Compliance

Responsibility,” in Compliance Programs and the Corporate Sentencing Guidelines: Preventing Criminal

and Civil Liability, edited by Jeffrey M. Kaplan, Joseph E. Murphy, and Winthrop M. Swenson

(Deerfield, Ill., New York, and Rochester, N.Y.: Clark Boardman Callaghan, 1993–2002), Chapter

8, §§ 8.1–8.5. See also Joshua Joseph, “Integrating Business Ethics and Compliance Programs: A

Study of Ethics Officers in Leading Organizations,” Business and Society Review (Fall 2003): 309–47.

12 This is also a specific responsibility under the U.S. Federal Sentencing Guidelines for

Organizations.

13 Bennett and Wood, “Assigning Compliance Responsibility,” § 8.4.

14 Under the Federal Sentencing Guidelines for Organizational Defendants, the high-level person

responsible may be a director, but that blurs the distinction made in this guide between governance

and management.
304 Business Ethics

15 Adapted from Richard P. Kusserow and Andrew H. Joseph, Corporate Compliance Policies and

Procedures: A Guide to Assessment and Development (Marblehead, Mass.: Opus Communications, 2000),

p. 20. See also HCA Inc., “Policy on Business Ethics Offices,” available at <http://ec.hcahealthcare.com/CPM/EC010.doc>, accessed May 23, 2003.

16 Joseph, “Integrating Business Ethics and Compliance Programs,” pp. 323–24.

17 Ibid., pp. 330–31.

18 Bennett and Wood, “Assigning Compliance Responsibility,” § 8.8. See also Treviño, et al.,

“Managing Ethics and Legal Compliance,” pp. 146–47.

19 If the professional ethics council addresses issues that are of the essence of the RBE, a best practice is to design two separate councils—the general ethics, compliance, and responsibility council

and the more specialized professional ethics council—each having overlapping membership and

independent reporting to senior management and the board. 

20 Treviño, et al., “Managing Ethics and Legal Compliance,” pp. 142–43. 

21 See, for example, Memorial Hermann Healthcare System, “Standards of Conduct,” available at

<http://www.mhhs.org/aboutus/StandardsofConduct100401.doc>, accessed May 23, 2003.

CHAPTER 7 NOTES

1 Lyuba Zarsky, “Beyond Good Deeds: For Multinational Corporations to Adopt Socially

Responsible Business Practices, Voluntary Measures Are Not Enough,” Forum for Applied Research

and Public Policy 16, no. 4 (2002), available at <http://www.questia.com>, accessed June 7, 2003.

2 These questions are developed in detail in Chapters 2 and 4.

3 See discussion in Chapters 4 and 10.

4 “Corporate Recruiters Face the ‘Enron Effect,’” available at <http://www.epolitix.com/data/companies/images/Companies/Work-Foundation/191202.htm>, accessed April 16, 2003.

5 An example is the Better Banana Project of the Rainforest Coalition and Chiquita Brands:

Rainforest Alliance, “Profiles in Sustainable Development Partnerships: Chiquita Reaps Better

Bananas,” available at <http://www.rainforest-alliance.org/programs/profiles/ag-chiquita-profile11-14-02horizon.pdf>, accessed May 23, 2003.

6 Jon Entine, “Shell, Greenpeace and Brent Spar: The Politics of Dialogue,” in Case Histories in

Business Ethics, edited by Chris Megone and Simon J. Robinson (London and New York: Routledge,

2002), pp. 59–95. This well-documented case study includes this quotation from a national

Environmental Research Council report.

7 British Broadcasting, “World: Europe Brent Spar Gets Chop,” available at <http://news.

bbc.co.uk/1/hi/world/europe/221508.stm>, accessed May 23, 2003.

8 British America Tobacco, “Corporate Social Responsibility,” available at <http://www.

bat.com/oneweb/sites/uk__3mnfen.nsf/vwPagesWebLive/DO52AD7G?opendocument&TMP=>,

accessed at May 23, 2003.

9 These standard data collection devices are described in Chapter 10.

10 Expected program outcomes are discussed in Chapters 4 and 10.
Notes 305

11 Global Reporting Initiative, available at <http://www.globalreporting.org/>, accessed May 23,

2003. AA1000, developed by AcccountAbility in the United Kingdom, is available at

<http://www.accountability.org.uk>, accessed May 23, 2003. 

12 For European Union considerations, see Lori Tansey Martens and William Miller. “Ethics and

Compliance: European Update,” Ethikos (July/August 1999): 4–6. For U.S. considerations, see

American Electric Power Co., Decisions of the National Labor Relations Board, 302 NLRB 

No. 161 (1991).

13 Michael J. Marquardt, Action Learning in Action: Transforming Problems and People for World-Class

Organizational Learning (Palo Alto, Calif.: Davies-Black, 1999), pp. 57–67.

14 See, for example, Michael MacDonald, “A Framework for Ethical Decision-Making,” available at

<http://www.ethics.ubc.ca/mcdonald/decisions.html>, accessed May 23, 2003; Josephson Institute 

of Ethics, “The Seven Step Path to Ethical Decisions,” available at <http://www.

josephsoninstitute.org/MED/MED-4sevensteppath.htm>, accessed May 23, 2003; and Kenneth W.

Johnson, “An Ethics and Policy Decision Making Tool,” available at <http://www.Ethics-Policy.net/

ethical_decisions.html>, accessed May 23, 2003.

15 “Primary Sources,” Atlantic Monthly 290, no. 4: 46, citing the Brookings Institution: “The Bigger

They Are, the Harder They Fall: An Estimate of the Costs of the Crisis in Corporate Governance,”

available at <http://www.brookings.edu/views/papers/graham/20020722.htm>, accessed July 9, 2003.

16 Lori Tansey Martens, “Transatlantic Perspectives on Business Ethics Training,” International

Business Ethics Institute unpublished working paper, accessed April 22, 2003.

17 Several ethics games are described in Linda K. Treviño and Katherine A. Nelson, Managing

Business Ethics, 2nd ed. (New York: John Wiley & Sons, 1999), pp. 265–67. 

18 See, for example, “Boeing Ethics Challenge,” available at <http://active.boeing.com/companyoffices/

ethicschallenge/cfm/initial.cfm>, accessed May 23, 2003.

19 See, for example, Martens, “Transatlantic Perspectives on Business Ethics Training.”

20 Joshua Joseph, National Business Ethics Survey 2000 (Washington, D.C.: Ethics Resource Center,

2001), pp. 22–23. See also Lori Tansey Martens and Amber Crowell, “Whistleblowing: A Global

Perspective” (Part I), Ethikos (May/June 2002): 6–8. 

21 Christine A. Wardell and Jacqueline P. Minor, “Protecting Whistleblowers from Retaliation: The

Corporate Ombuds Office,” in Compliance Programs and the Corporate Sentencing Guidelines:

Preventing Criminal and Civil Liability, edited by Jeffrey M. Kaplan, Joseph E. Murphy, and

Winthrop M. Swenson (Deerfield, Ill., New York, and Rochester, N.Y.: Clark Boardman Callaghan,

1993–2002), Chapter 13, § 13.1.

22 Joshua Joseph, National Business Ethics Survey 2003 (Washington, D.C.: Ethics Resource Center,

2003), p. 42. The four elements used to differentiate among business ethics programs are discussed

in Joseph, National Business Ethics Survey, Chapter 2. These positive associations between having a

business ethics program and expected program outcomes held true for the following program outcomes as well: less feeling of pressure to compromise standards, more satisfaction with management’s

response to reported concerns, more sense that managers and supervisors are held accountable, and

more satisfaction with the enterprise as a whole. 

23 Guy Dehn, cited in Lori Tansey Martens and Amber Crowell, “Whistleblowing: A Global

Perspective (Part II),” Ethikos (July/August 2002): 9–12, at p. 10.

24 Joseph, National Business Ethics Survey 2000, pp. 23–24.
306 Business Ethics

25 For a discussion of global approaches to protecting whistleblowers, see Martens and Crowell,

“Whistleblowing: A Global Perspective (Part II).”

26 See, for example, Kenneth W. Johnson, “Confidentiality, Privilege, and an Effective Ethics

Program,” available at <http://www.Ethics-Policy.net/confidentiality_Privilege.html>, accessed 

June 4, 2003.

27 For more information about the organizational ombudsman, visit the Ombudsman Association

Web site at <http://www.ombuds-toa.org/all_about_toa.htm>, accessed May 27, 2003.

28 Anita Roddick, “A Third Way for Business, Too,” New Statesman 3 (April 1998), available at

<http://www.questia.com>, accessed June 6, 2003.

CHAPTER 8 NOTES

1 See, for example, Larry Bossidy and Ram Charan, Execution: The Discipline of Getting Things Done

(New York: Crown Business, 2002); James C. Collins and Jerry I. Porras, Built to Last: Successful

Habits of Visionary Companies (New York: HarperBusiness, 2002), pp. 201–18; Joshua Joseph, National

Business Ethics Survey 2000 (Washington, D.C.: Ethics Resource Center, 2001); and Linda K.

Treviño, et al., “Managing Ethics and Legal Compliance: What Works and What Hurts,” California

Management Review 41 (Winter 1999): 131–51, at pp. 141–44.

2 These questions are developed in detail in Chapters 2 and 4.

3 Treviño, et al., “Managing Ethics and Legal Compliance,” pp. 141–42. 

4 Joshua Joseph, National Business Ethics Survey 2003 (Washington, D.C.: Ethics Resource Center,

2003), p. 31. The elements used to differentiate among ethical actions of top management, supervisors, and co-workers are discussed in Joseph, National Business Ethics Survey 2003, Chapter 3.

5 Ibid., p. 31. These associations between manager and supervisor ethics-related actions and expected program outcomes held true for feeling pressure to compromise standards (p. 37), being satisfied

with management’s response to reported concerns (p. 48), a sense that managers and supervisors are

held accountable (p. 54), and employee satisfaction with the enterprise (p. 57).

6 James C. Collins, Good to Great: Why Some Companies Make the Leap . . . and Others Don’t (New

York: HarperBusiness, 2001), p. 50.

7 Channel stuffing is colluding with or offering improper incentives to clients to order products or

services they would not ordinarily purchase at that time.

8 Treviño and others, “Managing Ethics and Legal Compliance,” p. 155.

9 Joseph, National Business Ethics Survey 2000, pp. 22–23.

10 Treviño, et al., “Managing Ethics and Legal Compliance,” pp. 136–39. Most harmful, according

to the authors’ research, is an organizational culture of unquestioning obedience to authority. See

pp. 136–37 and 143–44.

11 Joseph L. Badaracco Jr., Leading Quietly: An Unorthodox Guide to Doing the Right Thing (Boston:

Harvard Business School Press, 2002), p. 11.

12 Anton R. Valukas and Robert R. Stauffer, “Investigation and Disclosure of Violations,” in

Compliance Programs and the Corporate Sentencing Guidelines: Preventing Criminal and Civil Liability,

edited by Jeffrey M. Kaplan, Joseph E. Murphy, and Winthrop M. Swenson (Deerfield, Ill., New

York, and Rochester, N.Y.: Clark Boardman Callaghan, 1993–2003), § 14.16.
Notes 307

13 Lynn Sharp Paine, “Managing for Organizational Integrity,” Harvard Business Review,

(March/April 1994): 106–117, at p. 109.

14 A link to its credo is prominently set on Johnson & Johnson’s home page, and is accessible by

national language from Argentina to Zimbabwe. Available at <http://www.jnj.com>, accessed May

23, 2003.

15 Paine, “Managing for Organizational Integrity,” p. 109.

CHAPTER 9 NOTES

1 U.S. Department of State, “Recognizing and Making Anticorruption Issues Part of the

Business–Government Dialogue,” in Fighting Global Corruption: Business Risk Management, available

at <http://www.state.gov/g/inl/rls/rpt/fgcrpt/2001>, accessed June 3, 2003.

2 Joel S. Hellman and others, “Measuring Governance, Corruption, and State Capture: How Firms

and Bureaucrats Shape the Business Environment in Transition Economies,” Policy Research

Working Paper 2312 (Washington, D.C.: World Bank, 2000), p. 36. Available at <http://www.worldbank.org/wbi/governance/pdf/measure.pdf>, accessed June 4, 2003. 

3 Legal services were also provided to several businesses whose rights were abused. In Azerbaijan,

several business associations, including the Entrepreneurship Development Foundation and the

Confederation of Entrepreneurs (Employees), lobbied for limitation of the number of licensed types

of activities. As of Jan. 1, 2003, the number of such activities was reduced from 240 (including wild

plant and berry picking) to 30. 

4 See, for example, Juliette Bennett, “Multinational Corporations, Social Responsibility, and

Conflict,” Journal of International Affairs 55, no. 2 (2002), available at <http://www.questia.com>,

accessed June 7, 2003.

5 Joel Hellman and Daniel Kaufmann, “Confronting the Challenge of State Capture in Transition

Economies,” Finance & Development (September 2001): 31.

6 See, for example, Joel Hellman, Geraint Jones, and Daniel Kaufmann, “Seize the State, Seize the

Day,” Policy Research Working Paper 2444 (Washington, D.C.: World Bank Institute, 2000), available at <http://www.worldbank.org/wbi/governance/pdf/seize.pdf>, accessed May 23, 2003; Joel

Hellman, Geraint Jones, Daniel Kaufmann, and Mark Schankerman, “Measuring Governance and

State Capture: The Role of Bureaucrats and Firms in Shaping the Business Environment,” World

Bank Working Paper 2312 (Washington, D.C.: World Bank Institute, 2000); and Hellman and

Kaufmann, “Confronting the Challenge of State Capture in Transition Economies.” In general, see

<http://www.worldbank/wbi/governance>, accessed May 23, 2003. 

7 Barry Z. Posner and Warren H. Schmidt, “The Values of Business and Federal Government

Executives: More Different Than Alike,” Public Personnel Management 25, no. 3 (1996), available at

<http://www.questia.com>, accessed June 7, 2003.

8 Ion Anton, “From Entrepreneurship Education to Policy Advocacy,” available at

<http://www.cipe.org/publications/fs/ert/e30/antoe30.htm>, May 23, 2003.

9 Michael H. Wiehen, “Citizens against Corruption: Calling Government to Account,” in No Longer

Business as Usual: Fighting Bribery and Corruption (Paris: OECD Publications, 2000), pp. 199–213.

10 Ibid., pp. 199–200.

11 World Bank, “World Bank Procurement Policy,” available at <http://www.worldbank.org/

html/opr/propage.html>, accessed June 6, 2003. See also European Investment Bank, “Guide to
308 Business Ethics

Procurements,” available at <http://www.eib.org/Attachments/thematic/procure_en.pdf>, accessed

July 21, 2003.

12 The GPA can be found at <http://www.wto.org/english/docs_e/legal_e/grp-94.pdf>, accessed

June 6, 2003.

13 For a more detailed treatment of the integrity pact, see Wiehen, “Citizens against Corruption,”

pp. 206–8.

14 For more information about the integrity pact, see “The Integrity Pact: The Concept, the Model,

and the Present Applications—As of 31 December 2002,” at <http://www.transparency.org/building_

coalitions/integrity_pact/i_pact.pdf>, accessed May 23, 2003.

15 See, for example, “A New Development Agenda: Outlining the Challenges to Development in the

21st Century,” A Conversation with Louise Fréchette, Harvard International Review (Spring 2003):

40–41, at p. 40.

16 Vijay Pothukuchi, et al., “National and Organizational Culture Differences and International

Joint Venture Performance,” Journal of International Business Studies 33, no. 2 (2002), available at

<http://www.questia.com>, accessed June 7, 2003.

17 Financial Action Task Force on Money Laundering, “Basic Facts about Money Laundering,”

available at <http://www1.oecd.org/fatf/MLaundering_en.htm#How%20does%20money%20laundering%20affect%20business?>, accessed June 6, 2003.

18 See Todd Doyle, “Cleaning Up Anti-Money Laundering Strategies: Current FATF Tactics

Needlessly Violate International Law,” Houston Journal of International Law 24, no. 2 (2002), available

at <http://www.questia.com>, accessed June 6, 2003.

19 Lyuba Zarsky, “Havens, Halos, and Spaghetti: Untangling the Evidence about Foreign Direct

Investment and the Environment,” Nautilus Institute for Security and Sustainable Development,

available at <http://www.nautilus.org/papers/enviro/zarsky_oecdfdi.html>, accessed May 23, 2003.

CHAPTER 10 NOTES

1 Peter M. Senge, The Fifth Discipline: The Art and Practice of the Learning Organization (New York:

Doubleday/Currency, 1990), p. 14.

2 Peter Kline and Bernard Saunders, Ten Steps to a Learning Organization, 2nd rev ed. (Arlington, Va.:

Great Ocean Publishers, 1998), p. 23.

3 This question is developed in detail in Chapters 2 and 4.

4 See, for example, Michael J. Marquardt, Action Learning in Action: Transforming Problems and People

for World-Class Organizational Learning (Palo Alto, Calif.: Davies-Black, 1999), and Richard P.

Nielsen, The Politics of Ethics: Methods for Acting, Learning, and Sometimes Fighting with Others in

Addressing Ethics Problems in Organizational Life (New York: Oxford University Press, 1996).

5 Discussed in detail in Chapter 5.

6 Discussed in detail in Chapters 6 and 7.

7 Discussed in detail in Chapters 8 and 9.

8 Richard R. Ellsworth, Leading with Purpose: The New Corporate Realities (Stanford, Calif.: Stanford

University Press, 2002), p. 129.
Notes 309

9 See Kline and Saunders, Ten Steps to a Learning Organization, p. 24.

10 Simon Zadek, “The Era of Stakeholder Engagement,” Ethical Corporation Magazine (February

2003): 10–12.

11 Jane Reisman and Richard Mockler, A Field Guide to Outcome-Based Program Evaluation (Seattle,

Wash.: Evaluation Forum, 1994), p. 10. The approach we take to outcomes-based program evaluation is based on this work and its companion works, courtesy of the publisher. A source addressing

the process of responsibility reporting is AccountAbility AA1000S, a stakeholder framework. See

AA1000S, developed by AcccountAbility in the United Kingdom, at <http://www.accountability.

org.uk>, accessed May 23, 2003 © 1994 The Evaluation Forum.

12 These topics are developed in Chapter 4.

13 Linda K. Treviño, et al., “Managing Ethics and Legal Compliance: What Works and What

Hurts,” California Management Review 41 (Winter 1999): 131–51, at p. 141.

14 Global Reporting Initiative, available at <http://www.globalreporting.org>, accessed May 23, 2003.

15 AccountAbility, AA1000S, available at <http://www.accountability.org.uk>, accessed May 23, 2003.

16 Table 10.1 is adapted from Reisman and Mockler, A Field Guide to Outcome-Based Program

Evaluation, p. 41, courtesy of the publisher.

17 Box 10.4 is provided courtesy of Kenneth W. Johnson, Ethics & Policy Integration Centre.

18 The Evaluation Forum, Seattle, Wash., has an excellent series on program evaluation: Reisman

and Mockler, A Field Guide to Outcome-Based Program Evaluation; Jane Reisman and Judith Clegg,

Outcomes for Success (Seattle, Wash.: Organizational Research Services and Clegg & Associates,

1999); and Marc Bolan, Kimberly Francis, and Jane Reisman, How to Manage and Analyze Data for

Outcome-Based Evaluation (Seattle, Wash.: Organizational Research Services, 2000). See also

Writing@CSU Web site, available at <http://writing.colostate.edu/references/research/survey/

index.cfm>, accessed May 23, 2003.

19 An excellent collection of corporate social responsibility reports can be found at the CSR Wire

Web site, available at <http://www.csrwire.com/csr/home.mpl>, accessed May 23, 2003.

20 Reisman and Mockler, A Field Guide to Outcome-Based Program Evaluation, adapted courtesy of the

authors.

21 Box 10.7 is adapted from Global Reporting Initiative, “Part C: Report Content,” in Sustainability

Reporting Guidelines 2002, available at <http://www.globalreporting.org/guidelines/2002/

gri_2002_guidelines.pdf>.
GLOSSARY

Audit committee In large, complex enterprises, and recently as a matter of

joint-stock company law, the board of directors often creates an audit committee

to ensure the financial integrity of an enterprise. An audit committee investigates an enterprise’s financial records and ensures that its financial operations are

conducted on a transparent and accurate basis. The committee provides members of the board of directors with information about the financial and business

operations of the enterprise. This information enables the board of directors to

supervise implementation of the enterprise’s financial and business plan and to

ensure the efficiency of its internal control and risk management systems—two

key components of any business ethics program. 

Board of directors The board of directors of an enterprise is the primary body

responsible for representing the shareholders and safeguarding their interests.

The board creates special committees—such as audit, executive compensation,

and ethics committees—to fulfill this function. Increasingly, corporations will

also appoint a social responsibility committee. These committees issue reports

to the board, which uses the reports to make decisions concerning the development, implementation, and modification of the ethics compliance program. The

board of directors makes the final decisions concerning any policy, program, or

initiative that an enterprise may make. 

Bribery Bribery is a form of corruption. In the case of political corruption,

bribery is the direct or indirect provision of illegal compensation to—or any

other action in favor of—any employee of a government body. In return, the

government employee acts in a manner advantageous to the company or refrains

from acting to the company’s disadvantage. Enterprises use bribery to obtain or

retain business, receive patronage, or obtain an unwarranted advantage over

other businesses. 

Business ethics Business ethics are an integral part of responsible business

conduct. They describe an organization’s commitment to a set of commonly understood core values and principles, which provide a basis for business decisions

and conduct. Typically, business ethics presume that decisions will conform to

standards articulated in law and regulations; internal policy and procedures; a set

of core values determined by owners and managers, including honesty, integrity,

respect, and fairness; and commercial principles such as profitability, customer

satisfaction, product quality, health, safety, and efficiency. Business ethics issues

range from practical, immediate ones, such as an enterprise’s duty to be honest

with its employees and customers, to broader social and philosophical questions,

310
Glossary 311

such as a company’s responsibility to contribute to the welfare of the community

and to preserve the environment. 

Channel Stuffing Channel stuffing is the act of inducing customers or suppliers to increase purchases or decrease supplies or services that would be purchased or supplied in the ordinary course of business, solely to present a more

favorable performance or financial picture to partners.

Code of ethics A code of ethics is a blueprint for developing a culture of values in an organization. A code consists of a clearly stated and written set of

guidelines that managers, employees, and agents of an organization must follow.

A code of ethics is a reference tool that provides guidance to both employees and

managers on how to implement and practice business ethics in the workplace. A

code should embody both business standards (such as customer satisfaction, a

high quality of products, safety, and employee rights) and values (such as mutual

trust, respect, and honesty). 

Conflict of interest A conflict of interest occurs when the private interests of

an individual who works for an enterprise interfere, or appear to interfere, in any

way with the interests of the enterprise as a whole. A conflict arises when an employee, officer, or director of an enterprise performs an action that will interfere

with that individual’s ability to perform his or her official duties. 

Core values Core values are values shared by the leadership, the employees,

and the stakeholders of a business that make the business special and determine

its organizational culture. 

Corporate governance Corporate governance refers to the system that a

corporation establishes to structure relations among managers, directors, and

shareholders and between the enterprise and civil society. Such governance

measures are necessary when government charters provide limited liability to

shareholders, which separates ownership of the enterprise from responsibility

for day-to-day operations. Corporate governance practices are built on the ethical premise that the leaders of an enterprise have an obligation to be fair, transparent, accountable, and responsible in their conduct toward shareholders and

civil society. 

Corruption Corruption is any choice or action made or taken that intentionally violates the reasonable expectations of enterprise stakeholders for the profit or

gain of one responsible to some degree for meeting those expectations. Publicsector corruption is easy to recognize when a politician or bureaucrat accepts

large sums of cash to steer a government contract to a particular enterprise. However, corruption also exists when an owner or manager consciously chooses to fail

to meet reasonable stakeholder expectations for personal gain. The damage done

to the reputation of the enterprise and the social capital of its community may be

as severe as in public-sector corruption. See Enron and WorldCom.
312 Business Ethics

Declaration of integrity A declaration of integrity is a public agreement

among business enterprises in an industry or a locality that they will abide by an

agreed-on set of norms, values, and standards with a view to improving the business climate of the industry or community. This term differs from an integrity

pact in that the government is not necessarily involved and the agreement has

broader application than with government procurement. Such a declaration,

however, does not have the immediate risk of loss of an ability to bid on a contract that characterizes an integrity pact. A declaration of integrity might be

particularly valuable when a community foundation intends to fund a community-driven development project.

Discipline A discipline is a body of theory and practice that requires both reflection and action to be put into practice. The discipline of responsible business

conduct is a study that will last a lifetime. This discipline requires an understanding that an enterprise is a system and part of yet wider systems. It recognizes that

there are bodies of experience embedded in traditions, laws and regulations, industry best practices, and emerging global standards that practitioners will spend

precious time acquiring and sharing. Ultimately, the practitioner of such a discipline generates new knowledge to further the discipline itself.

Economic progress According to Peter Drucker, economic progress is “a

steady rise in the ability of an economy to invest more capital for each job

and thereby to produce jobs that yield better living as well as a better quality

of work and life.” (Peter F. Drucker, “The Delusion of ‘Profits’: A Company

That Loses Money Is Socially Irresponsible,” OpinionJournal, available at 

www.opinionjournal.com/extra/?id+110003570.) 

Employee survey An employee survey is a mechanism that an enterprise may

use to secure feedback from employees and to evaluate the effectiveness and impact of the enterprise’s ethics program. Such a survey sets forth questions concerning the enterprise’s organizational culture, the way the enterprise’s ethics

program works in practice, and the measurable expected program outcomes,

such as observed misconduct, willingness to seek advice and report misconduct,

issue awareness, and employee satisfaction and commitment to the enterprise.

Owners and managers use the survey data along with other data to determine

whether they have set and communicated the proper standards and procedures

and have fostered reasonable stakeholder expectations.

Enron and WorldCom Business scandals and failures are not new, but it is a

sign of how closely connected the global economies are that these two companies in the United States have become symbolic of much that is wrong with businesspeople. Researchers calculate that the loss of confidence following the

collapse of Enron and WorldCom will cost the U.S. economy $37 billion to $42

billion in reduced gross domestic product. Enron, in particular, went from being
Glossary 313

the seventh largest company in the United States to bankruptcy in a matter of

months as confidence in its leadership faded.

Ethics committee In large, complex enterprises, an ethics committee is often

created and assigned overall responsibility for the ethics and compliance 

program. The ethics committee helps develop and implement the ethics program and the code of ethics of an enterprise. The committee ensures that ethical, regulatory, and policy standards have been established within the enterprise

and that they are widely and consistently communicated to all. The committee

also monitors and improves the processes of the ethics program and works closely with all parties responsible for supervising and managing the ethics program,

including the ethics office, the ethics officer, and the board of directors.

Ethics office Many enterprises create an ethics office, which is responsible for

the day-to-day management and implementation of the enterprise’s ethics program. The office provides clarity and guidance on compliance with the code of

ethics and the enterprise’s policies and procedures regarding reporting and investigation of alleged misconduct. This office normally includes an ethics officer, support staff, and a help-line. 

Ethics officer The position of ethics officer is created to accomplish the day-today operations of the business ethics program. The ethics officer may or may not

be the person with high-level responsibility for the business ethics program. He or

she provides advice on ethical behavior and on how to report ethics concerns, investigates and monitors investigations of possible misconduct, monitors the development of the ethics program, and works with other bodies in the enterprise to

promote compliance. The ethics officer ensures that all levels of the organization

meet or exceed ethical, legal, and civil society expectations on a day-to-day basis.

The ethics officer generally has the right to report directly to both the chief executive officer and the board of directors, and often to the audit committee.

External stakeholders The external parties that have a stake in an enterprise’s success include customers and consumers, suppliers and service providers,

civil society organizations, nongovernmental organizations, government agencies, local community representatives, the media, and the environment. External

stakeholders share the objective of having business succeed in a manner that

strengthens both the economy and civil society. These stakeholders can provide

feedback on values and political, economic, and social considerations that an enterprise should integrate into its ethical identity.

Feedback mechanism A feedback mechanism is a tool that an enterprise may

use to obtain timely information pertaining to the implementation and effectiveness of its ethics program. A feedback mechanism could take the form of a survey, a focus group, a one-on-one interview, or a help-line.
314 Business Ethics

Fiduciary duties Each member of the board of directors of an enterprise is a

fiduciary who owes a duty of loyalty and duty of care to the enterprise. The duty

of loyalty requires a board member to place the best interests of the enterprise

first and to avoid advancing the member’s personal, financial, or professional interests at the expense of the enterprise. The duty of care requires a board member

to act as a reasonable and diligent businessperson would to help the enterprise

create maximum shareholder value with minimum risk. 

Focus groups A focus group is a feedback mechanism that brings together a

small group of employees and an outside party to gather information about life in

the enterprise. A focus group is a particularly useful device in evaluating a business ethics program. During a focus group, the outside party asks detailed questions and receives in-depth responses from employees about the ethics program. 

Good corporate governance Good corporate governance is the process by

which the leadership of an enterprise, especially a limited liability enterprise, sets

standards and procedures for employees and agents, fosters reasonable expectations among stakeholders, and meets those expectations. Good corporate governance expresses itself through a sound set of core beliefs, standards and

procedures, and expectations. It requires understanding the relevant context of

the enterprise, its organizational culture, and its strengths and weaknesses. Good

corporate governance exercises those strengths and reforms the weaknesses

through infrastructure, including a business ethics program. Good corporate

governance is more likely when there is a transparent relationship between the

government and the private sector. 

Good public governance Good public governance, in the context of this

manual, is the process by which the leadership of a country makes and implements decisions concerning the market. There are eight characteristics of good

governance: consensus building, participation of all interest, accountability,

transparency, responsiveness, effectiveness and efficiency, equality and inclusiveness, and finally the rule of law. Good public governance occurs when there is a

transparent relationship between the government and the private sector. 

Help-line A help-line or hot-line is a secure telephone line that is connected to

an ethics office or the office of an ombudsman. Employees use this tool to contact

the ethics office or ombudsman to report a violation or receive advice on matters

that concern them. A current best practice is that no call to a help-line is refused

except for grievance matters under a labor–management bargaining agreement. 

Industry standards Industry standards are standards that different enterprises

in a specific industry develop and agree on with one another or that are so common as to be considered a custom of the industry or profession. Such standards go

beyond laws and regulations to promote free, fair, and honest competition among

the members of the industry.
Glossary 315

Integrity pact An integrity pact is an agreement among a group of businesses

that obligates them to participate in a government tender or procurement process

in a legal and transparent manner. Under an integrity pact, the parties may pledge

not to offer, pay, accept, or seek bribes of any kind during the tender. The key

component of an integrity pact is transparency. A business in the pact also abides

by any and all sanctions placed on it by the other members of the pact. 

Internal stakeholders The internal parties that have a stake in an enterprise’s

success include the shareholders, the board of directors, the executive management, and the employees. 

Learning organization A learning organization is an enterprise adept at generating, acquiring, and sharing knowledge about its relevant context, its organizational culture, and the expectations of its stakeholders and at using that

knowledge so that its owners, managers, employees, and agents can live the lives

they truly want to live. 

Money laundering Under the process of money laundering, one conceals the

existence, illegal source, or illegal application of income, and disguises that income to make it appear legitimate. From Andrew J. Camelio and Benjamin

Pergament, “Money Laundering,” American Criminal Law Review 35, no. 3

(1998), available at www.questia.com.

Ombudsman The office of ombudsman is designed to be completely independent from enterprise management and to provide a safe place where employees and agents can seek advice and report concerns. The position of an

organizational ombudsman in a business ethics program has evolved to be an independent, neutral, and alternative position. The position is independent because the ombudsman is not a part of day-to-day staff or operations

management. It is neutral because the ombudsman does not function as an advocate for the enterprise or individual. It is alternative because the ombudsman

does not duplicate any other enterprise function, such as investigations. With

few exceptions, the ombudsman is authorized only to refer reports of misconduct for investigation with the express consent of the reporting source.

One-on-one interviews One-on-one interviews of employees are used to secure detailed feedback for enterprise management and to allow management to

conduct intensive questioning of individuals that is designed to improve the

ethics program. An interview provides a forum in which an employee can identify and address issues that employee surveys may not bring to the surface. 

Organizational culture Organizational culture can be understood in the

same way as the culture of a society, nationality, or country. Organizational culture is shaped by the enterprise’s origin and history, as well as by the values,

norms, and attitudes of its leaders and stakeholders. The culture is reflected in

the organization’s decision-making and communication procedures, production
316 Business Ethics

methods, and policies regarding servicing customers and clients. Organizational

culture is the primary predictor of business ethics program success or failure.

There are several measurable elements of culture that should be a part of the

regular evaluation of the business ethics program by owners and managers.

Parade of horribles A parade of horribles often consists of news headlines

and stories about enterprises that failed and senior executives who went to prison

for breaking the law. It is one way to encourage an enterprise and its owners,

managers, employees, and agents to embrace the discipline of responsible business conduct. See, for example, Enron and WorldCom. 

Purpose statement The fundamental reasons for an enterprise’s existence beyond profit are noted in the purpose statement. A purpose, unlike a vision of a desired future, is broad, essential, enduring, and even spiritual. A purpose inspires and

guides employees and agents. It is pursued but never fully captured. Researchers

suggest that the way to surface the purpose of an enterprise is to describe what the

enterprise does, or intends to do, and ask, “Why is that important?” five times. 

Relevant context All enterprises strive to meet enterprise goals and objectives in a context of legal, economic, political, environmental, socio-cultural, and

technological elements. Each element in an enterprise’s “relevant context” may

cause threats, opportunities, demands, constraints, and uncertainties that owners, managers, workers, and agents must recognize and address.

Responsible business conduct Responsible business conduct reflects an understanding of the relevant context of the enterprise, its organizational culture,

and the reasonable expectations of its stakeholders. In one sense, responsible

business conduct is very practical and rooted in the particular situation of the individual and enterprise. In another, however, responsible business conduct is a

recognition that we are all in this situation together and that one does not cease

to be a member of a community simply because one goes into business.

Responsible business enterprise A responsible business enterprise is a learning organization that is adept at understanding its relevant context, its organization

culture, and its core beliefs. From these understandings, the owners, managers, employees, and agents of such an enterprise are able to build an enterprise that has the

appropriate standards, procedures, and expectations; has structures and systems; has

communication and feedback; and has an enterprise alignment that is able to foster

reasonable expectations among its stakeholders and meet those expectations. By

meeting reasonable expectations, the responsible business enterprise is able to improve its business performance, to make a profit, and to contribute to the economic progress of its community.

Responsible officer A responsible officer is a high-level person who is responsible for overseeing the business ethics program. The responsible officer

should be an owner, director, or senior manager. This person may or may not be
the ethics officer for the enterprise. Indeed, where the enterprise is large or complex, the responsible officer often has executive responsibilities and relies on the

ethics officer to run day-to-day operations.

Reward system Through a system of rewards, an enterprise provides rewards

to employees who uphold core values and fulfill ethical goals in their day-to-day

activities. These rewards may be formal, taking the form of promotions, pay raises, bonuses, and public recognition. The rewards may also be informal, taking the

form of private praise or a special meeting with the president of the enterprise. A

reward system reinforces the enterprise’s commitment to ethics and encourages

its employees and managers to conduct themselves according to the guidelines of

the enterprise’s code of ethics.

Risk management The risk management process helps the owners and managers of an enterprise plan, organize, and control the day-to-day operations of

the enterprise to minimize risks to capital and earnings. Risk management includes, but is not limited to, the management of risks associated with accidental

losses, financial mismanagement, fraud and embezzlement, corruption, loss of

reputation, and employee health and safety, as well as other operational risks. 

Social capital Social capital is the mutual trust and shared values among individuals within an organization and between an organization and external stakeholders that enables those parties to work together on a cooperative basis. Social

capital accrues through performance at the grassroots level within an enterprise

and through the creation of civil society organizations, such as trade groups, business associations, service clubs, charities, and nongovernmental organizations. 

State capture State capture is an effort by an enterprise to shape the laws,

policies, and regulations of the state to its own advantage by providing illicit, illegitimate, and nontransparent private gains to public officials. 

Triple bottom line Triple bottom line reporting requires enterprises to evaluate their social and environmental performance to the same degree they evaluate

and report economic performance.

Values statement A values statement sets forth in a clear and consistent form

the core values that make an enterprise special in the market. Each value is explained in the relevant context and culture of the enterprise. The process of establishing core values requires an enterprise’s leaders to consider the values and

expectations of internal and external stakeholders.

Vision statement A vision statement expresses a view of what success for the

enterprise will look like. This statement incorporates the enterprise’s short- and

long-term objectives and provides the enterprise the opportunity to publicly declare its role in the market and in civil society and to set a standard that it can be

expected to meet.

Glossary 317
RESOURCES AND FURTHER READING

PART I:THE RESPONSIBLE BUSINESS ENTERPRISE

Aaronson, Susan A., and James T. Reeves. Corporate Responsibility in the Global Village:

The Role of Public Policy. Washington, D.C.: National Policy Association, 2002.

AccountAbility Web site. Available at <http://www.AccountAbility.org.uk>.

(Accessed August 22, 2003.)

American Society of International Law. “ASIL Guide to Electronic Resources

for International Law.” Available at <http://www.asil.org/resource/

humrts1.htm>. (Accessed May 27, 2003.)

BISNIS. “US–Russia Code of Conduct Basic Guidelines.” Available at

<http://www.bisnis.doc.gov/bisnis/country/codebusen.htm>. (Accessed August

22, 2003.)

Business for Social Responsibility. Available at <http://www.bsr.org>. (Accessed

August 22, 2003.)

Cattaui, Maria Livanos. “Responsible Business Conduct in a Global Economy:

Companies Are Now Subject to Intense Public Scrutiny. How Should They

Respond?” Available at <http://www.oecdobserver.org>. (Accessed August 22, 2003.)

Caux Round Table. “Principles for Business.” Available at

<http://www.cauxroundtable.org>. (Accessed August 22, 2003.)

Coalition for Environmentally Responsible Economies. Available at

<http://www.ceres.org>. (Accessed August 22, 2003.)

Codes of Conduct. “Interest Groups—Nongovernmental Organizations.”

Available at <http://www.codesofconduct.org/interest.htm>. (Accessed May 

27, 2003.)

Collins, James C., and Jerry I. Porras. Built to Last: Successful Habits of Visionary

Companies. New York: HarperBusiness, 2002.

Ellsworth, Richard R. Leading with Purpose: The New Corporate Realities.

Stanford, Calif.: Stanford University Press, 2002.

Global Reporting Initiative. “Sustainability Reporting Guidelines.” Available at

<http://www.globalreporting.org>. (Accessed August 22, 2003.)

Global Sullivan Principles Web site. Available at <http://www.globalsullivanprinciples.org>. (Accessed August 22, 2003.)

318
Gordon, Kathryn. “The OECD Guidelines and Other Corporate Responsibility

Instruments: A Comparison.” Available at <http://www.oecd.org>. (Accessed

August 22, 2003.)

Grayson, David, and Adrian Hodges. Everybody’s Business: Management Risks and

Opportunities in Today’s Global Society. London and New York: DK Publishing,

2002.

Institute of Directors in South Africa Web site. Available at <http://www.

iodsa.co.za>. (Accessed August 22, 2003.)

Interfaith Center on Corporate Responsibility, Taskforce on Churches and

Corporate Responsibility. “Principles for Global Corporate Responsibility:

Benchmarks for Measuring Business Performance.” Available at

<http://www.web.net/~tccr/benchmarks/index.html>. (Accessed June 7, 2003.)

International Chamber of Commerce Web site. Available at <http://www.

iccwbo.org>. (Accessed August 22, 2003.)

———. “The Business Charter for Sustainable Development—16 Principles.”

Available at <http://www.iccwbo.org/home/environment_and_energy/sdcharter/charter/about_charter/about_charter.asp>. (Accessed August 22, 2003).

International Corporate Governance Network Web site. Available at

<http://www.icgn.org>. (Accessed August 22, 2003.)

International Electrical and Electronic Engineers. “Code of Ethics.” Available at

<http://www.ieee.org/portal/index.jsp?pageID=corp_level1&path=about/whatis

&file=code.xml&xsl=generic.xsl>. (Accessed August 22, 2003.)

———. “Software Engineering Code of Ethics and Professional Practice.”

Available at <http://computer.org/certification/ethics.htm>. (Accessed August

22, 2003.)

International Labor Organization Web site. Available at <http://www.ilo.org>.

(Accessed August 22, 2003.)

Joseph, Joshua. National Business Ethics Survey 2000. Washington, D.C.: Ethics

Resource Center, 2000.

———. National Business Ethics Survey 2003. Washington, D.C.: Ethics Resource

Center, 2003.

Micklethwait, John, and Adrian Wooldridge. The Company: A Short History of a

Revolutionary Idea. New York: Modern Library, 2003.

Monks, Robert A. G., and Nell Minow. Corporate Governance. 2nd ed. Oxford,

U.K.: Blackwell, 2001.

Organization for Economic Cooperation and Development. “Home: Corporate

Social Responsibility.” Available at <http://www.oecd.org/oecd/pages/home/

Resources and Further Reading 319
320 Business Ethics

displaygeneral/0,3380,EN-home-126-3-no-no-no,00.html>. (Accessed June 6,

2003.)

———. “Home: Guidelines for Multinational Enterprises.” Available at

<http://www.oecd.org/EN/home/0,,EN-home-93-3-no-no-no,00.html>.

(Accessed June 6, 2003.)

Paine, Lynn Sharp. Value Shift: Why Companies Must Merge Social and Financial

Imperatives to Achieve Superior Performance. New York: McGraw-Hill, 2003.

Roddick, Anita. “A Third Way for Business, Too.” New Statesman, April 3, 1998.

Available at <http://www.questia.com>. (Accessed June 8, 2003.)

Social Accountability International Web site. Available at <http://www.cepaa.

org>. (Accessed August 22, 2003.)

Stiglitz, Joseph. Globalization and Its Discontents. New York: W. W. Norton, 2002.

SustainAbility. “Developing Value.” Available at <http://www.sustainability.

com/developing-value/contents.asp>. (Accessed June 4, 2003.)

Treviño, Linda K., and others. “Managing Ethics and Legal Compliance: What

Works and What Hurts.” California Management Review 41 (Winter 1999):

131–51.

United Nations Global Compact Network. “The Global Compact.” Available at

<http://www.unglobalcompact.org/Portal>. (Accessed August 22, 2003.)

United Nations Office of the High Commissioner on Human Rights. “The

International Bill of Human Rights.” Available at <http://www.unhchr.

ch/html/menu6/2/fs2.htm>. (Accessed May 27, 2003.)

Waddock, Sandra. Leading Corporate Citizens: Vision, Values, Value Added. Boston:

McGraw-Hill, 2002.

Zadek, Simon. The Civil Corporation: The New Economy of Corporate Citizenship.

London and Sterling, Va.: Earthscan, 2001.

PART II:THE BUSINESS ETHICS PROGRAM

Carroll, Archie B., and Ann K. Buchholtz. Business and Society: Ethics and

Stakeholder Management. 4th ed. Cincinnati, Ohio: South-Western, 2000. 

Carver, John, and Caroline Oliver. Corporate Boards That Create Value: Governing

Company Performance from the Boardroom. San Francisco: Jossey-Bass, 2002.

Collins, James C. Good to Great: Why Some Companies Make the Leap ... and

Others Don’t. New York: HarperBusiness, 2001. 

Freeman, R. Edward. Strategic Management: A Stakeholder Approach. New York:

Basic Books, 1984.

Grundy, Tony. Implementing Strategic Change. London: KoganPage, 1993. 
Hesselbein, Frances. “When the Roll Is Called in 2010.” In On Creativity,

Innovation, and Renewal, edited by Frances Hesselbein and Rob Johnson. San

Francisco: Jossey-Bass, 2002. 

Hofstede, Geert. Cultures and Organizations: Intercultural Cooperation and Its

Importance for Survival. New York: McGraw-Hill, 1997. 

Hofstede, Geert, and others. “What Goals Do Business Leaders Pursue? A

Study in Fifteen Countries.” Journal of International Business Studies 33, no. 4

(2002). Available at <http://www.questia.com>. (Accessed June 7, 2003.)

Jacobs, Robert W. Real Time Strategic Change: How to Involve an Entire Organization

in Fast and Far-Reaching Change. San Francisco: Berrett-Koehler, 1994. 

Johnson, Kenneth W. “The Role of Culture in Achieving Organizational

Integrity, and Managing Conflicts between Cultures.” Washington, D.C.: Ethics

and Policy Integration Centre. Available at <http://www.EthicsPolicy.net/quest_5.html>. (Accessed May 27, 2003.)

Kotter, John P., and James L. Heskett. Corporate Culture and Performance. New

York: Free Press, 1992.

Nadler, David A. Champions of Change: How CEOs and Their Companies Are

Mastering the Skills of Radical Change. San Francisco: Jossey-Bass, 1998. 

Robertson, Christopher J., and James J. Hoffman. “How Different Are We? An

Investigation of Confucian Values in the United States.” Journal of Managerial

Issues 12, no. 1 (2000): 34. Available at <http://www.questia.com>. (Accessed

June 7, 2003.) 

University of Missouri Extension and Outreach. “Program Planning and

Development—Program Logic Model.” Available at <http://outreach.missouri.edu/staff/programdev/plm>. (Accessed August 22, 2003.)

U.S. Department of Health and Human Services. “Corporate Responsibility and

Corporate Compliance: A Resource for Health Care Boards of Directors.”

Available at <http://oig.hhs.gov/fraud/docs/complianceguidance/040203Corp

RespRsceGuide.pdf>. (Accessed June 7, 2003.)

PART III: STRUCTURING THE BUSINESS ETHICS PROGRAM

Boeing. “Boeing Ethics Challenge.” Available at <http://www.boeing.com/companyoffices/aboutus/ethics>. (Accessed August 22, 2003.)

Chiquita Brands International. “Corporate Responsibility: Living Our Core

Values.” Available at <http://www.Chiquita.com>. (Accessed August 22, 2003.)

Driscoll, Dawn-Marie, and W. Michael Hoffman. Ethics Matter: How to

Implement Values-Driven Management. Waltham, Mass.: Center for Business

Ethics, 2000. 

321

Resources and Further Reading 321
322 Business Ethics

EthicsWeb.ca. “Applied Ethics Resources on the Web.” Available at

<http://www.ethicsweb.ca/ resources>. (Accessed June 7, 2003.) [An excellent

source for codes of ethics and a collection of ethical decision-making models.]

HCA Inc. “Introduction to Ethics, Compliance and Corporate Responsibility.”

Available at <http://ec.hcahealthcare.com>. (Accessed August 22, 2003.)

Hoffman, W. Michael. “Writing a Company’s Code of Ethics.” Available at

<http://www.iit.edu/departments/csep/perspective/persp_v19_fall99_5.html>.

(Accessed August 22, 2003.)

Howmet Castings. “Code of Ethics and Standards of Business Behavior.”

Available at <http://www.howmet.com/home.nsf/files/booklet/$file/booklet.

pdf>. (Accessed August 22, 2003.)

International Standards Organization. “The Magical Demystifying Tour for

ISO 9000 and ISO 14000.” Available at <http://www.iso.ch/iso/en/iso9000-

14000/tour/magical.html>. (Accessed June 6, 2003.)

Joseph, Joshua. “Integrating Business Ethics Programs: A Study of Ethics

Officers in Leading Organizations,” Business and Society Review (Fall 2002):

309–47. 

Josephson Institute of Ethics. “The Seven Step Path to Ethical Decisions.”

Available at <http://www.josephsoninstitute.org/MED/MED-4sevensteppath.

htm>. (Accessed August 22, 2003.)

Kaplan, Jeffrey M., Joseph E. Murphy, and Winthrop M. Swenson. Compliance

Programs and the Corporate Sentencing Guidelines: Preventing Criminal and Civil

Liability. Eagan, Minn.: West Group, 2002.

Kusserow, Richard P., and Andrew H. Joseph. Corporate Compliance Policies and

Procedures: A Guide to Assessment and Development. Marblehead, Mass.: Opus

Communications, 2000.

LeClair, Debbie Thorne, O. C. Ferrell, and John P. Fraedrich. Integrity

Management: A Guide to Managing Legal and Ethical Issues in the Workplace.

Tampa, Fla.: University of Tampa Press, 1998. 

Machan, Tibor R., and James E. Chester. A Primer on Business Ethics. Lanham,

Md.: Rowman & Littlefield, 2002.

Martens, Lori Tansey, and Amber Crowell. “Whistleblowing: A Global

Perspective” (Part I). Ethikos (May/June 2002): 6–8. 

———. “Whistleblowing: A Global Perspective” (Part II). Ethikos (July/August

2002), 9–12.

Murphy, Diana E. “The Federal Sentencing Guidelines for Organizations: A

Decade of Promoting Compliance and Ethics.” 87 Iowa L. Rev. 697, 2002. Available

at <http://www.ussc.gov/corp/Murphy1.pdf>. (Accessed August 22, 2003.) 
NTT Group. “NTT Group Ethical Code on Environmental Issues.” Available

at <http://www.ntt.co.jp/kankyo/e/2002report/qa/chapter1/q04_2.html>.

(Accessed August 22, 2003.)

Ombudsman Association Web site. Available at <http://www.ombuds-toa.

org/all_about_toa.htm>. (Accessed May 27, 2003.)

Page, Stephen B. Establishing a System of Policies and Procedures. Mansfield, Ohio:

Bookmasters, 1998. 

Rainforest Alliance. “Profiles in Sustainable Development Partnerships:

Chiquita Reaps Better Bananas.” Available at <http://www.rainforestalliance.org/programs/profiles/ag-chiquita-profile-11-14-02horizon.pdf>.

(Accessed August 22, 2003.)

Robertson, Chris, and Paul A. Fadil. “Developing Corporate Codes of Ethics in

Multinational Firms: Bhopal Revisited.” Journal of Managerial Issues 10, no. 4

(1998): 454. Available at <http://www.questia.com>. (Accessed June 7, 2003.)

Royal Dutch/Shell. “Statement of General Business Principles.” Available at

<http://www.shell.ca/code/values/commitments/principles.html>. (Accessed

August 22, 2003.)

Solomon, Robert C. A Better Way to Think about Business: How Personal Integrity

Leads to Corporate Success. New York and Oxford, U.K.: Oxford University Press,

1999.

Treviño, Linda K., and Katherine A. Nelson. Managing Business Ethics: Straight

Talk about How to Do It. 2nd ed. New York: John Wiley & Sons, 1999.

U.S. Department of Justice. “Principles of Federal Prosecution of Business

Organizations.” Available at <http://www.usdoj.gov/dag/cftf/business_organizations.pdf>. (Accessed May 23, 2003.)

PART IV: PUTTING BUSINESS ETHICS INTO PRACTICE

Agreement on Government Procurement. Available at <http://www.wto.org/

english/docs_e/ legal_e/gpr-94.pdf>. (Accessed June 6, 2003.)

Badaracco, Joseph L. Jr. Leading Quietly: An Unorthodox Guide to Doing the Right

Thing. Boston: Harvard Business School Press, 2002.

Bennett, Juliette. “Multinational Corporations, Social Responsibility, and

Conflict.” Journal of International Affairs 55, no. 2 (2002). Available at

<http://www.questia.com>. (Accessed June 2003.)

Bossidy, Larry, and Ram Charan. Execution: The Discipline of Getting Things Done.

New York: Crown Business, 2002. 

Financial Action Task Force on Money Laundering. “Basic Facts about Money

Laundering.” Available at <http://www1.oecd.org/fatf/MLaundering_en.htm

Resources and Further Reading 323
324 Business Ethics

#How%20does%20money %20laundering%20affect%20business?>. (Accessed

June 6, 2003.)

Naim, Moises. “The Five Wars of Globalization.” Foreign Policy (January/February

2003). Available at <http://www.questia.com>. (Accessed June 7, 2003.) 

Paine, Lynn Sharp. “Managing for Organizational Integrity.” Harvard Business

Review (March-April 1994): 106–17.

Transparency International. “Bribe Payers Index.” Available at

<http://www.transparency.org>. (Accessed May 27, 2003.)

Wiehen, Michael H. “Citizens against Corruption: Calling Government to

Account.” In No Longer Business as Usual: Fighting Bribery and Corruption,

199–213. Paris: OECD, 2000. 

PART V: ACHIEVING RESPONSIBLE BUSINESS CONDUCT

AccountAbility. “AA1000S Framework.” Available at <http://www.accountability.org.uk>. (Accessed August 22, 2003.)

Bolan, Marc, Kimberly Francis, and Jane Reisman. How to Manage and Analyze

Data for Outcome-Based Evaluation. Seattle, Wash.: Organizational Research

Services, 2000.

Kline, Peter, and Bernard Saunders. Ten Steps to a Learning Organization. 2nd ed.

Arlington, Va.: Great Ocean, 1998.

Lusthaus, Charles, and others. Organizational Assessment: A Framework for Improving

Performance. Washington, D.C.: Inter-American Development Bank, 2002.

Marquardt, Michael J. Action Learning in Action: Transforming Problems and People

for World-Class Organizational Learning. Palo Alto, Calif.: Davies-Black, 1999.

Nielsen, Richard P. The Politics of Ethics: Methods for Acting, Learning, and

Sometimes Fighting with Others in Addressing Ethics Problems in Organizational Life.

New York: Oxford University Press, 1996.

Reisman, Jane, and Judith Clegg. Outcomes for Success. Seattle, Wash.:

Organizational Research Services and Clegg & Associates, 1999.

Reisman, Jane, and Richard Mockler. A Field Guide to Outcome-Based Program

Evaluation. Seattle, Wash.: Evaluation Forum, 1994.

Senge, Peter M. The Fifth Discipline: The Art and Practice of the Learning

Organization. New York: Doubleday/Currency, 1990. 

Tansey, Lori A., Gary Edwards, and Rachel E. Schwartz. “Compliance Program

Modification and Refinement.” Chapter 5 in Compliance Programs and the

Corporate Sentencing Guidelines: Preventing Criminal and Civil Liability, edited by

Jeffrey M. Kaplan, Joseph E. Murphy, and Winthrop M. Swenson. Eagan,

Minn.: West Group, 2002. 
PERMISSIONS

325

Permission has kindly been granted to the U.S. Department of Commerce by

the respective authors, publishers, or copyright holders to reprint the following

material in this book: on pages 4, 189, and 267, Hewlett-Packard Corporation;

on pages 5 and 231, Stanford University Press; on page 6, Earthscan Publications

Ltd.; on page 8, Journal of International Business Studies; on page 9, ICC

Publishing Inc.; on page 11, The World Bank; on page 22, United Parcel

Service; on page 23, New Statesman; on pages 24 and 132, The Journal of

Accountancy; on page 28, The McGraw-Hill Companies; on page 25, Gap Inc.;

on page 29, Komatsu Ltd., on page 44, Journal of Small Business Management;

on page 51, Nestlé Inc.; on page 54, Jossey-Bass; on page 56, John Wiley &

Sons; on page 95, Nucor Fastener; on pages 104 and 135, Novo Nordisk; on

page 105, Sony Corporation; on pages 107 and 122, Royal Dutch/Shell; on page

108, Chiquita Brands; on pages 108 and 217, United Technologies Corporation;

on pages 110 and 136, The Boeing Company; on page 111, the New York Stock

Exchange; on pages 113, 119, and 172, Motorola, Inc.; on page 115, WMC

Resources Limited; on pages 126 and 127, Howmet Corporation; on pages 121

and 143, Alcatel; on page 137, HCA, Inc.; on page 142, the Raytheon Company;

on pages 148 and 167, Forum for Applied Research and Public Policy; on 

page 163, © 1999 the Lockheed Martin Corporation; on page 170, The Atlantic

Monthly, Used with Permission; on page 193, Herman Miller Inc.; on page 196,

Guardsmark LLC.; on page 203, Johnson & Johnson; on page 211, Columbia

University Press; on page 213, International Public Management Association for

Human Resources; on page 219, Harvard International Review; on page 240, 

© 1994 The Evaluation Forum; on pages 259–264, Transparency International.
INDEX

326

A

AA1000S standard, 32, 35, 235, 238, 239

accountability systems in business ethics

infrastructure, see responsibility 

functions

action planning and action learning,

161–62

administration of training programs, 165

agents, see employees and agents

AIDS/HIV, 28

Alcatel Group, 121, 143

alignment, 185–206

see also dealing with problems; “the 

right people in the right places” 

(under r)

business ethics programs, 186

checklist, 205

encouraging employees to follow 

standards, procedures, and expectations, 95, 101–2, 186, 194–98

fundamental questions regarding, 186

RBE worksheets, 206

anti–money laundering (AML) provisions, 49, 221–22

approval process, design and implementation of business ethics program, 62,

123

auditing

audit committee, 134

enforcement of standards, procedures, and expectations, 167–68

integration of business ethics 

infrastructure with internal auditing 

systems, 142

Australia, 49

authority, delegating, 55–56, 97, 132–34

authority systems in business ethics

infrastructure, see responsibility 

functions

B

baselines, 69–70

Basic Guidelines for Codes of Business

Conduct, 32, 109, 235

benchmarking, 69–70

Bennett, Juliette, 211

best practices, 7, 37–38

board of directors, 96–97, 132, 134

The Body Shop, 23, 175

Boeing Company, 110, 136

Brabeck-Letmathe, Peter, 51

Bradford, David L., 56

bribes and kickbacks, 9, 24, 208–11, 221

brochures, availability of, 154–55

business associations, 32–34

business conduct representatives, 141–42

business ethics council, 140

business ethics infrastructure, 129–46

checklist, 145

communication, 166, 181

importance of, 130

LCEs, 129

leadership elements, 132

NGOs, 129, 131

owners and owner representatives, 

132–34

RBE worksheet, 146

responsibility functions and systems, 

see responsibility functions

SMEs, 129, 131, 133, 140

business ethics officer, 138–40, 143

business ethics personnel, see responsibility functions

business ethics programs 

see also design and implementation of 

business ethics program; evaluating business ethics programs; 

more specific entries

alignment, 186

communicating, 45–47, 59

evolving market economies, 6–7

good management, responsible 

business conduct viewed as, 

31–32

identity levels, 6, 47–51, 68

list of issues to be covered by, 123

process of developing responsible

business conduct, 21

reporting program performance, 

237–40

resources, 123

structural components, 52–53

Business Partnership of Seversk, 210

C

capital

expanded access through ethics, 26

social capital, see social capital, 

29

generating

Carver, John, 54, 96–100

case studies in training programs, 162,

163, 164

Cattaui, Maria Livanos, 9

Caux Round Table, 32–33, 108, 235

central planning legacies, transition to

market economy, 12–16

CEO (chief executive officer), 97, 132

CERES (Coalition for Environmentally

Responsible Economies), 32, 33

charitable foundations, 220

checklists

alignment, 205

business ethics infrastructure, 145

communication, 177

design and implementation of 

business ethics program, 63, 77

evaluating business ethics 

programs, 242

evolving market economies, 20

government officials and agencies, 

224

process of becoming a responsible 

business, 40

standards, procedures, and 

expectations, 124

chief executive officer (CEO), 97–98,

132

chief financial officer, 142

chief legal officer, 143

Chiquita Brands International, 108

clarification of responsibilities, 102

Coalition for Environmentally

Responsible Economies (CERES),

32, 33

codes of conduct, 109–17

adaptations, revision, updates, and 

improvements, 116

aspirational vs. obligatory provisions, 

115–16

cultural norms, 112–13

design, review, and approval process, 

123

developmental guidelines, 114–15

disclaimers, 118–19

environmental protections, 111–12

formats, 116, 118

industry standards, compliance with, 

111

introductory materials, 118

law, compliance with, 110

policies related to, 116–17

sample outline, 125–26

typical provisions, 117–23

Cohen, Allan R., 56

Collins, James C., 105

command economy’s evolution to market

economy, see evolving market

economies

communication, 147–55 

see also feedback

audience knowledge, 149–51

brochures, availability of, 154–55

business ethics infrastructure, 166, 

181

business ethics programs, 45–47, 59

checklist, 177

developing communications 

programs, 148–52
Index 327

document distribution, 153, 154–55

management speeches, 152–53

needs assessment, 151–52, 178

posted materials, 153–54

public feedback mechanisms and 

media involvement, 174–76

published materials, 154

RBE worksheets

infrastructure, 181

needs assessment, 178

standards, procedures, and 

expectations, 101, 152–55

training, see training programs

Web site, 154

community, see social capital, generating

competition

central planning legacies, 12–13

enhancement through ethics, 25–26

relationships and responsibilities 

between enterprise and, 121

compliance level of RBE identity, 6,

48–49, 187–88

confidentiality, ensuring, 172

consultants, stakeholders as, 59

consumers, see customers and consumers

contents

program evaluation reports, 239–41

training programs, 156–58

context of enterprise, scanning, 74–75,

80–81

continuous improvement, incorporating,

56–57

contracting and procurement, governmental, 215–18

cooperation with government, 201–2

core beliefs and values

Herman Miller Japan Ltd. statement 

on, 193

mobilizing enterprise around, 55

narrative used to project, 158

personal values, 159–60

standards, procedures, and 

expectations for RBEs, 102–4

training programs, 155–56, 158–59

corporate social responsibility (CSR),

and SMEs, 44

corrective actions, 202

corruption, 9, 24, 201, 208–11, 221

cost reduction and responsible business

conduct, 23–24

councils

business ethics council, 140

professional ethics councils, 141

credibility of evaluation reporting,

238–39

credit, expanded access to, 26

CSR (corporate social responsibility),

and SMEs, 44

culture and business ethics, 

see also organizational culture

codes of conduct and respect for 

cultural norms, 112–13

compliance level of business ethics 

programs, 49

evolving market economies, 8–9

socio-cultural element of relevant 

context, scanning, 73–74

standards, procedures, and 

expectations, 100–101

customers and consumers

evolving market economy, 13

public feedback and involvement in 

ethics enforcement, 174–76

relationships and responsibilities

between enterprise and, 119–20

senior personnel vs. lower-level personnel, perception of misconduct by, 

190–91

social responsibilities of RBEs, 28

D

data collection plan, evaluating business

ethics programs, 236–37

dealing with problems, 186, 198–204 

see also enforcement of standards, 

procedures, and expectations

cooperation with government, 201–2

corrective actions, 202

discipline systems, 198–99

learning from failures and mistakes, 

198–99

misunderstandings and misperceptions, 202–3

model policy statement, 199

modifying business ethics programs 

due to, 203–4

senior personnel vs. lower-level 

personnel, perception of misconduct by, 190–91

stakeholders, misconduct or serious 

harm to, 199–201

unethical behavior/misconduct of 

employees and agents, 24–25, 70

voluntary disclosure of violation of 

law, 200–201

declarations of integrity, 218–19

delegation of authority, 55–56, 97,

132–34

design and implementation of business

ethics program, 43–64, 65, 77, 123

see also RBE worksheets

adoption of design, 62

approval process, 62, 123

checklists, 63, 77

communicating program, 45–47, 59

consultants, stakeholders as, 59

defining nature of program, 45–47

goals and purposes, determining, 

65–70

identity levels for RBEs, 6, 47–51, 68

infrastructure, designing, see

business ethics infrastructure 

internal structure and dynamics of enterprise, 75–76, 84–85

organizational culture, 66–67

orientation of program, 46

principles of planning process, 53–57

program catalyst, 58

program logic model, 70–71, 78–79

project networks, 59

project officer, 58

relevant context, scanning, 71–75

resource teams, 59

review process, 62, 123

stakeholders, engagement of, 57–61

strategic planning, 43–45

strengths and weaknesses of organization, 52, 54–55

structural components, 52–53

table of development process, 62

working groups or task forces, 58–59,

60–61

design and implementation of training

programs, 155–58

direct observation, data collection plan

for evaluating programs, 237

discipline systems, 197–98

disclaimers in codes of conduct, 118–19

document distribution, 153, 154–55

document reviews, data collection plan

for evaluating programs, 237

due diligence in hiring, 188–89

E

economic element of relevant context,

scanning, 72–73

education, see learning; training programs

eight questions for RBEs, 37–39, 86–89

Ellsworth, Richard F., 5, 231

employees and agents

business conduct representatives, 

141–42

central planning legacies, 13

communicating business ethics plan 

to, 45–47

discipline systems, 197–98

enforcement of ethical behavior, role

in, see enforcement of standards,

procedures, and expectations

hiring, 188–89

personnel issues distinguished from 

ethics issues, 172–73

recognition, need for, 194

relationships and responsibilities 

between enterprise and, 119–20

retaliation, protection from, 171

retention of, 192–93

reward systems, 195–97

satisfaction with organization, 

correlates with, 192

standards, procedures, and expectations, 95, 101–2, 186, 194–98

unethical behavior/misconduct, 

24–25, 70

ends, policies defining, 98–99

enforcement of standards, procedures,

and expectations, 165–76 

see also dealing with problems

confidentiality, ensuring, 172

employees and agents, 168–73

confidentiality and security, 
328 Business Ethics

ensuring, 172

help-lines, 171–72

personnel issues distinguished 

from ethics issues, 172–73

reporting violations, 169–71

retaliation, protection from, 171

seeking advice and reporting 

concerns, 168–69

external stakeholders engaged in, 

174–76

feedback, importance of, 165–66

investigations, policies and procedures for, 173–74

monitoring behavior, 166–67

ombudsmen, 173

security, maintaining, 172

Enron, 160

entry into market, 13

environment

codes of conduct, 111–12

foreign governments and businesses, 

222–23

relevant context, scanning, 73

Ethics Resource Center, 70

European Union (EU) codes of conduct,

110

evaluating business ethics programs,

65–70, 229–45

checklist, 242

credibility, establishing, 238–39

data collection plan, 236–37

importance of, 231–32

organizational culture, 234, 235, 243

organizational learning, 229–31, 

240–41

outcomes evaluation, 233, 235–36, 

245

process evaluation, 233, 234–35, 244

purpose of evaluation, determining, 

233

RBE worksheets, 243–45

relevant context, scanning, 234

reporting program performance, 

237–41

SMEs, 232

evolving market economies, 3–20

business ethics program, 6–7

central planning legacies, 12–16

checklist, 20

global marketplace, 7–9

improvement of business 

performance, 18

individual businesses, 17–19

institutional framework, development

of, 16–17

leaders, working with, 19

reasonable business conduct in, 4–6

SMEs, 9–11

social capital, developing, 18–19

solution vs. problem, RBE as part 

of, 9

exit from market, 12

expectations, see standards, procedures,

and expectations

external stakeholders, see stakeholders

extortion, 201, 208–11

F

failures, dealing with, 198–99 

see also dealing with problems

fairness, concept of, 143, 198

FCPA 

(see Foreign Corrupt Practices Act) 

Federal Sentencing Guidelines for

Organizations (FSGO), United

States, 34, 49

feedback, 147–48, 

see also communication

importance of, 165–66

public feedback mechanisms, 174–76

training programs, 164–65

Foreign Corrupt Practices Act (FCPA),

United States, 221

foreign governments and businesses,

relationship to, 220–23

foreign investment, expanded access 

to, 26

formats

codes of conduct, 116, 118

report of program evaluation, 239–40

fraud

employee fraud and abuse, 24

small business owner detection of, 132

Fréchette, Louise, 219

FSGO (see Federal Sentencing Guidelines

for Organizations), 

future, vision of, 104–5

G

games used in training programs, 163

The Gap Inc., 25

gift-giving practices, 113

global business standards and organizations

adoption of, 37–39

emergence of, 32–36

table, 37

global marketplace and evolving market

economies, 7–9

Global Reporting Initiative (GRI), 32,

34, 157, 234, 241

Global Sullivan Principles, 34

goals and purposes

business ethics programs, 65–70

evaluation of programs, 233

RBEs, 4, 5–6, 9, 27

good corporate governance, 7

good public governance, 208

goodwill, 22

governance

good corporate governance, 7

good public governance, 208

management differentiated from, 

53–54

responsible governance, 96–100

government officials and agencies

checklist, 224

contracting and procurement, 

215–18

cooperation with, 201–2

corrective actions required by, 202

corruption, bribery, and extortion, 

201, 208–11, 221

evolving market economies, 7, 14–15,

19

foreign governments and businesses, 

relationship to, 220–23

international governmental organizations, 35–36

leaders, RBEs working with, 19, 31

private sector’s role in regulatory

process, 212–15

RBE worksheets, 225

relationships between RBEs and, 

208–12

relevant context, scanning, 71–73

standards, procedures, and expecta

tions, encouraging, 211–12

voluntary disclosure of legal violations to, 201

GPA (WTO Agreement on Global

Procurement), 216

GRI (Global Reporting Initiative), 32,

34, 157, 234, 241

Guardsmark LLC, 114, 196

H

HCA Inc., 114, 117, 130, 137

help-lines for employees and agents

reporting violations, 171–72

Herman Miller Japan Ltd., 193

Hewlett-Packard, 4

hiring employees, 188–89

HIV/AIDS, 28

Hoffman, W. Michael, 114

Hubbard Foods Ltd., 6

I

ICC (International Chamber of

Commerce), 9, 33

identity levels for RBEs, 6, 47–51, 68,

187–88

IEEE (Institute of Electrical and

Electronics Engineers), 33–34

illegal activity, climate of, 16

ILO (International Labour

Organization), 14, 35

improvement of business performance

through ethics

capital, credit, and foreign 

investment access, 26

continuous improvement, 

incorporating, 56–57

cost reduction, 23–24

employees and agents, behavior of, 

24–25

evolving market economies, 18

increased profit and sustained 

long-term growth, 26

international respect, 26–27

performance, productivity, and 
Index 329

competitive position, 25–26

reputation and goodwill, 22, 26–27

responsible business conduct 

contributing to, 21–27

risk reduction, 22–23

inclusivity, AA1000S definition of, 238

independent directors, 134

Indonesia, 211

industry-based professional ethics 

councils, 141

industry standards, compliance with, 111

infrastructure, see business ethics infrastructure

Institute of Directors in Southern Africa,

35

Institute of Electrical and Electronics

Engineers (IEEE), 33–34

Institute of Social and Ethical

AccountAbility, 35, 232, 235, 238,

239

institutional market-oriented framework,

development of, 16–17

integrity, declarations of, 218–19

integrity pacts, government contracting

and procurement, 217–18

Interfaith Declaration, 32, 34

internal structure and dynamics of enterprise, 75–76, 84–85

International Center for Entrepreneurial

Studies, 214

International Chamber of Commerce

(ICC), 9, 33

International Corporate Governance

Network, 34–35

international governmental organizations, 35–36

International Labour Organization

(ILO), 14, 35

International Organization for

Standardization (ISO), 134

international respect, 26–27

Internet

communication via Web sites, 154

training programs, 163

interviews, data collection plan for evaluating programs, 237

investigations

government, cooperation with, 201–2

internal policies and procedures for, 

173–74

investing, 14

Islamic culture, 8–9

ISO (International Organization for

Standardization), 134

J

job position and placement, 190–92

Johnson & Johnson, 202–3

K

kickbacks and bribes, 9, 24, 208–11, 221

Komatsu Ltd., 28, 29

L

labor unions, 14

large, complex enterprises (LCEs)

business ethics infrastructure, 129

design and implementation of business ethics program, engagement of 

stakeholders in, 57–59

evolving market economies, 10

global business standards, adopting, 37

ombudsmen, 173

wrong people, dealing with, 194

lateness, ways of dealing with, 198

laws and regulations

categories of laws affecting business, 

48

codes of conduct requiring 

compliance with, 110

compliance level of business ethics 

programs, 6, 48–49

cooperation with government investigations, 201–2

corrective actions, 202

important role of, 14–15

private sector’s role in, 212–15

relevant context, scanning, 72

voluntary disclosure of violation, 

200–1

LCEs, see large, complex enterprises

(LCEs)

leadership

business ethics infrastructure, 132

business, government, and civil 

society leaders, RBEs working 

with, 19, 31

corporate, 54

learning 

see also training programs

action planning and action learning, 

160–62

failures and mistakes, learning from, 

198–99

organizational learning, 229–31, 

240–41

lending, 14

lobbying, 212–15

Lockheed Martin Corporation, 163

long-term growth, ethical behavior sustaining, 26

M

management 

see also standards, procedures, and 

expectations

board-management linkage policy, 

134

communication via management 

speeches, 152–53

governance differentiated from, 

53–54

limitations policies, 99–100

responsible business conduct viewed 

as good management, 31–32

“the right people in the right places,”

187–88

senior personnel vs. lower-level 

personnel, perception of 

misconduct by, 190–91

training programs, 155, 159

means, policies defining, 99–100

misconduct, mistakes, and 

misunderstandings, dealing with, see

dealing with problems

Mochler, Richard, 240

money laundering, 49, 221–22

Motorola Corporation, 113, 118–19, 172

mudaraba, 8

N

needs assessment and communication,

151–52, 178

nepotism, 9

Nestlé, 51

New York Stock Exchange, 111

Newmont Mining Corporation, 211

NGOs, see nongovernmental organizations (NGOs)

Nippon Telegraph & Telephone (NTT

Group), 112, 114

nongovernmental organizations (NGOs)

business ethics infrastructure, 129, 131

corruption, bribery, and extortion, 210

environmental concerns, 112

evolving market economies, 7, 11, 19

external stakeholders engaged in

enforcement of ethics requirements, 

174

extortion, help in dealing with, 201

global stakeholder groups, 34–35

leaders, working with, 19, 31

management principles, 108

regulatory process, private sector’s 

role in, 214–15

Novo Nordisk, 104, 135

NTT Group (Nippon Telegraph &

Telephone), 112, 114

Nucor Fastener Division, 95

O

OECD (Organization for Economic

Cooperation and Development), 35, 

221, 235

Oliver, Caroline, 54, 96, 97, 99, 100

ombudsmen, 173

Organization for Economic Cooperation

and Development (OECD), 35, 221,

235

organizational culture

design and implementation of 

business ethics program, 66–67, 

75–76, 84–85

evaluating business ethics programs, 

234, 235, 243

RBE worksheets, 243

training programs, 155–56

organizational learning, 229–31, 240–41

outcomes evaluation, 233, 235–36, 245

owners
330 Business Ethics

business ethics infrastructure for 

owners and representatives, 

132–34

central planning legacies, 13–14

management performance 

expectations, 98–100

relationships and responsibilities 

between enterprise and, 119

“the right people in the right places,”

187–88

training programs, 159

P

Packard, David, 4

“parade of horribles,” 160

partners, relationships and responsibilities between enterprise and, 120–21

performance

evaluating, see evaluating business 

ethics programs

improving, see improvement of business performance through ethics

personnel and business ethics, see

employees and agents; management;

owners; responsibility functions;

supervisors

personnel issues distinguished from

ethics issues, 172–73

planning business ethics programs, see

design and implementation of business ethics program

policies and procedures

board–management linkage policy, 

134

codes of conduct or guiding princi

ples, policies related to, 116–17

employee responsibility and 

management support, 199

ends, defining, 98–99

governance commitment statement, 

96

governance model delegation of 

authority statement, 97

government anti-corruption policies, 

U.S. Department of State, 209

investigations, 173–74

management limitations, 99–100

means, defining, 99–100

voluntary disclosure of legal 

violations, 201

political element of relevant context,

scanning, 72–73

Porras, Jerry I., 105

Posner, Barry Z., 213

posted materials, 153–54

private sector’s role in regulatory

process, 212–15

problems, dealing with, see dealing with

problems

procedures, see policies and procedures;

standards, procedures, and expectations

process evaluation, 233, 234–35, 244

procurement of government contracting,

215–18

productivity enhancement through

ethics, 25–26

professional ethics councils, 141

profits

increased profits through ethics, 26

role of, 4, 6

trust, values, and profitability, 30

program catalyst, 58

program logic model, 70–71, 78–79

project networks, 59

project officer, 58

public feedback mechanisms, 175, 176

public perception of misconduct by senior vs. lower-level personnel, 190–91

published materials, 154

purposes and goals, see goals and 

purposes

R

RBE worksheets, 60–61

alignment, 206

business ethics infrastructure, 146

code of conduct, sample outline for, 

125–26

communication

infrastructure, 181

needs assessment, 178

eight questions for RBEs, 86–89

evaluating business ethics programs, 

243–45

external context by stakeholder 

category, 74–75, 82–83

government officials and agencies, 

225

internal structure and dynamics of 

enterprise, 75–76, 84–85

organizational culture, 243

outcomes evaluation, 245

process evaluation, 244

program logic model, 70–71, 78–79

relevant context, scanning, 74–75, 

80–81

standards, procedures, and expectations, 127–28

training programs, 179–80

RBEs, see responsible business enterprises (RBEs)

recognition, need for, 194

regulations, see laws and regulations

Reichheld, Frederick, 28

Reisman, John, 240

relevant context, scanning, 74–75,

80–81, 234

reporting program performance, 237–41

reputation, 22, 26–27, 50, 51

reputation-enhancement level of RBE

identity, 6, 50, 188

resource teams, 59

responsibilities

clarification of, 102

fostering climate of acceptance of, 

198–99

government-related challenges faced 

by, 207–25

responsibility functions, 131–44

business conduct representatives, 

141–42

business ethics council, 140

business ethics officer, 138–40, 143

high-level responsibility officer 

(individual or group), 134–38

individual responsibility, 143–44

integration with other executive and 

departmental functions, 142–43

owner–board level, 132–34

seven levels of responsibility, 131

responsible business enterprises (RBEs), 3

see also more specific entries

differentiated from other enterprises,

93–94

eight questions for, 37–39, 86–89

good management, responsible 

business conduct viewed as, 

31–32

government-related challenges faced 

by, 207–8

identity levels, 6, 47–51, 68, 187–88

process of becoming a responsible 

business, 21

purpose and goals, 4, 5–6, 9, 27

social responsibilities of, 27–29

stakeholders, 5

worksheets, see RBE worksheets

responsible governance, 96–100

retaliation, protecting employees and

agents from, 171

retention of employees and agents,

192–93

review process, design and implementation of business ethics program, 

62, 123

reward systems, 195–97

“the right people in the right places,”

186, 187–94

hiring employees, 188–89

identity levels of RBEs, 187–88

owners, managers, and supervisors, 

187–88

placing people in the right job 

positions, 190–92

retention, 192–93

wrong people, dealing with, 193–94

risk management level of RBE identity,

6, 50, 188

risk reduction, 22–23

Robertston, Diana G., 8

Roddick, Anita, 23, 28, 175

Royal Dutch/Shell, 106–9, 122

Russia

Business Partnership of Seversk, 210

Chamber of Commerce and 

Industry, 36

S

SA8000 standard, 32, 34

SAI (Social Accountability

International), 34
Index 331

satisfaction of employees with organization, correlates with, 192

satisfaction of stakeholders, 28

scenarios used in training programs, 162

Schlegelmilch, Bodo B., 8

Schmidt, Warren H., 213

security, maintaining, 172

self-paced studies, 163

service providers, see vendors, suppliers,

and service providers

Seversk, Business Partnership of, 210

shadow economy, 12, 16

shareholders, 13–14

Sharia, 8

small to medium-sized enterprises

(SMEs)

business ethics council, 140

business ethics infrastructure, 129, 

131, 133, 140

CSR (corporate social responsibility),

44

defining and communicating business

ethics programs, 46–47

design and implementation of 

business ethics program, engagement of stakeholders in, 57

evaluation of programs for, 232

evolving market economies, 9–11, 14

global standards, adopting, 37

RBE worksheets, 60

relevant context, scanning, 74

strategic planning, 44

wider commercial network, 

developing, 32

wrong people, dealing with, 193

Smith, Howard L., 44

Social Accountability International

(SAI), 34

social capital, generating, 27–31

charitable foundations, 220

CSR (corporate social responsibility) 

and SMEs, 44

defining an RBE’s social responsibilities, 27–29

development of community, private

sector voluntary participation in, 

219–20

evolving market economies, 18–19

relationships and responsibilities 

between enterprise and community, 122

reporting program evaluations, 238

trust, 29–30

ultra-social responsibilities of RBEs, 

28–29

voluntary actions by private sector, 

218–20

socialism, transition to market economy

from, see evolving market economies

socio-cultural element of relevant context, scanning, 73–74

Sony Corporation, 105

staffing and business ethics, see employees

and agents; management; owners;

responsibility functions; supervisors

stakeholders, 

see also customers and consumers; 

employees and agents; 

management; owners; vendors, 

suppliers, and service providers

communications programs, 

developing, 149

dealing with misconduct or serious 

harm to, 199–201

design and implementation of 

business ethics program, engagement in, 57–61

enforcement, engagement of external

stakeholders in, 174–76

external context by stakeholder 

category, RBE worksheet for,

74–75, 82–83

global stakeholder groups, 34–35

list of, 4

producers’ lack of contact with as 

central planning legacy, 13–14

reporting program evaluations to 

external stakeholders, 238

satisfaction of, 28

standards, procedures, and expectations,

93–95

see also codes of conduct

checklist, 124

clarification of responsibilities, 102

communication, 101, 152–55

core beliefs and values, 102–4

cultural considerations, 100–1

employees and agents, 95, 101–2

enforcement, see enforcement of 

standards, procedures, and 

expectations

future, vision of, 104–5

global, see global business standards 

and organizations

governments, encouraging standards 

for, 211–12

guiding principles, 100–2, 105–9

higher standards, striving for, 100

industry standards, compliance with, 

111

management, 105–17

owner expectations of management performance, 98–100

principles, 100–2, 105–9

vision for enterprise, 102–5

policies related to codes of conduct 

and guiding principles, 116–17

RBE worksheets, 127–28

responsible governance, 96–100

strategic owners, 13

strategic planning, 43–45

strengths and weaknesses of organization, 52, 54–55

structural components of business ethics

program, 52–53

Sullivan, Leon H., 34

supervisors

employee satisfaction correlated with 

actions of, 192

“the right people in the right places,”

187–88

senior personnel vs. lower-level personnel, perception of misconduct by,

191

suppliers, see vendors, suppliers, and

service providers

surveys, data collection plan for evaluating programs, 236–37

T

tardiness, ways of dealing with, 198

task forces or working groups, 58–59,

60–61

technological element of relevant context, scanning, 74

Thompson, Judith Kenner, 44

training programs, 155–65

action planning and action learning, 

160–62

administration of, 165

case studies, 162, 163, 164

comprehensiveness of, 160–61

content and structure, 156–58

core beliefs and values, 155–56, 

158–59

delivery of, 158–62

design and implementation, 155–58

feedback, 164–65

games, 163

lectures and presentations, 162

management involvement and 

commitment, 155, 159

modes of training, 162–64

organizational culture, 155–56

owner involvement, 159

personal values of trainees, 159–60

RBE worksheets, 179–80

scenarios, 162

self-paced studies, 163

updating and modifying, 164–65

videos, 163

transparency, governmental, 210, 211,

215, 216–17

Transparency International, 216–17

triple bottom line, 6, 7, 238

trust

laws and regulations, important role 

of, 14–15

social capital, generating, 29–30

U

U.N. Global Compact, 36, 106, 235

unions, 14

United Parcel Service Inc., 22

United States

AML (anti–money laundering) 

provisions, 49, 222

codes of conduct, 110

compliance level business ethics 

programs, 49
332 Business Ethics

Department of Commerce, 36, 235

Department of State on government 

anti-corruption policies, 209

FCPA (Foreign Corrupt Practices 

Act), 221

FSGO (Federal Sentencing

Guidelines for Organizations), 34, 49

government contracting and procurement policy of United

Technologies Corporation, 217

United Technologies Corporation, 108,

114, 217

V

value-added level of RBE identity, 6,

50–51, 188

values, see core beliefs and values

vendors, suppliers, and service providers

central planning legacies, 13

monitoring behavior, 167

relationships and responsibilities 

between enterprise and, 120–21

sample vendor conduct code, 25

videos used in training programs, 163

vision

management vision for enterprise, 

102–5

translation of vision, responsibility 

for, 135

voluntary actions by private sector, 

218–20

voluntary disclosure of legal violations to

authorities, 201

W

weaknesses and strengths of organization, 52, 54–55

Web sites

communication via, 154

training programs, 163

Wells, Joseph T., 24, 132

WMC Resources Ltd., 114, 115

working groups, 58–59, 60–61

worksheets, RBE, see RBE worksheets

World Bank, 11, 213, 216

World Trade Organization (WTO)

Agreement on Global Procurement 

(GPA), 216

WorldCom, 160

wrong people, dealing with, 193–94

WTO (World Trade Organization)

Agreement on Global Procurement 

(GPA), 216

Z

Zarsky, Lyuba, 148, 167
ABOUT THE AUTHORS

333

Kenneth W. Johnson is a researcher, writer, and consultant in the field of integrating ethics and policy. He is founder and director of the Ethics & Policy

Integration Centre, an ethics and policy research Web site available at

http://www.EPIC-online.net. He specializes in a systems approach to organization and community design, development, and strategic planning. He consults

internationally with organizations of all sorts and sizes, including transnational

businesses, international labor, and state and federal government agencies. He is

coordinator for the Coalition for Ethics and Compliance Initiatives and a member of the State Bar of California, the American Evaluation Association, and the

Society for Business Ethics. He has been an editor of the Arizona Law Review;

associate aditor of the newsletter, Ethical Management; and a senior fellow of the

Ethics Resource Center Fellows Program. He can be reached at (202) 547-1789 or

at kenneth@ethics-policy.org.

Igor Y. Abramov is director of the Good Governance Program in the International Trade Administration of the U.S. Department of Commerce. He advises

both U.S. businesses and the U.S. government on good governance, rule of law,

trade, investment, and market access issues. He plans, manages, and implements

a Good Governance Program to enhance rule of law-based business environments in Eastern Europe, Russia and Independent States, as well as in Latin

America. Before joining the U.S. Department of Commerce in 1997, 

Mr. Abramov practiced law and international consulting in San Francisco,

California. A member of the California State Bar, he earned a B.A. from

Columbia University (1984) and a J.D. from Georgetown University Law

Center (1987). He was a founding member and editor of the Georgetown Journal

of Legal Ethics and an associate editor of the National Jewish Law Review. He can

be reached at (202) 482-1832 or at Igor_Abramov@ita.doc.gov.