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Ethics has been defined as the discipline dealing with what is good and bad and with moral duty and obligation, or a set of moral principles or values. The term found its way onto center stage in relation to workplaces when headlines indicated that some well-known companies weren’t keeping their books in order, and when an employee went to the authorities, that employee was reprimanded by the employer. Out of that and other such activities, the federal government introduced the Sarbanes-Oxley Act (SOX) to try to curb shady financial activities. From there, the importance of workplace ethics began to take on a new level of importance.
Scope
Essentially, publicly traded companies have a responsibility to their shareholders to ensure that what is being reported is factual. How they do that is some of what SOX governs. Workplace ethics does not have to be restricted to publicly-traded companies, however. Sentencing Guidelines apply to all organizations, not just publicly traded ones.
Regulatory citations
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Key definitions
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Summary of requirements
Formal codes of conduct. Many companies now have formal codes of ethical conduct by which their employees must abide. Unscrupulous activities of company employees can not only cost the company in civil penalties from government agencies, it can also leave an indelible mark on you’re the company’s reputation.
For example, say a company provides forklift safety training for other companies and their employees. Then one day, one of the company’s own forklift drivers decides to engage in a little horseplay and an accident ensues, leaving a coworker dead. The Occupational Safety and Health Administration (OSHA) is called in, the incident is made public, and the company’s reputation for forklift training is tarnished. The consumer — the current and potential customer — is left to wonder how good forklift training can be from an organization that can’t effectively train their own.
Shareholder stakes. Yes, ethics is about truthfully reporting the financial bottom line of the company, but it goes beyond the direct financials. A lawsuit from the Equal Employment Opportunity Commission can have a large and negative impact on a company’s bottom line, and shareholders are interested in knowing what the risks are of such a suit. If an organization can show that it is taking proactive steps to ensure the ethical behavior of its employees — and not just those who have access to the books — the shareholders may be more likely to feel comfortable dealing with your organization.
Sentencing Guidelines. Sarbanes-Oxley isn’t the only source for ethics. In 2004, the United States Sentencing Commission (USSC) added a chapter on effective compliance and ethics programs to their sentencing guidelines. Companies aren’t mandated by law to follow the guidelines, but they do have some incentives to do so. If a company were to find itself in a court and hadn’t been following the programs, the damages would increase. The logic behind this is that, if a company has the instructions on how to cut down on potential damages and doesn’t follow those instructions, then the company deserves to suffer the consequences.
One of the elements of the guidelines is to “promote an organizational culture that encourages ethical conduct and a commitment to compliance with the law.” The guidelines refer to “all applicable laws,” which leaves little to overlook. To promote such a culture, organizations must establish standards and procedures to prevent and detect criminal conduct. The programs put responsibility on boards of directors and executives for the oversight and management of compliance programs. They are the ones who must take an active leadership role for the content and operation of the program.
Long-term results. Ethics and compliance programs, even those required by SOX, may actually find their way into private entities. In some situations, a company may have vendors or customers who prefer to do business with organizations that have effective ethics and compliance programs in place.
It would be logical to have one program that would satisfy both SOX and the Sentencing Guidelines.
Jumping through the hoops that make up SOX and the Sentencing Guidelines may have long-term positive returns, even if those returns are the absence of a negative situation, such as a lawsuit against the company.