ETHICS REPORTING: Who will tell what to whom? (Part 1)

Creating an ethical workplace needs a focus on improving ethical behaviour and on reducing or preventing unethical conduct, although decreasing misconduct is often the greater focus area. There are a number of ways organisations can work on realising this goal. But how effective are these initiatives at addressing unethical conduct: how well do they act as deterrents?

A rule-based approach is common whereby laws, rules, regulations, a code of conduct, and company policies are used to shape behaviour towards being ethical. Systems and procedures can serve the same purpose. This can take the form of recruitment and reference checks, monitoring processes, such as internal audits, or reporting mechanisms, for instance of the rate and frequency of disciplinary hearings.

However, a rule-based approach has the inherent challenge that good rules (and regulations, etc.) do not necessarily realise good compliance; nor do they automatically equal good enforcement. In some cases, good rules do not even mean consistent and fair implementation. In addition, when laws or regulations are used as a mechanism to correct on-going or extreme unethical behaviour, they tend to overcompensate. The intended outcome of the law/regulation/rule/policy is almost certainly good, but the unintended consequences may erode that good. In the US it is a claim made against the Sarbanes-Oxley Act. The intended accounting reforms and protection for investors are sound, but it has been criticized for making compliance too difficult and bringing with it huge compliance costs, factors especially onerous for smaller organisations.

A further factor influencing the effectiveness of strategies to diminish misconduct is the tendency to continually increase the number of laws and regulations. Many actions are now regulated which in the past were areas of free choice: such as smoking, fishing quotas, and litter. Organisations often copy this trend in pursuit of ethical outcomes, for example writing lengthy policies on bribery and corruption when one sentence would suffice: “We do not tolerate bribery and corruption under any circumstances”. Over-regulation does not increase compliance.

Rules and regulations are essential to ensure clarity about what is allowed versus what is not permitted. But while the regulations are necessary, they are not sufficient to reduce or prevent unethical behaviour - and, least of all, to foster ethical behaviour.

An approach which is increasingly being used to minimise workplace misconduct is by tapping into employees’ knowledge as a way of surfacing and uncovering unethical behaviour. An ethics hotline or ‘whistle-blowing’ system rests on the assumption that, although there are cases when knowledge of wrongdoing is limited to the perpetrator, in most cases there are other people who know, or at least suspect, that something is not right.

An ethics hotline is intended to provide an anonymous channel for employees to report knowledge of misconduct without threat of retribution. But key to its effectiveness is the question: ‘who will tell what to whom?’

Transparency International’s Global Corruption Barometer 2010 provides an encouraging finding about peoples’ willingness to report misconduct. The survey interviewed more than 91,500 people in 86 countries and one of the questions asked whether they would report an incident of corruption. Seven out of ten respondents said they would, with this percentage increasing to 90% in the Americas and the European Union.

Locally Crimeline has been successful in getting the public to report criminal activities. Launched in 2007 by Primedia, it offers an independent and anonymous service either via sms or email (which can be done via their website to ensure anonymity). Its success derives from a number of factors: the publicity which Primedia gives it their various radios stations and newspapers maintains a good level of on-going ethical awareness; it is endorsed by the South African Police Service who accept and act on the information received; and it has the advantage of some distance between the ‘reporter’ and the ‘accused’. The latter factor is often not applicable in the workplace: when working on a regular basis with the person you have just reported, it often feels too close for comfort.

The fact that this form of ethical reporting enjoys legislative support should favourably influence the question of ‘who will tell what to whom?’ The Protected Disclosures Act (No. 26 of 2000), the so-called ‘whistle-blower act’, specifically aims to protect employees from occupational disadvantage for reporting wrongdoing. Adding to that, many larger companies have their own related policy as well, and most hotline services are run by external providers further entrenching the security of reporting.

However, many people are still reluctant to report unethical conduct. This is especially the case if the misconduct is happening at senior management level or if it is systemic in the organisation. Employees feel vulnerable to a range of adverse consequences, whether dismissal, demotion, compromised promotion opportunities, reduced prospects for salary increases or bonuses, or more subtle forms of victimization.

To optimize the effectiveness of an ethics reporting system, a number of factors need to be addressed.

The organisational culture needs to be conducive to reporting misconduct and employees should be encouraged to raise concerns. High levels of ethical awareness and transparency can contribute to such an environment. If this is absent, a situation can arise such as at Societe Generale in 2007: trading irregularities were not reported to bank management by employees who noticed them because “this was not specifically part of their job description”.

A perspective which erodes the effectiveness of this type of ethics reporting is that not everyone views it approvingly. Instead of being seen as a loyal employee speaking out for the benefit of the organisation, the whistle-blower is sometimes treated with hostility as an informer. It can – and has - give rise to a situation where the institution ‘shoots the messenger’ for bringing unwelcome news.

The effectiveness of an ethics hotline also depends on the action that follows the information. It takes real courage to speak out, so if no constructive action follows, employees are less likely to report anything again.

Who takes such action depends on where this has been assigned in the organisation. If the company has a social and ethics committee, they should receive and manage ethics reports. If not, the reports should be dealt with by the senior management team (such as an executive committee). Charges against management should be directed to the board who may choose to have the issue investigated by a suitable external company.

What action is taken – a forensic audit, an investigation by an external consultant, a revision of procedures, or an internal audit – depends on the nature of the issue and needs to be appropriate for the charge. The action must also balance the importance of the charge with the legal principle of ‘innocent until proved guilty’ relative to the accused - which raises the dark side of ethics reporting.

An additional and crucial factor is accurate and truthful reporting. The anonymity that offers protection and security for the honest reporter can also create opportunities for false or malicious reporting. Whoever reviews the ethics reports, be it senior management or the ethics committee, needs to be aware of the potential for abuse or inaccuracy, but without allowing suspicion to undermine or discredit accurate reports received. Creating a responsible review system, which includes a process for verifying the facts, is essential to protect people from false accusations.

Using this approach to reduce unethical behaviour warrants constantly bearing in mind that it not only takes courage to speak out, but it may also take courage to listen. Those tasked with this job may have to face things they really don’t want to hear and don’t want to believe. It is therefore a system which should be used with wisdom.

By Cynthia Schoeman

[The Ethic Monitor survey serves as an excellent ‘listening’ exercise to allow employees and other stakeholders to share their views and experiences of the organisation’s ethics. The survey is specifically designed to protect the anonymity and confidentially of respondents and their responses. As such it fulfils a valuable role as an ethics reporting mechanism without many of the obstacles of an ethics hotline.]

In the next newsletter in August 2012, the second part of this topic, “Ethics reporting: who should tell what to whom?”, will looks at reporting guidelines and what organisations should be reporting as regards their ethics.