Corporate compasses: the increasingly important corporate ethics function doesn't have to be a challenge to HR's role in upholding ethical business behavior

HR Magazine, June, 2004 by Dale Buss

After telecommunications giant WorldCom Inc. went bankrupt two years ago following disclosures of senior executives' $11 billion worth of accounting fraud, new management had a lot of cleaning up to do.

Among the many steps it has taken to rebuild itself, the company, based in Ashburn, Va., settled with creditors, negotiated a $2.25 billion civil penalty with the Securities and Exchange Commission, set out to reassure customers and vendors, and changed the company's brand to MCI. The company also decided to alter a corporate culture that had enabled unethical business practices to prevail at some levels of the company.

Meet Nancy Higgins. A veteran chief ethics officer--she had served in that role at Lockheed Martin Corp. and at the Boeing Co.--Higgins joined MCI Corp. in October 2003 as executive vice president of ethics and business conduct.

Higgins' mandate, new to the company, included ensuring MCI's compliance with new financial accountability standards in the Sarbanes-Oxley Act of 2002, making the corporate culture more transparent and expanding the company's ethics function.

"In my position," says Higgins, "you have to understand what the company's values are going to be and set them out there so that everyone knows these are the things that are going to guide our behavior--and that if they're asked to do something that doesn't comport, to let us know."

Higgins recruited senior executives from within and outside MCI to join her, began touring MCI facilities to broadcast her concerns to the rank and file, and initiated an upgrade of corporate ethics education that will include new in-person and online elements for all employees. Higgins sits in on all senior staff meetings and joins CEO Michael Capellas, who recruited her, in making reports directly to MCI's board.

The Job Description

The type of role that Higgins has taken on at MCI is not just one company's antidote for its past scandals. The position of ethics officer is one that more and more companies are creating and filling. The Ethics Officer Association, a Waltham, Mass.-based organization for managers of "ethics, compliance and business conduct programs," has seen membership jump more than 25 percent just since last year. The association's more than 1,000 members include ethics officers from more than 40 percent of the Fortune 500 corporations.

Much of the growth in the ethics profession is attributed to companies' need to comply with Sarbanes-Oxley's strict corporate accounting and financial reporting requirements. (See "The Ethics Evolution," above.) But there are other reasons as well, some experts say. For example, aware that investors are sensitive to the bottom-line importance of ethical corporate behavior, companies are turning to ethics officers to keep policies and procedures from falling out of line with ethical standards.

By and large, ethics officers prefer to devote their time to proactive measures that systematically ratchet up ethical standards in the organization. But in fact, "many are almost entirely reactive, only reacting to problems coming in," says Ed Petry, executive director of the Ethics Officer Association.

Indeed, besides overseeing financial reporting requirements, ethics officers have to manage the stream of ethics-related questions, complaints and allegations that reach them via channels as varied as "help" phone lines and cafeteria conversations. Then they do investigations themselves or parcel out matters to appropriate departments for follow-up.

Protecting the confidentiality of such contacts by employees is an abiding concern. "Confidentiality is paramount to making these programs work," says Jesse Battino, who, as HR vice president, supervises the ethics function at Sequa Corp., a New York-based diversified technology company.

Yet all parties also must keep in mind that ethics officers are representatives of management, not independent ombudsmen. (For more on corporate ombudsmen, see "Someone to Listen" in the January 2003 issue of HR Magazine. For access to that article, see the online version of this article at www.shrm.org/hrmagazine.) Says Petry: "No ethics officer can absolutely guarantee confidentiality, because there may come a time--as in a legal process--when they have to turn their information over to authorities." Matters for which confidentiality can't be guaranteed include allegations of criminal activity and sexual harassment.

The HR Intersection

Although HR plays a significant role in supporting a company's ethical framework and practices, the ethics and HR functions are not necessarily teamed.

"Compliance and ethics has never been part of HR" at Archer Daniels Midland Co., says Scott Roney, vice president of compliance and regulatory affairs for the giant grain-processing company in Decatur, Ill. "We deal with the complaint side or review programs and analyze overall what we're doing to implement our values on the employment side," he says.

Whether ethics and HR have organizational ties is not important to Jim Berg, director of ethics and business practice at International Paper Co. in Stamford, Conn. Until a general administrative streamlining last year, he was attached to HR; now he's attached to the general counsel's office. "I need to be an independent actor within the company so that people can come to me," Berg says. "And I need to have access to the top of the company when I need it. As long as I have all that, it doesn't matter what department I happen to be associated with."