Business Ethics & The Three Monkeys in the Room

Elaine Nissley, Principal with McKonly & Asbury, will provide an overview of ethical style and perspectives. During the webinar, she will present ethics from a macro, corporate, and individual level and discuss social contracts within organizations. She will also discuss how our personal ethical perspective, the ethical perspective of others, and the organization’s ethical perspective influence social contracts and behavior in the workplace. Elaine will then look at a self-assessment tool which you can use to assess your ethical leadership style and a balanced scorecard to measure and track the corporate ethical environment, as well as some frameworks to help you to make balanced ethical decisions. The webinar will conclude with a review of the state of ethics in the workplace in 2017 and a summary of the Federal Sentencing Guidelines related to the key components of an effective ethics program to protect both the organization and their employees.

1. Business Ethics & The Three Monkeys in the Room Elaine Nissley, Principal, MBA, CISA, PMP, CRMA, CRISC McKonly & Asbury, LLP www.macpas.com

2. Business Ethics & The Three Monkeys in the Room Elaine Nissley, Principal, MBA, CISA, PMP, CRMA, CRISC McKonly & Asbury, LLP www.macpas.com

3. Introductions Elaine Nissley , MBA, CISA, PMP, CCSA, CRISC, CRMA Principal with McKonly & Asbury L eader of the firm’s Internal Audit & Management Consulting group Over 30 years experience Risk management, internal audit, internal controls assessments, and project management

4. Learning Objectives Understand the theory of ethics, ethical perspectives, and the social contract. Relate ethics and the social contract to behavior. Understand ethical decision making frameworks. Gain insight into the state of ethics in the workplace. Understand the key components of an effective ethics program.

5. Theory of Ethics Religion B ased A general pattern or “way of life”. Professional Ethics A set of rules of conduct or “moral code”. Branch of Philosophy Inquiry about ways of life and rules of conduct . “One swallow does not make a summer, neither does one fine day; similarly one day or brief time of happiness does not make a person entirely happy.” - Aristotle

6. Justice vs. Care [email protected]

7. Justice vs. Care Justice Character/Obligation Fairness Equality Authority Logical Impartial Care Results/Equity Responsibility to reduce harm or suffering Social justice Work to change bad rules

8. Theory of Ethics Character/Virtue “ We do not act rightly because we have virtue or excellence, but rather have those because we have acted rightly.” Aristotle

9. Theory of Ethics Rights and Obligations “ In law a man is guilty when he violates the rights of others . In ethics he is guilty if he only thinks of doing so .” - Immanuel Kant Categorical Imperative I ought never to act except in such a way that I can also will that my maxim should become a universal law . Practical Imperative Act in a way that you always treat humanity, whether in your own person or in the person of any other, never simply as means, but always at the same time as an end.

10. Theory of Ethics Results or Consequences “ The creed which accepts as the foundation of morals, Utility, or the Greatest Happiness Principle, holds that actions are right in proportion as they tend to promote happiness, wrong as they tend to produce the reverse of happiness.” - John Stuart Mill While we are free to choose our actions, we are not free to choose the consequences of our actions. – Stephen R. Covey

11. Theory of Ethics Equity/Fairness “ Fairness does not mean everyone gets the same. Fairness means everyone gets what they need.”  - Rick Riordan

12. Theory of Ethics Self Interest “There are two levers to set a man in motion, fear and self-interest . - Napoleon Bonaparte

13. Case Study Anne Greely, CEO Believes she manages the company effectively History of 22-25% growth in sales, profit & EPS Wants to raise expansion capital Current year 35% gain Concerns May appear that CEO does not have a handle on company activity May attract takeover artist Short in profits next year Bank may not loan expansion capital Joe Fault, CFO CEO suggested solutions Reduce % complete on construction jobs to lower profits Expense $124,000 in R&D costs CEO Rationale Joe is an employee Anne is his boss Joe should provide revised figures ASAP

14. Application of Ethics Systemic Corporate Individual

15. Macro/Systemic Ethics Operating Environment Political pressures Economic conditions Societies attitude toward type of business Business regulations

16. Corporate Ethics Organizational Ethics The principles, standards, and values by which businesses operate . Code of Ethics Set of principles that guide the organization . Employee Ethics Ethical behavior of the organization's workers .

17. Individual Ethics

18. Behavior Assessment Tools Leadership Ethics Self-Assessment Successes Opportunities for Improvement Action Plan Balanced Scorecard for Ethics Measure Corporate Ethics Self-Assessment Independent Third Party Assessment

19. Leadership Ethics How do you demonstrate that ethics is a priority? How do you communicate your expectations for ethical practices? Do you practice ethical decision making? Do you support your local ethics program? [email protected]

20. Corporate Ethical Behavior [email protected]

21. Social Contracts

22. Social Contracts & Ethical Decisions Ethical Values Significant Stakeholders Stakeholder Impact Analysis Modified Five Questions Modified Moral Standards Modified Pastin

23. Modified Five Questions Is it profitable ? Is it legal ? Is it fair to all stakeholders ? Is it right? What are the impacts? Stakeholders Environment Does it uphold the organizations virtues?

24. Modified Moral Standards Will it provide a net benefit to society? Is it fair to all stakeholders? Is it right? Does is demonstrate the virtues expected by the organization’s stakeholders? Is it the truth? Is it fair to all concerned? Will it build goodwill and better friendships? Will it be beneficial to all concerned?

25. Modified Pastin Approach Ground rule ethics End-point ethics Rule ethics Problems of the commons

26. Case Study Anne Greely, CEO Believes she manages the company effectively History of 22-25% growth in sales, profit & EPS Wants to raise expansion capital Current year 35% gain Concerns May appear that CEO does not have a handle on company activity May attract takeover artist Short in profits next year Bank may not loan expansion capital Joe Fault, CFP CEO suggested solutions Reduce % complete on construction jobs to lower profits Expense $124,000 in R&D costs CEO Rationale Joe is an employee Anne is his boss Joe should provide revised figures ASAP

27. State of Ethics in the Workplace Ethics and Compliance Initiative since 1994 March 2018 Outcomes When Integrity is a Priority Employees are: Less likely to feel pressure to violate ethics standards Less likely to observe misconduct More likely to report misconduct they observe Less likely to experience retaliation for reporting State of Ethics & Compliance in the Workplace, March 2018, Ethics and Compliance Initiative, www.ethics.org

28. State of Ethics in the Workplace Key Trends 2013 - 2017 Observed misconduct on the decline Lying to employees and external stakeholders Abusive Behavior Internet abuse Conflicts of interest Health violations State of Ethics & Compliance in the Workplace, March 2018, Ethics and Compliance Initiative, www.ethics.org

29. State of Ethics in the Workplace Key Trends Reporting of suspected wrongdoing at historic high Misuse of confidential information Giving or accepting bribes or kickbacks Stealing Failed specifications Sexual harassment State of Ethics & Compliance in the Workplace, March 2018, Ethics and Compliance Initiative, www.ethics.org

30. State of Ethics in the Workplace Key Trends More employees feel pressure to cut corners Why is this important? Because pressure Leads to misconduct Twice as likely to accept questionable business practices State of Ethics & Compliance in the Workplace, March 2018, Ethics and Compliance Initiative, www.ethics.org

31. State of Ethics in the Workplace Key Trends Rate of retaliation for reporting wrongdoing doubled Highest rates of retaliation for reporting Accepting gifts/kickbacks or bribing public officials Improper political contributions Retaliation against a reporter State of Ethics & Compliance in the Workplace, March 2018, Ethics and Compliance Initiative, www.ethics.org

32. State of Ethics in the Workplace Key Trends Number of organizations with strong cultures has not changed Behavior Strong Culture Weak Culture Reported misconduct 88% 52% Experienced retaliation 43% 55% Observed misconduct 28% 83% Experienced pressure 12% 34% State of Ethics & Compliance in the Workplace, March 2018, Ethics and Compliance Initiative, www.ethics.org

33. State of Ethics in the Workplace Employees in Weak Culture Pressure to compromise (3 times more) Observe misconduct (3 times more) Report observed misconduct (41% less) Experience retaliation (27% more) Workplace Conduct Changes with Market Downturn - less pressure to compromise Improvement - more pressure to compromise State of Ethics & Compliance in the Workplace, March 2018, Ethics and Compliance Initiative, www.ethics.org

34. State of Ethics in the Workplace What Do the Trends Show Us? Trouble ahead Pressure to Compromise Standards Pressure leads to misconduct Questionable business practices accepted Increases in Retaliation 100% increase Happens quickly State of Ethics & Compliance in the Workplace, March 2018, Ethics and Compliance Initiative, www.ethics.org

35. State of Ethics in the Workplace What Should Organizations Do? Implement an Ethics & Compliance Program Statement of Values Performance goals for senior leaders and managers Already Have an Ethics & Compliance Program? Monitor pressure and reinforce integrity Evaluate your program Reinforce importance of culture State of Ethics & Compliance in the Workplace, March 2018, Ethics and Compliance Initiative, www.ethics.org

36. Federal Sentencing Guidelines Culpability Score Factors that reduce punishment Effective ethics and compliance program Self-reporting, cooperation, or acceptance of responsibility Factors that increase Tolerance of criminal activity Prior history Violation of an order Obstruction of justice

37. What is an Effective Program? Due Diligence to Prevent and Detect Criminal Conduct Established standards and procedures Responsible for compliance and ethics program Oversight by knowledgeable governing authority High-level personnel assigned responsibility Specific individuals with day-to-day operational responsibility and report to high-level personnel Responsible individuals have not engaged in illegal activity

38. What is an Effective Program? Due Diligence to Prevent and Detect Criminal Conduct Organization shall Communicate all aspects of the program Train appropriate to individual’s roles and responsibilities for all employees Monitor Audit to detect criminal conduct Evaluate effectiveness Anonymous or confidential reporting

39. What is an Effective Program? Due Diligence to Prevent and Detect Criminal Conduct Promote Use appropriate incentives Disciplinary action Respond to criminal conduct To prevent further similar conduct Modify ethics program as needed Periodically assess risk of criminal conduct

40. What is an Effective Program? The culture encourages ethical conduct Code of Conduct Written and available to everyone Up to date and applicable Business Ethics Training At least annually for all Requires agreement to abide by Code of Conduct Meaningful for all based on roles and responsibilities Ethical Environment Audits Conducted by an independent third party Assess the ethical environment at all levels Provide reasonable assurance

41. In Short Limit Opportunity Instill Fear of Consequences Eliminate Corporate Motivation

42. Conclusion

43. Questions Elaine Nissley , MBA, CISA, PMP, CCSA, CRISC, CRMA Principal [email protected]