- Reasons for ethics auditing
- Ethical crisis management and recovery
- Measuring nonfinancial ethical performance


[SLIDE 1]

There are many reasons why companies would want to conduct ethics audits. One very important reason is to detect misconduct before it turns into a major problem. If there is a growing problem and ethics audits are conducted regularly, there is a good chance that an audit will identify the problem before it has a chance to become systemic within the organization. Management can then take steps to address the misconduct before it becomes a bigger problem. 

Another reason why companies want to conduct regular ethics audits is to look for ways they can improve. This doesn't necessarily mean there is an ethical concern or misconduct. Rather, it's about making an already good system even better. For example, if weak controls are discovered, those controls could be strengthened.

Avoiding fines and/or prosecution is another reason why companies want to conduct regular ethics audits. If a company carefully documents its audits and the steps that are taken to address any deficiencies that are discovered, it may be able to avoid fines and/or prosecution if misconduct is discovered. If a company is able to show due diligence in preventing misconduct and reporting it to the proper regulatory agency when it occurs, it may receive a deferred prosecution agreement. This allows the company to resolve criminal charges without having to admit guilt. The company may still have to pay a fine and agree to certain terms, but prosecution may be avoided.  Ethics audits are also important tools for learning about an organization's ethical culture. They can be used to determine employees' empathetic concern and awareness, collective character, collective judgment, and collective moral motivation. Once these things are determined, a company can implement changes in its ethical culture to make sure employees are operating in-line with the company's expectations.


[SLIDE 2]

When companies conduct ethics audits, they may be able to obtain information that helps them become more efficient and reduce costs. For example, if a particular method of ethics training is found to be ineffective, it can be replaced with a method that is effective, thus saving the company both time and money. 

Stakeholders demand transparency from companies. After a recent string of corporate scandals, verbal assurances from companies no longer satisfy the public. Corporate public relations programs are no longer sufficient to pacify customers, suppliers, the community, and others. Companies can therefore use ethics audits to assure the public that actions are being taken to address issues. This increases public trust in the company. 

Yet another reason for companies engaging in ethics audits is that it allows investors to determine whether the company is achieving its goals and whether it actually abides by its stated values. Investors and other stakeholders demand information from companies before they purchase their stock. Information also helps them determine when it's time to sell a company's stock. There are also some stakeholders who exercise their rights as owners of the company to demand changes to policies to address specific ethical issues.


[SLIDE 3]

A very important benefit of companies conducting regular ethics audits is that it may help to prevent crises resulting from ethical or legal misconduct. Ethical crises can be just as devastating as crises resulting from natural disasters. Because of this, companies should be prepared to handle ethical crises if they occur. When ethical crises occur, they can significantly disrupt a company's operations. They can destroy the company's reputation, cause stakeholder confidence to plummet, and also result in significant legal fees. Ethical crises are responsible for the demise of several companies in the early 2000s including Enron, Lehman Brothers, and others. 

Ethical disasters are unexpected operational disruptions that are caused by ethical misconduct that threaten an organization's continued operations. By conducting regular ethics audits, however, organizations may be able to prevent major problems from occurring. They may be able to assess risks, develop contingency plans, make plans to address specific situations, and acquire tools for responding to ethical disasters. 

Many ethical crises may be averted if organizations have formal mechanisms – like ethics audits -- in place to discover risk. When risk is discovered, actions must then be taken to address the risk so that ethical disasters do not occur. The process is vital to the long-term success of an organization. Despite the importance of avoiding ethical disasters, however, many companies do not place a high priority on ethical risks, even though it can take many years to recover from one. 


[SLIDE 4]

Organizations must make ethical financial decisions, but they must also be ethical in nonfinancial areas, too. They must practice integrity. Integrity refers to the quality exhibited by an organization that makes ethical financial and nonfinancial decisions in its operations. Congress has created legislation and regulation to govern the financial aspects of organizations, but other models have been developed to address nonfinancial operations including the Balanced Scorecard, Six Sigma, and the triple bottom line.

Balanced scorecard is a management system that is used to identify and improve various parts of a company's functions and processes. Balanced scorecard also focuses on the external outcomes of those functions and processes. Data collection and analysis is an important part of the system and is used by managers to make better decisions for the company. 

The triple bottom line is a framework that considers the social, environmental, and financial impacts of managements' decisions. It is a management perspective where management focuses just as much on social and environmental concerns as it does on making a profit. In this perspective, management can't see the whole picture if it only concentrates on profit. Without considering its social and environmental impact, management can't account for the full cost of doing business. 


[SLIDE 5]

Six Sigma is a methodology for managing manufacturing process defects and working to eliminate those defects. Improvements are made to the quality of outputs by addressing the causes of defects and reducing variability in business processes. Six Sigma was originally started by Motorola in 1987 and has since been adopted by many of the world's top companies. 

The Global Reporting Initiative (GRI) is a framework that company's use to report their social and sustainability progress. The GRI incorporates the triple bottom line factors and is used by many companies as a standardized way to report nonfinancial performance in a way that is easy to understand. Those who read the reports are easily able to compare one company's sustainability initiatives with other organizations' initiatives. 

ISO 19600 is a set of international standards or guidelines for compliance management. They were created by the International Organization for Standardization. The guidelines cover establishing, developing, implementing, managing, and improving a company's compliance management system. ISO standards are the most widely used in the world for ensuring companies adhere to best practices.