ETHICS OFFICER BACKGROUND

The job of ethics officer has been called ‘‘the newest profession in American business.’ Individuals holding this position come from many backgrounds. With insiders, the job is often assigned to someone in a staff function. According to past ethics officer surveys, law was the most common background. That is true of most of our interviewees as well. Interestingly, some people believe that lawyers shouldn’t be considered for the job, because corporate lawyers are hired to defend the corporation and can’t objectively handle an ethical issue that calls the corporation’s own behavior into question. But the ethics officers we interviewed agreed that the most important thing is earning other employees’ respect as being fair, trustworthy, credible, and discreet. The ethics program coordinator at USAA, Earnie Broughton, has training in industrial/organizational psychology and experience as a human resources generalist and line executive. Such a background is less common among ethics officers. But it’s useful in an organization that is committed to making ethics management the responsibility of everyone from the CEO down. In fact, as a statement of commitment and accountability that any ethics officer would welcome, USAA’s CEO identifies himself as the chief ethics officer. Broughton’s office oversees the code and conflict of interest policy, ethics training, communication, and support. But at USAA, every executive, manager, and supervisor is assigned responsibility for ethics within his or her own area. Broughton works closely with the ‘‘Ethics Council,’’ a group of senior executives who meet regularly to talk about the ethics program and provide company-wide guidance on ethics issues.

Ethics offices can be centralized, decentralized, or some combination of both. The decision to centralize or decentralize may depend on the overall structure of the firm. For example, if the firm’s other staff functions are highly decentralized, it may be difficult to centralize the ethics function. The structuring decision may also depend on whether different business units have very different ethics management needs. For example, if one division of a firm deals in government contracts and others do not, that division may need a different approach that emphasizes compliance with government contracting regulations. So local ethics offices might better meet the needs of different units that are in different businesses. However, decentralized ethics offices can be difficult to manage effectively because they must communicate with each other constantly to ensure consistency and commitment to the organization’s key values.

Even where different units have different requirements, it’s usually helpful to have

a central office that coordinates ethics and compliance activities and ensures management

support for those activities. Most large organizations, such as the ones we talked with, have a headquarters ethics office that functions as the central point of communications for ethics and compliance activities. For example, the corporate ethics office at Lockheed Martin has a staff of approximately nine people, led by Alice Eldridge, the vice president of ethics and business conduct. In addition, each of the four large business areas and corporate enterprise operations has a full-time ethics director who has responsibility for overseeing ethics and business conduct in his or her business areas. These ethics directors, following a matrix reporting structure, report to Eldridge as well as to an executive vice president for their business area. Eldridge reports directly to the chairman and chief executive officer. In addition, Eldridge reports  to the Ethics and Corporate Responsibilities Committee of the corporation’s board of directors at certain intervals during the year.

Ethics officers seem to agree that, whatever other reporting relationships exist, the ethics officer should have a direct reporting relationship to the CEO. They were particularly concerned about the ethics function being ‘‘stuck’’ under law, human resources, audit, or finance, where it would be just another part of the ‘‘silo mentality’’ that still exists in many organizations. Ethics would then be perceived as audit’s job or HR’s job rather than as part of the total culture. The person who leads the ethics office is in a much better position to ‘‘press the envelope’’ if he or she reports directly to the CEO. In fact, as with USAA, the best situation is likely when the CEO thinks those letters stand for the ‘‘chief ethics officer’’ as well as chief executive officer. In that situation the CEO, with assistance from other individuals, takes responsibility for managing ethics.