The Corporate Ethics Office

Some organizations delegate ethics management responsibilities widely, finding that a strong statement of values and a strong ethical culture can keep the ethics management effort together. This approach may be particularly effective in smaller firms. However, most large firms find that ethics initiatives need to be coordinated from a single office to ensure that all of the program’s pieces fit together and that all of the U.S. Sentencing Guideline requirements are being met. The corporate ethics office concept can be traced to 1985 and General Dynamics, then the second-largest U.S. defense contractor. The secretary of the Navy, out of concern about the appropriateness of certain indirect expenses that had been billed to the government, directed General Dynamics to establish and enforce a rigorous code of ethics for all employees that included sanctions for violators. The company turned to a nonprofit consulting firm in Washington, D.C., the Ethics Resource Center, for help in developing the code. As part of this process, an ethics office was also set up and an ethics officer was hired. In 1986, General Dynamics joined with other defense industry companies in the Defense Industry Initiative to ‘‘embrace and promote ethical business conduct.’’ The companies shared best practices, and these best practices provided much of the foundation for the U.S. Sentencing Commission requirements.

The 1991 U.S. Federal Sentencing Guidelines gave impetus to the move toward establishing formal ethics programs in firms outside the defense industry. The guidelines also called for the assignment of specific high-level individuals with responsibility to oversee legal compliance standards. This requirement led to the development of a brand new role—that of the corporate ethics officer.

Until the mid-1980s, the title ‘‘ethics and compliance officer’’ didn’t exist in American business. Today, with a growing number of ethics and compliance practitioners worldwide, these high-level executives have their own professional organization, the Ethics and Compliance Officer Association  The association’s stated mission is ‘‘to promote ethical business practices, serving as a forum for the exchange of information and strategies.’’ The organization began in 1991 when over 40 ethics and compliance officers met at the Center for Business Ethics at Bentley University in Waltham, Massachusetts. The organization was officially launched later that year and began holding annual meetings in 1993. As of 2009, the ECOA has more than 1,300 members representing more than half of Fortune 100 companies, nonprofits, municipalities, and international members from over 30 countries. The organization holds regular conferences, workshops, and web casts and provides a variety of classroom and distance learning opportunities for ethics and compliance officers and their staff. Many firms designate their legal counsel as the ethics officer. Others create a title such as vice president or director of ethics, compliance, or business practices, director of internal audit, ethics program coordinator, or just plain ethics officer. Most firms locate the ethics officer at the corporate level, and these high-level executives generally report to a senior executive, the CEO, the board of directors, the audit committee of the board, or some combination. These individuals are expected to provide leadership and strategies for ensuring that the firm’s standards of business conduct are communicated and upheld throughout the organization. At the time this book went to press in early 2010, the U.S. Sentencing Commission had just proposed the idea that the compliance officer should report directly to the board of directors.