Firms raise their own codes of ethics

As the socially responsible investing movement presses corporate America to clean up its act, many firms are acting from within to ensure that new ethical standards will be upheld – even after the storm of corporate scandals blows over.

Consider the agenda at last month's meeting in Boston of the Ethics Officer Association (EOA), a group with 19 charter members at its founding in 1992 and more than 850 members today.

While some time was spent seriously mulling over what went wrong at Enron and other troubled firms, a more pressing concern was how to ensure swift compliance with initiatives like the Sarbanes-Oxley Act.

This sweeping corporate-reform law, enacted this summer, created a federal oversight board for auditing businesses and toughened penalties for firms that mislead shareholders.

"In a broad historical sense, corporate ethics has waxed and waned" for at least 150 years in the US, says Joe Badaracco, professor of business ethics at Harvard Business School. "But every time there's a bunch of scandals, there are institutional responses."

The need to respond is clearly less of an issue for some companies than others, says Ed Petry, executive director of the EOA. He notes that ever since federal sentencing guidelines were handed down for white-collar crimes in 1991, a vast majority of companies have drawn up their own ethics and compliance policies.

But while some companies have actively implemented programs, he says, many others kept them on paper.

Baxter Healthcare Corp. has worked to make itself an example of the former. This multinational company, with headquarters in Deerfield, Ill., has had "a strong set of programs, processes, and commitments in place for just about a decade," says Gretchen Winter, Baxter's vice president of business practices. "We're not doing anything fundamentally different [since Enron]." The company is reviewing the content of its business practice standards and "tweaking" them where appropriate, she says.

Firms that have been less diligent must now change their approach, experts say.

"The events of the past year have been a wake-up call to companies that had merely the paper programs," says Mr. Petry. "They now have to catch up with best practices and give their programs the teeth they need to actually change their corporate culture so that they don't become the next Tyco, Enron, Andersen, or WorldCom." There's a lot of help around.

"Hundreds of companies have already implemented ethics programs and are willing to share their experiences," Petry says.

One key initiative, says Professor Badaracco, is to draw up a set of "clear, specific, precise, and customized" guidelines that addresses the ethical hazards of the particular business.

"But you have to go well beyond that," says Badaracco. "Companies should try to create a climate, a culture, a set of aspirations that try to bring out the best side of people. But that's a real challenge."

One of 30 firms listed in the Dow Jones Industrial Average, International Paper has translated its 16-page code of conduct into 18 languages and distributed it to its operations worldwide. "It doesn't intend to predict any possible situation," says Jim Berg, the firm's director of ethics and business practice. Rather, it acts as a guide and informs employees where to go when they need help.

One of those places is the company's ethics "help line," a simple but effective solution.

The ethics help line at Raytheon, the supplier of defense and aerospace-systems in Lexington, Mass., has seen quite a lot of activity, says Daniel P. Burnam, the firm's chairman and chief executive officer. This activity, he says, points to a healthy workplace. "Not having it [would speak] of a lack of trust and confidence in management," he adds.

Baxter has a similar toll-free help line accessible to its employees worldwide.

The real value of this service, says Ms. Winter of Baxter, is that over the past six years there's been a steady increase in calls by employees requesting guidance.

"To me that is an excellent illustration of the power of an ethics office in an organization," says Winter. "People are coming to you before they have to make a decision or do something, and they're trying to think through the issues that are being presented."