Welcome to KPMG's Business Ethics web site. Our mission is to be a facilitator of the best and brightest thinking taking place on ethics. Here, you will find a clearinghouse — an electronic town hall — for a discussion of critical ethical issues. The key feature of the site is our interactive ethical dilemma that lets you study hypothetical business situations, answer a series of questions about the situation and compare your answers with those of other visitors to the site. Our current dilemma focuses on religious diversity in the workplace.We also provide links to other ethics-related web sites and information about our services. Before you start surfing our site, here's an overview of today's business ethics environment.

Today's Business Ethics Environment
A January 1995 article in the California Management Review entitled, “Business Ethics: A View from the Trenches,” reported the results of in-depth interviews that had been conducted with 30 recent Harvard MBA graduates. Among their comments:

  • Organizational executives are out of touch about ethical issues;
  • Organizational pressures as opposed to character flaws lead people to act unethically;
  • Whistleblowing is a professional hazard;
  • Staff-level employees often receive explicit instruction from middle managers to do unethical or illegal things, e.g., overlook kickback schemes or support cover-ups involving sexual harassment; and
  • Questionable behavior does not hurt; in fact, in some cases it seems to accelerate career advancement.

These findings are disturbing, especially in light of the fact that unethical behavior among North American companies costs about $100 billion a year: to investigate and resolve the activities in question and to put mechanisms in place to ensure that problems do not reoccur. That's the bad news. The good news is that many business leaders are studying the corporate culture and climate of their organizations. As a result, they are embracing the concept of the “business ethic process” and are looking to independent firms such as KPMG to assess their needs and make recommendations for improvement.

What is the Business Ethics Process?
Quite simply, the business ethics process is a management process comprised of programs, practices and systems designed to motivate, measure and monitor an organization's ethical performance. Elements include, but are not limited to, codes of conduct, mission statements, training and awareness programs, upward communications systems such as town meetings, and an ethics office or ombudsperson network.

An effective business ethics process is one of the first and most important lines of defense against unethical or illegal activities. The first step in establishing a good business ethics process is to access and diagnose four key factors: ethical climate, performance incentives, communications (downstream and upstream) and compliance.

Following is how we define each factor, together with sample questions that are asked during an ethics assessment.

Ethical climate

Definition:
Ethical climate refers to an organization's culture, environment, motives, and pressures. It is the role of senior executives to establish, drive and reinforce ethical climate throughout an organization. If their "tone at the top" differs from the tone at other levels, the organization's ethical climate will be questionable.
Points of Interest:
When assessing the ethical climate of an organization, research the following questions:

  • What is the ethical culture?
  • Does management act with a high level of integrity and competency?
  • How do employees feel about the organization and its top management?
  • Are controls in place to monitor the ethical climate of the organization?

Performance Incentives

Definition:
Achieving organizational objectives is the driving force behind performance incentives: methods employed by the organization to motivate and direct employee behavior in order to meet the company's goals.

Points of Interest:
When assessing performance incentives, research the following questions:

  • What incentive programs both financial and non-financial does the company have in place?
  • Are these incentives consistent with the company's core values?
  • What is the "upside" of meeting company objectives versus the "downside" of unmet expectations?
  • Are the financial incentive programs counter-balanced in any other way?
  • Is the incentive plan results-oriented or process-oriented, i.e., is management more concerned with the bottom line than the plan itself?

Communications

Definition:
Communications refers to the messages employees receive about acceptable and unacceptable behavior and the priority of these messages. Communications can be "downstream" or "upstream." Downstream refers to codes of conduct, training programs, human resource activities, and employee communications that are communicated by top management to rank-and-file employees. Upstream refers to both formal and informal methods of communication, i.e., hotlines versus employee grapevines that are communicated by rank-and-file employees to top management.
Points of Interest:
When assessing the communications structure in plan, research the following questions:

  • What downstream communications does the organization have in place?
  • What upstream communications are in place?
  • How are the company core values communicated?
  • Are the communications effective?
  • Does top management follow the core values communicated?

Compliance

Definition:
Compliance refers to the organization's business practices, corporate policies and procedures, laws, rules, and regulations.
Points of Interest:
When assessing compliance, research the following questions:

  • What are the legal compliance issues facing the company?
  • Does the company face the risk of non-compliance with existing regulations, regarding sexual harassment, export control, fraudulent financial reporting, environmental liability, antitrust, etc.?
  • How does the company monitor legal compliance?
  • If the company is found to be in non-compliance with a law, rule, or regulation, is there a system in place to rectify the situation?
  • Is the client aware of the Federal Sentencing Guidelines that could be used to reduce fines through programs to detect and prevent violations of law?

Note to users: All information provided is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the facts of the particular situation.
© 1997 KPMG Peat Marwick LLP. All rights reserved.