Insights

At all levels within organizations, employees confront situations and circumstances that, although not illegal, seem very wrong. Many employees find that there is no clear course of action in their organization for confronting and resolving such matters. “It is the middle ground between light and shadow,” as Rod Serling used to say, “It is an area which we call the Twilight Zone.”

How does an organization avoid confusion and lack of enforcement regarding ethical behavior? A sound first step is establishing a clear and well-defined ethics program so that employees don’t find themselves in the “suspense and horror” of these dilemmas. Although such programs cannot realistically address all budding schemes that “lie between the pit of man’s fears and the summit of his knowledge,” a well-designed and promoted ethics program will foster a healthy culture, assist employees in identifying potentially unethical situations, and set parameters for an appropriate course of action.

Submitted for your approval: Regulators and other authoritative bodies recognize the importance of a strong ethics program in industry and propagate rules and guidance aimed at strengthening the prevailing attitudes in business. The American Institute of Certified Public Accountants recognizes that an organization’s internal controls will never be better than the morality of those involved in the internal controls. To promote integrity and ethics, NASDAQ requires all listed companies to adopt a code of conduct (i.e., ethics) for employees, officers and directors, recognizing that it is a key component in preventing a company and its employees from being trapped in the middle ground between light and shadow.

An ethics program should be principles-based (e.g., promote honesty, integrity, character) and emphasize the values the organization embraces. Well-constructed programs will incorporate the following disciplines:

a) Training and awareness education for all employees
b) Prompt consequence for violators
c) Whistle-blower hot-line that provides anonymity and protection to the users
d) Executive commitment
e) Culture of open and honest communication

In addition to maintaining a clear conscience, ethics programs are a great investment: The median loss due to fraud among organizations with an ethics program is approximately 46% lower than for organizations without one. (That’s not science fiction!)

Defining and promoting a strong ethical climate throughout an organization should not have the feel of entering the “fifth dimension,” but it is the expected practice. A strong ethics program helps to reinforce the practice throughout an organization.

Schneider Downs provides accounting, tax, wealth management and business advisory services through innovative thought leaders who deliver the expertise to meet the individual needs of each client. Our offices are located in Pittsburgh, PA, and Columbus, OH.

This advice is not intended or written to be used for, and it cannot be used for, the purpose of avoiding any federal tax penalties that may be imposed, or for promoting, marketing or recommending to another person, any tax related matter.

Comments

Leave a Comment