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What Enron Didn't Teach Us

Years after multibillion-dollar scandals rocked corporate America, more than half of employees at both public and private companies admit they have witnessed lying, ethical breaches, or criminal behavior on the job -- and most fail to report it, according to a new study.
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The crackdown on corporate crime sparked six years ago by accounting scandals at Enron and WorldCom has done little to foster ethical behavior in the workplace, where many employees are still afraid to speak out about misconduct, a new study finds.

Despite tougher laws against white-collar crimes, including the Sarbanes-Oxley  Act of 2002 and other strict oversight regulations, workers today are more likely to witness conflicts of interest, abusive behavior, or outright lying from company executives, according to the Ethics Resource Center, a Washington-based research group.

Among 2,000 public- and private-sector employees surveyed nationwide, 56 percent said they had personally seen at least one violation of company ethics standards, policies or the law in the past year, up from 43 percent in 2003, the study found.

At the same time, less than 42 percent said they reported the incident through company channels.

"There is a strong sense of futility and fear among employees when it comes to reporting ethical misconduct, and that increases the danger to business," says Patricia Harned, the group's president. According to Harned, more than half of the employees who said they witnessed wrongdoing without reporting it were afraid of retaliation.

Anonymity doesn't appear to help. Only about 3 percent of all misconduct reports by employees were made over a company hotline, the survey found. Instead, most employees said they preferred to such incidence face-to-face with a manager or other company executive.

"Sarbanes-Oxley did a lot to codify protections for whistleblowers, but it didn't really change the general culture or behavior at companies," says Andrew Sherman, a partner at Dickstein Shapiro Morin & Oshinsky, a Washington-based law firm focused on small-business issues.

According to Sherman, who teaches an executive MBA course in business ethics at Science Application International, whistleblower protections can be a lot like paternity leave, which many employees are legally entitled to take but seldom do. "The law may say one thing, but culture and behavior say something else," he says. 

Not surprisingly, the risk of retaliation for corporate whistleblowers is far lower at businesses that have already created a strong ethical culture in the first place, the study found. Yet, only about a quarter of all U.S. businesses have a "well-implemented ethics and compliance program in place," according to Harned.

Francisco Dao, the founder of StrategyandPerformance.com, a San Francisco-based executive coaching and consulting firm, says most executives these days have little incentive to promote an ethical workplace.

"The problem is their performance is measured over the short term," Dao says. "As long as they can point to a few quarters of strong growth, they've done their jobs and are ready to cash out, even if they've ruined their companies," he says.

Dao adds that many employers will say they promote open communications and dialogue with their employees. "But it comes down to leadership to make that happen," he says.

According to the International Business Ethics Institute, a Washington-based non-profit advocacy group, making employees feel secure enough to raise concerns is a key factor in creating an ethical workplace.

To do this, businesses need to offer an open and non-retaliatory environment with strong two-way communications. That means fostering a workplace where dialogue and feedback are part of the ingrained corporate culture, through regular employee surveys, reviews, and assessments, the group says.

Other strategies include developing standards and procedures for raising concerns, implementing training at all levels, and having a process in place to investigate and address reports of misconduct.

Beyond that, Sherman says business leaders need to start rewarding ethical behavior among employees, rather than just productivity and performance.

"What we've done with Sarbanes-Oxley and other measures is to raise the level of awareness of ethical issues," he says. "It may be that the problem hasn't gotten worse, it's just that it's now on more radar screens." 

Last updated: Jan 1, 2008




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