Posted on: Sunday, July 25, 2004

Firms focus more on ethics

By Lisa Singhania
Associated Press

WEST WINDSOR, N.J. — When Peter Ferris was hired by Tyco International five years ago, he received an employee handbook but little other formal training in business ethics. Today, employees at a company that made headlines for its former CEO's lavish spending must take an interactive, online class that covers everything from insider trading to sexual harassment.

There's also a column on business ethics in the company's newsletter, and an ombudsman to address employee concerns .

"The programs have helped define what is appropriate behavior in real-world situations. A lot of it is common sense, but some of it you may not know," said Ferris, Tyco's vice president of strategic marketing. "You have to define ethics because, if you don't, people will do it themselves."

The changes are part of Tyco's efforts to move past the embarrassing scandal that resulted in larceny charges against former top officers including CEO L. Dennis Kozlowski. They also reflect a broader trend in U.S. companies amid increasing regulatory pressure and emphasis on corporate governance. Many big U.S. companies, including MCI and Boeing are expanding training programs and hiring ethics officers and ombudsmen.

Critics say many of the efforts are public relations moves. They say real promotion of ethics requires more than online programs or seminars — and note that many of the recent corporate scandals occurred at companies that already had programs. They also question whether such efforts would have stopped some of the unethical executives in recent scandals who knew they were breaking the rules.

"They knew they were taking a risk and it's because of greed," said David Silverstein, president and CEO of Breakthrough Management Group, a consulting group. "No training is going to change that."

Still, demand for ethics training products is increasing.

"We're living in a world where real loss and damage has occurred because people have lost their ethical footing," said Dov Seidman, chairman of LRN, a provider of ethics training materials. "There has been a lot of pressure from Main Street and Wall Street — and obviously a very powerful regulatory response, Sarbanes-Oxley, to put corporate and individual behavior under the spotlight."

The Sarbanes-Oxley Act, a corporate governance bill passed in 2002, requires public companies to establish a confidential system for employees to report wrongdoing and create an ethics code for senior financial officers.

At the same time, the U.S. Sentencing Guidelines, which help determine penalties for corporate wrongdoing, are being rewritten to require companies to "promote and organizational culture that encourages ethical conduct."