Measuring the immeasurable. That's how some consider the development of metrics and benchmarks necessary to ascertain the effectiveness of their ethics programs. But sophisticated calibration efforts increasingly are penetrating the sometimes nebulous world of ethics and compliance assessment.
The advent of ethics program metrics—including measuring the ethical culture and awareness at corporations through employee surveys, and analyzing call patterns to employee helplines—holds promise to entrench ethics programs as a dynamic risk management tool rather than a compliance obligation.
Companies have scrambled to establish ethics programs in the post-Sarbanes-Oxley era. That's partially because of SOX-promulgated exchange rules that require issuers to "adopt a code of conduct applicable to all directors, officers and employees, which shall be publicly available."
But the programs are also in response to revised federal sentencing guidelines that emphasize monitoring, auditing, assessing and evaluating programs. Specifically, the guidelines call for "reasonably designed, implemented, and enforced" efforts that are then assessed for their impact.
A Developing Science
That "assessment" challenge has caused public companies to grapple with the best ways to measure and benchmark the effectiveness of programs.
And that's led several organizations, including the Open Compliance & Ethics Group and the Ethics Resource Center, to attempt to fill the gaps. For example, the OCEG—a nonprofit that is focused on providing universal guidelines for integrated compliance and ethics programs—recently released a draft of comprehensive guidelines designed to help companies put compliance principles into practice.
Heller
One key OCEG recommendation for ethics compliance is the call to bring rigorous processes to what is considered a soft field. Although ethics metrics is "clearly a developing science," notes Dave Heller, chief compliance officer for Qwest Communications based in Denver, there is plenty of potential for measurement. For Heller, the number and type of calls a company receives to its hotline can serve as one important data point.
"A key indicator whether you have an ethical culture is whether employees can raise issues without fear of retaliation or retribution," says Heller, who is active with both OCEG and the Ethics Officers Association. If a company's hotline is dormant, "That's a problem," says Heller. "If you're getting too many calls, that's a problem, too."
Kipp
Barbara Kipp, the chief ethics officer at PricewaterhouseCoopers, agrees that hotline or helpline volume can serve as a window into ethics issues. A standard industry benchmark, says Kipp, is 1 to 2 percent call volume as a percentage of a company’s population. Besides just tracking call volume, Kipp notes that companies should also attempt to review the track the types of calls received. Calls into PwC's helpline are analyzed on multiple metrics, including the percentage of calls that are anonymous, and the ratio of inquiries versus allegations of wrongdoing.
Perceptions Of Tone
Assessing the impact of ethics training, however, poses a more complicated challenge. Can companies measure whether ethics training is having a company-wide impact? Such an exercise can be difficult, especially when ethics training is embedded in other company offerings.
Mitchell
But OCEG's president and CEO, Scott Mitchell, notes some of the time-tested techniques that assess employee satisfaction can also be deployed by compliance officers to measure organizational knowledge and perceptions on ethical matters. “Over the past two decades," says Mitchell, "the discipline of human capital management has developed many tried and true techniques to address some of the challenges faced by chief compliance officers today." According to Mitchell, those include communicating the company's mission and values, assessing and evaluating employee perceptions, reducing resistance to change, and delivering and evaluating the effectiveness of training. "We don't have to reinvent the wheel," he says.
For example, adds Mitchell, companies can "take the temperature" of their ethical culture through surveys that measure how well employees are versed on policies that relate to the code of conduct or other aspects of their work. Moreover, employees can supply critical data on their peers and their perception of management. “The only way to understand the tone at the top is from employees’ perceptions of it,” says Mitchell.
That's because, in practice, tone at the top is less about the words or actions of management, and more about employees perceptions. "Management can say all of the right things and do all of the right things," says Mitchell, "however, it is more critical that employees actually hear the right things and see the right examples...and are convinced that they are real." Mitchell refers to the often-used example of Enron to make his point. "A wonderful board on paper," he says. "An exemplary code of conduct. Some of the best speaches about corporate governance and ethics. In all, a great tone from the top. But traders and other executives simply didn't believe management was serious...and, arguably, they weren't."
OCEG’s draft guidelines suggest a wide spectrum of ethics-related survey questions, including many that seek to understand whether a positive control environment exists. The control environment—as described in the widely adopted internal control framework published by the Committee of Sponsoring Organizations of the Treadway Commission—sets the tone of an organization, including the integrity and ethical values of employees. The OCEG's survey, therefore, includes questions that seek to gauge whether the environment is one in which employees can openly raise issues, or whether employees are confident that reports of misconduct will be kept confidential and free of retribution. The OCEG guidelines also suggest probing “perceptions about pressure to compromise values.”
Taking Action
Aggressive surveying of ethical attitudes can provide diagnostic data that help companies pinpoint problems before they become crises. PwC’s Kipp, who has been in her role for eight years, says her firm has conducted internal ethics surveys for four years, which have generated a solid baseline of data for benchmarking and troubleshooting. “We now have some real good trend lines that we can look at," she says. “We have enough sample sizes we can drill down to the individual country and firm level.”
Among the ethics attitudes PwC explores, says Kipp, is whether employees believe PwC takes appropriate disciplinary action. "Do [employees] believe that people are punished when they should be punished?” Concerns over privacy on disciplinary matters can undermine the perception that companies take ethical violations seriously—and thus discourage whistleblowing.
Harned
Patricia Harned, president of the Ethics Resource Center in Washington, D.C., agrees that most employees are unwilling to report misconduct because they believe no action will be taken. As a result, a company's ability to hold employees accountable for misdeeds is a key measure of ethical culture.
One way to help enforce the perception that a company takes disciplinary action seriously is to issue regular updates that broadly outline the kinds of reports of misconduct they are receiving and the action they are taking, all while maintaining confidentiality. The updates eventually become not only a codification of ethics-related developments at the company, but they become a manifestation of management's dedication to an ethical culture and its measurement.
But according to Harned, a key to measuring ethical awareness is understanding employee attitudes. "A critical element in the effectiveness of a program has to be: 'What do our employees think,'" she says. And that's why each company needs to understand its unique cultural issues before determining which data to gather and measure.
Doing so will help companies "advance their thinking about what works in their programs and where they should be putting their resources."
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