Corporate Ethics: CIBC-Style Programs Work; Focus Above All on Accounting and Senior Executive Fraud;

Transcription

1 Corporate Ethics: CIBC-Style Programs Work; Focus Above All on Accounting and Senior Executive Fraud; BDO Dunwoody/Chamber Weekly CEO/Business Leader Poll by COMPAS in the Financial Post for Publication March 1, 2004 COMPAS Inc. Public Opinion and Customer Research

2 1.0. Introduction Canadian business leaders agree that corporate ethics initiatives such as CIBC s new ethics hotline will help improve the ethics of businesses but there is a division of opinion about whether such actions are too insufficient or excessive. The panel believes that companies should work energetically against all forms of unethical conduct including tied selling while they rank fraudulent accounting practices and fraud by executives as the top-two issues deserving attention. Providing a secure forum to report unethical behaviour and ethics training for both management and employees are the most common initiatives taken by businesses themselves to ensure ethical business behaviour. These are the principal findings from this week s web survey, conducted on behalf of the National Post under sponsorship of BDO Dunwoody and the Canadian Chamber of Commerce. 2.0 Ethics Initiatives Supported, Ethical Targets Are Many Business leaders generally support ethics initiatives such CIBC s ethics hotline. Almost two-fifths of respondents say that comprehensive efforts like this bank s will help improve the ethics of businesses, as shown in table 1. The remainder of the panel are divided among those who believe stronger action is required, those who believe that the actions exceed the true seriousness of the problem, and a small group (11%) who say that this type of ethics program will not improve the integrity of business. Table 1: CIBC s Ethics Initiatives Q1. There has been recent talk in the media about CIBC s $50 million dollar investment in governance and ethics initiatives. This includes an Ethics Hotline to allow employees to anonymously report business irregularities. Do you feel that this type of initiative [ROTATE] % Will help improve the ethics of businesses 37 Is a good start but stronger action is needed 26 Is a public relations tactic for a problem that is not too serious 22 Will not improve the ethics of businesses 11 DNK 3 1

3 Respondents were subsequently asked which types of misspending that businesses should focus on preventing. Fraudulent accounting practices in public corporations, fraud by senior or other executives, kickbacks from suppliers and rigged and unfair RFPs and competitions all receive exceptionally high scores from business leaders. Fraudulent accounting practices and fraud by executives are the top priority of business leaders with top three box scores of 95% and 92% respectively while kickbacks and unfair RFPs and competitions have top three box scores of 88% and 87%, as shown in table 2. Expense padding and tied selling were the only issues to have top three box scores lower than 80%. They nonetheless receive strong consideration from respondents with over two-thirds (77% and 71% respectively) giving scores in the top three boxes. Table 2: Priority Ethics Problems Q2. To what extent should business organizations focus on preventing each of the following types of misspending? Please use a 7 point scale where 7 means top priority and 1, the opposite. [ROTATE] Mean DNK Fraudulent accounting practices in public corporations Fraud by senior or other executives Kickbacks from suppliers Rigged or unfair RFPs and competitions Mistreatment of clients by a powerful business organization Expense padding Tied selling whereby customers are coerced into buying from a given supplier The subtlety, nuanced, intensely interested, and highly informed character of respondents views on corporate ethical matters are reflected in the following diversity of viewpoints: There does seem to be an excess of abuse identified lately, but I believe that the draconian steps being taken are overkill. Every company should have checks and balances to ensure these issues 2

4 don't occur and provide an open forum if anything is identified. However I disagree with the steps being taken by the CICA and the Securities Commission which are adding massive costs to companies bottom line that are uncalled for. Ethics and good business should go hand in hand. It is disappointing that some thing otherwise. Ability to monitor compliance to internal controls and corporate governance is the key. Much of what is being done seems like a PR job. If companies and the government were serious there would be severe consequences for such actions especially at senior levels. If single sourcing is providing good quality at a reasonable price I think it is OK. All too often we try to be fair to all and just get ripped off by the lowest bid. If you don't perform you should be on the bottom of the list. Ethics should be emphasized and should permeate an organization. It has been given lip service for too long. Unethical (criminal) business practices by corporations and egregious greed by top executives are like a fungus that affects all of society. In addition to the direct injury to other parties, it is used by individuals to justify their own unethical and criminal behaviour. Many companies don't know where to start! Many executives do not have the moral courage to cascade throughout their respective organizations a clear and concise set of ethical values. As a result, employees do not comprehend their importance in gaining/regaining public confidence and trust. Ethics for businesses must start by having a good example set by all levels of government so we have a long way to go. Problems of fraud, misrepresentation and manipulation of financial statements, results, bids, etc., almost always start at or near the top. If the Board of Directors does not set the appropriate tone, other initiatives will be relatively unsuccessful. It would be a travesty for the business community or the public at large to allow the current Federal Ad scam, or for that matter the Ontario Conservative abuses of Hydro One consulting contracts to fade off into the sunset. We need to keep the pressure on the abusers of tax revenues. Politicians should not be permitted to attend professional sporting events at anyone s expense other than their own. The influence such gratuity buys is far greater than the value of the ticket and extends far beyond the end of the game. 3

5 It is all too easy to focus on the "warm and fuzzy feeling" engendered by special workshops and training and totally fail to address the concepts of reward, punishment and responsibility for individual actions. Fraud and unethical behaviour are individual traits promoted by an overly bureaucratic system which totally fails to properly educate young students regarding society responsibilities and ethics, and promoted by a business and government environment which frequently rewards those without ethics or personal responsibility. Corporate governance requires a clear shake up in the legal sense; many companies just do what they want within the present law and often take down smaller suppliers when they have cash problems etc, and the larger entities just use their power to force suppliers to do what they want irrespective of their legal rights. Should a company be financed by an owner, and the cash protected for that owner under a numbered company, and when things get tough the owner takes his cash and dumps his payables? No, of course not but its legal. The biggest ethical problem in Canada is with the governing Liberal party and their blatant abuses. Your poll is too soft. Skirts around major ethical issues. Times have changed and what was winked at 10 years ago is now unethical. Interesting to see where we are in another 10 years. 3.0 Secure Forum and Employee Ethics Training Most Common Initiatives Providing a secure forum from employees to report unethical behaviour and employee ethics training are the most common ethics initiatives actually undertaken by Canadian businesses. Almost half of respondents (39%) say that their company has a secure forum for employees to report unethical behaviour; however only half that number (20%) formally guarantee protection of whistle blowers. Ethics training for both general employees and management receive strong scores from respondents with approximately one-third of businesses (36% and 32% respectively) having such initiatives in place. 4

6 Table 3: Actual Ethics Initiatives of Respondents Companies Q3. What initiatives, if any, has your company taken to ensure ethical business behaviour? [CHECK OFF EACH THAT APPLIES] % Providing a secure forum for employees to report unethical behaviour 39 Employee ethics training 36 Specialized management training 32 Guaranteed protection for whistle blowers 20 Other 1 14 None 27 DNK 4 Note: This is a multiple response question (i.e. respondents are allowed to name several answers). For this reason, the percentage may logically be greater than 100%. 4.0 Methodology The National Post/COMPAS web-survey of CEOs and leaders of small, medium, and large corporations and among executives of the local and national Chambers of Commerce was conducted February 24-27, Respondents constitute an essentially hand-picked panel. Because medium and small companies are more numerous in the economy and hence among Chamber membership, the actual respondents in this consultative panel are drawn more from these strata than from the stratum of the largest companies. Because of the small population of CEOs and business leaders from which the sample was drawn, the study can be considered more accurate than comparably sized general public studies. In studies of the general public, surveys of 174 are deemed accurate to within approximately 7.4 percentage points 19 times out of 20. The principal and coinvestigator on this study are Conrad Winn, Ph.D and Tamara Gottlieb. 1 Some volunteered examples: ethical leadership by example, policies to check and balance purchasing and expensing practices, HR reporting directly to the Board of Directors, new Code of Conduct for Pension Committee, new company-wide code of conduct, management training on values, a strong audit committee that forces management to focus on internal controls, clear warnings that dishonourable dealing warrants dismissal, the U.S. parent company has introduced many requirements to comply with Sarbanes-Oxley, special website for whistle-blowers, executives must report hospitality received, enforcement of Rotary four-way test, and greater use of external accountants/auditors. 5