By Lamar Odom, Robyn Ferguson, Clarice Golightly-Jenkins, and Ricardo Alarcon, Our Lady of the Lake University

Academic Citation: Lamar Odom, Robyn Ferguson, Clarice Golightly-Jenkins, and Ricardo Alarcon, Kravis Leadership Institute Leadership Review, Summer 2003.

About the Authors: Lamar Odom, J.D., is Assistant Professor at the Center for Leadership Studies, Our Lady of the Lake University. Robyn Ferguson, Clarice Golightly-Jenkins, and Ricardo Alarcon, are doctoral students at the Center for Leadership Studies, Our Lady of the Lake University.

Introduction

Among the many priorities organizational leaders face, ensuring long- term survivability must be of paramount concern. Engaging in activities that will avoid corporate liability is tantamount to achieving longevity within the business arena. Dating back to the mid 1950’s, corporate America has experienced a widening gap in society’s expectations of ethical business behavior and the actual ethical conduct of business organizations (Odom and Green, 2002). Recently several organizations and leaders within those organizations have faced civil and criminal charges as a result of conduct that was unethical and often illegal. Enron, WorldCom, Tyco, to name a few, headline the list of companies that epitomize what can occur when amoral leaders are at the helm. Could formal ethics training affect the liability these organizations may face as a result of the unethical conduct of their employees?

This article explores ethics training within organizations. Specifically, it addresses the importance of ethics training in establishing and maintaining an ethical climate within the organization, and how ethics training may minimize the risk of civil and criminal liability to organizations when ethical breaches do occur.

Is Ethics Training Needed?

Ethical behavior in the workplace is of critical importance to leaders and managers in organizations. This concern reflects both human resources and economic issues. Employees value and expect ethical behavior within their organizations. A 2000 study by the Ethics Research Center indicates that 90 percent of workers feel that their companies should do “what is right, not just what is profitable” (Vershoor, 2000). However, almost 30 percent of employees believe that their employer knowingly breaks the law and ignores ethics. Over 40 percent indicate they have seen ethical or illegal problems at work (Wah, 1998). Employee concerns about management are not without foundation. In 1997, the Ethics Officer Association found that 48 percent of managers and executives reported having been involved in an illegal or unethical issue in the past year, and 57 percent reported that they found the pressure to be unethical greater than it was five years ago (Wulfson, 1998). Unethical behavior is expensive for organizations, detrimental to their long-term survival and the general economy. Up to 30 percent of U.S. bankruptcies are the result of employee wrongdoing (Pawloski & Hollwitz, 2000). Criminal and unethical workplace behavior causes losses for U.S. industry of approximately $400 billion per year (Wah, 1999). Additionally, employee malfeasance in areas such as discrimination, safety procedures, and trade practices results in expensive judgments against organizations. (Pawloski & Hollwitz, 2000).

In the best of all possible worlds, the conscience of each individual employee would be sufficient to maintain ethical workplace practices. However, an individual’s values and moral code may be ignored as a result of the pressures and difficult choices faced in daily decision making. In addition, employees’ potential unethical behavior has repercussions for others in the organization and for the organization itself. Ethical decision-making and behavior are therefore the responsibility and challenge of both the individual and the organization (Brumback, 1991; Harvey, 2000). Within the organization, it is the responsibility of managerial leaders to determine the most effective means of disseminating information and creating expectations about ethical behavior. In determining the elements of an organizational ethics program, it is important for leaders to be aware of organizations’ potential civil liability and criminal liability.

Does Ethics Training Help Avoid Criminal and Civil Liability?

Organizations such as corporations, labor unions, and non-profit entities may be found liable for civil damages or guilty of criminal conduct when unethical behavior occurs. The courts have long recognized the doctrine of respondeat superior as a legal basis for holding such organizations vicariously liable for the conduct of their employees. This doctrine serves as the basis for holding companies liable for unethical behavior that results in sexual harassment, and other forms of unethical conduct such as racial discrimination. Employees who engage in unethical behavior literally cost organizations millions of dollars. For example, the unethical conduct of sexual harassment and racial discrimination has resulted in large corporations like Mitsubishi Motor Manufacturing of America, Ford Motor Company and Coca Cola settling lawsuits in excess of 230 million dollars (Emerge International, 2003). What can organizations do to avoid such liability? In 1998 the United States Supreme Court, through its ruling in Burlington v. Ellerth (1998) and Faragher v. Boca Raton (1998), clearly articulated that training could serve as a defense to civil liability. Specifically, the Court held that having an effective anti-harassment policy in place, ensuring that everyone knew of the policy, and that managers and supervisors were trained on the specifics of reporting and handling complaints would serve as a defense to holding the employer liable for the unethical behavior of its employees.

Although the Supreme Court’s decision may serve as a defense to civil liability, what about criminal liability? An organization’s criminal liability may be based on the conduct of any employee engaged in the scope of employment. Moreover, this liability may be incurred even if the employee is acting against company policy (“Corporate Ethics Training”, 2002). In addition to organizational liability, unethical conduct may result in employees being held criminally liable for their actions. For example, under the Corporate and Criminal Fraud Accountability Act of 2002, any person who recklessly and knowingly violates any provisions may be fined $500,000 or imprisoned not more than 5 years, or both.

Since the recent ethics scandals of 2002, the consequences of unethical behavior have far more serious implications for the individual and organization. However, just as formal training programs may serve as a defense for civil liability, the same applies to criminal behavior. For example, under the United States Sentencing Commission’s Organizational Sentencing Guidelines, substantial sentence reductions may be granted if an organization has an effective program to prevent and detect violations of the law (LRN, 2002). Fines may be reduced by up to 95 percent if the organization has an ethics compliance program. According to Weaver, Trevino, and Cochran (1999), current corporate ethics programs generally include features such ethical codes, ethics departments and officers, telephone hotlines, and formal training activities. Ethics training is particularly important because USSC guidelines indicate that the organization must be able to show that it has effectively communicated its ethical standards either by providing training programs or clearly written publications (McKendall, DeMarr, & Jones-Rikkers, 2002).

Currently, most U.S. companies provide ethics training to at least some of their employees, and 95% of the Fortune 50 firms have ethics training programs (Wells, 2001). In the public sector, over 58 percent of local governments provide ethics training to employees (West et al., 1997). Eighty-six percent of companies provide ethics training to managers, while 35 percent include hourly workers (Harrington, 1991). However, less than 25 percent of employees receive ethics training annually; for most employees ethics training happens “every few years” (Weaver, Trevino, & Cochran, 1999)

Impact of Ethics Training

Although ethics training may avoid corporate liability, that is not the only reason organizations should invest in formal ethics training. Ethics training is integral in establishing a positive ethical climate. Unfortunately, the value of ethics training is not always appreciated by employees. Although organizational ethics training is annually a billion dollar industry (LeClair & Ferrell, 2000), conventional wisdom dictates that personal ethics are learned as part of the developmental process and essentially by example rather than instruction. According to Brown (1996), ethical behavior in the workplace may be considered better caught than taught. Consequently, ethics training is often viewed with cynicism. As Duska notes, “People forced to participate in these programs often resent having to spend their time on ethics issues because they believe they already know what’s right and what’s wrong. They think they don’t need an ethics training session to tell them that cheating a customer is wrong” (1998, ¶1). Delaney and Sockel (1992) note a study by Thompson in which only one percent of survey respondents who had received ethics training believed that such training made a difference. McKendall et al. (2002) identify a serious concern regarding ethics training: an emphasis on compliance with rules rather than the use of moral judgment. This may be in part the cause of dismissive attitudes regarding ethics training. Petrick and Pullins (1992) also argue that emphasis on rules compliance produces an inadequate training program that could impede ethics development within the organization. According to Gross-Schaeffer et al., “Corporate ethics training should not be taught in hopes of altering the beliefs, values, and habits of employees, but rather to offer a vehicle for a analyzing, interpreting, and determining the consequences and benefits of ethical decisions” (2000, Positive Step 3, ¶3).

Organizations rarely evaluate the ethics training that they provide to employees, which may be an additional contributing factor to the skepticism with which this training is viewed. White and Lam (2000) contend that the lack of evaluation of training programs is based in the reasons that such programs are instituted: because ethics training is essentially window dressing, a pro forma response to business expectations, evaluation is not considered a priority. Harrington (1991) suggests that effective organizational evaluation of training should provide answers to questions such as these: “Has ethics training reduced ethical ambivalence and validated consideration of ethics? Have managers become more aware of the legal and societal implications of their decisions? Have legal problems and adverse publicity been avoided” (1991, Making ethics, ¶3). While this type of evaluation would provide meaningful information far beyond the scope of the usual human resources training evaluation, it seems obvious that in most cases the expense would be prohibitive.

In the academic arena, there has very little empirical research conducted regarding the effects of ethics training. According to Harvey (2000), managers who have received ethics training do not appear to change their attitude toward ethics, nor do they consistently enforce ethics guidelines. Hoffman, Howe, and Hardigee (1991) found that insurance agents who have received ethics training perceived more unethical behavior by others. However, agents’ individual ethical behavior did not appear to be related to training. Among automotive salespeople in both the U.S. and Taiwan, ethics training has been found to be negatively related to perceptions of one’s ethical self, perceptions of ethical behavior of successful salespeople, with respondents receiving the most training reporting the lowest levels in all these areas (Honeycutt, Siguaw, & Hunt, 1995). Honeycutt et al. note, “This finding appears to imply that ethics training for recipients in both cultures leads to lower ethics but in fact probably indicates ethics training creates greater sensitivity to ethical issues” (1995, Discussion, ¶1). Delaney and Sockel (1992) found that the existence of an ethics training program in an organization was negatively associated with the employee feeling that an individual had to be unethical to get ahead. Additionally they found that employees in organizations with ethics training programs are more likely to have refused to take an unethical action. A study by Low and Weeks (2000) suggests that the use of role plays and contingency-based scenario training may improve the ethical reasoning of salespeople. Stevens (1999) found that employees report training as the best venue for learning about organizational expectations for ethical behavior.

Ethics training is typically conducted using videotapes, lectures, role-play, or games (LeClair & Ferrell, 2000). However there is very little empirical research available regarding ethics education methods, design, and curriculum. The small number of quantitative assessments available has limited generalizability due to small sample sizes (Delaney and Sockel, 1992). One relatively recent large study does appear to provide some direction for future thought about ethics training. Based on a survey of 10,000 randomly selected employees of six U.S. companies, Trevino, Weaver, Gibson, and Toffler (1999) found that the least effective ethics training is the canned product delivered by an outside consultant. The most effective training design, shown to be related to reduced observation of unethical behavior, is one in which each manager is responsible for training his/her direct reports and engaging these employees in discussions regarding job-specific ethical dilemmas.

Research and writing about training curricula and designs for ethics instruction are generally descriptive, anecdotal, and prescriptive. For example, Ponemon and Felo (1996) elaborate the essential features of an effective ethics training program. These include: live instruction, small class size, significant group interaction, a minimum of four hours of instruction, separation of ethical considerations and legal compliance issues, and follow-up communications such as ethics newsletters and informal ethics workgroups. Ponemon and Felo indicate that these features “are based on benchmarks from 41 world-class, U.S.-based multinational corporations” (1996, 3). However, such benchmarking is no indication that training programs with these features actually increase ethical compliance in the workplace. Brown (1996) focuses on a typical small group training model that emphasizes a seminar setting with an interactive format. Navran (1997) emphasizes that effective ethics programs require training sessions that help employees identify ethical dilemmas through processing hypothetical situations. Harrington (1991) indicates that effective ethics training requires a number of elements: a code of ethics that is articulated and followed; a procedure for dealing with ethical concerns; involvement of all employees, not just managers, in identification of ethical issues; and leader communication regarding the priority of ethics issues.

Brumback characterizes much ethics training as “deadly” or “highly entertaining and hardly useful.” He offers advice about training development and implementation that is somewhat counter to the norm: 1) limit the amount of training offered; 2) limit use of case studies because they “turn ethics into an intellectual exercise” with limited practical utility; 3) use role play to help participants confront the ways in which they rationalize unethical behavior; and 4) communicate “the preconditions of unethical behavior, what the bottom lime of ethics is, and what the agency and each individual can do to make ethics a work habit” (1991, Ethics training, ¶1).

Wells (2001) suggests that ethics training comprise instruction in behavioral skills that may help individuals adhere to an ethical code despite workplace pressures. These behaviors include assertiveness, pro-activity, and self-leadership. Assertiveness may help individuals resist conforming to group norms that do not promote ethical behavior. Similarly, pro-activity, as opposed to passive acceptance of norms, appears to be related to whistle-blowing and organizational citizenship behaviors. Pro-activity skills, which can be taught, may help individuals behave ethically in the workplace. Wells (2001) notes that self-leadership, which can be taught, does not directly address ethical issues. However, the skills that help individuals monitor and reinforce their own behavior may also be successfully applied to ethical dilemmas in the workplace.

While ethical theory is generally discouraged as a training element, Fudge and Schlacter (1999) view it as an essential topic for inclusion in comprehensive instruction. They argue that teaching employees to engage in moral reasoning can have long term organizational benefits. In their model, employees are taught the principles of act utilitarianism, rule utilitarianism, and the categorical imperative as a framework for making decisions. According to Fudge and Schlacter, when employees have the opportunity to apply these principles in training, they are able to draw on the training experience in similar situations.

“An employee who has discussed particular problems concerning sexual harassment in a training session will be better able to deal with actual instances of sexual harassment than someone without this experience will. This suggests that training programs which cover a wide range of issues are better than those with a narrow focus.” (1999, Developing moral reasoning, ¶3).

Based on interviews with thirty managers, Badaracco and Webb (1995) offer somewhat contradictory advice about curriculum for ethics education. Their qualitative research indicates that many employees will be “strongly pressured to do something sleazy,” so the typical emphasis on right versus right moral dilemmas may be misplaced. They contend that ethics training should include information about how to react to these situations, which are essentially “right versus wrong, including concrete information about how to defend themselves and whistle blowing.

While many of these training recommendations seem practical and reasonable, only those of Trevino et al.(1999) are empirically based. The nature and extent of these writings and recommendations indicates that there is an ongoing interest in providing ethics instruction in organization. Popular business culture, perhaps largely because of the USSC guidelines, appears to have normalized the assumption that ethics programs, particularly a training component, effectively reduce the incidence of illegal or unethical behavior in organizations. In determining the nature and extent of organizational ethics instruction, it is important to consider the possibility that other considerations are more germane. For example, McKendall et al. (2002) found that the existence of organizational ethics programs is not related to decreased legal violations. They indicate that ethical leadership modeled by top management may be the most instrumental factor in assuring legal and ethical organizational behavior. Additionally, a two-year study by Arthur Andersen indicates that employees’ perception of the motivation for developing an ethics program is important. The survey was mailed to 10,778 randomly selected employees in six large American companies from a variety of industries. Over 2, 883 employees responded. The survey yielded three primary findings: (1) employee perception of why the company is implementing an ethics program is critical to the program’s success, (2) organizational culture matters more than formal characteristics of an ethics program, and (3) employees’ perceptions of the company’s approach to ethics have a significant impact on program effectiveness (Bentley College, 2000). When employees feel that a program exists to protect top management or simply to detect and punish transgressions, these programs are less successful than situations where employees feel that the ethics program exists to guide, educate, and inform them. (Salopek, 1999).

Harvey (2000) contends that ethics programs are neither necessary nor sufficient to ensure ethical behavior in organizations. He argues that individual ethics are most readily influenced by formal organizational structure. According to Harvey, three elements of the organizational structure affect ethical considerations. These are reward structure, performance monitoring and evaluation procedures, and job design, which includes empowerment levels and the awarding of decision-making rights. Each of these may either enhance or impede ethical behavior by employees, far outweighing the impact of ethics training.

Conclusion

An essential task of leadership is to engage in efforts that ensure the long-term survival of the organizations. Therefore, leadership must determine the most practical, cost-effective, and efficient methods of reaching organizational goals. In the case of organizational ethics, the empirical research suggests that formal training may be the least desirable option for promoting desired workplace behaviors. There is little empirical research to guide the choice of curriculum, training methods, or evaluation procedures. There is a great deal of unsupported information in popular business literature, which further complicates choices. However, formal ethics training may be a small price to pay when one considers the potential impact on avoiding or minimizing corporate liability. The USSC guidelines and U.S. Supreme Court case law provide a strong financial incentive for developing and administering ethics training programs, even if their efficacy is questionable. Therefore, some managerial leaders have responsibility for ethics education despite the shortcomings of such programs. These leaders should proceed with caution and be particularly wary of canned programs. They should also advocate strongly for continuous assessment of organizational structure and leadership in relation to ethical climate and be prepared to institute change that will support ethical workplace behavior.

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