Corporate Reputation Review
Business Ethics: Corporate Responses
Corporate Reputation Review,
Vol. 7, No. 3, 2004, pp. 284–288
# Henry Stewart Publications,
1363–3589
Page 284
Volume 7 Number 3
to Scandal
Charles Fombrun and Christopher Foss
The Reputation Institute, New York
‘Reputation is what other people know
about you. Honor is what you know
about yourself.’
Lois McMaster Bujold
A Civil Campaign, 1999
ABSTRACT
The wave of scandals that has inundated busi-
ness since Enron has had far reaching conse-
quences. Questions of ethics have taken on
particular urgency as companies grapple with
increased media scrutiny of governance matters,
as well as of corporate social and environmental
issues. This In Practice paper examines three
principal responses from big business: (1) the
infusion of ethical principles in corporate cul-
tures, (2) the appointment of ‘Chief Ethics
Officers’, and (3) the adoption of strict ethical
guidelines and codes of conduct. The Reputation
Institute (RI) finds that corporate ethics has
become an indelible feature of stakeholder
engagement — not just as a set of principles
but as a process affecting decision-making at all
levels. Ethics are in fact so critical to long-term
business sustainability that they will increas-
ingly form the basis of serious executive leader-
ship.
INTRODUCTION
Since 2001, the USA has faced a wave of
corporate scandals, resulting in the liquida-
tion of corporate assets, the demise of
once-powerful corporate brands and exten-
sive litigation. Among the more prominent
were Enron, Arthur Andersen, Tyco Inter-
national, Adelphia, Worldcom, Global
Crossing, Martha Stewart Living Omni-
media and HealthSouth.
The tidal wave also swept through
Europe from 2002 to 2004, with highly
visible corporate names such as Vivendi in
France, Ahold in The Netherlands, Parma-
lat in Italy, Yukos in Russia, Credit-Suisse
in Switzerland and the Anglo-Dutch Shell
all falling victim in its wake. The Public
Broadcasting Service (PBS, 2004) provides
an ongoing overview of recent corporate
scandals and what is being done.
As a result, questions of corporate ethics
have taken center stage in boardroom dis-
cussions. Three principal corporate
responses have emerged from these discus-
sions:
— Infusion of ethical principles and values
into corporate cultures
— Appointment of ‘Chief Ethics Officers’
— Adoption of stricter ethical guidelines
and codes of conduct.
This paper examines how these three sets
of internal responses have unfolded in the
USA and compares them with develop-
ments in Europe. In a subsequent issue of
RI In-Sights, the changes these scandals
have induced in corporate governance and
regulatory oversight will be examined.
INFUSION OF ETHICAL PRINCIPLES
The scandals have called attention to the
prevalence of serious forms of ethical mis-
behavior in business. A consumer study by

The Reputation Institute and Harris Inter-
active, released in February 2004, shows
that public trust in business declined preci-
pitously for three consecutive years. In the
fall of 2003, only 21 per cent of respon-
dents surveyed said that they would trust
companies to do the right thing in the
event of a product or service problem,
compared with 29 per cent in 2001.
In June 2004, the Business Roundtable
Institute for Corporate Ethics announced
the key findings of its initial research pro-
ject, ‘Mapping the Terrain’. The study sur-
veyed US CEOs and indicated that top
corporate ethics issues were: (1) regaining
public trust; (2) effective management in
the context of investor expectations; (3)
ensuring the integrity of financial reporting;
(4) fairness of executive compensation and
(5) ethical role-modeling of senior manage-
ment. Some 81 per cent of CEOs confirmed
that companies are focusing more heavily
on corporate ethics. Specific changes most
cited include: enhanced internal reporting
and communications (33 per cent), ethics
hotlines (17 per cent), improved compliance
procedures (12 per cent) and greater Board
oversight (10 per cent). With regard to the
top corporate ethics priority for business, 57
per cent of CEOs saw establishing a frame-
work for business decision making that
integrates ethics as the top priority followed
by encouraging pushback and a culture for
proactively addressing potential bad news
early (35 per cent). The findings of this
study are consistent with the observations
of The Council for Business Ethics (2004),
another group that identifies emerging
ethics issues.
Consistent with these beliefs, many com-
panies have put in place internal ethics pro-
grams designed to infuse their corporate
cultures with a deeper understanding of
ethical principles and practices. Examples
include:
— Boeing: The company commits signif-
Fombrun and Foss
icant resources to fostering ethical deci-
sions and actions among its 178,000
employees. Boeing’s (2004) ethical
guidelines are extensive, and the
company claims to do this because it
views ethical decisions and behavior as
the only paths to building a successful
and sustainable future. As Boeing’s
Chief Ethics Officer, Gale Andrews
(2004), indicates: ‘Mistakes are still
made — but the key is the underlying
moral intent’.
— Deloitte & Touche: Chief Ethics
Officer, Harold Tinkler (2004), outlines
three elements essential to any ethics
program: values, controls and conse-
quences. Having strong corporate
values is the first line of defense.
According to Tinkler: ‘Ultimately,
creating an ethical culture comes down
to company leadership and its ability to
convey, through their actions and
examples, the right way to do things.’
Secondly come ‘controls’ — a system
of checks and balances that safeguards
the integrity, not only of financial and
operating data, but of employee beha-
vior at all levels. All intra- and extra-
company dealings have to be guided by
ethically-driven protocols. Thirdly,
ethical abuses must have tangible
‘consequences’. People must be held
‘accountable’ for their behavior.
— Lockheed Martin (2004) is known for
its formal, comprehensive ethics
program. Employees are required to
attend annual ethics training classes and
can contact ethics offices by phone, fax,
e-mail or snail mail, by name or anon-
ymously. ‘There is never a penalty for
using the Ethics Help Line’, says an
employee brochure. ‘People in a posi-
tion of authority can’t stop you; if they
try, they are subject to disciplinary
action up to and including dismissal.’
Universities are addressing the wave of
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Business Ethics: Corporate Responses to Scandal
interest in ethics by introducing programs
targeted to executives and directors, as well
as raising funding for learning centers.
Among the more visible are those at The
Wharton School, University of Virginia,
Notre Dame University, Cambridge Uni-
versity, Dusquene University, Bentley Col-
lege and Colorado State University.
APPOINTMENT OF CHIEF ETHICS
OFFICERS
Not only are companies putting ethics pro-
grams in place, but they are also appoint-
ing ethics officers at the highest levels.
Lockheed Martin’s program is run by a
Vice President of Ethics and Business Con-
duct who reports directly to the company’s
CEO and the board of directors. Every
division of the company has an ethics offi-
cer whose full-time job is to promote
ethics and monitor employee concerns.
Concern about ethical risk has encour-
aged many companies to appoint Chief
Ethics Officers, with direct reporting
responsibilities to the CEO and the Board
of Directors. Examples include:
— Dell, in 2000, appointed a Chief Ethics
Officer and Vice President of Global
Diversity. The compound title suggests
that Dell views diversity as an ethical
issue, carrying an imperative for sensi-
tivity and fairness in dealing with racial
and religious differences.
— MCI (Worldcom), in 2003, appointed
an Executive Vice President of Ethics
and Business Conduct and Chief Ethics
Officer, reporting directly to the
Chairman and CEO.
— US Food Service, the problem-ridden
subsidiary of Dutch giant Ahold, in
2004, appointed a Chief Ethics
Officer.
The practice has become so widespread
that the Ethics Officer Association, founded
in 1992 by 12 ethics officers, has grown to
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include over 995 members, including over
50 per cent of the Fortune 500, representing
companies operating in over 160 countries.
STRICTER CODES OF CONDUCT
The nominal appointment of a manage-
ment post devoted to ethics is not in itself
a solution. It takes hard-edged codes and
individual accountability to build any
ethics program. But even those may not be
enough. After all, Enron had a model
‘Code of Ethics’, now available for pur-
chase on eBay. The failed accounting firm
Arthur Andersen was responsible for pro-
ducing and leading an ethics video case
series that was widely used in US business-
school classes to discuss ethics.
As a result, companies are calling on
ethics consultants and publishing brochures
showcasing their ethical codes and guide-
lines. CSRwire (2004) provides a helpful
overview of various voluntary ethical stan-
dards and codes available to businesses.
Many of these codes are also showcased by
the Ethical Corporation (2004).
According to Business for Social
Responsibility (2004), to build an effective
ethics program requires visible, top-down
commitment, as well as a variety of orga-
nizational supports, including:
— identifying and renewing the compa-
ny’s values
— adequate funding and staff for ethics
programs
— building ethics into mission and vision
statements
— developing an ethics code or code of
business conduct
— encouraging ‘ethical autonomy’ among
employees
— globalizing ethics programs
— addressing new ethics issues as they arise
— developing comprehensive ethics
training
— integrating ethics into all aspects of
company communications

— creating an ethics ‘help line’ and chan-
nels for employee communication
— developing strong whistle-blower
protections
— rewarding ethical behavior and pena-
lizing unethical behavior
— engaging the board of directors and
draft board ethics guidelines
— developing regular audit and evaluation
programs
— coordinating ethics with other corpo-
rate social responsibility functions.
Companies increasingly root an ethics
initiative into their corporate values pro-
grams. The advantage of a values-based
approach to ethics is that the guidelines or
principles set forth can be more readily
applied and codes and values shared with
suppliers, partners and other stakeholders.
Whistle-blowers can play an important
role in inducing more ethical cultures.
Early identification of ethical lapses can
save companies vast sums in subsequent
fines and legal fees. Research suggests that
all too often whistle-blowers fear being
ostracized or dismissed and a culture of
silence develops. To infuse a company with
ethical behavior, the corporate culture
must allow and encourage whistle-blowers
to come forward. To do so, many compa-
nies have found it beneficial to create and
publicize confidential ‘help lines’.
GLOBALIZATION OF ETHICS
Globalization has promoted a convergence
of ethical practices in companies around
the world. European sentiment echoes the
strong convictions held in the USA that
action must be taken to stem the tide of
scandal. On both sides of the Atlantic,
observers concur that public confidence
suffers when ethical lapses occur and it
threatens economic growth.
The UK’s Foreign & Commonwealth
Office (2004) proposes a manual on ethical
Fombrun and Foss
practices for British companies operating
overseas that stresses human rights and
environmental issues. The creation of a
‘European Oversight Body’ is being con-
templated as a way to unify ethics and
governance legislation across the continent.
The UN Global Compact (2004) offers
companies pragmatic guidance about the
legal ramifications of operating in emer-
ging markets. It suggests helpful principles
and laws regarding human rights, labour
standards, environmental impact, anti-trust
and corruption.
The Global Reporting Initiative (GRI)
(2004) is an increasingly visible institution
with the principal purpose to build and dis-
seminate globally applicable sustainability
reporting guidelines. Created by a coalition
of companies and consultancies, the GRI
provides a framework for delineating the
responsibilities of companies to their stake-
holders.
Visible global watchdog groups such as
Greenpeace and Amnesty International regu-
larly track issues and companies and,
through organized boycotts and media
coverage, frequently express their con-
cerns about the effects of corporate
actions on local societies or disenfran-
chised groups.
Finally, growing shareholder activism is
evident in the number and variety of share-
holder resolutions claiming the stage at
corporate annual meetings. These resolu-
tions are stimulating more active dialogue
between executives and investors and a
growing interest by corporate boards in
adopting explicit stakeholder-based strate-
gies.
RI ANALYSIS
The pursuit of ethics requires that compa-
nies take two phrases in the ethics lexicon
seriously: ‘social contract’ and ‘license to
operate’. They are not simply descriptors
of a positive social positioning, but are
vital to long-term business sustainability.
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Business Ethics: Corporate Responses to Scandal
‘Social contract’ refers to the importance of
the bond linking companies to their stake-
holders. It is that bond which gives compa-
nies their ‘license to operate’.
As a result, understanding and appreciat-
ing executive leadership itself is changing.
A dramatic shift can be seen, from the
swashbuckling CEO of the 1990s, whose
profile regularly graced the pages of For-
tune and Forbes, to the institutional CEO,
who serves as steward of both company
and industry and understands the impor-
tance of building stakeholder trust and con-
fidence. Joining the ranks of the ‘100 Best
Corporate Citizens’, published annually by
Business Ethics magazine (2004) requires
above-average performance on a broad
range of stakeholder criteria — and the
vision and leadership that goes with it.
Finally:
— Ethics is not simply a matter of right
and wrong, or a set of principles to be
enshrined in a code of conduct and
then forgotten. Ethical decision making
is a process that involves continuous soul
searching and the reconciliation of
competing values.
— Companies should put a premium on
corporate social responsibility (CSR).
CSR can provide a ‘vehicle’ for
bringing ethics and values into align-
ment with business goals.
— Corporate ethics and values should not
have to change with the times. Be as
creative as possible in addressing ethical
Page 288
issues, but in all things, establish an
ethical threshold — and do not cross it.
REFERENCES
Andrews, G. (2004) http://www.valpo.edu/oia/
valpo_w02/p17.html.
Boeing (2004) http://www.boeing.com/company
offices/aboutus/ethics/ethics_booklet.pdf.
Business Ethics magazine (2004) ‘100 best corporate
citizens’, published annually, http://www.busi-
ness-ethics.com/.
Business for Social Responsibility (2004) http://
www.bsr.org/.
Business Roundtable Institute for Corporate Ethics
(2004) http://www.businessroundtable.org/news
room/document.aspx?qs=5876BF807822B0F1AD
5458422FB51711FCF50C8.
The Council for Business Ethics (2004) http://
www.businessethics.org/.
CSRwire (the corporate social responsibility
newswire service) (2004) http://www.csrwire.-
com/page.cgi/business _ethics.html.
Ethical Corporation (2004) http://www.ethicalcorp.-
com/.
Foreign & Commonwealth Office (2004) http://
www.fco.gov.uk/servlet/Front?pagename=Open-
Market/Xcelerate/ShowPage&c=Page&cid=1007
029390554.
Global Reporting Initiative (GRI) (2004) http://
www.globalreporting.org/.
Lockheed Martin (2004) http://www.lockheedmar-
tin.com/wms/findPage.do?dsp=fec&ci=12911&sc
=400.
Public Broadcasting Service (2004) http://
www.pbs.org/newshour/bb/business/ethics/.
Reputation Institute and Harris Interactive (2004)
http://www.harrisinteractive.com/expertise/pubs/
CorporateScandalsHitHome.pdf.
Tinkler, H. (2004) http://www.deloitte.com/dtt/press
_release/0,2309,sid=5603&cid=41724,00. html.
UN Global Compact (2004) http://www.unglobal-
compact.org/Portal/Default.asp.