Beyond Sarbanes-Oxley

EXECUTIVE SUMMARY

Four years after the passage of the Sarbanes-Oxley Act, this legislation has transformed business and provided a platform for increased dialogue about ethics (or in some cases, a lack thereof) within American companies. To foster a culture of ethics that is based on action rather than discussion, companies can take advantage of the institutional knowledge that their accounting and finance teams have gained in complying with SOX regulations for the last several years. One key ethical best practice that can be easily transferred throughout an organization is cultivating ethical role models. Key influencers who demonstrate strong ethical behavior should be given appropriate recognition whenever possible, involved in projects in which they can have a positive influence and rewarded for their efforts. Ethical business decision making, another best practice, starts at the top with leadership that motivates others to emulate their behavior. Leaders must speak openly and frequently about their views on and the value of ethical behavior and, more important, behave accordingly themselves. Another positive practice is to encourage employees to question decisions they believe have dubious merits. It’s also important to provide ethics hotlines and anonymous feedback mechanisms. Neil S. Lebovits, CPA, is president and chief operating officer of the staffing service Ajilon Finance, a unit of Adecco SA. His e-mail address is neil.lebovits@ajilon.com .

n 2006 we mark the fourth anniversary of passage of the Sarbanes-Oxley Act. More than any other piece of legislation affecting business in recent history, Sarbanes-Oxley has transformed the way companies and accounting and financial professionals operate. It has given us a platform for increased dialogue about ethics (or in some cases, a lack of them) within American companies.

Given this renewed emphasis on ethical behavior, the time is right for organizations to move beyond regulatory compliance and solidify a culture of ethics that makes doing the right thing standard operating procedure. If we are going to continue restoring consumer confidence in business, it is imperative we promote the kinds of cultural changes that ensure ethics permeate our companies from the top down.

To foster a culture of ethics that is based on action rather than discussion, companies can begin by taking advantage of the institutional knowledge their accounting and finance teams have gained in complying with Sarbanes-Oxley regulations for the last several years. Because this group is on the front lines of Sarbanes-Oxley compliance, these teams can generate best practices to be implemented throughout the organization and be recognized for serving as a model of excellence.

As another part of this effort, there are three key ethical best practices that can easily be transferred throughout an organization: cultivating ethical role models, demonstrating ethical business decision making and encouraging pushback.

CULTIVATE ETHICAL ROLE MODELS
Every organization contains informal influencers—people who tend to know what their colleagues are thinking and feeling and who also help shape others’ attitudes by expressing their own opinions through their actions.

The first step in developing role models in every part of an organization is to identify key influencers who demonstrate strong ethical behavior in their everyday work. Clearly, the accounting and finance areas, with their deep understanding of the issue, are a good place to start. Companies should give these influencers appropriate recognition whenever possible, involve them in projects in which they can have a positive impact and reward them for their efforts. By doing so, an organization can cultivate ethical conduct and show employees that they too can be rewarded for practicing ethical behavior.

DEMONSTRATE ETHICAL BUSINESS DECISION MAKING
Ethical behavior starts at the top, with leadership that motivates others to emulate their behavior. When it comes to ensuring ethical business decision making, nothing is more important than the actions of an organization’s leadership. Employees listen and watch management intently for cues on how to model their behavior. Leaders must speak openly and frequently about their views on and the value of ethical behavior and, more important, behave accordingly themselves.

When appropriate, leaders should share examples of business decisions that tested their ethical principles and how they came to make the right decision. This type of candid dialogue gives employees a glimpse into how leaders think and act on behalf of the organization. The tougher the choice to be made, the more influential this type of conversation can be. It also provides employees with a point of reference when they are faced with tough decisions related to their work activities, helping to guide them in the right direction.

The leadership’s ethical behavior also can inspire greater pride and satisfaction among workers. Those who work for trustworthy management teams often have a greater respect for their organization and are motivated to contribute more.

ENCOURAGE PUSHBACK
This can be a challenging situation for managers, but to foster an ethical culture, employees must feel as if they have room to question decisions they believe have dubious merits. This is not about letting employees steamroll managers but, rather, about encouraging them to voice their opinions in a professional way when they disagree with the actions or decisions of their peers and even their bosses.

Some companies have formal processes for this type of communication, such as employee ethics hotlines or anonymous feedback e-mails, but it can be handled informally as well. The first step is to discuss the issue with managers. Do they encourage feedback? How do they react when employees raise questions? What is acceptable in terms of employee pushback? What are some effective and ineffective ways employees have pushed back on management opinions or decisions in the past?

As part of this discussion, encourage managers to ask for feedback from employees when opportunities arise, so that challenges need not occur down the line. Managers should communicate their “pushback guidelines” to their direct reports, letting them know that questions are welcome and how and when they might best be raised. This reassures employees that they can have this type of dialogue with their managers and makes it possible for them to handle situations effectively.

Practical Tips

Accounting and finance teams are on the front lines in implementing the Sarbanes-Oxley Act. Companies should look to this group for advice on or examples of ethical best practices to be implemented throughout the organization. Find the people with strong ethical values who are in touch with colleagues’ attitudes and in a position to influence them. They can be recognized and serve as role models. When leaders speak frankly about business decisions that tested their ethical principles, it sets a standard for employees and provides insights into handling tough situations. Employees should be encouraged to speak up about questionable decisions or actions and be given guidelines on how to open this dialogue.

TAKING ACTION
The ongoing conversation about ethics in business has become so widespread it has even spawned new industries, such as ethics consulting and research. The task now is to translate words into actions that permeate the fabric of corporate American culture until ethical behavior becomes standard operating procedure at every level. Only then will we be able to regain consumer and worker confidence in business.