16 March 2006

Whistleblowers: The Risk of Unethical Corporate Behavior...

To some people, Sherron Watkins is a hero. To others, she is an Enron Whistleblower that has capitalized on her now famous memo.

Ms Watkins had previously sent Mr Lay an anonymous memo questioning the use of off-balance sheet financial partnerships which were then running up huge losses.

In the memo, which she read out in court, she had expressed concerns that Enron could "implode in a wave of accounting scandals".

She added: "This was not just aggressive accounting, it was fraudulent accounting. I couldn't believe we had done it."

Implementing an effective ethics and compliance program in corporations requires a robust educational and legal strategy. Awareness development, effective policy design and administration is imperative if the organization is going to have any chance of achieving high marks in Corporate Governance.

David Gebler makes some valid points in this article:
Moving in the Right Direction

How do compliance leaders move their organizations to these new directions?

1. The criteria for success of your ethics program must be outcomes-based. Merely checking off program elements, even from the seven steps of the Federal Sentencing Guidelines, is not enough to change behavior.

2. Each organization must identify its own key indicators of its culture. Only by assessing its own ethical culture can a company know what behaviors are the most influential in effecting change.

3. The organization must gauge how all levels of employees perceive adherence to values by others within the company. One of the surprising findings of the (2005 National Business Ethics Survey) (NBES) was that managers, especially senior managers, were out of touch with how non-management employees perceived their adherence to ethical behaviors. Non-managers are 27 percentage points less likely than senior managers to indicate that executives engage in all of the ethics-related actions outlined in the survey.

4. Formal programs are guides to shape the culture, and not vice-versa. People who are inclined to follow the rules appreciate the rules as a guide to behavior. Formal program elements need to reflect the culture in which they are deployed if they are going to be most effective in driving the company to the desired outcomes.

While there may be some who say that a whistleblower is just a discouraged or passed over employee, it may be the origin of a corporate environment that is ready to implode. Fraud and other unethical corporate behavior is a combination of poor operational risk management controls and the people who perpetuate the culture of dishonesty. In a recent survey by Protiviti, companies continue to admit to poor risk management practices.

Other findings of the survey:

* 43 percent of executives consider financial reporting and Sarbanes-Oxley Section 404 compliance to be very significant risks.

* 49 percent tie business success to client satisfaction, believing potential weaknesses in this area pose a very significant risk. Executives said the following risks affect their company's ability to sustain customer satisfaction: operating performance; materials procurement; business continuity; and fraud matters.

* 45 percent of executives cited information systems and IT security as potential areas of vulnerability.

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