CEOs on Business Ethics

Transcription

1 The National Survey of CEOs on Business Ethics Robert J. Rutland Institute for Ethics The Center for Ethics And Corporate Responsibility Department of Sociology and Anthropology

2 Results from the National Survey of CEOs on Business Ethics are based on 302 completed surveys returned by a sample of CEOs in firms with annual revenues of $10 million or more. Surveys were mailed to a sample of 2,494 CEOs randomly selected by Dun & Bradstreet from a listing of all such firms. For statistical purposes a sample of this size yields a margin of error of approximately + 6%. The estimated response rate for the survey is 15%. Questions are welcome and may be directed to the researchers listed here. CLEMSON UNIVERSITY Daniel E. Wueste, Ph.D. Director Robert J. Rutland Institute for Ethics ernest@clemson.edu James Witte, Ph.D. Department of Sociology and Anthropology jwitte@clemson.edu GEORGIA STATE UNIVERSITY John C. Knapp, Ph.D. Director Center for Ethics and Corporate Responsibility jknapp@gsu.edu

3 ETHICS MANAGEMENT Policies, Practices, Procedures, etc....introduced as a result of new regulations Have the recent changes in regulations regarding ethics and governance (i.e., the Sarbanes- Oxley Act, the updated Federal Sentencing Guidelines, revised listing requirements of stock exchanges, etc.) affected how your organization manages ethics and compliance? 35.1% 64.9% Yes No Of those who said yes, what did they do? Pe Have done (or are in the process of doing) the following H Hired new staff or restructured organization responsible for 47.9% ethics and compliance Updated ethics or compliance policies 87.1% Revised mission, vision or values statements 46.4% Created new ethics/compliance committees 38.1% A Developed new communication strategies for managing 66.0% conduct Created or strengthened ethics and compliance training 68.0% In Increased budget for ethics and compliance management 50.5% 3

4 Hired new staff or restructured organization responsible for ethics and compliance Yes No Updated ethics or compliance policies Yes No Revised mission, vision or values statements Yes No 4

5 Created new ethics/compliance committees Yes No Developed new communication strategies for managing conduct Yes No Created or strengthened ethics and compliance training Yes No 5

6 Increased budget for ethics and compliance management Yes No 6

7 ETHICS MANAGEMENT: Policies, Practices, Procedures, etc. Do you have or plan to implement in the next 12 months Pe A stated ethics policy (e.g., Code of Ethical Conduct)? A board-level committee responsible for ethics and compliance? 36.6% A ethics and compliance training program? 52.6% A company ethics 'help line' (e.g., where employees may report ethical concerns or seek guidance on ethical questions)? Percent that have or plan to implement 82.0% 52.6% A statement of values to guide corporate conduct? 83.3% n assigned ethics and/or compliance officer? 48.1% A department that is primarily responsible for ethics and compliance (i.e., education, investigations and monitoring)? 43.2% A stated ethics policy (e.g., Code of Ethical Conduct)? Yes No A board level committee responsible for ethics and compliance? Yes No 7

8 An ethics and compliance training program? Yes No A company ethics helpline (e.g., to report concerns)? Yes No A statement of values to guide corporate conduct? Yes No 8

9 An assigned ethics and/or compliance officer? Yes No A department that is primarily responsible for ethics and compliance? Yes No If you answered yes to any item above... What is the single most important motivation for implementing an ethics initiative within your firm? Percent Provide positive guidance for employee conduct 50.8% Ensure legal compliance 21.2% Be socially responsible 16.2% Improve/protect public reputation 5.8% Improve profits/shareholder value 4.6% Motivate employees 1.2% Retain employees 0.4% Total 100.0% 9

10 THE STATE OF ETHICS IN BUSINESS How important are these factors for explaining unethical conduct in most organizations? Personal greed Failure of organizational leadership to establish ethical standards and culture Weakness of personal character Desire to advance career Pressure to meet unrealistic performance or financial goals Indifference or low morale Inadequate training and communication Pressure to meet deadlines and schedules. Failure of the organization to establish an effective compliance program Desire to harm the employer Not understanding the company's ethics policies Not agreeing with the company's ethics policies Ranked high to low Average (on a scale of 1 5) Personal greed 3.66 Failure of the organization's leadership in 3.61 establishing ethical standards and culture Weakness of personal character 3.58 Desire to advance career 3.39 Pressure to meet unrealistic performance or 3.29 financial goals Indifference or low morale 3.26 Inadequate training and communication 3.08 Pressure to meet deadlines and schedules Failure of the organization to establish an 2.92 effective compliance Desire to harm the employer 2.85 Not understanding the company's ethics 2.80 policies Not agreeing with the company's ethics 2.73 policies 10

11 THE STATE OF ETHICS IN BUSINESS In your judgment, how do high ethical standards affect a company s competitive position? in the short term 23% 7% Strengthen Weaken No effect 70% in the long term 1% 5% Strengthen Weaken No effect 94% 11

12 CEOs who think high ethical standards strengthen a company s competitive position were not significantly more positive about regulation, than those who think high standards weaken or have no effect on a company s competitive position. The Sarbanes-Oxley Act and related regulatory measures have improved the standard of ethical performance of corporate America Strengthen Weakened or had no effect Agree 51.8% 53.6% Disagree 48.2% 46.4% The Sarbanes-Oxley Act and related regulatory measures have improved the standard of ethical performance of my business Strengthen Weakened or had no effect Agree 21.1% 17.6% Disagree 78.9% 82.4% The Sarbanes-Oxley Act and related regulatory measures have strengthened public and investor trust in corporate America Strengthen Weakened or had no effect Agree 47.4% 44.6% Disagree 52.6% 55.4% The Sarbanes-Oxley Act and related regulatory measures were an overreaction to the ethical failures of a handful of companies and have proven to be burdensome and unnecessary for most good companies Strengthen Weakened or had no effect Agree 51.8% 53.6% Disagree 48.2% 46.4% 12

13 CEOs who agree that the ethical performance of corporate America has improved over the last 4 years were significantly* more positive about regulation, than those who felt it had not improved. The Sarbanes-Oxley Act and related regulatory measures have improved the standard of ethical performance of corporate America * Significant p<.01 Agreed improved Disagreed not improved Agree 63.8% 32.5% Disagree 36.2% 67.5% The Sarbanes-Oxley Act and related regulatory measures have improved the standard of ethical performance of my business * Significant p<.01 Agreed improved Disagreed not improved Agree 26.3% 11.1% Disagree 73.7% 88.9% The Sarbanes-Oxley Act and related regulatory measures have strengthened public and investor trust in corporate America * Significant p<.01 Agreed improved Disagreed not improved Agree 61.9% 24.1% Disagree 38.1% 75.9% The Sarbanes-Oxley Act and related regulatory measures were an overreaction to the ethical failures of a handful of companies and have proven to be burdensome and unnecessary for most good companies * Not statistically significant Agreed improved Disagreed not improved Agree 67.7% 75.6% Disagree 32.3% 24.4% 13

14 CEOs who think high ethical standards strengthen a company s competitive position were not significantly less likely to think that internal corporate pressures lead to unethical conduct, than those who think high standards weaken or have no effect on a company s competitive position. How important is pressure to meet deadlines and schedule for explaining unethical conduct among employees at most organizations? * Not Strengthen Weakened or had no effect statistically Significant Not important 35.1% 39.2% Neutral 31.9% 31.6% Very important 33.0% 29.1% How important is pressure to meet unrealistic performance or financial goals for explaining unethical conduct among employees at most organizations? * Not Strengthen Weakened or had no effect statistically Significant Not 49.2% 50.6% important Neutral 23.8% 18.5% Very important 26.9% 30.9% CEOs who think high ethical standards strengthen a company s competitive position were significantly less likely to think that broad economic pressures lead to unethical conduct, than those who think high standards weaken or have no effect on a company s competitive position. Business executives are more likely to make ethical compromises during economic downturns * Strengthen Weakened or had no effect Significant p<.05 Agree 52.8% 65.8% Disagree 47.2% 34.2% 14

15 CEOS ROLES AND COMPENSATION: Do you agree or disagree with the following statements? The CEO should be the moral leader of the organization Public companies' responsibilities to employees frequently conflict with their need to maximize shareholder returns. My standard of business ethics has improved over the course of my career. It can be appropriate for CEOs' religious beliefs to influence their business decisions. There is a generally accepted ethical standard that most businesspeople agree and act upon. CEO compensation in most large public companies is excessive. CEO compensation in most large public companies is properly aligned with corporate performance. Strongly agree Agree Disagree Strongly disagree 88.4% 11.3% 0.3% 0.0% 5.3% 37.0% 37.4% 20.4% 26.5% 38.1% 24.4% 11.0% 20.6% 37.5% 19.5% 22.4% 8.5% 61.3% 25.0% 5.3% 23.8% 39.1% 30.1% 7.0% 1.2% 28.3% 48.2% 22.3% Differences* between CEOs in publicly held and private firms CEOs in privately held organizations more likely to agree: Public companies' responsibilities to employees frequently conflict with their need to maximize shareholder returns. CEOs in privately held organizations more likely to agree: My standard of business ethics has improved over the course of my career. CEOs in privately held organizations more likely to agree: CEO compensation in most large public companies is excessive. CEOs in privately held organizations more likely to disagree: CEO compensation in most large public companies is properly aligned with corporate performance. Differences* by number of employees (small under 100, medium 101 to 1000, large 1001 or more) CEOs in mall and medium sized (under 1000 employees) more likely to agree: Public companies' responsibilities to employees frequently conflict with their need to maximize shareholder returns. CEOs in small and medium sized (under 1000 employees) more likely to agree: My standard of business ethics has improved over the course of my career. 15

16 Difference* by annual sales (small under $50 million, medium $50 million to $250 million, large over $250 million) Difference between small, medium and large smaller more like to agree: Public companies' responsibilities to employees frequently conflict with their need to maximize shareholder returns. Difference between small, medium and large smaller more like to agree: My standard of business ethics has improved over the course of my career. Difference between small, medium and large smaller more like to agree: CEO compensation in most large public companies is excessive. * Statistically significant with p <.05 Please note: Here, indeed at any point in this summary of survey findings, specific numbers are available upon request. Researcher contact information can be found on page 2 of this document. 16

17 What are the top 5 ethical issues facing the general business community? 2) What are the top 5 ethical issues facing your industry? Top ethical issues facing the general business community One of 5 top concerns for General Your Industry Business Community Improper accounting practices 44.0% 24.5% Lying on reports/falsifying records 35.4% tie % Conflicts of interest 35.4% tie % Exorbitant executive compensation 33.8% 2.6% Dishonesty with customers 30.5% 31.1% Misleading the public or the media 29.8% 18.9% Deceptive sales practices 28.8% 33.4% Violating environmental regulations 27.8% 19.5% Stealing/theft 24.2% 31.1% Producing low quality or unsafe products 22.2% 19.5% Bribes and kickbacks 21.2% 15.2% Drug/alcohol abuse 20.2% 24.5% Discrimination 19.5% 15.2% Unfair treatment of employees 18.9% 18.2% Sex harassment 12.6% 15.9% Violations of privacy 11.9% 24.5% Unfair treatment of suppliers 10.9% 13.6% Lying/exaggerating on resumes or job 10.6% 16.6% applications Economic espionage/divulging trade secrets 7.6% 9.9% Predatory employment practices 2.6% 9.9% Workplace violence 1.7% 3.3% Other 1.7% 3.3% 17

18 Top ethical issues facing your industry One of 5 top concerns for Your industry General Business Community Conflicts of interest 45.0% 35.4% Deceptive sales practices 33.4% 28.8% Lying on reports/falsifying records 31.8% 35.4% Dishonesty with customers 31.1% tie % Stealing/theft 31.1% tie % Improper accounting practices 24.5% tie % Drug/alcohol abuse 24.5% tie % Violations of privacy 24.5% tie % Violating environmental regulations 19.5% 27.8% Producing low quality or unsafe products 19.5% 22.2% Misleading the public or the media 18.9% 29.8% Unfair treatment of employees 18.2% 18.9% Lying/exaggerating on resumes or job 16.6% 10.6% applications Sex harassment 15.9% 12.6% Bribes and kickbacks 15.2% 21.2% Discrimination 15.2% 19.5% Unfair treatment of suppliers 13.6% 10.9% Economic espionage/divulging trade secrets 9.9% 7.6% Predatory employment practices 9.9% 2.6% Workplace violence 3.3% 1.7% Other 3.3% 1.7% Exorbitant executive compensation 2.6% 33.8% 18

19 Top ethical issues facing your industry: Manufacturing One of 5 top concerns for Your industry--manufacturing Violating environmental regulations 41.4% Deceptive sales practices 36.2% Producing low quality or unsafe products 32.8% Conflicts of interest 31.0% Stealing/theft 29.3% Lying on reports/falsifying records 25.9% Unfair treatment of suppliers 24.1% Drug/alcohol abuse 22.4% Dishonesty with customers 20.7% Improper accounting practices 19.0% Misleading the public or the media 19.0% Economic espionage/divulging trade secrets 19.0% Lying/exaggerating on resumes or job 15.5% applications Discrimination 13.8% Unfair treatment of employees 12.1% Sex harassment 12.1% Bribes and kickbacks 10.3% Predatory employment practices 8.6% Violations of privacy 6.9% Workplace violence 0.0% Other 0.0% Exorbitant executive compensation 0.0% N=50 19

20 Top ethical issues facing your industry: Health Care and Social Assistance One of 5 top concerns for Your industry Health Care And Social Assistance Conflicts of interest 58.6% Violations of privacy 51.7% Lying on reports/falsifying records 39.7% Improper accounting practices 32.8% Producing low quality or unsafe products 31.0% Misleading the public or the media 31.0% Sex harassment 25.9% Drug/alcohol abuse 25.9% Unfair treatment of employees 22.4% Discrimination 17.2% Stealing/theft 17.2% Dishonesty with customers 17.2% Bribes and kickbacks 13.8% Lying/exaggerating on resumes or job applications 13.8% Predatory employment practices 12.1% Workplace violence 12.1% Deceptive sales practices 10.3% Exorbitant executive compensation 5.2% Other 5.2% Violating environmental regulations 3.4% Economic espionage/divulging trade secrets 1.7% Unfair treatment of suppliers 1.7% N=58 20

21 Top ethical issues facing your industry: Banking, Finance and Insurance One of 5 top concerns for Your industry Banking, Finance and Insurance Conflicts of interest 67.5% Violations of privacy 55.0% Lying on reports/falsifying records 42.5% Deceptive sales practices 42.5% Dishonesty with customers 40.0% Improper accounting practices 35.0% Misleading the public or the media 32.5% Stealing/theft 30.0% Discrimination 17.5% Economic espionage/divulging trade secrets 12.5% Unfair treatment of employees 10.0% Lying/exaggerating on resumes or job applications 10.0% Predatory employment practices 7.5% Drug/alcohol abuse 7.5% Unfair treatment of suppliers 7.5% Sex harassment 5.0% Bribes and kickbacks 2.5% Producing low quality or unsafe products 2.5% Other 2.5% Violating environmental regulations 0.0% Exorbitant executive compensation 0.0% Workplace violence 0.0% N=40 21

22 Top ethical issues facing your industry: Professional and Technical Services One of 5 top concerns for Your industry Professional and Technical Services Conflicts of interest 54.5% Lying/exaggerating on resumes or job applications 50.0% Dishonesty with customers 45.5% Deceptive sales practices 45.5% Lying on reports/falsifying records 31.8% Violations of privacy 27.3% Drug/alcohol abuse 22.7% Improper accounting practices 22.7% Sex harassment 18.2% Unfair treatment of suppliers 18.2% Predatory employment practices 13.6% Bribes and kickbacks 13.6% Misleading the public or the media 13.6% Unfair treatment of employees 9.1% Stealing/theft 9.1% Economic espionage/divulging trade secrets 9.1% Producing low quality or unsafe products 9.1% Violating environmental regulations 4.5% Discrimination 4.5% Exorbitant executive compensation 0.0% Workplace violence 0.0% Other 0.0% N=22 22

23 Top ethical issues facing your industry: Information Services and Technology One of 5 top concerns for Your industry Information Services and Technology Deceptive sales practices 50.0% Dishonesty with customers 44.4% Conflicts of interest 38.9% Lying on reports/falsifying records 27.8% Improper accounting practices 27.8% Violations of privacy 27.8% Stealing/theft 22.2% Misleading the public or the media 22.2% Unfair treatment of employees 16.7% Sex harassment 16.7% Economic espionage/divulging trade secrets 16.7% Discrimination 11.1% Exorbitant executive compensation 11.1% Bribes and kickbacks 11.1% Producing low quality or unsafe products 11.1% Unfair treatment of suppliers 11.1% Lying/exaggerating on resumes or job applications 11.1% Predatory employment practices 5.6% Drug/alcohol abuse 5.6% Violating environmental regulations 0.0% Workplace violence 0.0% Other 0.0% N=18 23

24 Top ethical issues facing your industry: Construction One of 5 top concerns for Your industry-- Construction Dishonesty with customers 51.9% Stealing/theft 44.4% Deceptive sales practices 40.7% Violating environmental regulations 37.0% Conflicts of interest 37.0% Drug/alcohol abuse 33.3% Bribes and kickbacks 33.3% Producing low quality or unsafe products 25.9% Lying on reports/falsifying records 22.2% Predatory employment practices 22.2% Unfair treatment of suppliers 22.2% Discrimination 18.5% Unfair treatment of employees 14.8% Improper accounting practices 14.8% Lying/exaggerating on resumes or job applications 14.8% Sex harassment 11.1% Violations of privacy 7.4% Other 7.4% Economic espionage/divulging trade secrets 3.7% Exorbitant executive compensation 0.0% Misleading the public or the media 0.0% Workplace violence 0.0% N=27 24

25 ISSUES INVOLVING LEADERS AND INSTITUTIONS Do you agree or disagree? The criminal convictions of Kenneth Lay, Jeffrey Skilling, Bernard Ebbers and other corporate leaders.. Percent agree...show that the system works. 65.6%...make corporate leaders more attentive to ethics. 88.0%...further erode public trust and confidence in business leaders. 66.0%...help restore public trust and confidence in the financial markets. 44.5%...reinforce a negative and unfair stereotype of CEOs. 65.1%...encourage even more legal scrutiny and regulation of business. 88.6% No statistically significant differences by number of employees, annual sales or whether organization is publicly or privately held. Some differences, however, by industry: 76.8% of manufacturing CEOs agreed it showed the system works. 82.1% of healthcare and non-profit CEOs agreed further erodes public trust and confidence in business leaders only 76.9% of banking, finance and insurance CEOs agreed makes corporate leaders more attentive to ethics only 34.5% of healthcare and non-profit CEOs agreed helps restore public trust and confidence in the financial markets. 76.5% of information technology CEOs agreed reinforces a negative and unfair stereotype of CEOs. only 72.7% of professional and technical service CEOs agreed encourages even more legal scrutiny and regulation of business. 25

26 BUSINESS SCHOOLS AND ETHICS INSTRUCTION To what extent do you agree or disagree? University business schools should require courses in business ethics and/or ethics components in other business courses. 4% 0% 43% Strongly agree Agree Disagree Strongly disagree 53% 26

27 However, CEOs who believe that business schools have a greater role to play are not doing all that much more in their own organizations in terms of ethics management. Comparing CEOs who strongly agreed that university business schools should require ethics courses and components to all other CEOs the differences in the ethics policies, practices and procedures are slight. University business schools should require courses in business ethics and/or ethics components in other business courses. All other Strongly agree responses A board-level committee responsible for ethics and compliance? Yes 41.3% 33.5% No 58.7% 66.5% An ethics and compliance training program? Yes 55.7% 51.6% No 44.3% 48.4% A company ethics "help line" (e.g., where employees may report ethical concerns or seek guidance on ethical questions)? Yes 59.2% 48.8% No 40.8% 51.3% A stated ethics policy (e.g., Code of Ethical Conduct)?* Yes 88.6% 79.4% No 11.4% 20.6% A statement of values to guide corporate conduct? Yes 86.2% 82.4% No 13.8% 17.6% An assigned ethics and/or compliance officer? Yes 55.4% 43.5% No 44.6% 56.5% A department that is primarily responsible for ethics and compliance (i.e., education, investigations and monitoring)? Yes 48.8% 39.4% No 51.2% 60.6% * p <.05 27

28 RESPONDENT DEMOGRAPHICS Industry Manufacturing Healthcare and social assistance Banking, finance and insurance Construction Professional and technical services Information services and technology Utilities Wholesale trade Retail trade Transportation and arehousing Hotel, entertainment and food services Real estate, rental and leasing Other, non services Agriculture, forestry and fishing Other services Frequency Percent Manufacturing Healthcare and social assistance Banking, finance and insurance Construction Professional and technical services Information services and technology Utilities Wholesale trade Retail trade Transportation and arehousing Hotel, entertainment and food services Real estate, rental and leasing Other, non services Agriculture, forestry and fishing Other services Total % 28

29 NUMBER OF EMPLOYEES 100 or fewer employees 16.7% 101-1,000 employees 59.4% More than 1, % 100 or fewer employees 101 to 1000 employees more than

30 ANNUAL SALES Under 50 million % million 28.52% More than 250 million 37.25% Under $50 million $50 million to $250 million $250 million or more 30

31 WHAT PERCENTAGE OF FIRM S STOCK IS PUBLICLY HELD? none 1-25% 26-50% 51-75% 76-99% all 100% 31

32 PUBLICLY OWNED OR PRIVATELY OWNED? Public companies 22.5% Private Companies 77.5% 32

33 ETHICS MANAGEMENT: Policies, Practices, Procedures, etc. CEOs of Public Companies and CEOs of Private Companies Do you have or plan to implement in the next 12 months A stated ethics policy (e.g., Code of Ethical Conduct)...a statement of values to guide corporate conduct? 33

34 ...an ethics and compliance training program?...a board-level committee responsible for ethics and compliance? 34

35 ...an ethics and compliance help line (e.g., where employees may report ethical concerns or seek guidance on ethical questions)?...an assigned ethics and/or compliance officer? 35

36 How do high ethical standards affect a company s competitive position?* * 1% of respondents said that high ethical standards have no effect in the long term. 7% of respondents said that they have no effect in the short term. Do you agree that operating by high ethical standards is often easier for a private company than for a public company which must meet stockholders short-term expectations? 36

37 Do you agree that public companies responsibilities to society frequently conflict with their need to maximize shareholder returns? Do you agree that public companies responsibilities to employees frequently conflict with their need to maximize shareholder returns? 37

38 CLEMSON UNIVERSITY Daniel E. Wueste, Ph.D. Director Robert J. Rutland Institute for Ethics James Witte, Ph.D. Department of Sociology and Anthropology GEORGIA STATE UNIVERSITY John C. Knapp, Ph.D. Director Center for Ethics and Corporate Responsibility