Knowledgeable Harrisburg Accountants & Advisors Help Build Better Businesses Through Enhanced Ethics

Protecting companies from losses due to civil liability and fraud

At Breon & Associates, when we talk to clients about building a better business, most understand the importance of efficiencies and internal controls to mitigate fraud. But few appreciate how important an ethical business climate is for improving efficiency, making internal controls work better, and discouraging the type of behavior that exposes a company to preventable losses due to civil liability and fraud. The reason ethics matter is really very simple: efficiency, internal controls, and conscientious behavior all depend to a certain extent on the ethics of the people working within the organization. When the company culture is ethical, when management is ethical, and when individual workers are ethical, everyone is more likely to work together to advance the company’s goals and ownership is plagued less by deviant behavior that may include sexual harassment, cutting corners, adopting a “me first” attitude, and defrauding the company.

So, what can you do to improve the ethical climate of your business? Our knowledgeable accountants & Advisors recommend you build an organization-wide ethics program that articulates your values, sets expectations for behavior, trains workers in ethics, and establishes processes to reward ethical choices and punish deviant behavior.

Developing a Code of Ethics for your business

A Code of Ethics is your company’s rule book for how to behave. But it can’t just be a list of don’ts. It must rest upon a foundation of positive values that your company is committed to promoting and that your employees from top to bottom can buy into. Here are a few steps to create your Code:

• Articulate your values — Every company is in business to make a profit, but how you go about it matters. Ethical business values include honesty, quality, fairness, courtesy, and responsiveness. What values do you want to demonstrate to the buying public that together form the brand image you want to project? There are also values you might want to promote within the workplace, such as respect, dignity, cohesiveness, diversity, and commitment. Put those values into a strong mission statement and you’re on your way towards building an ethical corporate culture.
• Draft your Code — Now that you know what you stand for, you can get specific about expectations for behavior and the processes and sanctions for negative, or as we call it, deviant behavior. You should set expectations for customer-facing conduct, employer-employee relationships, and employee – vendor interactions. Your Code must contain incentives for positive behavior and processes for dealing with corrosive actions, such as reporting, review, and investigative processes. Look at the Codes for companies you think function well and see if there are things to emulate.

Depending on the size of your company, you may want to form a drafting committee drawing from various departments. This may give your workers greater ownership of the final product, which can encourage buy-in from your rank and file. However, management must be committed to the Code as well, especially supervisors who have daily contact and oversight of workers.

Encouraging compliance with your company’s Code of Ethics

For a Code of Ethics to matter, it must be lived. There are several basic components to the implementation of your Code that can make it central to your business operations:

• Hiring and promotion — These processes must contain an ethical component, so you have reasonable certainty that you are onboarding and advancing workers who are compatible with your values. But, even the most ethical individuals can slip within an unethical system, so you cannot rely on good hiring practices alone.
• Training — At the beginning, your Human Resources Department must conduct training across the board, so everyone who works at the company understands the Code and its expectations. Later, HR must train new hires and regularly reinforce the Code. Specific in-depth retraining may be necessary as ethical issues emerge.
• Reporting procedures — Employees must have a process for reporting conduct that violates the Code, and management must have a clear, transparent process for responding to reports.
• Review procedures — The Code should be reflected in every internal review your company performs. For example, employee performance reviews should reflect the worker’s commitment to the company Code. Your Code must contain incentives for adhering to ethics and review process must recognize and reward compliance.
• Sanctions — The Code must include disciplinary measures for violations of the Code, up to and including termination. Employees should be granted due process before receiving any discipline.
• Leadership’s role — As mentioned above, management plays a critical role in the implementation of the Code. Therefore, only employees who are committed to the Code should advance in the company. Communications from leadership must regularly refer to the tenets of the Code and reinforce them through word and deed.

This is a necessarily short treatment of an expansive topic, but one which is vital to the success of an organization. To learn more, contact a knowledgeable Advisor at Breon & Associates.

Managing conflicts of interests within your organization

Within any organization, you’re going to have people with outside interests. But what happens when those outside interests run contrary to your company’s? For example, do you let an executive negotiate a contract with a company where one of his children works? How your company handles conflicts of interest can have a great impact on its overall ethical climate. Suffice to say for now, your Code of Ethics must explain what you consider to be conflicts of interest, a requirement to disclose conflicts when they arise, and a mechanism for dealing with undisclosed conflicts when they are discovered.