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Workplace Misconduct at Fortune 500 Firms Higher than US Average

Survey Suggests Incidents of Fraud are More Frequently Reported

The National Business Ethics Survey (NBES) of Fortune 500 employees release in July 2012 by the Ethics Resource Center is a good news, bad news report. The good news is that incidents of fraud are more frequently reported in Fortune 500 companies than in all U.S. businesses suggesting that stricter reporting laws, such as the 2002 Sarbanes-Oxley Act, and enhanced corporate compliance programs may help to ferret out fraud. The bad news is that fraud has been observed more frequently in Fortune 500 companies and while whistle-blowing is increasing, so is retaliation in the largest companies. Here is a summary of the major findings of the NBES survey.

  • Just more than half of workers (52 percent) at the highest revenue companies had observed misconduct in the previous 12 months, compared to 45 percent at all companies in the U.S.
  • Seventy-four percent of employees at the Fortune 500 businesses reported misconduct when they saw it, compared to 65 percent on average for all businesses in the U.S.
  • Sixteen percent of workers at the Fortune 500 companies felt pressure to break the rules, compared to 13 percent at all companies in the U.S.
  • Whistleblowers were slightly more likely to experience retaliation at Fortune 500 companies than at companies in the U.S. overall.

Michael Oxley, former Congressman and chairman of the House Financial Services Committee, recently spoke out about the NBES study and ten-year anniversary of the legislation that bears his name. Oxley said Fortune 500 companies are leaders in our economy and they need to be ethical role models: “These CEOs set the tone at the top. Nothing is more important to Fortune 500 companies than leadership and ethics. They set the standards in the world. This study was important because they need to be the ethical leaders.”

Oxley said he is optimistic on the survey’s outcome because out of the 965 employees surveyed, they all recognized the importance of ethical behavior, and he credits Sarbanes-Oxley for helping lay that ethical foundation. “Because of Sarbanes-Oxley, leadership in those corporations now have to sign off [on] the financials and pledge they are accurate. This pledge has encouraged ethical behavior not only from the down and up but across the company as well.”

These are encouraging results and seem to indicate a willingness to report fraud even in the face of retaliation. As a professor of ethics I am also encouraged by the results that indicate the seriousness with which Fortune 500 companies take their ethical obligations. Indicators include formal ethics standards, ethics training, and enhanced efforts to seek out incidents of fraud in these companies. The following summarizes the importance of ethics and compliance mechanisms.

Ethics & Complaince Program Elements                            2011 U.S. average           Fortune 500

Written standards for ethical conduct                                        82%                                   96%

Training on company standards of ethical

    workplace conduct                                                                 76%                                   91%

A mechanism for seeking ethics-related

    advice or information                                                             68%                                   90%

A mechanism for reporting misconduct

    anonymously                                                                          77%                                   91%

Assessment of ethical conduct as part of

   employee performance evaluations                                         67%                                    81%

Disciplining of employees who violate the 

    standards of the organization or the law                                85%                                     92%

Comprehensive Program (all 6 elements)                                   41%                                     60% 

I tell my students that ethics is all about how we act when no one is looking. Most people do the right thing when their actions are being observed. However, only ethical people do the right thing when their actions are not being observed. Only ethical people do the right thing when they are faced with countervailing pressures. And only ethical people in business act ethically not out of a sense that it is good for business or somehow might enhance profits, but, instead, because it is the right thing to do.

W. Clement Stone, a noted businessman and philanthropist, said it best: “Have the courage to say no. Have the courage to face the truth. Do the right thing because it is right. These are the magic keys to living your life with integrity.”

Blog posted by Steven Mintz, aka Ethics Sage, on August 10, 2012