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January/February 2006 - By Andrew W. Singer

EOA To Strike Alliances With Other Ethics Groups

One used to speak about a “flight to safety.” Now one hears about a “flight to integrity,” says Keith T. Darcy, the Ethics Officer Association’s (EOA) new executive director. And perhaps that is only fitting in the wake of the most turbulent corporate scandals in a generation.

“We’re seeing a lot more board activism” when it comes to ethics and compliance, notes Darcy in a recent interview. Part of it is mandated, of course, in the revised Sentencing Guidelines for Organizations, and elsewhere. Still, speaking of corporate directors, “They get it. They understand that their world has changed.”

There is a strong relationship between capital formation and integrity, observes Darcy, a banker by background. (He was a senior executive at Marine Midland Bank, now HSBC, for 15 years, and headed its consumer banking group.) Moreover, in the information age “there is no place to hide. Everyone’s talking to each other,” whether through the Internet, or other means. Organizations are really being held to a higher standard.

 Or, as he observed in his keynote address at the EOA’s annual conference in October in San Antonio: “All of our business practices are being exposed to the light of day: from marketing practices, to market timing; from earnings management, to executive compensation.”

A soaring membership

The EOA was founded in 1992 by a dozen ethics officers.* Darcy speaks of a “quantum leap forward in terms of membership.” By 2002, the EOA had 600 members. Membership now stands at 1,250, more than doubling in three-and-a-half years. The organization drew 650 attendees at this year’s annual meeting in San Antonio, eighty more than last year’s then-record total. Still, “as we have gotten large, we also have to get small,” says Darcy. 

A few years ago the association formed a utilities group. The idea was to share ‘best practices’ within a specific industry group. Now they are expanding that to other industries, beginning with retail, financial services, and healthcare/pharmaceuticals. They’re also developing a European Advisory Council, taking the ethics/compliance message overseas.

Moreover, the organization is renaming itself. It will soon be known as an ethics and compliance organization. This reflects the change in members’ activities and responsibilities. Many EOA members are now chief compliance officers.

Is everything becoming compliance now? “Not at all,” Darcy answers. Yes, the risks of non-compliance are greater than before. But the top companies recognize that the real task is to build a corporate culture that is based on values, like those companies that were chronicled by James Collins and Jerry Porras in Built to Last. These are the sorts of organizations that can weather all storms—can survive downturns and stretches of bad luck. Companies are beginning to understand the power of culture, explains Darcy. Enron, to take one example, was mostly in compliance with rules and regulations, “but its culture was out of control.”

In 1992, the big debate at EOA meetings was the difference between ethics and compliance. “We’re now well past that debate,” he says. The two have effectively converged—just as in the future ethics/compliance may converge with corporate social responsibility (CSR). Indeed, the ministers at a recent Group of Eight meeting made an effort to “put CSR on the agenda,” notes Darcy.

Yes, the first reaction to the Sarbanes-Oxley Act, passed by Congress in 2002, and to other laws and regulations, was largely legalistic. But organizations later came to realize that they needed to focus as much on ethics and culture as they do on compliance with the law. Indeed, the “next new thing” in his view is ‘corporate culture.’ Compliance is simply not enough. He notes in passing that a United States Attorney recently hired a consultant to do a ‘culture’ assessment of a large corporation. Why? The results could help determine whether the U.S. Attorney would seek to indict the company.

‘Brand promise’ is an element of this, too. The FedEx brand contains an implicit promise: We will deliver the package the next day. Darcy sees an increasing “alignment of corporate culture and brand promise” in corporate America.

Working with the ERC

In the past, “We’ve been a terrific facilitator of information,” says Darcy, but now it behooves the EOA to create information too. “Content is king.” The organization has formed a new Research Council (headed by Ethikos Co-Publisher Jeffrey M. Kaplan). When the EOA recently asked for volunteers among its membership to participate in the new Council, 100 organizations responded.

Along these lines, the association is forming alliances with other groups that have proven expertise in ethics and compliance, such as the Ethics Resource Center (Washington, DC) and the Conference Board (New York). The EOA is working with the Conference Board in the development of a global corruption survey.

Asked about working with the Ethics Resource Center (ERC), something that might have been unthinkable a decade ago, Darcy answers, “I don’t think non-profits should compete.” (Both are not-for-profit organizations.)

In any event, the ERC has shifted its focus more toward research, and its new president, Patricia Harned, is a respected researcher. They are two of the oldest ethics organizations, he notes, and two that have always had a clear emphasis on ethics. In the final analysis, “We exist to serve our members.”

Darcy was asked if the role of ethics officer had changed. One result of the recent corporate scandals is that ethics officers are now more often executive officers within their organizations, reporting directly to the board of directors. This is more likely to be seen at scandal-tainted companies, of course. “It’s a positive step, but it’s not happening at all organizations.” Darcy is amazed that there are still people from large organizations attending EOA meetings who are just beginning in ethics and compliance.

One of the association’s goals is to make the ethics officer strategically significant within his/her organization. Otherwise, they will live in an “ethics ghetto,” cut off from the real work of the organization. (Something like this has happened to corporate diversity officers.)

Asked about future membership growth, Darcy says: “I don’t believe in growth for the sake of growth.” Nor is it realistic to believe that the organization can or will double membership over the next three years, as it did in the previous three. The real task before it, is to deliver service to its members. Toward this end the association is improving its IT function, developing a new website that will be more interactive, for instance. “We will grow if we’re good.”

Is there a natural limit on growth? There are a finite number of corporations above a certain size in the U.S., after all. Darcy sees further growth among foreign-based companies that are doing business in the U.S.  Domestically, they probably aren’t going to attract many organizations with less than $250 million in annual revenues, however. Organizations of that size generally don’t have the complex infrastructure that would profit from EOA’s services. The mid-market size group and above is really the association’s ‘sweet spot.’ Not only do they usually have an ethics and/or compliance officer but often a small ethics/compliance staff as well.

Darcy has run businesses and sat on the boards of companies. He’s seen business from both a management and a governance standpoint. But he’s also had a continuous involvement with the business ethics movement. He has been teaching at the Wharton School for 12 years, including a course on Ethics and Leadership within Wharton’s Executive Programs group. Moreover, he has “followed the profession from the early days.”

“These are extraordinary times,” he says. And in the wake of the corporate scandals in the early 2000s, many organizations face a huge task in “restoring that sacred trust.” If the Sentencing Guidelines for Organizations (implemented in 1991) created a profession, he adds, then Sarbanes-Oxley—passed by Congress more than ten years later—“created an industry.”

Footnote: 
*At the time of its incorporation in June 1992, member organizations included, among others, the Internal Revenue Service (IRS), Bath Iron Works, Dow Corning, Eaton, General Electric Aircraft Engines, Harris, Hercules, Honeywell, Levi Strauss, NYNEX, Raytheon, Texas Instruments, and NCR

Andrew Singer is Co-Editor of ethikos.
Reprinted from the January/February 2006 issue of ethikos.
© 2006 Ethikos, Inc. All rights reserved.

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