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November/December 2001 - By C. Lee Essrig

An International Management System Standard For Business Conduct

At present, no internationally recognized standard exists to manage organizational ethics, compliance, and business conduct programs. That could soon change.

The Ethics Officer Association (EOA) is exploring the feasibility of developing a business conduct management system standard (MSS) through the International Organization for Standardization (ISO) process. Such a management system standard would be mutually compatible with the management system standards ISO 9000 for quality and ISO 14000 for the environment. It would be a practical way for organizations around the world to integrate business ethics into their operations. It would define business conduct and would include the means to measure and credibly demonstrate compliance with the standard. The management system standard could be a tool for any organization to use, among other things, as a benchmark in measuring and demonstrating the effectiveness of its business conduct program and/or as a standard for business partners to meet. The voluntary standard would allow for self-declaration. The EOA plans to take every possible step to ensure that the management system standard is not intended for third-party certification.

History of the initiative

Since the mid-1980s, the regulatory environment in the United States has encouraged the development of internal business conduct programs. In 1991, the U.S. Sentencing Commission promulgated guidelines to be used in the sentencing of organizations in federal courts. These guidelines quickly became the model for internal business conduct programs in the U.S. Since 1991, an increasing number of U.S.-based organizations have established business conduct programs. However, for the last several years, EOA members have been interested in finding new and better tools to measure the effectiveness of such programs and to have standards against which to benchmark. Nothing exists that cuts across industries, that can be used globally, or that is able to help them adequately assess the effectiveness of their programs and provide results of assessments to stakeholders in a consistent and meaningful way.

In addition, a growing number of international organizations, industry associations, non-governmental organizations (NGOs), and citizens’ groups, have developed codes, principles, standards, and guidelines, and are approaching EOA members with requests to sign on to these principles. Many of these standards address what is generally referred to as corporate social responsibility (CSR) rather than business ethics, and encompass issues such as international labor, sustainability, human rights, and other social issues. (There are numerous examples of these standards, including the Global Sullivan Principles, SA8000, and the United Nations Global Compact.) These principles are generally viewed as addressing areas other than the types of management issues ethics officers face, and the types of programs that ethics and compliance officers manage. They also, for the most part, do not approach the issues from a process or management system point of view. There is also concern that these codes, principles, standards, and guidelines often lead to third-party certification that is costly without added value.

Nonetheless, there is an increasing recognition that social responsibility measures can be of strategic importance to an organization’s business performance. Guiding principles such as CSR guidelines can assist an organization in developing its business conduct policy. In fact, CSR principles have helped some organizations define the overall scope of their commitment to ethical business conduct. Therefore, components of what are commonly thought of as CSR issues are likely to be included in any business conduct MSS developed through the ISO process, or, at a minimum, the MSS would have the flexibility to allow any organization to include such issues as it deems appropriate within the overarching MSS framework.

Benefits of a business conduct MSS

EOA members believe that an organization should implement an effective business conduct management system in order to help protect and enhance its reputation, minimize its liability, and maintain its long-term viability. Having such a management system in place can help an organization (1) provide confidence to its interested parties that a management commitment exists to meet the provisions of its policy, objectives, and targets; (2) demonstrate that emphasis is placed on prevention rather than corrective action; (3) show evidence of reasonable care and regulatory compliance; and (4) incorporate the process of continual evaluation and improvement into the process.

Economic and social advantages that would result from the adoption of an ISO business conduct MSS include:

• It will be a recognized means to enable organizations to demonstrate commitment to ethical business practices in the most cost effective manner.

• It will enable organizations to protect their brand equity and defend their reputation.

• It can be a consistent measurement tool to demonstrate effectiveness of programs.

• It will create a standard that is based on a model that is already adopted by many organizations.

• It can result in reconciliation of global principles and harmonization of national and cultural standards within an international framework, thus helping companies address the high cost of responding to a proliferation of standards.

• It can be a standard for joint venture and other business partners to meet, which can facilitate global business.

• It can be used by consumers, investment fund managers, and others in evaluating companies for social investing and other purposes.

• It can help organizations defend against a violation as an anomalous event.

• It is consistent with regulatory models in the U.S. and can serve as a catalyst and model for regulatory frameworks that promote ethical business practices around the world.

What would the MSS look like?

It is impossible to perfectly predict what any resulting business conduct MSS would include because of the nature of the open, consensus process by which ISO standards are developed. However, existing effective business conduct programs typically have the following elements, which are included in the U.S. Sentencing Commission’s Federal Organizational Sentencing Guidelines and would be a reasonable starting point for this type of MSS:

• Compliance standards and procedures

• Oversight by high-level personnel

• Due care in delegating substantial discretionary authority

• Effective communication of standards and procedures to all levels of employees and other agents, e.g., through required training or clear and practical publications

• Reasonable steps to achieve compliance with standards, including systems for monitoring, auditing, and reporting suspected wrongdoing without fear of retribution

• Consistent enforcement of compliance standards including disciplinary mechanisms

• Reasonable steps to respond to and prevent further similar offenses upon detection of a violation

ISO Guide 72 (“Guidelines for the Justification and Development of Management System Standards”) was recently developed in order to provide a common methodology for drafting new management system standards. Guide 72 sets forth the following themes and elements that must be common to all ISO MSSs:

1. Policy (demonstration of commitment and principles for action)

2. Planning (identification of needs, issues, clear objectives and targets, resources, organizational structure, responsibilities, etc.)

3. Implementation and operation (operational control measures, documentation, communication, awareness building and training, etc.)

4. Performance assessment (monitoring and measuring, handling non-conformities, audits)

5. Improvement (corrective and preventive action, continual improvement)

6. Management review

Similarities

The similarity and even overlap between the two lists is striking. Clearly, the required ISO MSS elements are nearly identical to the components of existing effective business conduct programs and thus would not be new or onerous to organizations with such programs. The cost to organizations would be minimal because this MSS would be consistent with existing programs that are based on the U.S. Federal Sentencing Guidelines and ISO 9000 and 14000. This commonality will significantly facilitate the development of a MSS that addresses market needs as well as complements the ISO MSS structure. For these reasons, the EOA is committed to working through ISO Guide 72 in the development of a new MSS.

Benefits of using ISO

The EOA is committed to the development of this MSS through an open process with participation from any interested parties, including representatives from business, government and/or other regulatory bodies, NGOs, consumers, and others. ISO is recognized for its demonstrated ability to facilitate consensus-based outcomes through an open and participatory process. The EOA believes that its proposed MSS must be developed through a global process and that ISO’s methodology in creating MSSs is comprehensive and clear. It is further believed that it is important not to add more layers and resulting additional cost for organizations but rather to simplify and recognize that existing MSSs such as ISO 9000 and ISO 14000 can and should be the basis for any new MSS.

The EOA also holds the view that a management system standard of this nature is best developed with the involvement of experts such as those in ISO and its U.S. representative, the American National Standards Institute (ANSI). The EOA therefore has turned to ANSI and ISO for their expertise.

Third-party certification?

The EOA is aware of the issues concerning mandatory third-party certification and firmly believes that third-party certification should not be a requirement of the MSS. Rather, the EOA’s intent is that this MSS be strictly voluntary and that organizations have an opportunity to be flexible in choosing methods of demonstrating conformance. While self-declaration with surveillance by the marketplace, governmental and other regulators, and NGOs is the preferred approach, there may in some cases be a need for third-party certification. It is also important to note that an ISO MSS will facilitate joint audits with other MSSs and promote parallel assessments.

There is increasing activity in various areas of the world indicating that other groups are seriously considering and working on similar efforts to develop a global standard in the area of CSR or business conduct. For example, the European Union has recently published a paper addressing this topic, and there is some discussion that other entities may indeed choose to pursue this further through an ISO process. There is a real and credible risk that a set of global standards will be developed by an entity that, for example, may not be as predisposed to having third-party certification as an option rather than a requirement.

U.S.-based companies have significant and vast experience in developing and managing effective business conduct programs, in part because of legal implications but also because of a growing emphasis on values-based programs and responsiveness to interested parties. There is strong company interest in the U.S. as well as an opportunity to shape an outcome that is helpful rather than burdensome to business. These factors would be extremely advantageous to the process and the work that would be involved in developing a business conduct MSS.

Conclusion

The EOA believes that there is a strong current need for the development of a business conduct MSS. It cannot be overemphasized that all parties affected by commerce benefit when business is conducted in accordance with ethical practices. This MSS would have long-term benefits in creating a more level playing field, improving trust in the system of commerce, and improving global trade. The determination of costs and benefits is not speculative or theoretical but is based on the actual experience of hundreds of corporations that have implemented similar business conduct programs since 1985. For more than fifteen years, organizations have openly shared best practices through a variety of forums sponsored by the Conference Board, the Defense Industry Initiative, the EOA, the U.S. Sentencing Commission, and others.

Unfortunately, there are plenty of examples of ethical lapses and even ethical disasters that businesses have experienced. If a business conduct MSS can help avoid or mitigate these kinds of problems, the benefits to the marketplace and to society are self-evident. The ISO process is a multi-year endeavor, but with the recognition of the importance of ethical business practices, the momentum exists to undertake this significant effort. The EOA invites and welcomes the support and cooperation of all interested parties.

***

C. Lee Essrig is the Project Director for the EOA’s project to develop a business conduct management system standard through the ISO process. She is the former Ethics Officer for Honeywell Inc. and former Vice President for Business Practices and Corporate Compliance for Fresenius Medical Care North America. Ms. Essrig works as a consultant in Boston, Massachusetts.

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