As a potential client considers engaging the services of an ethics auditor it is useful and appropriate for this client to be familiar with the broad range of options available under the generic rubric “ethics audit”.

Ethics audits are the latest means of entree into the ethics consulting arena for those who wish to offer ethics related services to their clientele. This is especially true for those accounting firms which see the ethics audit as a natural extension of the financial audit, especially since many times ethical irregularities are unearthed when conducting a routine audit of a client’s books.

As a potential client considers engaging the services of an ethics auditor it is useful and appropriate for this client to be familiar with the broad range of options available under the generic rubric “ethics audit”.

The spectrum of available offerings is wide and poorly understood, even within the profession of ethics auditors. After all, this is a new field and has not been subject to the professionalization and scrutiny of the more traditional systems for ensuring that one’s books are in order. In describing the continuum of available services presented as ethics audits we will focus on three points of consideration: compliance audits, cultural audits and systems audits. The least comprehensive ethics audit is the compliance audit. This is the process whereby the auditor determines the degree to which one’s ethics program meets the standards set forth in applicable law, regulation and policy, and the degree to which organizational and individual behavior satisfies the requirements of that program.

Cultural audits explore how employees and other stakeholders feel about the standards and behavior of the organization. They assess perceived priorities and ethical effectiveness of individuals, groups, units or the organization as a whole. The other extreme of the audit continuum is the systems audit. In this process the auditor assesses compliance and culture as part of a bigger whole; the degree to which the ethical principles, guidelines and processes of the organization are integrated within the organizational system.

Each type of audit is progressively more complex and offers the client a set of data which is more comprehensive. There is nothing wrong with any of them. Each serves a different purpose.

What is wrong is when clients’ needs are not served because they have received the wrong audit for their desired outcomes. If, for example, the client organization has an existing program to “prevent and detect ethics violations” and merely wishes to ensure that the program satisfies the requirements specified in the 1990 federal sentencing guidelines for ethics violations, then a compliance audit is an appropriate response.

• If the client suspects intentional or unintentional wrongdoing and wants to understand why it is occurring then a cultural or systems audit may be a better choice.
• If the client wants to address the root causes of unethical behavior then a systems audit may be the only effective alternative.

For some clients a compliance audit may be all that they know to ask for. These clients may not appreciate what else might be accomplished through a culture or systems focused ethics audit.

Their auditor, especially if that service provider is a legal or financial professional, also may not know to offer, or have the wherewithal to provide, a more appropriate ethics audit alternative.

One limitation of the legal/financial approach is the difficulty managers may have recognizing themselves in the findings and accepting responsibility. Compliance audits are narrowly focused and represent a high risk to anyone identified as “out of compliance”. Many leaders go to great lengths to distance themselves from these types of findings.

The organization’s response to negative findings is often punitive and highly individualized. It might change or remove the specific actor but do little to alter the forces which motivated the undesirable act.

Going Beyond Compliance

There are two traditional ways to go beyond a check on organizational and individual compliance: the cultural audit and the systems audit.

Cultural audits have been used extensively by management consultants over the years. They assess perceptions and identify issues relating to how specific groups of stakeholders view targeted aspects of an organization, such as leader effectiveness, decision-making and change management.

Their inherent limitation is that they, like the compliance audit, do not identify underlying causes.

Several years ago those management consulting firms that had become involved in ethics management, including Ethics Resource, saw the value of applying this methodology to ethics questions, such as employee perceptions of leader integrity, the effectiveness of ethics policies and confidence in ethics systems, such as employee hot lines as a supplement to compliance audits.

These audits uncovered whole new sets of data, very different from that available through compliance audits. Managers, accustomed to other culture audits, were comfortable with the way the data were presented and understood their responsibility for addressing the issues raised. These data were often viewed as less threatening than the findings of compliance audits. They often pointed to widespread patterns of behavior within the organization and raised broader issues of how the cause of the behavior might be identified and altered to change future results. Culture-based ethics audits were thus more likely to produce the desired change over the long run.

Systems Audits

But the culture audit still was limited and narrowly focused, this time on the consequences of leader rather than specific systems. The newest type of ethics audit goes even further. Systems audits view the organization as a system and examine the ethics issues within that system, and between that system and critical elements of the environment within which it operates.

Systems - based ethics audits, at a minimum, examine the relationships within and between these eleven components:

Environment – The ethical alignment between the organization and stakeholders existing outside the organization, including: customers, suppliers, competitors, unions, regulators… every external entity that has a stake in the organization.

Resources – How tangible and intangible resources enable or limit the organization’s ability to function within its predefined ethical boundaries.

History – How the organization’s history shapes or limits its ability to operate per its stated values and ethical goals.

Mission – The ethical imperatives of mission, vision and stated values and how well are those imperative being met.

Strategic Goals – The ethical issues associated with setting and attaining strategic goals and how congruent those goals are with the organization’s vision and values.

Strategic Plans – How the organization goes about attaining its strategic goals and ethics issues raised by those plans.

Task Definition – How the organization defines its work and the ethical implications of preparing employees to do the work and the inherent rewards derived from doing it.

Formal Systems – The ethical issues in the formal organizational systems. (Compliance audit)

Informal Systems – The ethical issues in the informal, especially leader-based, systems. (Culture audit)

Individuals – The values and principles motivating the workforce and how well they match the values of the organization and its stakeholders.

Feedback – How the organization learns from its experience and the impact of learning (or not learning) on the ethical growth and maturity of the organization and its employees.

Conclusion

Not every ethics audit should be a systems audit. There is a time and place for compliance and culture audits. But we should never forget that organizations are complex systems made up of interconnected parts and are themselves part of a larger, more complex industry and society. Often understanding systems requires a systemic approach.

When the issue is change, fundamental and ethically consistent change, the systems audit provides the decision makers and change leaders with the breadth and depth of information needed to make that change happen and endure. The systems audit is the tool for today, when organizations are undergoing fundamental change in what they do and how they do it, but are choosing to hold on to their core values, principles and ethics, where the ultimate goal is the more ethical organization.

1998 Ethics Resource Center.

Reprinted with permission.

In the early 1980s Tom Peters popularized the phrase “Management By Wandering Around” (MBWA). He and Waterman cited MBWA in their best seller In Search of Excellence as a characteristic of managers in excellent companies. Some managers took the phrase literally and thought that merely wandering around among their employees would make a difference in the quality of the work that was done.

What is actually meant by MBWA is that managers can best communicate their (task and ethical) expectations and requirements in daily, informal meetings with employees. These informal conversations give employees two sets of data. There is the spoken information that is exchanged and the inferred data that employees glean from the more subtle communications which accompany a manager’s words.

Your employees want two results from MBWA:

• They want to know what is expected or required for them to survive and to be successful (tasks and ethics).
• They want to know “how they are doing” at this point in time (tasks and ethics).

What is expected or required for success?

As a way of meeting their need to know your expectations and requirements for survival/success, employees are constantly trying to determine your “real agenda.” What you say is only part of the answer. They also pay close attention to what you do and assign meaning to those deeds.

MBWA is an ongoing opportunity for you to informally communicate your agenda, to let your employees know what is important to you. At a minimum the content of an MBWA contact should communicate your Goals (G), Roles (R), Expectations (E) and Priorities (P). The acronym

GREP can be a useful memory aid.

• Goals - When “wandering around” make certain that you remind people of the short-term and long-term goals of the job. They should see how their goals support the organization’s mission and vision.
• Roles – Let employees know how their piece of the job fits into the bigger picture. Remind them of their importance and value. Ensure that they understand their role as it relates to yours.
• Expectations - Be certain that employees understand exactly what you expect. What has to be done? When? To what standards? How will it be evaluated? What should they do if they encounter any roadblocks or unanticipated changes? How do you want them to handle questions and/or “gray areas” where expectations may be unclear or conflicting?
• Priorities - Remind your employees of the organization’s operational priorities. If safety, quality and customer service come first for example, then make that clear to your employees. Be clear about what you expect them to do when they experience conflicts between any of these core values.

The stories you tell and the events you comment upon are also strong indicators of what impresses you, what you consider important. It is crucial that managers never lose sight of the fact that everything they say and do is observed, interpreted and discussed.

MBWA is also an opportunity for the leader to listen and learn. This is a dialogue, and it is just as important for you to hear your employees’ expectations, needs, concerns and motives as it is for them to understand your requirements and expectations.

How am I doing?

Current motivation theory strongly suggests that people need to know where they stand. They have to be able to assess their success as judged by those people whose opinion of them matters to them. As a leader, your opinion matters to your people. They want to know how you think they are doing.

During your MBWA you have an opportunity to let your employees know where they stand, how they are doing when measured against your GREP as well as the organization’s mission, vision and values. You can offer informal praise and recognition, reinforcing desired behavior. Or you may need to do spot coaching and counseling to change undesired behavior. MBWA is your chance to give reassurances, encouragement and direction to ensure that everyone is operating under the same beliefs and assumptions.

Feedback skills are critical to this process. Some of the characteristics of effective feedback include:

• Objectivity – Describe behavior rather than personal traits.
• Specific versus General – Focus on a particular example of behavior.
• Descriptive versus Judgmental – Include enough detail so the person can be certain of what you saw.
• Dialog versus Lecture – Get the other person involved in a dialogue (see note below).
• Timing - Give the other person feedback at a time when it is most helpful and usable.
• Respect – Describe your observations in ways which protect the self-esteem of the receiver.
• Viable Alternatives – Suggest things the person can do to improve a situation.
• Test For Understanding – Make sure that the person understands what you saw and what you want.

Note: One model for giving feedback aimed at changing behavior is to begin with a maximum of two sentences:

• Sentence 1 – A straightforward statement of what you have observed.
• Sentence 2 – A straightforward statement of why you are concerned about what you have observed.

These two sentences are immediately followed by your invitation to the other person to express how they feel about your observations and concerns. This process ensures that the feedback session is a dialogue, not a lecture.

Authenticity

The benefit of an authentic relationship is that it builds mutual trust and respect, two prerequisites for an ethical organization. In order for the relationship to be based on mutual trust, the manager must honestly communicate what he or she is experiencing.

For many managers, this kind of authentic communication feels awkward because it is so patently honest. It eliminates the half-truths, white lies and evasions that many managers have used to avoid the discomfort they experience when they honestly confront their employees’ performance. Authenticity requires first that you are honest with yourself and second that you demonstrate the courage to be honest with those who depend on your feedback for their success. Without authenticity, there can be no ethical management.

1996 Ethics Resource Center.

Reprinted with permission.

It’s important to help team members feel more comfortable about giving and receiving feedback. One way this can be done is to provide them with some guidelines about how and when to give constructive criticism. The team should come up with the ground rules together, so everyone is in agreement. The following are examples, which have proven to be useful.

Feedback Guidelines

• Don’t criticize a basic personality trait or disability.
• Do offer suggestions on performance areas that can be improved.

• Don’t limit feedback to once a year.
• Do provide opportunities for feedback on a regular basis, whether if be weekly, monthly, or quarterly.

• Don’t use harsh or inflammatory words.
• Do be sensitive to the other persons feeling.

• Don’t use feedback to get back or deliberately hurt someone.
• Do provide suggestions with the purpose of improving the person and overall team’s performance.

• Don’t use generalities, like “Your work is terrible.”
• Do offer specific feedback and give examples.

• Don’t give feedback without offering assistance on how to improve.
• Do offer your help and follow-up with the person.

Sometimes, it’s helpful to have forms for team members to use, so that feedback is standardized and not too informal. With proper feedback and consideration for members feelings, teams can perform to their maximum ability, with each member improving along the way.