Good Corporate Governance – Ethics Hotlines, But…

August 15, 2008

BusinessWeek published its Best Corporate Practices in January. I noted with some interest that the #6 best practice was an Ethics Hotline.

All employers talk about ethics, but the ones who provide a way to report misdeeds are the ones most likely to catch problems. Confidential ethics hotlines allow employees to anonymously report bad actors without taking their chances on the dreaded “chain of command.”

This has implications for Corporate Governance.

Most discoveries of fraud are by employees. Since Sarbanes-Oxley there has been much interest in Ethics Hotlines. You might think that there would be an increased employee use of these Hotlines. Well no, according to the Ethics Resource Centers’ 2007 NATIONAL BUSINESS ETHICS SURVEY, employees seem to be reluctant to use these Hotlines.

Reasons why employees avoid hotlines include cultural taboos on “snitching” and lack of awareness. However the main reason is fear of retaliation. Even when the hotline is outsourced, there might still be the fear that anonymity cannot be completely guaranteed.

The key learning is that Ethics Hotlines must be viewed as one alternative in a menu of practices to report ethics violations. Companies should not think that once a hotline is in place that nothing else needs to be done.

Additional resources –

Best Practices Ethics Hotlines

Employee Compliant Hotline

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Written by Ed Konczal · Filed Under All industries, Best Practices, Employee