Corporate Eye

Good Corporate Governance – Ethics Hotlines, But…

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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Ed Konczal has an MBA from New York University's Stern School of Business (with distinction). He has spent the last 10 years as an executive consultant focusing on human resources, leadership, market research, and business planning. Ed has over 10 years of top-level experience from AT&T in the areas of new ventures and business planning. He is co-author of the book "Simple Stories for Leadership Insight," published by University Press of America.

I agree with Ed – I have been documenting articles on ethics training on my blog, and ethics hotlines are just one of the ways companies can provide employees to report ethics violations. Companies should go at length to explain that there is no possible way, they can find out who reported the violation and provide proofs to substantiate their claim.

Another way the companies can make their employees more aware is by offering online ethics training – that will train employees to report ethics violations as a favor to the company and not as something negative.

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