Are you in compliance?

Don't miss out! Sign up today for our weekly newsletters and stay abreast of important GRC-related information and news.


Status message

This is subscriber-only content, you are viewing with temporary unrestricted access. For full access, begin your free, no obligation 5-day trial.

When the C-Suite Circumvents the Code of Conduct

Harned, Guest Columnist Patricia | December 2, 2008

Dear Pat,

Our new CEO requested and received an exemption from our company’s ethics and compliance training, which is required of all employees as stated in our Code of Conduct (and which every employee must certify yearly). He is no longer required to take any of the courses everyone else does. Now he has asked the compliance department to develop shortcut training for his executive vice presidents, so they don’t have to spend so much time on the courses.

I understand that a new CEO makes changes, but our Code of Conduct—which he has reviewed and approved—specifically states that the code and required training apply to all employees and no exemptions will be given. Frankly, I feel he is leading by an example of hypocrisy. The really sad part is that our Code of Conduct training module opens with a short video of him describing how important the Code of Conduct is and how everyone is expected to conduct himself with the highest integrity.

What do you think? Why does this bother me so?

—Restless Reader


Dear Restless Reader,

Your note was among the most troubling of the e-mails I’ve received from Compliance Week readers, and you’re feeling bothered because you have good instincts. Whether or not your CEO realizes what he has done, he has effectively undermined his own ethics program and put your organization at risk.

If your organization has used the U.S. Federal Sentencing Guidelines to help shape your ethics and compliance program, your CEO has compromised the company’s compliance. The guidelines encourage companies to communicate their standards and procedures by “conducting effective training programs” periodically—as in, the company should conduct training on a regular basis. And who should receive training? Specifically, the language refers to “members of the governing authority, high-level personnel, the organization’s employees, and, as appropriate, the organization’s agents.”

Your CEO falls into the category of high-level personnel.

Even further, since your Code of Conduct mandates training for all employees, one could also argue that the CEO has asked for a waiver to the code. For publicly traded companies, waivers must be granted by the board and reported to the Securities and Exchange Commission. Has the board approved your CEO’s request? Has a Form 8-K been filed with the SEC?

Legalities aside, this just makes it very difficult for your senior executives to set a strong tone for ethical conduct from the top. Your CEO’s effort to avoid ethics training will not remain a corporate secret; decisions like this never do. When workers hear that neither their chief nor their executive vice presidents are required to attend full ethics training, resentment will grow. Even if he gives an award-winning introduction to the company’s ethics training, the unstated messages your CEO is sending include:

  • “Do as I say, not as I do.”

  • “I’m special; the rules don’t apply to me.”

  • “Ethics is a waste of time.”

  • “As an executive suite, we don’t need as much training because we are more ethical than the rest of you.”

The ramifications for this unofficial tone are huge. Corporations with strong ethics programs tend to be among the most productive corporations in the nation. Mostly, the results are for the better because most managers understand how long a shadow they cast over their organizations. Workers who know that ethics are important to their top management tend to act more scrupulously than workers in organizations with lax standards.

In reality, your CEO is in dire need of the ethics training. First, he has much to learn about the way leaders really influence organizational ethics, and the effect that a proper tone from the top can have. Additionally, your CEO would be wise to participate in ethics training—very publicly—to assure investors and the public that he will live up to current public expectation.

One need only look as far as the public scrutiny being pointed toward Wall Street to see what your CEO is up against. Congress and the public are rightly troubled by the crisis that is forcing taxpayers to bail out Wall Street. Many see the issue as corporate greed beginning with CEOs and trickling down to financial managers who put their own short-term financial interests above those of their own corporations and those of the public. If anything, the public will be demanding more ethical behavior in return for having taxpayers pick up the huge tab that this crisis has created.

Fundamentally, I suspect that you continue to feel bothered about this situation because you feel a need to do something about it. So now what? I have several suggestions that might bring about constructive discussion in your workplace, hopefully without putting you at risk:

  • Raise the matter to your supervisor. This takes courage, but if you are able to raise the issue to the next level above you, hopefully you will begin to enlist internal support. If your supervisor shares your conviction to solve the problem, he or she will help you move the issue up the food chain.

  • Report the problem to the ethics hotline. If you are concerned that your job will be at risk by talking with your supervisor, make use of the anonymous reporting mechanism provided by your company. By using that system, you should have the ability to make it known that employees know of the training waiver for the C-suite, and you will be able to follow up to find out what happens without having to make your identity known.

  • Approach your CEO directly. Even if you don’t have access to the C-suite, a letter might help. There is a good chance that your CEO may not realize that he is undermining a strong ethics program. He may need to be told that what he has done. Few CEOs hear negative feedback for these kinds of decisions, but he needs to be made aware of it.

  • Notify the board. Write a letter to the chairman of the board and copy the chairs of the audit and compensation committees. Nowadays, the conduct of executive management and the well being of the compliance program are major concerns of directors. They have likely established performance goals for the CEO that pertain to his tone from the top, and they will surely not tolerate an exemption from ethics training. Every board wants to know, anonymously if necessary, of steps that are diluting the corporation’s ethics program.

Good ethics is not a given, and it is highly unlikely that integrity will become the standard if the CEO won’t put time to it. Spending a few hours each year to share in ethics training is a far smaller cost to bear than the costs of an organization that left its ethics program at the front door.