WHAT ARE THE SEVEN SIGNS OF ETHICAL COLLAPSE? DESCRIPTION

The Seven Signs Of Ethical Collapse from Professor of Legal and Ethical Studies Marianne Jennings can help boards, executives, employees, analysts and investors to evaluate those company traits that, while not measurable, control the content of the financial reports and whether executives will move into fraud.... Before it's too late.

After Enron, we remain poised with reporting systems, ethics officers, ethics codes, ethics training, and a host of other best practices. And we continue to arrive on the scene just a bit too late to prevent the crimes, constantly in mop-up, contrition and PR-nightmare mode.

Jennings identifies seven factors (signs) that predict ethical crashes and she provides the following antidotes against them:

1. Pressure to maintain those numbers. All companies and organizations have goals and feel the pressure to meet the numbers. A company with a poor ethical culture, however, has graduated meeting those numbers into a zone of perversity. Employees in these companies start with the number they want to report and work backwards, making things fit using accounting interpretations, and eventually just making it all up to reach the predetermined number.
   • Antidote 1: Surround (numeric) goals with ethical values (borders). Compare: Ashridge Mission Model
   • Antidote 2: Fire those who cross the lines you have established.
   • Antidote 3: Watch the nonverbal and nuanced communication and signals.
   • Antidote 4: Encourage your employees to use a time-out: a period of time given to employees to use when they find themselves in an awkward situation on the job.
2. Fear and silence. A type of culture wherein employees may see the issue, but they remain silent. If they do share their concerns, they are either terminated or flatlined in the organization. Compare: Leadership Styles
   • Antidote 1: Tell employees to speak up and provide the means for them to do so (hotline).
   • Antidote 2: Don't fire, flatline, transfer, reassign, trample, muck up or malign employees for speaking up.
   • Antidote 3: Reward employees who speak up and point out ethical and legal issues.
   • Antidote 4: Tell employees bad news happens.
   • Antidote 5: Tell employees that you trust their wisdom and that you are counting on them.
3. Young ‘uns and a bigger-than-life CEO. Surrounding bootlickers, yes-men and other useful idiots. Iconic, adored CEOs.
   • Antidote 1: Beware of the iconic CEO. Compare: Charismatic Leadership
   • Antidote 2: Always question even the most outstanding performers when it comes to CEOs. Compare: Core Group Theory
   • Antidote 3: Monitor who is hired and who is fired and who replaces them and how much they are paid.
   • Antidote 4: Conduct in personal lives matters.
   • Antidote 5: Mold and shape the young 'uns
4. Weak board. Boards may be lacking experience, consisting of friends, showing conflicts of interest, not spending enough time.
   • Antidote 1: Get yourself a strong board. Dig deeper on conflicts and do not fall for the governance myths.
   • Antidote 2: Get information from employees.
   • Antidote 3: Challenge officers, managers, and their claimed results.
   • Antidote 4: Pay attention to perks.
   • Antidote 5: Walk around.
5. Conflicts. A distinct atmosphere of back scratching exists. Favoritism and nepotism.
   • Antidote 1: Believe in conflicts of interest.
   • Antidote 2: Establish definitive conflicts policies and enforce the rules.
   • Antidote 3: Delineate what belongs to the company and what belongs to the customer and never the twain shall meet in employees.
   • Antidote 4: Do not waive your conflicts policy.
   • Antidote 5: Review ownership and interrelationships.
   • Antidote 6: Keep it simple! Remember there are only two ways to manage a conflict: get rid of it or disclose it.
6. Innovation like no other. A belief that we are so brilliant and innovative that the mundane rules of accounting, corporate governance, and even basic economics do not apply to us.
   • Antidote 1: Recognize limits on ability and that truth cannot be managed.
   • Antidote 2: Keep in mind the basics of economics, and economic cycles and business history. Beware of EBITDA.
   • Antidote 3: Honesty and Candor.
   • Antidote 4: Resilience to Pressure. Beware of Groupthink.
7. Goodness in some areas atones for evil in others. The consistent perception of both managers and companies of themselves as good citizens. Philanthropic, environmentally sound and diversity-dedicated, these companies were recognized for their good deeds and contributions. Their noblesse oblige benefited many.
   • Antidote 1: Shift attitudes on social responsibility in business. Compare: Intrinsic Stakeholder Commitment
   • Antidote 2: Investigate your company and explore the depths and interconnections of social responsibility and community involvement.
   • Antidote 3: Be (very) skeptical of philanthropy and social responsibility.

ORIGIN OF THE SEVEN SIGNS OF ETHICAL COLLAPSE. HISTORY

In 2003, professor Jennings participated in a symposium on corporate governance and ethics. Her paper was called: Restoring Ethical Gumption In The Corporation: A Federalist Paper on Corporate Governance - Restoration of Active Virtue in the Corporate Structure to Curb the 'Yeehaw Culture' in Organizations. This paper was the basis for her 2006 book: The Seven Signs of Ethical Collapse.

USAGE OF THE SEVEN SIGNS OF ETHICAL COLLAPSE. APPLICATIONS

• Avoid investing in the next Enron.
• Predicting companies at risk.
• Prevent working for the next WorldCom just before the crash.
• Identify and solve problems in your own organizations before they cause a disaster.
• The 7 Signs apply to government agencies and nonprofits as well.

STRENGTHS OF THE SEVEN SIGNS OF ETHICAL COLLAPSE CONCEPT. BENEFITS

• Gives 7 clear signals to watch for to detect (potential) ethical problems.
• Provides antidotes to prevent them from happening or to cure them.
• Deals with the underlying source of unethical conduct: company culture, rather then treating the symptoms, or fixing the legal system or paying to settle the charges.

LIMITATIONS OF THE SEVEN SIGNS OF ETHICAL COLLAPSE. DISADVANTAGES

• Changing organization cultures is no small task.
• May require changing the macro-ethical culture in financial reporting.