ADI
Arrowhead Design Insurance
Walking The Walk - Ethics and
Risk Management
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April 19, 2012
Architects & Engineers Liability Professional Liability
This presentation is a guide to assist you in developing, managing, and
improving your practices and operations. The program or presentation
does not cover all possible risks, situations, and exposures, and does not
constitute legal advice. For decisions regarding use of the procedures
and practices suggested by this presentation, follow the advice of your
advisors and attorneys. Implementation of any practices suggested by
this program or presentation is at your sole discretion. Hudson,
Arrowhead, and their affiliates shall not be liable to any party for any
damages whatsoever arising out of, or in connection with, the
information provided or its use. This material does not amend, or
otherwise affect, the provisions or coverage of any insurance policy
issued by Arrowhead or Hudson, nor is it a representation that coverage
does or does not exist for any particular claim or loss under any such
policy. Coverage depends on the facts and circumstances involved in the
claim or loss, applicable policy provisions, and any applicable law
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This presentation is protected by US and
International copyright laws. Reproduction,
distribution, display and use of the presentation
without the written permission of Arrowhead Design
Insurance is prohibited and subject to prosecution.
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Why Practice Ethically
We live in a country that is just beginning to
recover from a near economic meltdown
caused, in large measure, by a lack of ethics as
practiced by major financial institutions.
It often seems that the lack of ethics is
pervasive – we see it every time we open a
newspaper or view the news, not to mention
in our everyday business dealings. Many “Talk
the Talk”, few “Walk the Walk”
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Why Practice Ethically?
As a consequence the focus on ethical
conduct for professionals is increasing as well,
by professional societies, licensing boards, and
by plaintiff’s attorneys.
In today’s world it is more important than
ever for design professionals to “Talk the Talk”
and “Walk the Walk” with respect to ethics.
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Ethics: What are they?
From a practical standpoint, ethics involves
setting moral standards that regulate right and
wrong conduct. Professional Ethics are
essentially accepted rules of conduct to be
followed in the practice of a profession. They
include good habits that we should acquire,
duties that we should follow, or the
consequences of our behavior on others.
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Rules Governing Professional Conduct
Rules of Conduct provided by Statute
- Texas Engineering Practice Act And Rules
Concerning The Practice of Engineering and
Professional Engineering Licensure
- Subchapter C: Professional Conduct and Ethics
Rules of Conduct promulgated by Professional
Organizations – NSPE, ACEC
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NSPE Code of Ethics
The NSPE Code of Ethics for Engineers is
designed to provide positive stimulus for
ethical conduct as well as helpful guidance
and advice concerning the primary and basic
obligations of engineers. The Code also
establishes the ethical guideposts for the NSPE
Board of Ethical review in interpreting ethical
dilemmas submitted by engineers, public
officials, and members of the public.
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The NSPE Board of Ethical Review
- The NSPE Board of Ethical review is a seven
member panel of licensed professional
engineers appointed by the NSPE President
- The BER renders impartial advisory opinions
pertaining to the interpretation of the NSPE
Code of Ethics
- The BER meets twice yearly to discuss ethics
issues and decide cases submitted
anonymously by engineers, public officials,
and members of the public.
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Anatomy of the NSPE Code of Ethics
- Fundamental Canons
- Rules of Practice
- Professional Obligations
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Canons - Broad principles of conduct from
which Rules of Practice and Professional
Obligations are derived.
Rules of Practice – More specific than Canons.
Mandate how the engineer must act in
performing professional services.
Professional Obligations – Broader than
Canons and Rules. Provide guidelines for
engineering practice in various situations.
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Ethical Responsibilities
As an Engineer you are ethically obligated to:
to:
- The Public
- The Client
- The Profession
- Yourself
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NSPE Fundamental Canons
Engineers, in the fulfillment of their professional
duties shall:
1. Hold paramount the safety, health, and
welfare of the public
2. Perform services only in areas of
competence
3. Issue public statements only in an objective
and truthful manner
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NSPE Fundamental Canons
4. Act for each employer or client as faithful
agents or trustees.
5. Avoid deceptive acts
6. Conduct themselves honorably, responsibly,
ethically, and lawfully so as to enhance the
honor, reputation, and usefulness of the
profession
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1. Hold paramount the safety, health
and welfare of the public
Facts:
Engineer A works for ES Consulting Engineers,
and performs construction observation
services on a project for Client X. While doing
so, Engineer A observes potential safety issues
relating to performance of work by a
subcontractor on a project being constructed
on an adjacent property for Owner Y, who has
no direct relationship to Engineer A, ES
Consulting, or Client X.
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What are Engineer A’s ethical obligations under
these circumstances?
BER Conclusion: (assuming no imminent
danger)
Engineer A does not have an ethical obligation
to take immediate or direct action.
He should bring the potential safety issue to
the attention of Engineer A’s supervisor and ES
Consulting for discussion of whether the safety
issues involved could cause some disruption of
and have some bearing on the progress of the
work on Client X’s project.
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2. Perform Services only in areas of
their competence.
Facts:
Engineer A designs a structural system on a
building project located in an area that
experiences severe weather. A has extensive
experience with structural designs in that
area. His design does not incorporate new and
improved design methods published in the
most recent technical literature, which he is
not familiar with.
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Facts:
Within one year of project completion, the
building suffers significant structural damage
caused by severe weather conditions.
Question:
Was it ethical for Engineer A to fail to follow
the most recent design parameters for
structural design in severe weather areas
published in the most recent technical
literature?
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BER Conclusion:
- In order for an engineer to be found to be
unethical for a design failure he must
demonstrate some level of moral culpability –
i.e. that he was acting in an intentional,
reckless, or malicious manner
- The mere fact that an engineer did not follow
the most recent literature and the
professional practice resulted in some harm is
insufficient to find him to be unethical
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- The definition of what is “current” must be
reasonable as engineers cannot be expected
to incorporate each and every new and
innovative technique or parameter that has
not been fully tested or peer reviewed.
Innovative techniques and parameters may be
incorporated into generally accepted practice
and at such time, once well defined, and as
part of the recognized body of technical
knowledge, such techniques become
standards that should be followed.
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3. Issue public statements only in an
objective and truthful manner.
Facts:
The president of a professional engineering
society is invited to address a gathering of
engineers and students at a college of
engineering where faculty and administration
members are present. He makes some general
comments that could be interpreted as critical
of educational methods employed by some
college engineering programs, including the
host college.
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Faculty and administration members request
an apology or retraction – the president
refuses.
Questions:
1. Was it ethical for the president to make
his comments?
2. Was it ethical for the president to refuse to
apologize for his remarks?
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BER Conclusions:
- Facts do not indicate that the president was
expressing personal prejudice, but rather a
legitimate issue of public policy and
professional concern
- Comments were not made in an offensive or
objectionable manner
- Comments were made at institution of higher
learning where academic freedom and the
right to challenge conventional wisdom should
be celebrated as opposed to generating an
offended response
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1. It was ethical for the president to make his
comments.
2. Although an apology may have been
appropriate, the refusal was not an ethical
violation
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4. Act for each employer or client as
faithful agents or trustees.
Facts:
Engineer A is involved in a dispute with his
employer, Company X and is terminated. Years
later, he is responsible for reviewing proposals
and making recommendations for Company Y.
In reviewing proposals for a large project he
finds that Company X has submitted a strong
proposal in terms of quality and price, but
recommends another
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Facts:
another company equally qualified to perform
the work but whose price is higher than
Company X.
Question:
Was it ethical for Engineer A not to
recommend Company X’s proposal but instead
recommend a more expensive but equally
qualified proposal?
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BER Conclusion:
Engineer A’s duties involve the interests of
Company Y. This situation involves a conflict of
interests, absent some other compelling
reason that might cause Engineer A to reject
Company X’s proposal, Engineer A has an
obligation to approve it, and an ethical
obligation to disclose to his employer his
experience with Company X and possibly
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BER Conclusion:
recuse himself at his employers request if they
feel that he cannot make a reasonably
objective decision or serve the best interests
of his employer.
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5. Avoid deceptive acts
Facts:
Engineer A, a licensed engineer for an
agricultural consulting company, assists clients
in obtaining permits and grants from state
agencies. It also prepares and submits designs
and plans to various agencies for approval.
Engineer B, the owner of the consulting
company, is not directly involved in day to day
operations, taking a “hands off”
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Facts:
approach. Engineer B runs for office and is
elected as a state senator.
Question:
Is it ethical for Engineer B to continue to serve
as a state senator and to be an owner of a firm
that is involved in obtaining approvals for
state regulated permits and grants from state
agencies?
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BER Conclusion:
An owner/legislator cannot participate in
decisions regarding services solicited or
provided by him or his firm if he is also a
member of the body or department of the
public client involved. An owner or other
engineers employed by the firm cannot solicit
or accept a contract from a governmental
body / department on which a principal or
firm member serves.
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BER Conclusion:
In the absence of some legal prohibition, and
provided here is full disclosure, it would be
ethical for B to continue to serve as a senator
and be an owner. Engineer B’s relationship to
the activities of the local governing bodies that
will administer the services funded and
approved by the legislature are far removed
from B’s direct influence. Full disclosure of B’s
position, and that his position can have no
bearing on the work performed by the firm,
should be made to clients.
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Ethics and Risk Management
Risk Management involves the identification
and assessment of risks, determination of
appropriate risks (i.e. those risks over which
you have control and can manage) and
avoidance of inappropriate risk.
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Good ethical practice is an essential part of
any firm’s risk management program
Identification of potential problems
Fraud prevention
Preservation of corporate reputation
Mitigation of penalties for violations
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The collapse of major business corporations
such as ENRON and WorldCom were directly
tied to corporate cultures devoid of ethical
principles and conduct
An ethical risk management strategy begins
with commitment from management for an
ethical culture supported by appropriate
policies, a code of conduct, and procedures
and systems in place to reward ethical
conduct and censure inappropriate actions.
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Elements of Ethical Risk Management
Policy
- Statement of corporate policy confirming a
commitment to ethics
- Corporate Code of Conduct
- Ethics Committee
- Periodic /transparent reporting
- Involvement by representatives from all levels
of the organization
- Ethics training program
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Effective Ethical policies:
- Positive rather than punitive- focus on
flexible/ creative solutions to perceived ethical
risks
- Preserve confidentiality of Individuals and
commercial secrets
- Include “whistleblower” policy
- Audit procedure to monitor those most
responsible / at risk where breaches might
occur
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Effective Ethics policies:
- Keep complete records
- Provide for independent audit of compliance
process
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Benefits of Ethical Risk Management
- Provides a stronger basis for strategic planning
- Ethical behavior is likely to help avoid litigation
- Promotes positive corporate reputation
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Benefits of Ethical Risk Management
A prior commitment to a strong ethical stance
may become a proactive strategy to limit
penalty risks.
- existence or lack thereof may assist a court to
assess the purpose behind conduct
- if a proactive compliance program is in place
a court may well be more willing to mitigate
penalty
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Benefits of Ethical Risk Management
- An effective ethics policy will minimize the risk
of an ethical violation and provide an aid to
defense should a violation occur
- Existence of a properly maintained and run
ethical infrastructure is an indicator of an
appropriate corporate “mindset”
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In today’s “Dog Eat Dog” business
environment it is more important than ever to
practice in an ethical manner. Doing so will
enhance performance and provide consistent
benefits to your practice.
Remember – you need to “Walk the Walk”,
not just “Talk the Talk”.
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Questions?
Thank you!
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