The National Survey of CEOs on Business Ethics Robert J. Rutland Institute for Ethics The Center for Ethics And Corporate Responsibility Department of Sociology and Anthropology Results from the National Survey of CEOs on Business Ethics are based on 302 completed surveys returned by a sample of CEOs in firms with annual revenues of $10 million or more. Surveys were mailed to a sample of 2,494 CEOs randomly selected by Dun & Bradstreet from a listing of all such firms. For statistical purposes a sample of this size yields a margin of error of approximately + 6%. The estimated response rate for the survey is 15%. Questions are welcome and may be directed to the researchers listed here. CLEMSON UNIVERSITY GEORGIA STATE UNIVERSITY Daniel E. Wueste, Ph.D. Director Robert J. Rutland Institute for Ethics [email protected] 864-656-6147 John C. Knapp, Ph.D. Director Center for Ethics and Corporate Responsibility [email protected] 404-413-74204 James Witte, Ph.D. Department of Sociology and Anthropology [email protected] 864-656-3816 2 ETHICS MANAGEMENT Policies, Practices, Procedures, etc. ...introduced as a result of new regulations Have the recent changes in regulations regarding ethics and governance (i.e., the SarbanesOxley Act, the updated Federal Sentencing Guidelines, revised listing requirements of stock exchanges, etc.) affected how your organization manages ethics and compliance? 35.1% 64.9% Yes No Of those who said yes, what did they do? Pe Have done (or are in the process of doing) the following H Hired new staff or restructured organization responsible for 47.9% ethics and compliance Updated ethics or compliance policies 87.1% Revised mission, vision or values statements 46.4% Created new ethics/compliance committees 38.1% A Developed new communication strategies for managing conduct Created or strengthened ethics and compliance training 66.0% In Increased budget for ethics and compliance management 50.5% 68.0% 3 Hired new staff or restructured organization responsible for ethics and compliance Yes No Updated ethics or compliance policies Yes No Revised mission, vision or values statements Yes No 4 Created new ethics/compliance committees Yes No Developed new communication strategies for managing conduct Yes No Created or strengthened ethics and compliance training Yes No 5 Increased budget for ethics and compliance management Yes No 6 ETHICS MANAGEMENT: Policies, Practices, Procedures, etc. Do you have or plan to implement in the next 12 months… Pe A stated ethics policy (e.g., Code of Ethical Conduct)? A board-level committee responsible for ethics and compliance? A ethics and compliance training program? Percent that have or plan to implement 82.0% 36.6% 52.6% A company ethics 'help line' (e.g., where employees may report ethical concerns or seek guidance on ethical questions)? A statement of values to guide corporate conduct? n assigned ethics and/or compliance officer? 52.6% 83.3% 48.1% A department that is primarily responsible for ethics and compliance (i.e., education, investigations and monitoring)? 43.2% A stated ethics policy (e.g., Code of Ethical Conduct)? Yes No A board level committee responsible for ethics and compliance? Yes No 7 An ethics and compliance training program? Yes No A company ethics helpline (e.g., to report concerns)? Yes No A statement of values to guide corporate conduct? Yes No 8 An assigned ethics and/or compliance officer? Yes No A department that is primarily responsible for ethics and compliance? Yes No If you answered yes to any item above. . . What is the single most important motivation for implementing an ethics initiative within your firm? Provide positive guidance for employee conduct Ensure legal compliance Be socially responsible Improve/protect public reputation Improve profits/shareholder value Motivate employees Retain employees Total Percent 50.8% 21.2% 16.2% 5.8% 4.6% 1.2% 0.4% 100.0% 9 THE STATE OF ETHICS IN BUSINESS How important are these factors for explaining unethical conduct in most organizations? Personal greed Failure of organizational leadership to establish ethical standards and culture Weakness of personal character Desire to advance career Pressure to meet unrealistic performance or financial goals Indifference or low morale Inadequate training and communication Pressure to meet deadlines and schedules. Failure of the organization to establish an effective compliance program Desire to harm the employer Not understanding the company's ethics policies Not agreeing with the company's ethics policies 1 1.5 2 Ranked high to low Personal greed Failure of the organization's leadership in establishing ethical standards and culture Weakness of personal character Desire to advance career Pressure to meet unrealistic performance or financial goals Indifference or low morale Inadequate training and communication Pressure to meet deadlines and schedules. Failure of the organization to establish an effective compliance Desire to harm the employer Not understanding the company's ethics policies Not agreeing with the company's ethics policies 2.5 3 3.5 4 4.5 Average (on a scale of 1 – 5) 3.66 3.61 3.58 3.39 3.29 3.26 3.08 3.01 2.92 2.85 2.80 2.73 10 5 THE STATE OF ETHICS IN BUSINESS In your judgment, how do high ethical standards affect a company’s competitive position? … in the short term 23% Strengthen Weaken 7% No effect 70% … in the long term 1% 5% Strengthen Weaken No effect 94% 11 CEOs who think high ethical standards strengthen a company’s competitive position were not significantly more positive about regulation, than those who think high standards weaken or have no effect on a company’s competitive position. “The Sarbanes-Oxley Act and related regulatory measures have improved the standard of ethical performance of corporate America” Agree Disagree Strengthen Weakened or had no effect 51.8% 53.6% 48.2% 46.4% “The Sarbanes-Oxley Act and related regulatory measures have improved the standard of ethical performance of my business” Strengthen Weakened or had no effect Agree 21.1% 17.6% Disagree 78.9% 82.4% “The Sarbanes-Oxley Act and related regulatory measures have strengthened public and investor trust in corporate America” Agree Disagree Strengthen 47.4% 52.6% Weakened or had no effect 44.6% 55.4% “The Sarbanes-Oxley Act and related regulatory measures were an overreaction to the ethical failures of a handful of companies and have proven to be burdensome and unnecessary for most good companies” Agree Disagree Strengthen 51.8% 48.2% Weakened or had no effect 53.6% 46.4% 12 CEOs who agree that the ethical performance of corporate America has improved over the last 4 years were significantly* more positive about regulation, than those who felt it had not improved. “The Sarbanes-Oxley Act and related regulatory measures have improved the standard of ethical performance of corporate America” * Significant p<.01 Agree Disagree Agreed improved Disagreed not improved 63.8% 36.2% 32.5% 67.5% “The Sarbanes-Oxley Act and related regulatory measures have improved the standard of ethical performance of my business” * Significant Agreed p<.01 improved Agree 26.3% Disagree 73.7% Disagreed not improved 11.1% 88.9% “The Sarbanes-Oxley Act and related regulatory measures have strengthened public and investor trust in corporate America” * Significant p<.01 Agree Disagree Agreed improved 61.9% 38.1% Disagreed not improved 24.1% 75.9% “The Sarbanes-Oxley Act and related regulatory measures were an overreaction to the ethical failures of a handful of companies and have proven to be burdensome and unnecessary for most good companies” * Not statistically significant Agree Disagree Agreed improved Disagreed not improved 67.7% 32.3% 75.6% 24.4% 13 CEOs who think high ethical standards strengthen a company’s competitive position were not significantly less likely to think that internal corporate pressures lead to unethical conduct, than those who think high standards weaken or have no effect on a company’s competitive position. “How important is pressure to meet deadlines and schedule for explaining unethical conduct among employees at most organizations?” * Not Strengthen statistically Significant Not important 35.1% Neutral 31.9% Very important 33.0% Weakened or had no effect 39.2% 31.6% 29.1% “How important is pressure to meet unrealistic performance or financial goals for explaining unethical conduct among employees at most organizations?” * Not Strengthen Weakened or had no effect statistically Significant Not 49.2% 50.6% important Neutral 23.8% 18.5% Very 26.9% 30.9% important CEOs who think high ethical standards strengthen a company’s competitive position were significantly less likely to think that broad economic pressures lead to unethical conduct, than those who think high standards weaken or have no effect on a company’s competitive position. “Business executives are more likely to make ethical compromises during economic downturns” * Strengthen Weakened or had no effect Significant p<.05 Agree 52.8% 65.8% Disagree 47.2% 34.2% 14 CEOS’ ROLES AND COMPENSATION: Do you agree or disagree with the following statements? The CEO should be the moral leader of the organization Public companies' responsibilities to employees frequently conflict with their need to maximize shareholder returns. My standard of business ethics has improved over the course of my career. It can be appropriate for CEOs' religious beliefs to influence their business decisions. There is a generally accepted ethical standard that most businesspeople agree and act upon. CEO compensation in most large public companies is excessive. CEO compensation in most large public companies is properly aligned with corporate performance. Strongly agree 88.4% Agree Disagree Strongly disagree 11.3% 0.3% 0.0% 5.3% 37.0% 37.4% 20.4% 26.5% 38.1% 24.4% 11.0% 20.6% 37.5% 19.5% 22.4% 8.5% 61.3% 25.0% 5.3% 23.8% 39.1% 30.1% 7.0% 1.2% 28.3% 48.2% 22.3% Differences* between CEOs in publicly held and private firms • CEOs in privately held organizations more likely to agree: Public companies' responsibilities to employees frequently conflict with their need to maximize shareholder returns. • CEOs in privately held organizations more likely to agree: My standard of business ethics has improved over the course of my career. • CEOs in privately held organizations more likely to agree: CEO compensation in most large public companies is excessive. • CEOs in privately held organizations more likely to disagree: CEO compensation in most large public companies is properly aligned with corporate performance. Differences* by number of employees (small under 100, medium 101 to 1000, large 1001 or more) • CEOs in mall and medium sized (under 1000 employees) more likely to agree: Public companies' responsibilities to employees frequently conflict with their need to maximize shareholder returns. • CEOs in small and medium sized (under 1000 employees) more likely to agree: My standard of business ethics has improved over the course of my career. 15 Difference* by annual sales (small under $50 million, medium $50 million to $250 million, large over $250 million) • Difference between small, medium and large—smaller more like to agree: Public companies' responsibilities to employees frequently conflict with their need to maximize shareholder returns. • Difference between small, medium and large—smaller more like to agree: My standard of business ethics has improved over the course of my career. • Difference between small, medium and large—smaller more like to agree: CEO compensation in most large public companies is excessive. * Statistically significant with p < .05 Please note: Here, indeed at any point in this summary of survey findings, specific numbers are available upon request. Researcher contact information can be found on page 2 of this document. 16 What are the top 5 ethical issues facing the general business community? 2) What are the top 5 ethical issues facing your industry? Top ethical issues facing the general business community One of 5 top concerns for… General Your Industry Business Community Improper accounting practices 44.0% 24.5% Lying on reports/falsifying records 35.4% tie 2 31.8% Conflicts of interest 35.4% tie 2 45.0% Exorbitant executive compensation 33.8% 2.6% Dishonesty with customers 30.5% 31.1% Misleading the public or the media 29.8% 18.9% Deceptive sales practices 28.8% 33.4% Violating environmental regulations 27.8% 19.5% Stealing/theft 24.2% 31.1% Producing low quality or unsafe products 22.2% 19.5% Bribes and kickbacks 21.2% 15.2% Drug/alcohol abuse 20.2% 24.5% Discrimination 19.5% 15.2% Unfair treatment of employees 18.9% 18.2% Sex harassment 12.6% 15.9% Violations of privacy 11.9% 24.5% Unfair treatment of suppliers 10.9% 13.6% Lying/exaggerating on resumes or job 10.6% 16.6% applications Economic espionage/divulging trade secrets 7.6% 9.9% Predatory employment practices 2.6% 9.9% Workplace violence 1.7% 3.3% Other 1.7% 3.3% 17 Top ethical issues facing your industry Conflicts of interest Deceptive sales practices Lying on reports/falsifying records Dishonesty with customers Stealing/theft Improper accounting practices Drug/alcohol abuse Violations of privacy Violating environmental regulations Producing low quality or unsafe products Misleading the public or the media Unfair treatment of employees Lying/exaggerating on resumes or job applications Sex harassment Bribes and kickbacks Discrimination Unfair treatment of suppliers Economic espionage/divulging trade secrets Predatory employment practices Workplace violence Other Exorbitant executive compensation One of 5 top concerns for… Your General Business industry Community 45.0% 35.4% 33.4% 28.8% 31.8% 35.4% 31.1% tie 4 30.5% 31.1% tie 4 24.2% 24.5% tie 5 44.0% 24.5% tie 5 20.2% 24.5% tie 5 11.9% 19.5% 27.8% 19.5% 22.2% 18.9% 29.8% 18.2% 18.9% 16.6% 10.6% 15.9% 15.2% 15.2% 13.6% 9.9% 9.9% 3.3% 3.3% 2.6% 12.6% 21.2% 19.5% 10.9% 7.6% 2.6% 1.7% 1.7% 33.8% 18 Top ethical issues facing your industry: Manufacturing One of 5 top concerns for… Your industry--manufacturing Violating environmental regulations 41.4% Deceptive sales practices 36.2% Producing low quality or unsafe products 32.8% Conflicts of interest 31.0% Stealing/theft 29.3% Lying on reports/falsifying records 25.9% Unfair treatment of suppliers 24.1% Drug/alcohol abuse 22.4% Dishonesty with customers 20.7% Improper accounting practices 19.0% Misleading the public or the media 19.0% Economic espionage/divulging trade secrets 19.0% Lying/exaggerating on resumes or job 15.5% applications Discrimination 13.8% Unfair treatment of employees 12.1% Sex harassment 12.1% Bribes and kickbacks 10.3% Predatory employment practices 8.6% Violations of privacy 6.9% Workplace violence 0.0% Other 0.0% Exorbitant executive compensation 0.0% N=50 19 Top ethical issues facing your industry: Health Care and Social Assistance One of 5 top concerns for… Conflicts of interest Violations of privacy Lying on reports/falsifying records Improper accounting practices Producing low quality or unsafe products Misleading the public or the media Sex harassment Drug/alcohol abuse Unfair treatment of employees Discrimination Stealing/theft Dishonesty with customers Bribes and kickbacks Lying/exaggerating on resumes or job applications Predatory employment practices Workplace violence Deceptive sales practices Exorbitant executive compensation Other Violating environmental regulations Economic espionage/divulging trade secrets Unfair treatment of suppliers N=58 Your industry—Health Care And Social Assistance 58.6% 51.7% 39.7% 32.8% 31.0% 31.0% 25.9% 25.9% 22.4% 17.2% 17.2% 17.2% 13.8% 13.8% 12.1% 12.1% 10.3% 5.2% 5.2% 3.4% 1.7% 1.7% 20 Top ethical issues facing your industry: Banking, Finance and Insurance One of 5 top concerns for… Conflicts of interest Violations of privacy Lying on reports/falsifying records Deceptive sales practices Dishonesty with customers Improper accounting practices Misleading the public or the media Stealing/theft Discrimination Economic espionage/divulging trade secrets Unfair treatment of employees Lying/exaggerating on resumes or job applications Predatory employment practices Drug/alcohol abuse Unfair treatment of suppliers Sex harassment Bribes and kickbacks Producing low quality or unsafe products Other Violating environmental regulations Exorbitant executive compensation Workplace violence N=40 Your industry—Banking, Finance and Insurance 67.5% 55.0% 42.5% 42.5% 40.0% 35.0% 32.5% 30.0% 17.5% 12.5% 10.0% 10.0% 7.5% 7.5% 7.5% 5.0% 2.5% 2.5% 2.5% 0.0% 0.0% 0.0% 21 Top ethical issues facing your industry: Professional and Technical Services One of 5 top concerns for… Conflicts of interest Lying/exaggerating on resumes or job applications Dishonesty with customers Deceptive sales practices Lying on reports/falsifying records Violations of privacy Drug/alcohol abuse Improper accounting practices Sex harassment Unfair treatment of suppliers Predatory employment practices Bribes and kickbacks Misleading the public or the media Unfair treatment of employees Stealing/theft Economic espionage/divulging trade secrets Producing low quality or unsafe products Violating environmental regulations Discrimination Exorbitant executive compensation Workplace violence Other N=22 Your industry—Professional and Technical Services 54.5% 50.0% 45.5% 45.5% 31.8% 27.3% 22.7% 22.7% 18.2% 18.2% 13.6% 13.6% 13.6% 9.1% 9.1% 9.1% 9.1% 4.5% 4.5% 0.0% 0.0% 0.0% 22 Top ethical issues facing your industry: Information Services and Technology One of 5 top concerns for… Deceptive sales practices Dishonesty with customers Conflicts of interest Lying on reports/falsifying records Improper accounting practices Violations of privacy Stealing/theft Misleading the public or the media Unfair treatment of employees Sex harassment Economic espionage/divulging trade secrets Discrimination Exorbitant executive compensation Bribes and kickbacks Producing low quality or unsafe products Unfair treatment of suppliers Lying/exaggerating on resumes or job applications Predatory employment practices Drug/alcohol abuse Violating environmental regulations Workplace violence Other N=18 Your industry— Information Services and Technology 50.0% 44.4% 38.9% 27.8% 27.8% 27.8% 22.2% 22.2% 16.7% 16.7% 16.7% 11.1% 11.1% 11.1% 11.1% 11.1% 11.1% 5.6% 5.6% 0.0% 0.0% 0.0% 23 Top ethical issues facing your industry: Construction One of 5 top concerns for… Dishonesty with customers Stealing/theft Deceptive sales practices Violating environmental regulations Conflicts of interest Drug/alcohol abuse Bribes and kickbacks Producing low quality or unsafe products Lying on reports/falsifying records Predatory employment practices Unfair treatment of suppliers Discrimination Unfair treatment of employees Improper accounting practices Lying/exaggerating on resumes or job applications Sex harassment Violations of privacy Other Economic espionage/divulging trade secrets Exorbitant executive compensation Misleading the public or the media Workplace violence N=27 Your industry-Construction 51.9% 44.4% 40.7% 37.0% 37.0% 33.3% 33.3% 25.9% 22.2% 22.2% 22.2% 18.5% 14.8% 14.8% 14.8% 11.1% 7.4% 7.4% 3.7% 0.0% 0.0% 0.0% 24 ISSUES INVOLVING LEADERS AND INSTITUTIONS Do you agree or disagree? The criminal convictions of Kenneth Lay, Jeffrey Skilling, Bernard Ebbers and other corporate leaders….. ...show that the system works. ...make corporate leaders more attentive to ethics. ...further erode public trust and confidence in business leaders. ...help restore public trust and confidence in the financial markets. ...reinforce a negative and unfair stereotype of CEOs. ...encourage even more legal scrutiny and regulation of business. Percent agree 65.6% 88.0% 66.0% 44.5% 65.1% 88.6% No statistically significant differences by number of employees, annual sales or whether organization is publicly or privately held. Some differences, however, by industry: • • • • • • 76.8% of manufacturing CEOs agreed “it showed the system works.” 82.1% of healthcare and non-profit CEOs agreed “further erodes public trust and confidence in business leaders” only 76.9% of banking, finance and insurance CEOs agreed “makes corporate leaders more attentive to ethics” only 34.5% of healthcare and non-profit CEOs agreed “helps restore public trust and confidence in the financial markets.” 76.5% of information technology CEOs agreed “reinforces a negative and unfair stereotype of CEOs.” only 72.7% of professional and technical service CEOs agreed “encourages even more legal scrutiny and regulation of business.” 25 BUSINESS SCHOOLS AND ETHICS INSTRUCTION To what extent do you agree or disagree? “University business schools should require courses in business ethics and/or ethics components in other business courses.” 4% 0% 43% Strongly agree Agree Disagree Strongly disagree 53% 26 However, CEOs who believe that business schools have a greater role to play are not doing all that much more in their own organizations in terms of ethics management. Comparing CEOs who “strongly agreed” that university business schools should require ethics courses and components to all other CEOs the differences in the ethics policies, practices and procedures are slight. “University business schools should require courses in business ethics and/or ethics components in other business courses.” All other Strongly agree responses A board-level committee responsible for ethics and compliance? Yes No An ethics and compliance training program? Yes No A company ethics "help line" (e.g., where employees may report ethical concerns or seek guidance on ethical questions)? Yes No A stated ethics policy (e.g., Code of Ethical Conduct)?* Yes No A statement of values to guide corporate conduct? Yes No An assigned ethics and/or compliance officer? Yes No A department that is primarily responsible for ethics and compliance (i.e., education, investigations and monitoring)? Yes No 41.3% 58.7% 33.5% 66.5% 55.7% 44.3% 51.6% 48.4% 59.2% 40.8% 48.8% 51.3% 88.6% 11.4% 79.4% 20.6% 86.2% 13.8% 82.4% 17.6% 55.4% 44.6% 43.5% 56.5% 48.8% 51.2% 39.4% 60.6% * p < .05 27 RESPONDENT DEMOGRAPHICS Industry Manufacturing Healthcare and social assistance Banking, finance and insurance Construction Professional and technical services Information services and technology Utilities Wholesale trade Retail trade Transportation and arehousing Hotel, entertainment and food services Real estate, rental and leasing Other, non services Agriculture, forestry and fishing Other services Manufacturing Healthcare and social assistance Banking, finance and insurance Construction Professional and technical services Information services and technology Utilities Wholesale trade Retail trade Transportation and arehousing Hotel, entertainment and food services Real estate, rental and leasing Other, non services Agriculture, forestry and fishing Other services Total Frequency 58 58 40 27 22 18 17 13 12 7 6 5 5 3 3 302 Percent 19.7 19.7 13.6 9.2 7.5 6.1 5.8 4.4 4.1 2.4 2.0 1.7 1.7 1.0 1.0 100.0% 28 NUMBER OF EMPLOYEES 100 or fewer employees 101- 1,000 employees More than 1,000 16.7% 59.4% 23.9% 100 or fewer employees 101 to 1000 employees more than 1000 29 ANNUAL SALES Under 50 million 50 – 250 million More than 250 million 34.23 % 28.52% 37.25% Under $50 million $50 million to $250 million $250 million or more 30 WHAT PERCENTAGE OF FIRM’S STOCK IS PUBLICLY HELD? none 1 - 25% 26-50% 51-75% 76-99% all 100% 31 PUBLICLY OWNED OR PRIVATELY OWNED? Public companies Private Companies 22.5% 77.5% 32 ETHICS MANAGEMENT: Policies, Practices, Procedures, etc. CEOs of Public Companies and CEOs of Private Companies Do you have or plan to implement in the next 12 months… A stated ethics policy (e.g., Code of Ethical Conduct) ...a statement of values to guide corporate conduct? 33 ...an ethics and compliance training program? ...a board-level committee responsible for ethics and compliance? 34 ...an ethics and compliance “help line” (e.g., where employees may report ethical concerns or seek guidance on ethical questions)? ...an assigned ethics and/or compliance officer? 35 How do high ethical standards affect a company’s competitive position?* * 1% of respondents said that high ethical standards have no effect in the long term. 7% of respondents said that they have no effect in the short term. Do you agree that operating by high ethical standards is often easier for a private company than for a public company which must meet stockholders’ short-term expectations? 36 Do you agree that public companies’ responsibilities to society frequently conflict with their need to maximize shareholder returns? Do you agree that public companies’ responsibilities to employees frequently conflict with their need to maximize shareholder returns? 37 CLEMSON UNIVERSITY GEORGIA STATE UNIVERSITY Daniel E. Wueste, Ph.D. Director Robert J. Rutland Institute for Ethics [email protected] 864-656-6147 John C. Knapp, Ph.D. Director Center for Ethics and Corporate Responsibility [email protected] 404-413-74204 James Witte, Ph.D. Department of Sociology and Anthropology [email protected] 864-656-3816 38
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