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Chapter 8:
ETHICS REPORTING SYSTEMS
CHAPTER 8 CHAPTER AND ADDITIONAL QUESTIONS
In studying this chapter, students should consider the questions below.
“CQ1” refers to “Chapter Question 1.” This question appears at the end of the textbook
chapter.
“AQ1” refers to an “Additional Question 1.” This is an “additional” question related to
the chapter. It is not listed at the end of the textbook chapter as a “Chapter Question”.
These items are numbered within the two categories based on the order in which the
answer appears in the chapter.
CQ1: Why do some employees refuse to report ethical misconduct?
CQ2: What skills must a manager develop for employees to feel comfortable to discuss potential
unethical behaviors?
CQ3: Discuss the typical duties and skills of an Ethics & Compliance Officer? How can these
activities be managed in a small organization?
CQ4: Describe the fourteen-steps for developing and managing an internal reporting system
process.
AQ1: Describe other ethics reporting system mechanisms: Ombudsperson, Chaplains, and Assist
Lines.
AQ2: What is whistle-blowing and what protections do whistle-blowers have?
CQ5: What are some of negative outcomes that many whistle-blowers have experienced?
CHAPTER 8 LEARNING OBJECTIVES
After completing this chapter, students should be able to:
Understand why some employees do not report ethical misconduct
Describe how to engage employees in discussing ethical misconducts
Administer an internal reporting system for ethical issues
Create an Ethics & Compliance Officer and Ombudsman positions
Manage an assist line to receive employee complaints by telephone or Internet
Describe the negative outcomes whistle-blowing has on both the whistle-blower and the
organization
CHAPTER 8 OVERVIEW
High performance organizations depend on employees speaking honestly with their
colleagues, managers, and company owners when ethical problems arise. This chapter examines
why employees maintain silence when they observe ethical misconduct and what management
behaviors and internal mechanisms can elicit such essential information. Excellent managers are
the type of person colleagues and subordinates can trust and confide with such personally
sensitive information. But some employees remain comfortable sharing ethical issues with their
direct supervisors.
The chapter also explores three alternative internal communication mechanisms for
obtaining information about unethical behavior: an Ethics & Compliance Officer, an
ombudsman, and an assist line. A failure in these internal communication systems can result in
external whistle-blowing, which is damaging for both the organization and the whistle-blower.
CHAPTER 8 LECTURE OUTLINE
Teaching Objective: To offer a variety of ways that encourages employees to report unethical
conduct.
Suggested Time: Two to three hours of class time is recommended to present this chapter.
I. Chapter Question 1: Why do some employees refuse to report ethical misconduct?
II. Chapter Question 2: What skills must a manager develop for employees to feel
comfortable to discuss potential unethical behaviors?
III. Chapter Question 3: Discuss the typical duties and skills of an Ethics & Compliance
Officer? How can these activities be managed in a small organization?
IV. Chapter Question 4: Describe the fourteen-steps for developing and managing an
internal reporting system process.
V. Additional Question 1: Describe other ethics reporting system mechanisms:
Ombudsperson, Chaplains, and Assist Lines.
VI. Additional Question 2: What is whistle-blowing and what protections do
whistle-blowers have?
VII. Chapter Question 5: What are some of negative outcomes that many
whistle-blowers have experienced?
What is an organization?
CHAPTER 8 SUPPORTING MATERIALS
Textbook Inserts
Ethical Dilemma Analysis
What would you do?
Let’s Build a Building
In the Real World: Enron
Exhibits
Exhibit 8.1: Unreported Observed Ethical Misconducts
Exhibit 8.2: Reasons for Employee Silence
Exhibit 8.3: Internal Reporting System Process
Exhibit 8.4: AICPA Audit Committee Assist Line Checklist
Exhibit 8.5: Top Seven False Claims Acts Cases (as of September 2009)
Exhibit 8.6: Whistle-blower Protection Laws
Thematic Boxes
Tips and Techniques
Best Practice in Use
CHAPTER QUESTION 1: WHY DO SOME EMPLOYEES REFUSE TO REPORT
ETHICAL MISCONDUCT?
TYPES OF UNETHICAL ISSUES NOT REPORTED
Managers also rely on employees to take immediate corrective action when ethical misconduct
occurs or inform them so the manager can address the problem before the situation worsens. But
sometimes employees are hesitant to share personally sensitive issues with their manager.
Employee silence refers to an employee who observes ethical misconduct at work but
does not discuss the matter with the person engaged in the ethical misconduct or
someone else in the organization with authority.
oFrequency of ethical misconducts undertaken to benefit the company that go
unreported:
oFrequency of ethical misconducts undertaken to benefit an individual that go
unreported
The ERC study also differentiates “red-flag” financial reporting misconduct – falsifying
or manipulating financial information, overriding routine procedures, or creating
fictitious vendors or invoices – from other types of ethical misconducts.
REASONS FOR EMPLOYEE SILENCE
Review EXHIBIT 8.2 “Reasons for Employee Silence,” which highlights a wide range of
organizational factors, observer factors, and anticipated negative outcomes reasons for
maintaining silence about an observed ethical misconduct.
Organizational Factors
oWork culture discourages conveying negative information or dissent
Authoritarian leaders rule according to the saying: “My way or the
highway.”
oLoyalty to employees, manager, organization, and profession are not aligned with
ethics
oNo established reporting system beyond chain-of-command
oLack of anonymity for reporting misconduct
Observer Factors
oHabituation not to share sensitive information
oLow moral intensity
oLack of evidence
oLack of empowerment
Employee empowerment refers to employees possessing the authority to
make decisions affecting themselves and their work.
oUnsupportive supervisor
oLack of seniority
oLow hierarchical position
oLack of personal relationship with the person or person’s supervisor
oLack of moral courage
Anticipated Negative Outcomes
oBeing labeled or viewed negatively (e.g., troublemaker, complainer, tattletale)
oDamaging a relationship (e.g., loss of trust, respect, acceptance)
oRetaliation or punishment (e.g., loss or job or promotion)
oNegatively impacting others (e.g., don’t want to upset or embarrass someone, or
get someone in trouble)
oBeing blamed for the problem
oNo corrective action will be taken
DISCUSSION ACTIVITY
Have students review the list of unethical behaviors that typically are not reported. Have the
students observed any of those behaviors at work or school? Which of those behaviors didn’t
they report? Why? In small groups, have students describe the situation and explain why they
failed to do anything about it.
CHAPTER QUESTION 2: WHAT SKILLS MUST A MANAGER DEVELOP FOR
EMPLOYEES TO FEEL COMFORATBALE TI SCUS POTENTIAL UNETHICAL
BEHAVIORS?
The best ethics reporting system is a manager who welcomes ethical discussions with employees
and input on ethical misconduct. A diverse set of managerial techniques and attributes can help
employees become comfortable sharing sensitive ethical information.
oManagers can demonstrate familiarity with the types of ethical issues the organization
experiences by staying abreast of the ethics and diversity training workshop topics and
discussions, and ensuring the implementation of action plans supporting existing
strengths and addressing ethical weaknesses.
oApproachability begins with managerial honesty and transparency.
oA manager must be willing to discuss his or her own ethical mistakes in a manner that
humanizes the manager without losing authority.
oSharing concerns about a colleague or manager can be emotionally draining. The
information deserves to be kept private and confidential.
oNear the conclusion of any one-on-one meeting, ask the subordinate if there have been
any situations lately when living up to the Code of Ethics has been challenging. Share
examples that may be of concern to deepen managerial understanding of workplace
dynamics.
DISCUSSION ACTIVITY
Have students think about a time when they approached a boss, teacher, or some other authority
figure about unethical behaviors. Why did the student choose that person to convey such
sensitive information? What characteristics or skills did that person exhibit that led the student to
trust the person?
CHAPTER QUESTION 3: DISCUSS THE TYPICAL DUTIES AND SKILLS OF AN
ETHICS & COMPLIANCE OFFICER? HOW CAN THESE ACTIVITIES BE
MANAGED IN SMALL ORGANIZATIONS?
BACKGROUND
The Federal Sentencing Guidelines (see Chapter 2) provide a judicial incentive for assigning a
high-level employee the responsibility of managing ethical performance. A growing number of
organizations assign this responsibility to an Ethics & Compliance Officer (ECO).
oSome organizations create a separate ECO position focused solely on enhancing ethical
performance.
oMany organizations, however, add the title and job responsibilities to an existing position,
such as legal counsel, ombudsmen, regulatory compliance manager, internal auditor, or
human resources manager.
ECO DUTIES
oECO duties include:
oManage internal reporting systems
oAssess areas for ethical risks
oOffer guidance
oMonitor the organization’s adherence to its Code of Ethics and Code of Conduct
oOversee the ethics communication strategy
oDevelop and interpret ethics policies
oOversee the ethics training program
oReceive information about potential wrongdoings
oCollect and analyze relevant data
oEnsure that decisions are made and enforced
oInform employees about outcomes
ECO SKILLS
oReview TIPS AND TECHNIQUES for best attributes of an ECO
oInsider status and is well-networked with business unit managers
oA high position that exemplifies authority
oThe trust and respect of organizational executives
oIndependence from senior staff and freedom from internal political pressure
oOperational experience
oKnowledge of organizational issues and activities
oAccess to internal information as needed
oKnowledge of ethical theories
oCounseling and communication skills
oProblem-solving skills
DISCUSSION ACTIVITY
Have students review the lists of ECO duties and skills. Assume you were employed by a small
business or college. What advice would you give to ensure that the duties of an ECO were
integrated in management operations?
CHAPTER QUESTION 4: DESCRIBE THE FOURTEEN-STEPS FOR DEVELOPING
AND MANAGING AN INTERNAL REPORTING SYSTEM PROCESS.
The ECO’s primary duty is to manage the organization’s internal reporting system. Review the
process model in EXHIBIT 8.3 “Internal Reporting System Process,” which provides guidance
on how to accomplish this.
oSTEP ONE: Develop the ethics reporting policy in partnership with upper management to
establish their buy-in.
oSTEP TWO: Communicate the ethics reporting policy to all employees through multiple
media, such as the employee handbook, e-mail, the company intranet site, department
meetings, and training sessions.
oSTEP THREE: Emphasize the importance of reporting concerns about unethical and
illegal conduct. Management cannot act on what it does not know.
oSTEP FOUR: Assure people that any form of retaliation against an employee who raises
an ethical concern is prohibited.
oSTEP FIVE: If appropriate, the employee should first attempt to resolve the issue by
directly approaching the individual engaged in the questionable activity.
oSTEP SIX: If direct discussion or resolution is not possible, then the employee should
confidentially meet with the ECO to discuss the issue.
oSTEP SEVEN: If the employee prefers not to reveal his or her identity, then the employee
should anonymously submit the concern to the ECO through the organization’s intranet
reporting system or in a sealed box. Establish a means of communication if the issue
becomes a high-priority item needing additional information from the employee.
oSTEP EIGHT: Assure the employee that his or her identity will not be revealed without
consent.
oSTEP NINE: Interview the employee and discuss clarifying questions.
oSTEP TEN: Develop a plan for investigating the case in a manner that honors the
employee’s confidentiality or anonymity.
oSTEP ELEVEN: Conduct the investigation in a fair and confidential manner.
oSTEP TWELVE: If the investigation reveals that the employee’s allegations are accurate,
take prompt action to correct the wrongdoing.
oSTEP THIRTEEN: Inform the employee about the outcome of the investigation.
oSTEP FOURTEEN: Establish an appeals process for employees dissatisfied with the
outcome of the initial investigation. Provide an advocate, probably from the human
resources department, to assist an employee who wishes to appeal an outcome.
DISCUSSION ACTIVITY
Tell students that the Dean of the School of Business, College president, or boss has asked them
to create an internal ethics reporting system. How would they design the system? What features
would they implement? How would they roll out the plan?
ADDITIONAL QUESTION 1: DESCRIBE OTHER ETHICS REPORTING SYSTEM
MECHANISMS: OMBUDSPERSON, CHAPLAINS, AND ASSIST LINES.
OMBUDSPERSON
oAnother internal channel for communicating information about potential ethical and legal
violations is an organizational ombudsperson.
oThe ombudsman concept originated in government, and has spread to other types of
organizations, including corporations, hospitals, newspapers, universities, and nonprofits.
oAn ombudsman guarantees the employee anonymity, asks permission to contact key
people, develops a plan for gathering information without revealing the identity of the
complainant, investigates the claim outside the regular chain-of-command, reaches a
conclusion, and, if so concluded, advocates for implementing the appropriate change.
oBy providing employees with an institutional voice, the ombudsman serves as a deterrent
against managerial abuse of power and other unethical activities. The ombudsman is
granted access to all employees, including board members, when investigating a
complaint.
oAn ombudsman, similar to an accountant or lawyer, is held legally accountable to a
professional Code of Ethics. The International Ombudsman Association’s Code of Ethics
highlights four ethical principles and corresponding policies:
1. Independence. The ombudsman is independent in structure, function, and appearance
to the highest degree possible within the organization.
2. Neutrality and impartiality. The ombudsman remains unaligned and impartial, and
does not engage in any situation which could create a conflict of interest.
3. Confidentiality. The ombudsman holds all communications in strict confidence, and
does not disclose confidential communications unless given permission to do so. The
only exception to this privilege of confidentiality is when there is an imminent risk of
serious harm.
4. Informality. The ombudsman does not participate in any formal adjudicative or
administrative procedure related to concerns brought to his/her attention.
oReview BEST PRACTICES IN USE, which provides a list of issues reported to an
ombudsperson:
oA code of ethics violation
oTrading issues or violations
oLegal or compliance issues
oA situation that threatens employee safety
oUnfair treatment by a manager or co-worker
oUnfair pay as defined in the Fair Labor Standards Act
oUnfair treatment on the basis of sex, race, color, ethnic group, age, sexual
orientation, or other affiliation
CHAPLAINS
oSome businesses have contracted out with chaplain consulting organizations as a
mechanism for employees to confidentially share their personal and ethical concerns.
oChaplains are members of a religious clergy trained in providing spiritual advice.
oDating back to the 1940s, corporate chaplains originally provided, upon request, pastoral
care for employees and their families dealing with illnesses, death, addictions,
encouragement needs, or other personal issues, and were part of a company’s employee
benefits package.
oOver time, their list of services expanded to include helping employees manage ethical
dilemmas and interactions with other employees. Most corporate chaplains have
seminary degrees and are trained counselors.
oThe two most prominent providers of chaplains are Marketplace Chaplains and Corporate
Chaplains of America.
oThe chaplains are on-call twenty-four hours a day, seven days a week.
oWorkplace interactions between a chaplain and an employee are kept to a minimum.
oMost meetings are arranged for nonworking hours, unless in time of crisis.
oConversations with chaplains are confidential, although an employee can request the
chaplain to discuss a matter with corporate managers.
ASSIST LINES
oAssist lines, previously referred to as “ethics hotlines,” have long been popular with
organizations as a method of obtaining information about situations that may be unethical
or illegal.
oNearly all Fortune 500 companies provide toll-free assist lines for employees from all
over the world to share their concerns.
oSmall organizations can contract out to an assist-line managed by a third-party.
oScripted questions are delivered live by calling a particular phone number or through a
computerized system to gather the appropriate information.
oEmployees reporting to the assist line are ensured anonymity and privacy, and the
information provided is directed to the appropriate person within the employee’s
organization.
oAt Sears, whose assist line receives 16,000 to 18,000 calls a year from its 300,000
employees, only a very small percentage of the calls are about potential law violations.
oThe largest group of assist line callers consists of employees asking for assistance
to solve a human resources issue, such as how to respond to an unfavorable
performance evaluation or lack of work breaks.
oThe second largest group of assist line callers consists of employees asking for
ethics policy clarifications.
oConfidentiality and false accusations are two central issues addressed by effective assist
lines.
oReview EXHIBIT 8.4 “AICPA Audit Committee Assist Line Checklist,” which provides
a list of items the AICPA recommends for assessing the effectiveness of an audit
committee assist line.
o For colleges and universities, the EthicsPoint system highlights four categories of
wrongdoing. An “other” category is available for issues that do not fit any of these four
options.
1. Unethical financial abuse, such as fraud.
2. Unethical personal conduct, such as discrimination.
3. Unethical treatment of college property, such as theft.
4. Unethical use of information technology, such as data privacy abuse.
DISCUSSION ACTIVITY
Have students describe a situation when they observed someone at work behave unethically but
did not do anything about it. Would they have informed an “Ethics Assist Line” if one had been
available? Why?
