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Ethical cultures tend to be self-perpetuating because the people within the organization will hold themselves and their co-workers accountable. When you look at a company like Enron, large parts of that company were devoid of ethical standards, so it was much easier for the frauds to occur. Enron also highlights the need for ethical leadership in order to develop a highly-ethical culture. The organization looks to its leaders for ethical guidance and will likely adopt as part of the culture the ethical standards of the leaders. This is the point of the provisions in SOX holding the CEO and CFO accountable for accounting fraud and raises a lot of red flags about companies that would go private to dodge this requirement.
Lastly, there needs to be a compliance mechanism as well. Culture, training, selection and leadership are great; they create the conditions for a positive, ethical culture within the company. But as the Arabs say, "Trust Allah but tie up your camel." What they mean is that even though nothing bad is likely going to happen, you have to take precautions anyway. That's where compliance comes into play. A strong internal auditing department, independent from other functions, serves as the guard against accounting fraud. But there are other institutions that also help. Specific whistleblower protections will reduce the costs associated with reporting fraud and other unethical behavior. There should also be a hotline not just for whistleblowing, but to provide guidance on ethical issues. Remember that an ethical dilemma usually involves mutually exclusive choices where there is no single good choice -- some negative outcome will be brought about and it is therefore a challenge to resolve such issues. Guidance is often required, but because ethical issues sometimes have very high sensitivity, it helps if this guidance comes anonymously and from an independent third party well-trained in the ethical culture of the company. By implementing these different controls - internal auditing, whistleblower protections, ethical training, and a hotline to discussion of ethical issues -- the company...
But it all starts with leadership, recruiting and building an ethical culture from the ground up. This shouldn't be hard -- most people are ethical by their nature -- but that does not mean that the company will be ethical inherently, unless it works at it.
References
Friedman, M. (1970). The social responsibility of business is to increase its profits. New York Times Magazine. Retrieved April 25, 2014 from http://www.colorado.edu/studentgroups/libertarians/issues/friedman-soc-resp-business.html
IBE. (2010). Ethical due diligence in recruitment. Institute of Business Ethics. Retrieved April 25, 2014 from https://www.ibe.org.uk/userassets/briefings/ibe_briefing_17_ethical_due_diligence_in_recruitment.pdf
McConnell, T. (2010).. Moral dilemmas. Stanford Encyclopedia of Philosophy. Retrieved April 25, 2014 from http://plato.stanford.edu/entries/moral-dilemmas/
Morgenstern, M. & Nealis, P. (2004). Going private: A reasoned response to Sarbanes-Oxley? SEC.gov Retrieved April 25, 2014 from https://www.sec.gov/info/smallbus/pnealis.pdf
Murray, L. (2014). Sarbanes-Oxley code of conduct requirements. Houston Chronicle Retrieved April 25, 2014 from http://smallbusiness.chron.com/sarbanes-oxley-code-conduct-requirements-4060.html
O'Connor, T. (2010). Free will. Stanford Encyclopedia of Philosophy. Retrieved April 25, 2014 from http://plato.stanford.edu/entries/freewill/
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