Ethics With Respect to the Ethics Audit,

Ethics

With respect to the ethics audit, the company shouldn't change anything other than to institute it. Where we left off, the ethics audit was external, and this is critical, because many of the current ethical issues arise because of the relationships within the company and the way that the different interests within the company are represented in the current ethics program. So the ethics audit has to be external.

The other issue with the ethics audit is that too many people within the company did not seem to want the external audit to take place. This is a major problem, so the delays in the timing of the external audit should be eliminated. The external audit needs to take place as soon as possible, which is the major change that should occur. Let the external auditors determine how and what to investigate -- their ability to ask questions that Jerry or anybody else has not yet thought of is their key asset with respect to uncovering problems at Soumey.

Jerry has a duty to at least investigate some of the issues. He is not in a position to report things to OSHA, for example, based on hearsay. But where there are incidents where people get hurt and these are not reported, Jerry needs to confirm that such incidents occurred and then report them. As a member of the Board, however, Jerry has a responsibility to the shareholders to further investigate some of the other ethical issues he has uncovered. It is to people like him that any reporting would go, so in essence Jerry is in the "buck stops here" position, and must perform his duty to the shareholders.

Where there are specific labor violations that are against specific laws, Jerry might have the ability to report these to the governing authorities, but again rumors should be confirmed -- going to authorities in a small town without any hard evidence is going to damage both the company and his career, so he has to be smart about this.

3. Jerry is not responsible for the problems at Soumey. The people who are committing the violations are responsible - to say that Jerry is responsible is like saying the police are responsible when a crime is committed. Jerry's role is to help with compliance, and build better compliance systems, but even in this he is not alone. Jerry probably could have done a better job at building the ethics committee, but again this is a shared responsibility for all of the board members. The reality is that all of the people on the Board at Soumey have done a relatively poor job. The culture at the company is not all that conducive to ethical behavior, and the fact that the current and former CEOs are on the Board highlights the difficulty in getting the company to change its culture.