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Interest in Corporate Ethics Is Still Weak

July 08, 2002|LISA GIRION | TIMES STAFF WRITER

Ed Petry is to corporate America what the Maytag repairman is to washing machines. In this season of spectacular corporate breakdowns, the executive director of the Ethics Officer Assn. wishes he were busier.

Petry helped found the organization 10 years ago in the wake of the last round of corporate greed and misdeeds--the insider trading and defense contracting scandals. His group remains the nation's only nonprofit, membership organization through which in-house corporate cops from all industries can help one another keep their companies toeing an ethical line.

The recent spate of corporate chicanery has given the association a bit of a boost. About 100 companies have joined in the six months since "Enron" became a crossword puzzle clue for scandal. The newcomers bring the membership to 805--still a small fraction of the more than 10,000 publicly traded U.S. companies and far fewer than what Petry would describe as a success.

"I wish more were calling," Petry said from his office in suburban Boston. "My phone's not ringing off the hook."

That is one sign of what corporate watchdogs and ethics experts say is a reluctance within many executive suites to embrace the changes they believe are necessary to promote business integrity and restore the tarnished image of corporate America.

Corporate directors and executives don't have to wait for new laws and regulations to implement many of the proposed reforms, such as rotating auditing firms, disclosing insider stock sales in advance and changing executive pay schemes. But there is little evidence that more than a few companies are making changes.

"Corporate America has been trying to slough this off and not make fundamental changes," said USC business professor Ian Mitroff.

Although a few companies have said they plan to expand financial disclosures or add watchdog directors to boards, corporate governance experts said they don't expect many firms to make serious changes for months, in part because many are poring over financial reports trying to figure out if they've got a problem of their own.

"Audit committees are looking deeper," said Jeffrey Christian, founder of Christian & Timbers, an international executive recruiting firm.

Chief executives "are under intense scrutiny, not only from the [Securities and Exchange Commission] and from shareholders, but from the boards and even employees," Christian said. "Employees are becoming whistle-blowers. They are feeling it's more safe [now]. They've noticed things and put up with things that are not quite kosher, and they are going around the CEO to the board and having private, confidential meetings."

Companies that have effective ethics programs, in which employees freely ask questions of and report problems to ethics officers, are less likely to uncover problems, said Petry of the Ethics Officer Assn. "If Enron, Arthur Andersen and Adelphia were members [of the organization], things might have been different."

When the New York Stock Exchange was debating reforms to impose on member companies, it solicited Petry's advice. The NYSE included five of Petry's seven recommendations in rules proposed recently, including a mandate that all member companies have a code of ethics and vigorously enforce it by creating an internal reporting system that employees can use without fear of retribution.

Petry acknowledged that even the NYSE's recommendations, which will be voted on by the NYSE board Aug. 1, may not be enough to force companies that don't want to implement effective ethics programs. As it stands, he said, a majority of Fortune 500 companies have sub-par programs or none at all.

"Some companies will see [the NYSE proposals] as a wake-up call," Petry said. "But there still will be many who take the easy way out. But if a company is hellbent on doing the minimum ... if they still don't get it, then this isn't going to convince them."

Because of such attitudes, corporate watchdogs and governance experts said the success of the NYSE rules and a raft of other new and proposed reforms is anything but guaranteed.

"This is either going to be a time for a revitalization of the notion that ethics is not only good virtue, but it is essential for good business, or we will go further down the road of moral compromise where if it works, it's right," said Michael Josephson, founder of the Marina del Rey-based Josephson Institute of Ethics.

President Bush, who is scheduled to make a speech on corporate governance this week, is reportedly considering calling for mandatory jail time for corporate executives who falsify records. Josephson said that would be a step in the right direction.

"Businesspeople make cost-benefit calculations," he said. "Whenever you can up the cost sufficiently, you really do reduce the likelihood of bad behavior. You don't make them better people, but you do make them behave better. We have to make an example and deter them. If we don't raise the stakes, things will just get worse."

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