A Baseline for Ethical Reporting Models

Organizations looking to implement a way to report unethical conduct can choose from a wide range of Ethical Reporting Models. Reasons for the variety of models can be argued that organizations, in general, do not share the same functional business models. Some of the organizational issues that can affect the Ethical Reporting Model an organization will choose are (a) the differences in operating funds, (b) the number of employees/stakeholders, (c) different laws the organization is governed by, and (d) the initiative to want change. Ultimately, organizations are left to choose a model that works well for them. So, what does an organization look for when choosing a model? To answer this question, I will analyze several different ethical reporting models to find commonalities that establish the necessary baseline of any model an organization may choose.

Ethical Reporting Models Analyzed

The first ERM analyzed is being used by the Global Fund to Fight AIDS, Tuberculosis and Malaria. The Global Fund appointed Willem A. Landman as the Independent Ethics Advisor to help give advice to the Ethics Committee on a wide range of ethical issues. The Global Fund’s Ethics Committee requested Landman to lend his expertise on implementing a whistling-blowing program to help complement the ethics and conflict of interest policies (The Global Fund, 2005).The Global Fund’s ERM is based off the guidebook, First to know: Robust internal reporting programs, published in 2004 by Trace International Inc, in collaboration with ISIS Asset Management and the Prince of Wales International business Leaders Forum. In 2005, Landman, as CEO of Ethics Institute of South Africa, obtained copyrights to produce its own edition of the guidebook, with due recognition (Landman, 2005). The Global Fund’s ERM is described as a, “legal and ethical misconduct prevention and detection strategy,” by Landman and addresses the five components of the U.S. Federal Sentencing guidelines for Organizations’ best practices, the UK’s Public Interest Disclosure Act, the U.S. Sarbanes-Oxley Act, and South Africa’s Protected Disclosures Act (Landman, 2005). This robust Ethical Reporting Model contains eleven key best practices.

The next ERM is published by Grant Thornton LLP, one of the six global audit, tax and advisory organizations, as part of their Corporate Governor Series. Grant Thornton developed a process called the Model Accounting Complaint-Handling Process (MACH Process). The MACH Process was created to be meaningful and flexible for any organization to use (Grant Thornton LLP, 2009). The MACH Process expresses the need to understand all stakeholders and their needs within the organization. The MACH Process is a customizable six step process that breaks down the processes for creating complaint handling procedures. This model also expresses a need for the MACH Process to be monitored using metrics to measure performance.

The third ERM analyzed was published by Foley & Lardner, LLP (F&L), a national law firm that provides a full range of corporate legal services. The guidebook published by F&L is titled, Implementing an Effective Corporate Compliance and Whistle-Blower Program. The F&L program starts with the organization’s Code of Ethics as the base of for the ERM. Then the program highlights four key elements for effective implementation. These key elements are education, fostering communications, evaluating compliance, and enforcement. The F&L program also ensures confidentiality and details the role of the company boards (Brown, Wilson, & Svendson, 2004).

The last ERM analyzed was introduced by Dr. Muel Kaptein, a senior Consultant at KPMG Ethics & Integrity Consulting, in the Journal of Business Ethics titled, Guidelines for the Development of an Ethics Safety Net. There are three Ethical Reporting Models described by Dr. Kaptein, of them, the Ethical Helpdesk Model was analyzed. The Kaptein Model revolves around the use of a centralized Ethical Helpdesk that is responsible for receiving all types of violations, adding violations into the organization’s reporting system, referring violations to the appropriate officers, and then following-up on violations to ensure all procedures are carried out properly. The Kaptein Model also uses steps for determining an Ethical Code of Conduct using a set of key principles and critical factors (Kaptein, 2002).

Commonalities of the Ethical Reporting Models

Upon reviewing each Ethical Reporting Model, a recurring theme started to appear. This recurring theme has eight distinct commonalities that can be broken down into two separate functionality groups (see Table I for details). The first functionality group consists of “Tone at the Top,” Code of Conduct, Reporter Protection, and Routing & Screening. This group determines the scope of the ERM by allowing an organization the ability to be as aggressive and flexible as they need. To understand this first functionality group better I will provide some examples.

Table I
Group	Commonalities	Global Fund	MACH	F&L	Helpdesk
	Tone at the Top	X	X	X	X
	Code of Conduct	X	X	X	X
	Reporter Protection	X	X	X	X
	Routing & Screening	X	X	X	X
	Investigation	X	X	X	X
	Resolve	X	X	X	X
	Monitor & Report	X	X	X	X
	Training	X	X	X	X

The involvement of top level management is the first commonality explored in the first group and all four ERMs expressed the need for high level commitment. Willem A. Landman’s Global Fund Model states, “Programs will fail if management does not provide support, both through frequent and high level public statements and through the commitment of staff and resources(Landman, 2005).” The F&L model extends this notion by indicating that the “tone at the top” exhibited by corporate management drives the program and for organizations to be effective they must have an ethics/conduct code (Brown, Wilson, & Svendson, 2004). The organization’s code of conduct allows for flexibility by tailoring the code of conduct to include applicable laws or by going beyond compliance and instilling a higher level of responsibility. Although, reporter protection is another key commonality, not all Ethical Reporting Models agreed in how to provide this protection. The Ethics Helpdesk Model is flexible and allows for the organization to use either anonymous reporting or identification (Kaptein, 2002). The MACH Process, on the other hand, states the need for confidentiality and anonymous submissions that are required by the Sarbanes – Oxley Act (Grant Thornton LLP, 2009). The last commonality within this functionality group is routing and screening. This step can consist of written internal controls and procedures designed to handle violations of the code of conduct. The core of each ERM features processes that identify different ways organizations can address handling violations of the code of conduct. The first functionality group can be considered the roadmap for the second functionality group.

The second functionality group consists of Investigating, Resolving, Monitoring & Reporting, and Training. This group allows the organization to reduce and improve their unethical behavior. The first commonality of the second group is the investigation process. Although, not all ERMs specifically stated the investigation process in detail, those that didn’t, implied that investigation is necessary by applying remedial action to violations of the code of conduct. The MACH Process states, “The investigation should consist of all necessary procedures and actions to provide for the discovery, location and procurement of sufficient facts to reach accurate conclusions (Grant Thornton LLP, 2009).” The next commonality is resolve. If organizations don’t take remedial action of reported violations, it will threaten to stop the flow of information (Landman, 2005). Information gathered throughout the ERM process will need to be logged, thus allowing the ability to monitor and report against it. The Foley Model expresses that monitoring and reporting has taken on greater urgency under SOX 404 and this urgency requires management to attest to the effectiveness of the internal controls (Brown, Wilson, & Svendson, 2004). The last commonality in this functionality group is training. Training can be seen as training employees how to report and what to look for, training management how to handle violations, and training on how to improve the overall ERM system.

Summary

Organization looking to implement a way to report unethical conduct or implementing a whistle-blowing program to deter fraud can choose from a wide range of Ethical Reporting Models. I would encourage any organization in this situation to choose a model that, at a minimum, incorporates the two functionality groups. The two functionality groups work with each other to form a flexible ERM that can be used as a baseline when choosing an Ethics Reporting Model.

References

Brown, S. A., Wilson, D. O., & Svendson, D. M. (2004, May 19). Implementing an Effective Corporate Compliance and Whistle-Blower Program. Retrieved May 17, 2010, from Foley.com:http://www.foley.com/files/tbl_s31Publications/FileUpload137/2240/Whistleblower.pdf

Grant Thornton LLP. (2009). Establishing an effective whistleblower complaint-handling process. Retrieved May 17, 2010, from GT.com:http://www.gt.com/staticfiles//GTCom/files/services/Forensic%20accounting%20and%20investigative%20services/Establishing%20an%20effective%20whistleblower%20complaint-handing%20process.pdf

Kaptein, M. (2002). Guidelines for the Development of an Ethics Safety Net . Journal of Business Ethics , 217-234.

Landman, W. A. (2005, October 23). Whistle-blowing program best practice - some policy considerations for the Global Fund. Retrieved May 17, 2010, from TheGlobalFund.org:http://www.theglobalfund.org/documents/board/12/GFB-12-13-EC_Report_Whistleblowing.pdf

The Global Fund. (2005, September 28-30). Eleventh ANNUAL REPORT OF THE ETHICS COMMITTEE. Retrieved May 17, 2010, from TheGlobalFund.org:http://www.theglobalfund.org/documents/board/11/gfb1111.pdf

By: Joseph Dustin