Companies Add Ethics Training; Will It Work?
By Richard B. Schmitt

11/04/2002
The Wall Street Journal
B1
(Copyright (c) 2002, Dow Jones & Company, Inc.)

PHILIP MORRIS Cos., once dubbed "America's most reviled company," has set out to elevate its moral principles.

David Greenberg, a senior vice president, is rewriting the company's dense, legalistic code of conduct, readying ethics training for thousands of employees and trying to make it easier for whistleblowers to report fraud.

But can a company that makes a product that kills thousands every year be truly ethical? "Making cigarettes has always been and will continue to be debated as an ethical issue," Mr. Greenberg says, but the public-relations and court battles the company has fought in recent years "certainly gives us perspective about what happens if and when you lose the public's trust."

In the wake of Enron and other corporate scandals, many companies are hiring ethics cops. By emphasizing fair play and a respect for law they aim to develop a corporate culture that rewards ethical behavior.

There are practical benefits for employers to take such steps. Under federal guidelines, companies convicted of crimes are eligible for reduced sentences if they have previously set up programs to prevent and detect fraud. The new Sarbanes-Oxley Act also requires companies to adopt ethics programs.

The Ethics Officer Association, a group of "compliance officers" from major companies, says it gained more than 100 members recently, including a representative of the new management at WorldCom Inc.

"Companies that were paying lip service more and more are saying, `My God, the world has changed. We do have to take this seriously,'" says Winthrop Swenson, a former deputy general counsel of the U.S. Sentencing Commission, who helped draft the initial federal guidelines that went into effect in 1991.

Today, Mr. Swenson helps run a for-profit outfit called Integrity Interactive Corp., which provides Web-based ethics training. He is also a partner in a law firm that gives various companies, including Philip Morris, advice on complying with the guidelines he helped write, "so they don't become the next Enron," he says.

The competition for the ethics dollar is heated. LRN, The Legal Knowledge Co., of Los Angeles, offers 150 interactive courses on everything from money laundering to conflicts of interest. It says it has contracts to provide Web-based training to about four million employees world-wide, including seven-figure deals with Ford Motor Co. and Johnson & Johnson, among others.

Ethics programs aren't foolproof. Enron Corp. had an ethics code and a conflicts-of-interest policy, which its board waived to clear the way for creation of off-balance-sheet partnerships that spelled its doom. Tyco International Ltd.'s chief compliance officer, former general counsel Mark Belnick, was indicted, along with two other company executives, on charges of falsifying business records to hide more than $14 million in loans he obtained from the company. Mr. Belnick has strongly denied any misconduct.

Arthur Andersen LLP sold ethics-consulting services to corporations for years. The firm never practiced what it preached, says Barbara Ley Toffler, formerly the partner in charge of the Andersen ethics practice, who quit three years ago. Andersen was convicted this past summer of obstructing justice by destroying documents about its audits of Enron.

"Ethical failures usually are not the result of people not knowing the law or regulations. It is because they felt a variety of other pressures," says Ms. Toffler, a professor at Columbia University's business school. Under the approach that many companies are taking, she says, "you don't have to understand what is going on in an organization or correct anything -- just meet these legal guidelines."

Edward Petry, executive director of the ethics-officer group, concedes there isn't much even the most astute ethics officer can do when the board is asleep and senior management is corrupt. Indeed, he says, most large companies have created some kind of internal ethics and compliance program in the past decade, but generally they haven't worked very well, often because compliance officers had additional duties or lacked clout.

Mr. Greenberg has been on the Philip Morris ethics beat since August 2001. A lawyer and a 14-year company veteran, he is a member of the management committee and has an office near Chairman and Chief Executive Officer Louis Camilleri. The Enron debacle, which surfaced soon after Philip Morris launched its initiative, was fortuitous because it "provided a huge focus and kind of impetus to stick to this," he says.

Mr. Greenberg recently has been drafting a "plain English" conduct code that is being vetted with employees around the world in focus groups. He expects to hire a contractor to provide customized desktop ethics training to nearly all 170,000 employees, including top executives. He also set up a new "Compliance and Integrity Help-line," and has retained a former federal prosecutor to help evaluate the 8 to 10 calls they get a week.