SEC Update: Failure of "Tone at the Top" and General Counsel Conflicts

As if things couldn't get worse at the SEC, check out today's Washington Post link:

http://www.washingtonpost.com/wp-dyn/content/article/2011/03/09/AR2011030901792.html?tid=nn_twitter

 

The SEC Chair amazingly relied on the former General Counsel himself and an "Agency Ethics Officer" (who is also an attorney in the General Counsel's office) to "sort out" the potential conflicts of interest involving the GC's inheritance of Madoff accounts from his mother's estate.  This could be a Harvard Business Review case study in exactly how an organization should NOT approach its corporate ethics responsibilities.  Tone at the top? None.  Separation of duties between the General Counsel and the Ethics Officer?  None.  Nurturing of an ethical culture at the SEC? Not quite.  This is definitely going to get ugly.  

 

Its time for other governmental regulatory agencies at the federal, state, and local levels to look themselves in the mirror, apply the horrendous case study of the SEC's failure to maintain the public trust, and conduct a self-assessment of their own ethics and integrity posture.

Ethics vs. Compliance: Conflicts Can Undermine An Organization's Credibility

See this article about a major conflict of interest at the SEC that undermines its credibility in the Madoff matter:
http://www.washingtonpost.com/wp-dyn/content/article/2011/03/04/AR2011030406203.html

     In the case described above, the SEC official in question had inherited funds from Madoff accounts after the death of his mother.  He must have known this could, at a minimum, "appear" to taint his objectivity and credibility (and that of the SEC) if he were to participate in the investigation of the Madoff Ponzi scheme.  In fact, he went as far as to ask the SEC General Counsel for a legal opinion.  Unfortunately, he received bad advice, telling the official that there was no conflict of interest and that he could participate.

     Herein lies the difference between organizational compliance and values-based ethics. A strict interpretation of law yielded an opinion that the SEC official who cashed-in Madoff accounts inherited from his mother, and was the potential target of a lawsuit from other investors, could legally participate in the subsequent Madoff investigation. But ethically speaking, was this the right decision for the SEC? Legal or not, doesn't it undermine the credibility of an already embattled SEC with the Congress, the taxpayers, and thousands of investors who believe the SEC failed to do its due diligence in the first place?

     A world-class Ethics and Compliance Program goes beyond the minimal legal requirements and addresses both actual conflicts and the appearance of conflicts of interest, always assessing the organization's vulnerability to outside criticism that can undermine its integrity, credibility, and profitability. What kind of program does your organization have?

Public Trust in U.S. Business Tumbles

See the article posted on the CIG site (Ethics News/Articles) : Public Trust in U.S. Business Tumbles
http://www.reuters.com/article/2011/01/25/us-corporate-trust-idUSTRE70O1JO20110125

Public trust in business began to erode during the accounting scandals of the 1990s and early 2000s, but dropped like a brick during the financial crisis.  The 2010 survey shows it is getting even worse, down to 46 percent.  What does this mean for business?  U.S. businesses are under the gun by shareholders, boards, and employees to tighten their belts and meet their financial metrics in order to survive.  However, there are often unintended ethical consequences of "making the numbers or else" as the sole performance metric in a company.  Without a strong ethical culture driven by committed, involved leadership at all levels, good ethical decision making can wind up taking a back seat. 

For government contractors, a lack of emphasis on ethics and integrity could be catastrophic. Recent changes to the Federal Acquisition Regulations (FAR) require agencies to assess a company's record of integrity and business ethics (i.e. their "ethical posture") as part of the source selection process.  In an era of tightening budgets (at the federal, state and local levels), and shrill calls by taxpayers for increased accountability over public funds, a company's ethical posture is going to become an increasingly important factor in whether or not they get a contract.

Core Integrity Group can help companies demonstrate their due diligence and commitment to ethics and integrity by conducting an independent assessment of their Ethics and Compliance programs; making recommendations for improvement; and designing a strategy for highlighting their ethics posture to their important government customers.

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