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Companies take closer look at ethical standards

April 11, 2005
Gazette staff writer

Recent headlines of corruption and mismanagement have forced many companies and state agencies to review government standards and employee behavior.

New ethical standards are emerging with corporations re-evaluating how they conduct business and the Legislature considering the effects of ethics on its own governmental affairs. Each is taking a closer look at conduct and compliance procedures.

"Sarbanes-Oxley legislation has caused a lot of change in the corporate world and given those scandals, that was appropriate," said Assemblyman Ron Canestrari, D-Cohoes. Sarbanes-Oxley deals with governance and compliance issues affecting business conduct and transactions.

The 21st century is breeding an era of zero tolerance as regulators, human resource departments and compliance officers try to avoid public embarrassments and public relations disasters.

In the WorldCom case, Arthur Anderson, its former auditor, is the sole defendant in a class action securities suit brought by New York State Comptroller Alan G. Hevesi in a Manhattan district court to recover millions in damages. Hevesi is trustee of the New York State Common Retirement Fund that lost more than $300 million when it bought WorldCom bonds. The retirement fund handles pensions for state employees that include fire and police departments.

"The Legislature is dealing with [its] government affairs and standards," said Sen. George H. Winner, Jr., R-Elmira, and chair of the ethics committee. Winner said current discussions are focused on lobbying procurement issues involving gifts, continuing jurisdiction over government employees, legislation for employees past their retirement and public authority disclosure. He hopes to have a package of bills in the next session addressing public authorities.

"[Having] dealt with school district audits, we are making sure those are financed properly especially after dealing with Long Island. We have a lot of accountability and [try to] legislate ethics," Winner added.

Professor Paul Miesing, who teaches management at the SUNY Albany business school said, "We have scandals every decade, then legislation, and then companies revamp their training programs and have a mandatory code of ethics, then it goes away."

With the recent indictment of ex-chief executive Bernard J. Ebbers of WorldCom still fresh in the public's mind, Securities Exchange Commission regulators and state agencies are taking a closer look at other corporate transactions.

In a published report two weeks ago, two Bank of America bankers were fired when they called a company preparing to merge with another and asked to participate in the deal. A few years ago, that behavior would have been acceptable as to what an investment banker does to get an edge. After the collapse of Enron and WorldCom, however, today's regulatory rules are more stringent and heightened. The two bankers were eventually fired.

Citigroup has also been plagued by a series of ethical lapses and as a result the stock price has suffered. As a response, the company will conduct an online ethical training program that will be mandatory for 300,000 employees, according to a published report.

"[It's] hard to change these ways. People who are in business, want to grow and do well, and putting limits is anathema, they think their primary responsibility is to stockholders," added Miesing.

Canestrari said, "We have changed and the Legislature has adopted measures to reflect the higher standards for the greater good."

"The Senate has under construction a procurement lobbying bill that would place into law restrictions and disclosures on how people can involve themselves in state agencies for leases and provide for [more] transparency in the process," Winner said.

Executive Editor, Michael Connor of Business Ethics Magazine, said there is renewed interest in ethical debates.

"There has been an explosion in interest for programs aimed at corporate governance and corporate responsibility. A lot of companies are stepping up their own efforts, there has been a dramatic upswing," Connor said.

According to Connor, in the Tyco International scandal its CEO Denis Kozloski generously used corporate funds for personal expenditures but somehow the company survived. Tyco's new compliance vice president took the bold step of firing 290 of its top 300 executives in order to implement a new culture of corporate ethics.

"Some situations call for a dramatic house cleaning and now companies have to do it and want to [do it]," Connor added.

When Miesing was asked how he feels about compliance standards, he said, "Companies always feel it is a burden to making things more transparent, it puts more pressure on board members, but had they taken the initiative [earlier] then the government now would not have to do it."

"Business Ethics" magazine publishes a list of 100 best corporate citizens of America with the 2005 list due out next month. Ironically, last year's list included Fannie Mae at the top spot followed by Procter & Gamble Company and Intel Corp. Connor said the Fannie Mae scandal had to do with a good company suffering a complex accounting issue that was thrust into the media spotlight. Connor added there was no overt corruption, people view this scandal differently, the company took measures instead of letting it spiral out of control.

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