During the earlier years of the Great Recession, ethical investigations and disciplinary proceedings involving ethical charges were on the decline. One major contributing factor was the high unemployment rate. Employees were simply afraid to take risks and lose their jobs. Had ethical misconduct all but disappeared as an ongoing issue? It was, of course, naive to think that employees had turned the corner when it came to acting ethically.

If we fast-forward several years later, a difficult business environment prevails. Making a deal is not as easy as it was before. Purchasing decisions are being delayed or foregone.

The pressure has intensified as to expectations about employee deliverables. Employees may perceive that the boss only cares about results and not how an employee accomplishes them. This leads to the inevitable: The ends do justify the means. If the means require unethical or illegal conduct, they are valid if they result in success.

The daily headlines only foster this “anything goes” mentality. International banks are engaging in money laundering and interest rate-rigging. The penalty: fines that pale in comparison to the bank’s profits. Bank officials do not face jail time. When large banks and their officials can engage in illegal and unethical behavior and yet suffer minimal consequences, employees can be emboldened to act similarly albeit on a smaller scale.

Employees also may feel they have been undervalued and underpaid during the past several years. While business profits have been increasing over the past year or two, this has not translated into similar increases in employee salaries. Whenever that happens, employees rationalize “self-help.” Entitlement rules the day.

Employees then begin to engage in small-scale, “below the radar” conduct. For example, employees will submit fraudulent expense reports. If caught early enough, false submissions can easily be attributed to innocent errors. However, if not caught early enough, this type of conduct will escalate.

Any claim of ethical misconduct usually ends up in the legal department as a result of a potential employee discharge. Therefore, it is incumbent upon the legal department to be proactive, whether cooperating with the ethics officer or acting on its own.

Overcome the perception that ethics matter notwithstanding the headlines. The legal department members must set the “gold standard” for the employees and act in a manner that is beyond reproach. This is about action—doing the right thing in all circumstances—and not just speech.

Encourage the business to engage in an aggressive internal audit program. Internal auditors who are trained to engage in forensic research that can expose white-collar crime should be part of the business team. They should be chartered to act independently with dottedline reporting to the ethics officer and the general counsel.

Intensify the ethics training programs. Go beyond the training itself and engage in smaller group discussions in which employees are given the opportunity to voice their concerns about ethical issues and suggest potential courses of action. Anonymous suggestions can then be submitted to the management team.

Insist that ethics violations are enforced strictly and consistently. There cannot be multiple standards for dealing with those who violate ethics policies. It should not matter what title the violator currently holds in the organization or whether the violator has contributed to the company’s past successes.

Getting out in front of ethical issues will demonstrate the added value that the legal department brings to the company. The business team will be able to focus on legitimate business matters rather than ethical issues that are distracting and disruptive.


Thomas Lalla is SVP and GC of Pernod Ricard USA.