1997 KPMG BUSINESS ETHICS SURVEY REPORT

KPMG

In November 1996, KPMG sent a business ethics survey questionnaire to the chief executives of Canada's top 1,000 public and private companies based on three 1996 sources: the Financial Post 500, the Report on Business 1,000, and the Canadian Business 500.

A wide cross-section of Canadian business is represented in the responses: Participants included organizations with annual revenues ranging from under $50 million dollars to $5 billion dollars or greater. They represented the following industries: Communications, Construction/Engineering, Energy/Petroleum, Financial Institutions, Health Care, Hospitality and Tourism, Insurance, Manufacturing, Natural Resources, Real Estate, Retail and Wholesale, Transportation, Utilities, Other/No Response.

The survey was intended to develop an up-to-date picture of current ethics-related practices and issues in Canada.The questionnaire contained two sections, Areas of Ethical Risk and Managing for Ethical Practice.

Areas of Ethical Risk

This first section listed 39 issues based on published academic research into Canadian codes of ethics. Listed below are the seven general categories and the number of issues under each category.

1. Conflict of Interest 4 issues
2. External Relationships 8 issues
3. Handling Company Assets 7 issues
4. Customer Relations 6 issues
5. Relations with Suppliers 3 issues
6. Relations with Competitors 3 issues
7. Employee and Workplace Issues 8 issues

It should be noted that the issues included in the survey questionnaire were not intended to cover all possible topics that might come under the heading of "Business Ethics". They were drawn almost entirely from a content analysis of published corporate codes of ethics, practice, and conduct and therefore reflect the inherent limitations and biases of these sources.

For each issue, participants were asked to indicate the level of its importance as a source risk for the participant's business.

Managing for Ethical Practice

This section invited participants to report on their organization's experience with eight management initiatives associated with the business ethics process listed below.

Key Findings

• Managing for Ethical Practice is a matter of high interest for senior executives. Chief Executive Officers provided over half of the 251 responses to this survey.
• A separate policy on conflict of interest, along with specific guidelines, was reported by 58% of all respondents, but 3 of the 4 survey issues included in this category are ranked among the lowest in importance as a source of risk.
• Looking at average ratings for the seven general categories of issues, higher importance as a source of risk appears to be attributed to areas closest to home, i.e., Employee and Workplace Issues and Company Assets. The lowest average Importance Index was given to the External Relationships category.
• Looking at average ratings for the individual issues the "integrity of books and records, etc." ranks as the top issue overall. 71% of respondents rated this issue as "Very Important". The next highest rated issue (Worker health and safety), by way of comparison, was rated as "Very Important" by 63% of respondents.
• The industry groups represented in the survey responses appear to demonstrate different levels of sensitivity to risk arising from ethics-related issues. These groups also tended to have slightly different sets of issues at the top of their "most important" list.
• Of the 251 companies responding to the survey, 83% told us that they have a published mission statement. Of respondents with published mission statements, just over 80% believed that "the average employee [is] likely to be aware of it". A lower proportion of those with mission statements, 73%, indicated that the mission statement was often referred to in policies and other statements.
• A published code of ethics, practice, or conduct was somewhat less common. Only 66% of the respondents reported having such a code. Of these, 79% said that their code is better described as "Guiding Principles" while 32% said that "Rules and Regulations" was a better label. All but 4% of respondents with published ethics codes indicated that the codes were widely distributed internally. External distribution was reported by less than 30% of respondents.
• Among respondents to the survey, more than 90% of companies with over $1 billion in revenues reported a published code of ethics. By contrast less than half of companies below $100 million in revenues reported a published code.
• Of 251 companies responding, 66% reported having a code of ethics, practice, or conduct, but only 21% (53 corporations) claimed any kind of training in connection with their ethics program.
• Just over 40% of participants in the survey indicated that they had a senior level manager whose role specifically includes the implementation, monitoring, or assurance of the ethics program. Of the 102 companies reporting a senior manager with responsibility for the ethics program, 16 reported that the person with this responsibility had the title "Compliance Officer", and 3 chose "Ethics Officer" as the title for this senior manger. "Human Resources Manager" (22 responses) carried the responsibility more often than any other position.
• Of 251 responses, 76 indicated that they had a position with responsibility for enabling "upstream communication" and equitable resolution of ethics or compliance problems. Of these, 14 reported that this role is a full-time assignment. In companies that reported this type of "Ombuds-office" role, almost two-thirds established the position three or more years ago.
• Seventy-eight percent of respondents said that there was no formal policy to protect employees who report ethics violations or non-compliance with the law or with company policies. Of the 54 companies indicating that they had such a policy, over half said that the policy was supported by a confidential hot-line or the like.
• A separate policy on conflict of interest, along with specific guidelines, was reported by 58% of all respondents. Of these, three-quarters require a compliance sign-off and almost half have reviewed or updated the policy within the last year.
• Over 60% of respondents reported that they have never undertaken a comprehensive review of their ethics-related policies and performance. Over half of the companies that have undertaken such a review say that it was completed in the last year.