* Developing a corporate culture where ethical behavior is expected

* Having corporate officers be vigilant in their policing of corporate ethics

* Enforcing corporate guidelines at all levels

* Training new employees and regularly reminding current employees of the need, to be ethical in all of their corporate actions

* Hiring good people whom you believe will follow ethical standards

Although all of these actions are desirable and even necessary to develop ethical corporate standards, there is a larger consideration that seems to override all others. Perhaps Willie Sutton, the bank robber, summarized it best when he was asked why he robbed banks. "Because that is where the money is."

If we could take a lesson from Willie Sutton's statement, it is that people go where the money is. Or, to put it another way; corporate ethical behavior will follow the revenue model.

Since an example can be far stronger than philosophical rhetoric, let's look at a couple of recent developments in public accounting and stock brokering.

The press coverage of Arthur Andersen has been extensive and it is not worth rehashing all that has occurred. But I would like to bring up one interesting news bite that I had read. It was reported that Andersen was asked by clients to provide consulting services to help them solve some of the financial inconsistencies Andersen discovered on the auditing side. One of the clients, who has since decided to use a different auditor, was paying Andersen three times more in financial consulting fees than they were in auditing fees. Providing financial consulting to an audit customer is common industry practice but it does lend itself to horse trading. Clearly, the time it takes to consult with the customer and solve the discovered financial concerns takes time. In that interim, what auditing opinion should the accounting firm be presenting and stating on the annual report?

A similar conflict involves stock brokerage firms. Stock analysts are expected to give unbiased evaluations of corporations they cover. However, it would be a major embarrassment if a company brought public by the brokerage firm were given a negative evaluation by one of their own analysts. It has also been reported-in that analysts who publish negative analysis have more difficulty accessing corporate officers. Further, financial analysts' bonuses are tied to the amount of investment banking business generated in their area. What would be your guess on the probability of a brokerage firm getting investment management business from a corporation if their analyst slammed the same corporation in a report?

The day-to-day actual ethics of a corporation are the sum total of the ethics of all their employees. To ensure high ethical standards involves not only ensuring that the corporate revenue model does not encourage the wrong behavior, but also that individual employee compensation plans also encourage doing the right thing.

When you go in many employees' offices you will see a picture of their family prominently displayed. It is noteworthy to remember that the prominent position is a picture of the family, not of the company's founders, mission statement or commitment to ethical standards. What does this tell you? In my opinion, it tells me that above all else, your employee will first and foremost, do what is right for his or her family. When he or she is deciding on what daily actions they should do on their job, they will first look at their family's picture and decide what is best for them. What decision will help them pay for their son's braces, their daughter's college education, their other daughter's future wedding and their own retirement?

Although most employees wish to always do the right and ethical thing, they are also heavily swayed by their own and their family's financial needs. If there is a conflict between ethics and their compensation plan, it is difficult for some people to put the right thing above their own family needs, especially when many ethical issues are gray areas. When examining individual compensation plans, it is important to see if there could be any conflicts of interests between doing what is right and doing what pays for the employee's son's braces.

Perhaps this opinion of individual employee behavior may appear a little extreme, but let's look at a couple of examples.

If we return to stock brokerage firms, an individual broker's responsibility is to help clients reach their financial goals. A tried-and-true investment strategy is the "buy-andhold" method of purchasing highquality companies and holding the stock for the long term. This philosophi; however, does not generate ongoing trading commissions, which are the major revenue source for many brokers. Although, as in most cases, brokers ignore what generates the most money for them and do not encourage churning, the financial press does report quite often of cases where there has been excessive stock trading by a broker in order to generate healthy commissions. Even the most ethical and most highly regarded Wall Street firms have not been immune from having such brokers in their ranks. This has encouraged some firms to initiate a different compensation plan where there is a management fee based on total funds invested, instead of compensation based only on commissions.

A similar professional is the financial planner, who often has as his or her only compensation the commission from selling a particular mutual fund or other financial instrument. This does make it difficult for the planner to recommend a fund or product on which he or she does not get paid. It also encourages him or her to recommend products that are providing additional personal financial incentives. Can someone ever go on too many all-expenses-paid trips to Hawaii? The client, on the other hand, is thinking the advice is unbiased and based only on what is in the client's best interest. Again, most financial planners exhibit the highest levels of ethical behavior, but this compensation system does present a built-in conflict of interests.

I have discussed the corporate revenue and employee compensation potential for undermining a company's code of ethics. I'd like to introduce a third potential culprit - thirdparty suppliers.

Why such a concern? Suppliers' ethics eventually flow through with your name on it. There have been examples where celebrities have had clothes with their name on the label produced in intolerable working conditions. When the conditions have become known, the celebrity has been dumbfounded and extremely embarrassed. A public relations nightmare has followed.

For corporations, the same type of problem could occur regarding not only labor conditions, but also environmental issues as well as countless other areas.

How do you ensure that your suppliers are ethical? Well, the first step is doing due diligence on their business practices as part of the selection process. The due diligence process should look for any ethical inconsistencies between your company's code of ethics and your suppliers' business practices.

And, just like with your employees, it is important to look at the financial terms of your agreement. The financial terms should be structured so that they encourage the appropriate ethical, as well as financial, behavior. For example, although there are many circumstances where cost-plus contracts make sense, the nature of the agreement means that the higher the costs, the higher the supplier's profit. On the other hand, fixed-price contracts do encourage the vendor to look for the lowest quality solutions within the contractually accepted range.

So, what is the answer? Well, there is no Holy Grail solution and each thirdparty arrangement is different. Perhaps the only recommendation one could make is that the company should keep ethics in mind in the negotiation as much as price, quality and their customers' ultimate satisfaction. And remember, the goal of all suppliers is not only to profit from the current contract, but also to provide such superior products and services that your company will provide regular business to them.

It is important to provide the right infrastructure for your company's code of ethics. This infrastructure should include a written code of behavior, executive commitment, employee training and ethics enforcement. However, without the corporation's revenue model and individual employee compensation plans being congruent with the corporate code of ethics, you may be creating the crack that could cause the dam to burst.

Lastly; the, same type of discipline should be used in evaluating primary suppliers since any ethical breaches by them could haunt your company's image as well.

-- Zalewski, Steve