It is not an adequate ethical standard to aspire to get through the day without being indicted."

Richard Breeden, former Chairman, S.E.C.

WHAT IS THE FUNCTION OF AN ETHICS OFFICER (EO)? An EO stands at the intersection between auditing, internal control and management's legal responsibilities, and is the guardian of the company's  code of conduct. The EO acts independently.  He/she supplies the top management with the necessary information for the corporate leadership to act appropriately in instilling and maintaining the ethics culture the top management wants.

Your EO is the key person in your installation of an ethics culture. This means installing the ethics culture in employees.  This means installing the ethics culture in management personnel.   Once the culture is installed, the EO does  the preventive maintenance and constant improvement and monitoring of the system.

Your EO must take the initiative to check that people are following the company's code of ethics, to discuss applicable areas with your attorney , and provide you with tools you need. Furthermore, the EO must make sure that the staff is well informed of the code of ethics and the professional rules, internal directives, and legal standards that apply to that person's job description.

Why have an EO?  The multiplication of regulations and regulatory authorities, with which companies are now having to deal, motivates companies into having an EO.  The increasingly difficult legal environment places companies in a situation fraught with the risk of bad publicity, heavy fines, and maybe even criminal sanctions.   This mass of laws is motivation for having an Ethics Officer.  No one knows all the law, and a solid ethics culture is a main method in generally keeping away from doing things the law prohibits.

The plain fact of the matter is that without a solid ethics culture, all the checklists of laws are not going to get the best legal compliance possible.  Plus, the studies indicate that going beyond a penalty atmosphere to a social culture of wanting to comply is what drives successful legal compliance.  That is where ethics again comes in.

Complying with government rules and regulations requires a business to have an ethics program for a business.  As soon as the business reaches critical size, a specific individual need to be charged with the responsibility of evaluating what needs to be done, setting up a system to see that it is done, and operating and monitoring the system to see that it is done. That is your EO.

Besides being a good business idea, many governmental regulatory bodies or government contracts require the business to have an ethics program with a corporate person of "high management position"  overseeing the ethics program.

If your CEO has to certify compliance with what are now the de facto minimum standards for corporate compliance and ethics programs, your CEO must be able to point to his/her reliance on a high level person with substantial authority who has operational control and responsibility for both a legal compliance program and also an ethics program. 

The de facto legal standard is you have to have a designated Ethics Officer and a designated Legal Compliance Officer.  For example, look at both the United States Sentencing Commission "Guidelines for Organizations" (Guidelines) and also the Office of Inspector General [(OIG) at DHHS]'s Compliance Program Guidance documents (Guidance Documents). Those guidelines identify essential elements of an effective corporate compliance program. With respect to control and oversight of the program, the Guidelines practically mandate an EO in their requirements that: 

• "Specific individual(s) within the organization shall be delegated day-to-day operational responsibility for the compliance and ethics program. [He/she/they]... shall report periodically to high-level personnel"

See the Federal Sentencing Guidelines.  And see the Delaware Supreme Court case where Caremark paid $250 million to settle fraud claims because the court thought it was a per se breach of fiduciary duty by the board and officers not to have a compliance program with someone designated to enforce compliance.

And last but not least, you need an EO because he/she is the logical ethics consultant to turn to when top management has to go into "Crisis Mode".  You need to establish an ethics consultant before you have a crisis. The question is not "if" you will have a corporate crisis.  The question is "when"  you will have a company crisis. Do you have a "crisis team"?  If you do, you should have a designated ethics consultant available, on a prearranged basis, to your crisis management team. to repeat: an EO is the logical prearranged ethics consultant to turn to when top management has to go into "Crisis Mode".