There are a number of other clues throughout the code that indicate it is more values-based. For example, the code is simply set out, and reiterates core values and guiding principles (the ‘Is it right? Is it fair? Is it legal?’ slogan, and the six First Principles) rather than emphasizing ‘legalese’ details imposed from above – BMO’s code of ethics takes a ‘we believe approach’ (for example, ‘we commit to conducting our relationships in a fair an open manner,’ and ‘each of us has a duty to protect the privacy and confidentiality of information’) rather than an enforced ‘Thou shalt not…’ mentality. It can be seen that ethics is taken seriously at BMO, with an introduction from the Chairman/Chief Executive Officer who states that ‘we seldom find more capable guides (in making ethical decisions) than our own good values and judgment,’ and through this communication, BMO shows that ethics is important not only at the frontline, but also in top-level management. By committing to the First Principles document, Tony Comper sets the bar high, and leads by example. As Stewart (1996) states, providing a role model encourages moral behavior in a company’s employees. Trust also plays an important role, as employees will be less tempted to act unethically when the company makes them responsible for their actions (ibid).
BMO places a high emphasis on trusting their employees to act responsibly when making decisions. Employees at BMO are viewed as social beings guided not only by material self-interest, but also values, ideas and peers. This suggests that BMO believes its employees are at the second (conventional) level of cognitive moral development according to Kohlberg (in Trevino and Nelson, 1995). According to Kohlberg’s theory, individuals go through stages where different influences affect how people decide what course of action is morally correct. At level one, individuals’ decisions are guided by the punishments expected as a result of a decision, however at level two, individuals are influenced more by the expectations of peers and society. BMO believes in its employees to be capable of making ethical decisions and trusts them to do the ‘right and fair and decent thing’ (First Principles). By not making a great issue about punishment in the code, BMO perpetuates this kind of thinking and instead tries to instill high expectations in its employees, so that they are guided by the expectations of their peers and society when it comes to ethical decision-making. This issue shows that BMO trusts their employees to ‘do the right thing’ and is another indicator of a values-based approach.
BMO not only takes a values-based approach to their code of ethics, but also takes a values-based philosophical approach to ethics. As defined in class, ethical values are ‘core beliefs which are inherently concerned with what is intrinsically good or right and the way one should act.’ These values translate into principles, and in BMO’s case, they have six principles that stem from their core values of doing what is right, fair and honest. One of these principles is dealing with conflicts of interest. Within the section of the code that deals with this principle, the Bank guides its employees on receiving gifts: ‘as a rule of thumb, a gift of more than nominal value is not acceptable.’ While this may seem a strict commandment, there are only a few instances in the code where these ‘thou shalt not…’ statements are made, and it stems out of the values-based approach to ethics. The Bank wants to uphold its values of honesty and integrity, and in turn has developed guiding principles and instructive statements.
Finally, BMO takes a top-down approach to implementing the code of ethics across the organization. By having a corporate compliance department that is responsible for many issues surrounding ethical decision-making, and management personally committing to upholding the standards outlined in the code, BMO successfully integrates ethics and management, through a variety of measures. For instance, the code was developed after an extensive consultative process with various stakeholders, leadership provides yearly reviews and updates on the code, there are punishments for failing to comply with the code – yet each employee is treated fairly and whistleblowers are protected, every employee has to sign a document each year stating they have read and understood the code, and ethics is integrated into organization-wide training programs. Through the implementation of the code and the organization-wide processes put in place to promote and uphold ethics within the organization, BMO is successful in having a values-based approach towards ethics that is integrated across all levels of management.
3.0 Training, Communication and Control
3.1 Training
At the Bank of Montreal, employees are not given specific ethics training. Instead, ethics is interwoven into other substantive business activity training. This does not mean that employees are merely handed the code of ethics and expected to read and internalize it – on the contrary employees discuss ethics within the context of general business during training sessions. A similar approach is taken towards senior managers in that ethics is not delivered in isolated training – it is entwined with other issues. While Paine (1994) suggests that an integrity-based approach towards ethics should integrate ethics into company systems, there should also be more distinct training and communicating regarding ethics. This is an area that BMO could improve upon, and is mentioned in the recommendations section. The case studies in the code of ethics have been developed by the Corporate Compliance Department based on the inquiries they have received over time from employees regarding conflicts of interest, confidentiality and so on, yet are not specifically discussed in training sessions. These hypothetical situations have been included in BMO’s code of ethics in order to make the booklet ‘as practical as possible’ and easy for employees to relate to. Again, this could be an area for improvement, as employees are expected to individually process and analyze these case studies – perhaps a more effective approach would be to provide a forum for the discussion of these case studies.
3.2 Communication
As discussed in class, communication about ethics and integrity must come straight from the top in order to engender an organizational culture of ethical behavior. The first section of the First Principles document contains a message from the Chairman and CEO, and this sets the scene for the entire organization. By informing employees that ethics is taken seriously by even top-level managers, a corporate culture of ethical behavior is promoted. Even in BMO’s mission statement, it is mentioned that integrity is a core value, and that the company’s competitive advantage is its people who abide by those core values. Thus, there is organization-wide communication that ethics is important at BMO. The catchphrase ‘Is it fair? Is it right? Is it legal?’ is also important in communicating to employees the approach taken by BMO with regard to ethics. By providing this guideline within the primary communication tool regarding ethics (that is, the First Principles document), employees understand how the company tackles ethical decision-making at a practical level. The code of ethics also has references to other company documents and policies which outline in greater detail expected levels of conduct and expand on particular issues and discuss issues that go beyond ethics – for example norms of service, legislative requirements and so on. In total, the effect of all this communication is that employees realize that ethics is a serious concern for BMO, and the commitment to ethical behavior starts at the top of the organization, and is expected from all employees.
3.3 Control
Organizational structure plays an important part in reinforcing the ethical behavior of employees (James, 2000). While the Bank of Montreal emphasizes the promotion of its employees’ good judgment, control plays an important part within the organization, and the creation of a specific department that deals with Corporate Compliance, and in particular ethics, again communicates to employees that ethics is given more than just lip service across the organization. Thus, BMO uses its organizational structure to have a great influence in developing a culture of ethical behavior within the firm. In terms of reporting ethical breaches and how they are dealt with, BMO has a strategy that ensures fairness and equity. When a breach is filed, two lines of reporting become active – one progresses up the chain of management, whilst another heads out to the Corporate Compliance Department. In this way, the compliance department can monitor the progression of the report up the hierarchy, and has wide ranging powers to reopen a file, encourage both sides of the issue to be heard, and act in the best interests of all parties to ensure that ethical breaches are dealt with in a fair yet confidential manner.
4.0 Evaluation of BMO’s Ethics Program
4.1 Values or compliance
As we have shown in our analysis of BMO’s code of ethics, and the discussion of the training, communication and control initiatives of the company, BMO’s focus with regards to ethics is on the promotion of values, in a spirit of trusting employees to make ethical decisions. This approach departs from the compliance-based stance taken by many other financial institutions which issue large volumes of ‘rules’ to address ethical behavior. By asking employees to consider such questions as ‘is it fair? Is it right? Is it legal?’ BMO puts the onus on employees to act ethically. Furthermore, the six ‘First Principles’ provide a guide to what is expected of employees when it comes to ethical conduct. The notion of trusting employees is a worthy approach, yet it is also risky, because as Trevino and Nelson point out, one can have idealistic personal values outside of the work environment, but may leave those values at the corporation’s door and pick them up on the way out. To diversify these risks, BMO must selectively recruit the most honest and truthful candidates, while building a strong corporate culture where upholding strong ethical standards is central to the company’s business, and ensuring that this message originates at the top levels of the company and works its way around the entire organization. As Paine (1994) suggests, unethical business practice typically involves the cooperation of others and reflects the values, attitudes and beliefs of an organization’s culture. By ensuring ethical employees are recruited, encouraging an ethical organizational culture, and implementing ethics from the top, BMO should be successful in minimizing unethical behavior within the firm.
It should be noted that although the values-based approach to ethics combines a concern for the law with an emphasis on managerial responsibility for ethical behavior, BMO must be careful that they educate their employees about legislative and regulatory requirements, as a values-based code of ethics tends to be light-on in terms of rules and regulations. By publicizing other documents and policies, and making employees aware of external rules and regulations, BMO can make sure that these requirements are met as a minimum, allowing the values-based code of ethics to deal with more common-sense issues and those that may not be covered by legislation.
4.2 Trends and Challenges:
Today at BMO, the profile of business conduct issues has risen tremendously as a result of stricter regulation. The impact of the financial scandals in the United States has led to many changes at BMO and in the banking industry as a whole. The creation of the Sarbanes-Oxley act in the US has generated a higher awareness of the importance of ethics and has had a profound effect on the procedures of Canadian companies trading on the U.S stock. One significant result of these changes are the higher standards of governance imposed on senior executives and directors. For example, senior executives and directors of BMO can no longer borrow money from the company and the CEO and CFO must now personally verify the accuracy and truthfulness of the company’s financial statements. The standard for ethics in the financial industry has risen, and it is not just limited to Canada – the standard of corporate governance has increased internationally and as a result of new legislation and regulation, has shifted towards becoming more compliance based. As a result, there is a feeling of closer scrutiny within the banking industry, with CEO’s, management and employees being heavily influenced into becoming better corporate citizens.
It remains obvious, however, that in our interview with Scott Kerr of BMO that due to internationalization (or should we say, Americanization), there is a general trend towards making codes of ethics more compliance-based. As the BMO Group has affiliates in the US, Honk Kong, West Indies and the UK it has been subject to the tighter rules and regulations imposed by regulators such as the SEC (Securities Exchange Commission) and the NASD (National Association of Securities Dealers). Clearly, as Mr. Kerr pointed out, the US has set a precedent for strictly following the banking rule book, which has and will continue to be the growing trend for the years to come. Although standards are converging across the world, there will always be a difference between American and Canadian approaches towards corporate behavior. As mentioned throughout the course and reconfirmed by Mr. Kerr, the codes of ethics for American companies tend to be ‘exhaustive statements of what proper behavior is’ and generally remain unread. In contrast, Canada has a broader based approach to ethics, but the underlying mechanism tends to be more values based which often eventuates in ethics codes being ‘broad-based guidelines of appropriate behavior’.
The greatest challenge for the BMO group is to ‘make ethics real’ for employees – being able to relate the practices of ethical conduct to everyday activities. Again, it comes down to creating a climate in which people can apply principles of good behavior and knowing that they are being trusted to ‘do the right thing.’ BMO wants to promote a values-based approach to ethics, however the banking industry mindset is today more fixed on compliance. Although it may seem like an admirable philosophy, the values-based approach is not easily accomplished and often faces obstacles. The key to success is a sustained effort in the development of an ethics program which means providing good training and communication to all employees whilst encouraging an organizational culture that view ethics as a fundamental imperative for the success of the organization.
Based on our analysis of BMO’s code of ethics and their training, communication and control initiatives, it seems that the company is doing an excellent job of promoting a values-based approach to ethics across the entire organization. However, there will always be room for improvement. In the next section, we will discuss some recommendations as to how BMO might go about improving their program.
5.0 Recommendations
After our analysis of the code of ethics at BMO, a discussion of the training, communication and control initiatives in place, and an evaluation of the ethics program, we have developed four recommendations that we believe would help to strengthen the ethics program at BMO.
5.1 Formal and specific ethics training
Whilst BMO incorporates the ideas contained in the First Principles document with general business training, and highlights ethical issues and how to deal with them in the training of more ‘substantive’ activities, it is recommended that a more formal approach to ethics training be taken at the bank. Scott Kerr mentions that employees don’t notice that they face ethical issues every day, and formal training in ethics will contribute to the awakening of employees in this area. Such programs could involve an ethics consultant offering sessions, the completion of an ethics ‘workbook’ or something as simple as identifying ethical issues within the workforce and providing a forum for discussion. However, ethics should not be taught as a set of commandments issued by senior managers – there should be a more subtle approach whereby ethics is emphasized in such a way to engender employee commitment to ethical behavior. Whatever path is chosen, there should be a more specific focus on ethics at BMO in order to increase awareness in employees of the importance of ethics in everyday business operations and how significant a role ethics plays in even simple decisions. Whilst BMO is a large company, and the costs of implementing a specific ethics training package may be high, it should still be considered an important objective as employees will absorb more through structured training than through merely reading the code of ethics. Training would ideally lead to the internalization of BMO’s high ethical standards, enabling employees to become better equipped to make more ethical decisions.
5.2 Despite industry shift to compliance, remain values-based
As discussed, codes of ethics across the banking industry in many countries, through the process of internationalization (or Americanization) are converging to a more compliance-based standard. However as discussed in class, a values-based code of ethics empowers employees to make more ethical decisions as the company places its trust in them, rather than laying down formulaic commandments as to what is and is not allowed. BMO should be commended for breaking out of the box in which many financial institutions reside and instituting a more values-based code where employees are trusted to make good judgments and empowered to act responsibly. However, BMO cannot afford to rest on its laurels. Due to the highly regulated nature of the financial industry, there are many rules and regulations that the company’s employees, executives, and directors must adhere to, and whilst a values-based code respects employees’ judgments, it is important to ensure the rules and regulations imposed by external parties are being followed. Thus, our recommendation is to continue to emphasize values and trust employees to make the best decisions within the company, yet make sure rules and regulations are being followed by ensuring proper training is given, conducting spot checks (in an ethical manner of course), and providing proper feedback.
5.3 Introduce employees to the corporate compliance office
In many companies, new employees are given ethics codes to briefly peruse just before they are asked to sign on the dotted line of their employment contract, and no mention of ethics is made again. This communicates to the employee that the company isn’t overly concerned with ethics, and encourages the employee to think ethics are taken with a grain of salt. This approach will only lead to trouble. While BMO does incorporate ethics into training programs for new employees, and our first recommendation is to offer more specific training, it should also be emphasized that employees need to know how seriously the company takes ethics, and what lines of communication are available when employees face an ethical dilemma. Obviously, BMO takes ethics seriously, as it has a corporate compliance department that reports semi-annually as to the incidence of ethical breaches and other conduct issues. When a new employee starts work at BMO, they should be introduced to the compliance department, its senior managers, and what they do. Employees should also be given advice as to the procedures that are taken if an ethical breach is identified, and what avenues are available to report suspected breaches. By showing new employees how seriously BMO takes ethics, these values will become impressed on employees who will tend to work more closely in line with the company’s ethical standards as a result.
5.4 Exchange of information
The ethics program at BMO appears to be well-implemented and successful in creating a culture of ethical behavior, however we recommend that the corporate spirit towards ethics could be increased by increasing the exchange of information. The case studies in the First Principles document are the focus for this recommendation. As BMO does not carry out formal training on the code of ethics, there is very little room for discussion of the case studies amongst employees. By incorporating an online chat facility within the existing technological training platform, BMO’s employees could air their ideas about the case studies, and perhaps by becoming more involved with these ‘hypothetical’ situations, they will realize the impact of ethics in everyday decision making. This idea would also contribute to the corporate culture of ethical behavior that BMO are trying to engender amongst their employees. The chat facility could be anonymous if need be, and it could also be monitored by the corporate compliance office if the company thought that this was appropriate.
6.0 Conclusion
Throughout this presentation, the ethics program at the Bank of Montreal has been discussed. By examining the code of ethics, identifying the training, communication and control initiatives of the bank, evaluating the ethics program, and presenting recommendations for the improvement of the program, we have observed that the values-based approach to ethics at BMO is successful, but could be improved.
The success of the program is based on good communication – it is evident from the first page of the code of ethics that the higher levels of management see ethics as an integral factor in the company’s success, with the Chairman and CEO setting the standard. The ‘is it fair? Is it right? Is it legal?’ catchphrase is successful in encouraging employees to think before they act, whilst the six First Principles show employees the standards that are expected of them. Furthermore, by implementing ethics into standard training, and providing open yet fair control systems, and encouraging a corporate culture of sound ethical behavior, employees’ are trusted to make sound judgments when it comes to making ethical decisions in order to minimize the harm to stakeholders. However, it must be kept in mind that there are still external regulations that must be abided with, and that employees must also be educated about these within the framework of a values-based approach to ethics.
Although the values-based approach towards ethics at BMO is successful, there is room for improvement. By offering more specific ethics training, resisting the trend away from a values-based strategy towards compliance, introducing employees to the corporate compliance office, and encouraging the exchange of information, BMO can increase the awareness of ethical issues across the organization, and further encourage employees to exemplify and uphold the core standard of integrity within the organization.
Bibliography
Readings and Articles
Bird, F. and Gandz, J. (1991) “Ethically Responsible Organizations,” Chapter 7 in Good Management: Business Ethics in Action, Prentice-Hall, Scarborough, pp 105 – 121.
James, Harvey S Jnr. (2000) “Reinforcing Ethical Decision Making Through Organizational Structure,” Journal of Business Ethics, volume 28, pp 43 – 58.
Paine, Lynn Sharp. (1994) “Managing for Organizational Integrity,” Harvard Business Review, March-April 1994, pp 106 – 107.
Stewart, David. (1996) “Why Bad Things Are Done By Good People,” Chapter 8 in Business Ethics, McGraw-Hill, New York, pp 199 – 213.
Trevino, Linda K. and Katherine A. Nelson. (1995) “Deciding What’s Right: A Psychological Approach,” Chapter 5 in Managing Business Ethics: Straight Talk About How To Do It Right, John Wiley & Sons Inc, New York, pp. 87 – 107.
Other Items
BMO Financial Group Website,
“First Principles – Working With Integrity,” Code of Ethics for the Bank of Montreal Group of Companies.
Personal Interview with Scott Kerr, Senior Manager of Compliance in the Corporate Compliance Department at BMO Financial Group on Wednesday, October 9. Conducted by Peter Jones and Nelson Champagne.
Various class discussions
Appendix A: The Bank of Montreal Financial Group
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