After six years of writing for this column, I have had few topics evoke more reader response than my last article titled, "Entrepreneurs need to set ethics policy" (March 12).

Those responding were passionate about the topic. One reader, a company founder, told of an ethical dilemma he faced during a company staff meeting at which 120 employees were present. Company sales had been slow during the year. The CEO had announced that the company was close to a deal with a customer that produced pornographic materials. The reader recalled: "He (the CEO) wanted to see if anyone had a problem with that (contract). He asked for a show of hands. Some cheered. Others muttered, but no one raised their hands in opposition. Mine went up, and I said, 'We can do the deal, but I won't be working here anymore if we do.' "

The contract was not signed, and the issue of whether to take the contract was never brought up again around the company. I have empathy for this reader. A company staff meeting is not the place to develop a corporate ethics position.

Many readers requested additional ideas on developing an ethical corporate culture. Gregory Dess, in the book "Strategic Management," suggests that a company needs to make a distinction between a compliance-based approach and an integrity-based approach to developing ethical corporate conduct.

He defines the two as follows: "Compliance-based approaches are externally motivated - that is, based on the fear of punishment for doing something unlawful. On the other hand, integrity-based approaches are driven by a personal and organizational commitment to ethical behavior."

Leadership for the compliance-based approach is lawyer-driven, while management (with the aid of lawyers, human resource professionals and others) drives companies with an integrity-based approach. The objective of compliance is to prevent criminal misconduct, as contrasted with the integrity-based objective of encouraging responsible conduct.

Dess suggests that four elements need to be in place before an organization can become ethical:

• Role models - Ethical behavior must begin in the executive offices. Few people in a company can have a greater impact on ethics than the CEO. Enron's problems came from the most senior people who were responsible for creating an atmosphere of greed and corruption.
• Corporate credos and codes of conduct - Ethical companies provide guidelines for decision-making and clear statements of beliefs that serve as the foundation for behaving ethically. As an example, most of us would recognize the statement, "The few, the proud, the Marines."
• Reward and evaluation systems - Systems and methods for rewarding employees for certain behaviors need to be aligned with a company's position on ethical behavior and decision-making. For example, the idea of "spend it or lose it" is part of the annual budget process with some companies and government organizations. Employees are encouraged to spend the allocated budget in a given accounting period, knowing that if the money is not spent it will be lost or returned to the parent organization. This system rewards employees for waste and sometimes corruption.
• Policies and procedures - Policies and procedures provide a uniform definition of how employees should behave when interfacing with customers, suppliers and others within the firm. My last article addressed how to set a policy. Recent legislation in the form of the Sarbanes-Oxley Act addresses what public companies must do to behave properly. Privately held companies should not assume a "bye" on these issues.

The best course of action for any company to take is to be proactive in establishing and promoting a high ethical standard among employees. Ethics should be discussed in staff meetings, when hiring new employees, during employee reviews and in the board room.