How can a sprawling business like GE maintain its integrity, ethical standards and corporate reputation? With a workforce of 316,000 spread across the world and operating businesses in such areas as industrial products and services, infrastructure, commercial finance, consumer finance, healthcare and media, it's a difficult and challenging job.

Ben W. Heineman, Jr, who served as GE's senior vice president and general counsel from 1987 to 2003, explains how GE goes about it in his piece Avoiding Integrity Land Mines published in the latest edition of the Harvard Business Review.

The standards are high. Managers are told that their job is to maintain lawful and ethical behavior and that there's no excuse for cutting corners. They are warned: "One strike and you're out." That also applies also to managers who have no personal knowledge of any ethical lapses. They have to make it their business to know.

To avoid the problem of running into trouble with different financial and legal rules of different countries, Heineman explains how GE develops its own standards. They are also required to regularly update standards to avoid ugly surprises. That means teams of experts scouring media stories, proposed laws and regulations, specialized reporting services, academic papers, filed cases, and reported legal decisions to track early-warning signs and global trends in finance and law.

"For example, in reviewing the Enron, WorldCom, and Parmalat scandals, GE's financial services arm recognized the emergence of an "aiding and abetting" theory, which was leading to huge liabilities (in the billions of dollars) in the financial services industry. Prosecutors and regulators were charging banks as "secondary wrongdoers," alleging that they knowingly provided material assistance to customers who were engaged in tax or accounting fraud ("the primary wrongdoers"). As a result, GE's financial services businesses have a significant effort under way to educate employees about the application of the aiding and abetting theory, to define red flags, and to institute new routines to prevent questionable actions."

The standards are built into the business processes. For example, plant managers and manufacturing leaders are made formally responsible for environmental, health and safety issues in their divisions. They have to report on them and this is put into a master matrix which compares each plant with all the others and the cross-business comparisons are sent to the CEO.

GE also has an ombudsman system operating right around the globe in 31 languages where employees can lodge concerns, anonymously if they wish. Retaliation is regarded as an integrity violation and there are consequences when that happens.

But it cuts the other way too. Employees are required to report serious problems and if they don't, they can be fired. There have been 1500 reports lodged annually over the last few years.

This report really offers valuable insights and advice on how businesses should go about keeping their operations honest.

You can read the entire piece here