PALM DESERT, Calif. - Dov Seidman, chairman and CEO of the Los Angeles-based corporate governance and ethics consulting company LRN, calls the recent resignation of Boeing CEO Harry Stonecipher nothing short of remarkable.

"No one can point to a law, rule or policy that was violated," Seidman said of the case, where the 68-year-old Stonecipher admitted to having an affair with a colleague after incriminating office e-mails were discovered earlier this month.

"He violated a standard," Seidman explained during a panel discussion here on the ethical obligations of fund lawyers and compliance professionals at the Investment Company Institute's annual Mutual Funds and Investment Management Conference. "We are seeing a shift from rules to standards in all walks of life."

That includes, perhaps most notably, the mutual fund industry, which has taken remarkable steps of its own in the wake of the market-timing and late-trading scandal. In addition to federally mandated changes, such as greater independent oversight for fund company boards and the creation of the chief compliance officer position, the industry and regulators are working toward a simpler, more easily navigated fund prospectus and clearer disclosure of the fees investors pay brokerage firms.

But, the panelists said, it could be another decade before ethical behavior is an embedded, everyday practice within the industry.

"The bad news is that this isn't a six-month program; we've signed up for 10 years," said Seidman, who advocates a systematic effort to foster an ethical corporate culture company-wide.

Seidman, whose firm advises Fortune 500 companies like Proctor & Gamble and Johnson & Johnson, said a fundamental cultural shift must precede any widespread movement toward a more ethical and compliant industry. Certainly, he offered, the issue of corporate ethics has bled into mainstream American thought. In a hyper-connected world, where Internet information exchanges like Weblogs have become popular pastimes, Americans are suddenly discovering and reacting to cracks in the various pillars they've relied upon for years. Football coaches, for example, who lie on their resumes are fired. Baseball players who enhance their play with steroids are called before Congress. And journalists who fabricate and plagiarize news reports are promptly fired, right along with their editors.

Noting that there is no "one-size-fits-all" approach to ethics and compliance throughout the workforce, Seidman advised the mutual fund industry to take a cue from the manufacturing sector, which used to just "throw away the bad parts that came down the assembly line." Now, leveraging the Six Sigma standard developed first by electronics giant Motorola, manufacturers identify factors critical to quality during the design phase. So, for instance, in much the same way that chemical maker Dupont begins every meeting with a discussion on safety, fund executives and their managers could do the same with ethics, he said.

Hal Liebes, chief compliance officer at Amvescap, warned that such a process is an exercise in rote learning.

"You have to bore yourself by repeating things over and over again," said Liebes, whose responsibility extends to AIM Investments and Atlantic Trust.

And, Liebes noted, it's always prudent to be mindful that "perception in the moment becomes reality."

"These days, if you're huge and you pick up a baseball bat, it's assumed that you're on steroids," he said. "If you're in the fund industry, it's assumed that you've lost your moral compass."

At Prudential Financial, company leaders escalated its attention to corporate ethics by first defining a set core values, or "how we want to be perceived," said Oliver Quinn, vice president and enterprise business ethics officer at the investment and insurance firm.

For guidance, Quinn provides ethics-related tools like "what-if" scenarios that are published in company newsletters and decision-making models on the firm's intranet. Quinn delivers additional ethics-related tools to middle managers so that every time something is presented to employees it comes with an ethical element.

And it comes across a number of channels, Quinn said.

For example, Prudential determined that new hires often disregard the code of ethics contained in human resources packages. Although they still must attest to following an ethics standard, Prudential has modularized the code so employees can access it at different times of their employment and at varying degrees of depth.

Quinn admits, however, that ethical behavior is not easy and whistleblowing comes at a cost.

"Reporting takes sacrifice. You could lose your job, your reputation, your standing among your peers," he said.

As such, Prudential has taken a number of steps to ensure confidentiality, including a toll-free help line without caller identification.

"I'm less interested in who you are than what you know," Quinn said.

But where is the root of unethical behavior, asked Meyer Eisenberg, deputy general counsel, office of general counsel, Securities and Exchange Commission.

While Seidman cited a recent Stanford Business School study indicating that 90% of its graduates would take up to a 14% pay cut to work at a corporation that places a premium on ethical behavior; Eisenberg rattled off a number of headlines from a recent Harvard Business School newsletter that made no mention of ethics or compliance. To the contrary, the focus was on "defeating the competition," he said, noting how cheating is rampant in business school because "the pressure is so great."

Therefore, Eisenberg said, on the same day that former WorldCom CEO Bernard Ebbers was convicted of accounting fraud, the onus falls on lawyers and other compliance professionals to guide executive decisions based on the assumption that their client is the general public, not the corporation for which they are employed.

"Lawyers," he said, "are the gatekeepers."

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