NEW YORK:Most major U.S. companies have an ethics officer, but as investorssurvey the wreckage of a deepening financial crisis that has exposedbehavior ranging from risky to downright illegal, one might ask, "Whatwere they doing?"

From Bernard Madoff's alleged $50 billion Ponzi scheme, to thesubprime mortgage crisis, to lavish spending on the chief executive'soffice at Merrill Lynch, the past year has seen a crisis of confidencein business that cost investors $6.9 trillion in U.S. stock marketvalue last year.

"The rising market covered a lot of sins, and a falling marketexposes one's nakedness," said Steve Priest, president of EthicalLeadership Group, a consulting firm that has worked with 50 of thebiggest U.S. companies and firms in 40 other countries. "Investorsdon't trust the companies they're investing in. They don't trust thefinancial statements, they don't trust the audits, they don't trust thebond rating agencies."

Lax lending standards left banks with too many souring loans andinsufficient capital, contributing to the collapse of long-establishedWall Street names like Bear Stearns and Lehman Brothers and prompting a$700 billion U.S. bank bailout. Millions of ordinary Americans haveseen their retirement savings hammered and hundreds of thousands havelost jobs.

All this should inspire companies to embrace the need for soundethical practices, but experts in business ethics say that not allcompanies received the message.

"I don't think seeing dead bodies in the street always wakes peopleup," said Roy Snell, chief executive of the Society of CorporateCompliance and Ethics, which has 7,200 individual members who arecompliance officers at companies including small businesses andMcDonald's. "I've watched this for 13 years. There are always peoplerationalizing it, saying 'Our people wouldn't do that.'"

Kerry Francis, head of corporate investigations at DeloitteFinancial Advisory Services, this month co-wrote a survey whosefindings showed that 63 percent of executives expected accounting fraudto increase during the next two years because of the recession.

"I do believe that fraud is always going to happen," Francis said."The human mind has this ability to rationalize away bad acts. It's asad commentary on the human being. That's why there have to be controlsput in place."

Alex Brigham, executive director of the Ethisphere Institute, saidmany companies paid lip-service to corporate ethics and compliance,maintaining such departments but sidelining them in major decisions.

Brigham said that at the crippled insurance giant AmericanInternational Group, which has been rescued with $150 billion of U.S.taxpayer funds, Joseph Cassano, as head of AIG Financial Products,excluded the company's compliance officer from important meetings.

Brigham started the Business Ethics Leadership Alliance, invitingcorporations to commit themselves to a set of ethical standards andpledge to follow "the letter and spirit" of the law to curb illegalbehavior.

Companies that have signed up, and will submit themselves toEthisphere's audit, include PepsiCo, Wal-Mart Stores, Dell, GeneralElectric and United Airlines, whose parent is UAL.

Ethisphere has ranked major companies on their ethical standards forthe past three years, and Brigham said there was a marked correlationbetween ones that had a strong commitment to ethics and transparency,and strong financial results.

In the financial sector, he said three victims of the bankingdistress - Wachovia, Washington Mutual and Countrywide - received lowscores, while relatively strong survivors, HSBC and Standard Chartered,scored highly on transparency and ethics.

But such ethics rankings and prizes are not always reliable. Justthree months before problems were exposed at Satyam Computer Services,an Indian outsourcing firm whose chairman admitted to a $1 billionfraud this month, it received an award from a group of Indian directorsfor excellence in corporate governance.

Priest, whose firm's parent company, Global Compliance, operateswhistle-blower hot lines for about 2,500 companies, said there had beena big spike in calls toward the end of 2008.

Many companies did little more than "check the boxes" on ethics, hesaid, abiding by the letter of the law by publishing codes of conduct,without really changing the culture of a company or tackling widerethical issues. He said there was a wide gulf between how businessdefines ethics and compliance and how the public sees them.

Executive compensation, sourcing, labor, unions, producing qualityproducts, deceptive marketing, pricing, packaging - "these are allfundamental concerns of consumers and the public but very rarelyaddressed by ethics and compliance types," he said.

Priest said that people were always quick to blame greed in everyscandal but that "greed is part of the fuel of the capitalist system.We're never going to see a time when individuals or businesses allbehave ethically and responsibly."

Bill Lytton was hired in 2002 as general council at TycoInternational to clean up after Dennis Kozlowski, as chief executive,and Mark Swartz, as the finance chief, defrauded the company of morethan $150 million. Lytton said the key to avoiding ethical disaster wasgood leadership by example.

He recalled that when he worked previously for General Electric, itschief executive, Jack Welch, publicly praised a manager who had failedto reach his sales targets because he refused to pay a bribe to win acontract to build engines for a foreign airline.

"Sometimes you want to be able to cite a good failure, somebody whodidn't make the numbers, but for all the right reasons," Lytton said.