Blog: Business Ethics, Culture and Performance

The Ethics Resource Center, a Washington DC based ethics research organization, released its 2011 National Business Ethics Survey. The NBES is regarded as the premier survey of ethics issues in the American workplace. This year’s survey identified some interesting trends:

On the one hand, misconduct has reached an historic low and observers of wrongdoing are more willing to report than ever. But with this good news we also see some very ominous signs – ethics cultures are eroding and employees’ perceptions of their leaders’ ethics are slipping. Additionally, pressure from employers to compromise standards is at an all-time high and retaliation has reached an alarming rate.

There are two independent dynamics working at odds here: employees are willing to report misconduct, but that is necessarily due to the ethical climates in which they work. In fact the ethical climates are becoming more challenged:

U.S. employees reported an increase in pressure to compromise their company’s ethics standards or policies, or even break the law. Thirteen percent of employees said they felt pressure to break the rules. That is the highest level since 2000 – just before a wave of corporate scandals triggered a new emphasis on corporate ethics.

The ERC research has shown for over 10 years that there is a strong correlation between the health of the organization’s culture and the number of instances of observed misconduct.

Ethics is a component of culture. The NBES measured critical aspects of ethics culture, including: management’s trustworthiness, whether managers at all levels talk about ethics and model appropriate behavior, the extent to which employees value and support ethical conduct, accountability, and transparency.

The percentage of employees who say their business has a weak ethics culture increased to 42 percent in 2011, a seven percentage point surge and the highest level since 2000.

Of the factors that determine the health of the organization’s culture, there are two that stand out: senior executives and supervisors. Employees’ perceptions of both have declined in 2011.

Confidence in senior leadership fell to 62 percent in 2011, matching the historic low observed in 2000 and down six percentage points from 2009. Far fewer employees believe their direct supervisors act as ethical leaders: one-third of employees (34 percent) say their managers do not display ethical behavior, up from 24 percent in 2009 and the highest percentage ever.

In its recommendations the ERC suggests two areas of focus that have the most impact in creating an ethical culture:

• Invest in building a strong ethics and compliance program; and „
• Commit to ethical leadership and building an ethics-focused business culture.

The challenge for leaders is that many companies lump these two concepts together. However, they are very different factors which require very different interventions. Building a strong program will ensure that employees know what is expected of them. But without leadership deeply committing itself to an ethics-focused business culture, employees just won’t feel comfortable doing what they know they should do.

Two of the key recommendations by the ERC should be top of mind of policy makers as well as corporate leaders:

For policy makers:

Encourage the measurement of ethics cultures. The strength of cultures can and should be evaluated regularly. Public officials should set the expec- tation that companies regularly conduct assessments of their workplaces. Additionally, prosecutors who are considering alternative forms of enforcement against a corporation should insist on seeing data-based evidence that company defendants have taken steps to build a sound program and a strong ethics culture

For Ethics and Compliance Professionals:

„Focus on supervisors who are the critical actors that set expectations for their direct reports, conduct evaluations, and are most likely to receive initial reports of misconduct. Develop specialized supervisor training on how to support ethical conduct by employees, how to properly handle reports of misconduct, and strategies for reducing retaliation. 2011 NBES data show that employees’ confidence in supervisors’ ethics has declined dramatically.

„Help senior executives set a proper tone from the top. Work with corporate communications experts and speechwriters to craft messages and commu- nicate effectively with employees, assuring them that even as the company takes more risks during economic recovery, integrity remains a high priority. Encourage the establishment of performance metrics related to ethical leadership and reward business leaders for talking about the importance of ethics, modeling ethical conduct and holding employees accountable to the standards of the organization.

The ERC has laid out a clear roadmap, as well as the risks of not following it. Let’s see who takes the journey

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David Gebler is the President of Skout Group, an advisory firm helping global companies use their values to clear the roadblocks to performance.  Send your thoughts and feedback to dgebler@skoutgroup.com.