We’re getting better ethics grades!

How would you rate your company’s ethical culture?

Here’s the good news… the corporate fraud and ethical scandals of the last ten plus years have shown a spotlight on the importance of ethics.

According to the 2019 Ethics and Compliance Program Effectiveness Report, based on a survey of 480 ethics, compliance and legal professionals at large companies (conducted by LRN Corporation), more companies are leveraging ethics and compliance as a strategy, embedding it throughout the organization.

“‘Operationalizing’ ethics and compliance programs instead of relying on checklists is increasingly necessary in order for companies to thrive today. In this time of radical evolution of workplace norms and social media transparency, this is a critical shift if organizations are to meet the expectation of government watchdogs while mitigating the growing risks,” says LRN Advisor Susan Divers.

It’s gratifying to see that overall, the survey which compared and contrasted ethics and compliance found more positive practices from past years surveys:

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  Most – 55% – of E&C and legal professionals said ethical behavior is now a major factor in their companies’ employee performance reviews, whereas only 35% of professionals said that in the 2018 survey.

• Nearly a third of professionals – 31% – say ethical behavior plays a strong role in bonus allocation at their companies, compared with only 11% and 10% in the two previous years’ surveys.
• The majority of professionals – 67% – say their companies modify or abandon business initiatives on the basis of ethical concerns.

There also appears to be an increased focus on values, with 87% of the respondents saying their companies have increasingly focused on emphasizing values over rules a 43% increase over the 2018 study.

In addition, 75% of the professionals surveyed said that their E & C programs drilled down to “root causes” rather than just following a reprimand process or making more rules.

It was also really heartening to learn that 90% of professionals from the best run E&C programs say that employees do not feel pressured to attain immediate goals at the expense of their own personal values. In fact, 80% of employees say that they are more likely to question decisions that actually conflict with their values.

According to Emily Miner, a member of the E&C advisory team at LRN, “Embedding E&C programs into organizational operations broadens the programs’ impact and makes it easier for employees to comply. The best programs have found ways to do that – often by making the E&C guidelines simpler and more accessible.”

There is still far to go.

Of the 480 professionals surveyed for the LRN report, only 49% say their companies’ senior leaders take action against compliance failures – and only 38% say company leaders support disciplinary action against high performers who are guilty of misconduct. Just 22% of ethics and compliance (E&C) professionals say their organization communicates lessons learned and remediation measures taken after an ethical lapse.

While, Susan Divers an LRN Advisor says, “Employees need a good moral compass. They don’t need a five-pound manual as a guide,” and while employees may be encouraged to speak up, many are still reluctant to report ethics violations especially if it means skipping authority levels to do so.

Let’s not forget that Enron had a five-pound manual, as did Citigroup, and Wells Fargo, and Volkswagen and Boeing most likely did as well! Still, it’s encouraging that, “By embedding E&C programs into organizational operations, the impact is greatly expanded – and it’s much easier for employees to comply,” Ms. Divers continues.

She is “encouraged to see that 55% of E&C professionals now say ethical behavior is a major factor in their companies’ performance reviews. That’s a full 28% increase from 2018.”

And as I continually preach, building an ethical culture demands that companies develop a proactive communication process that regards speaking up, and builds trust and respect.

Emily Miner, LRN Advisor agrees, “the best have ‘speak out, listen up’ cultures and talk openly about right and wrong, while also prioritizing ethics over short term results… These high-impact functions directly inform business decisions and regularly boost business performance.”

As I keep emphasizing, ethics pays off in the long run in dollars and cents. A firm’s culture is one of the strongest predictors of how much market value that firm will create for shareholder investments. A Great Place to Work® Institute report (2012) dramatically backed this up, noting that the stock price growth of the 100 firms they surveyed with the most ethical cultures outperformed stock market and peer measures by almost 300 percent coming out of the financial crisis. And subsequent reports continue to show the greater value of ethical cultures.

When employees report seeing unethical or actual illegal practices the lapses are costly in loss of trust and erosion of confidence on the part of employees and customers. And, there are financial consequences including fines, loss of business, bankruptcies, and more which I’ve talked and written about often.

We have only to look at Wells Fargo’s balance sheet over the last 2 years and review their falling stock prices as a result of the continued unethical business practices they followed.

This most recent survey, as well as downright common sense, dictates that leadership which places an emphasis on ethics, with an embedded culture that honors and rewards speaking up and listening – from the top down – builds trust and overall better company performance.

Embedding an ethical culture is not rocket science. But, it requires diligence. Companies need to more frequently:

• Talk about values and make them a regular and public part of business decision making.
• Continue to encourage diverse opinions, candor and thoughtful dissent at all levels of the organization.
• When there are problems and when misconduct occurs, it’s important to quickly respond in a timely manner.
• Integrate company values into both company-wide metrics/ scorecards, employee performance evaluations, bonuses and reward systems.
• Continually talk about their values.
• And last and definitely not least, hear and value employees as individuals.

By recognizing, rewarding, promoting and publicly celebrating speaking up and values focused behavior, an ethical culture is built that survives the test of time.