Building an ethical culture: where to begin

Increasingly, official and other important expectations regarding compliance & ethics (“C&E”) programs have a culture-related component. But where should C&E professionals start in addressing this important but challenging area?

One very useful resource is Regulating For Ethical Culture, recently published in Behavioral Science & Policy,  by Linda K. Treviño of the Smeal College of Business, the Pennsylvania State University; Jonathan Haidt of NYU’s Stern School of Business; and Azish E. Filabi of Ethical Systems. (Note that Treviño and Haidt are also members of Ethical Systems, as am I.)

In this article the authors:

– Describe the origins in the Federal Sentencing Guidelines for Organizations of the government’s ethical culture expectations, and also recent regulatory interest in culture, particularly in the banking industry.

– Provide an overview of what is meant by culture in the setting of a business organization – which includes both formal systems (codes, training) and informal ones (“role models [managers at all levels], norms of daily behavior, rituals that help members understand the organization’s identity and what it values, myths and stories people tell about the organization, and the language people use in daily behavior”). The authors further note: “Senior leaders are critical to establishing an ethical culture—they provide resources for effective programs, send values-based messages, and serve as role models for ethical behavior and the use of ethical language. They have the potential to influence every other system within the organization. Critically, leaders also need to attend to the alignment of the organization’s cultural systems. When all of the constituent systems support ethical behavior, the company will have an ethical culture, although it needs constant attention to keep it that way. When the culture is in a state of misalignment—when cultural systems send mixed messages—the company is less likely to have an ethical culture.”

– Offer guidance for assessing ethical culture in business organizations. Among other things they state that “anonymous surveys and focus groups (often in combination) have been the assessment methods of choice.” (Note: based on my experience with compliance assessments, I’m less sanguine about getting candid comments by employees in focus groups than by using anonymous surveys.) They also – based on research done by Treviño and colleagues – identify outcomes that C&E programs should seek to achieve – with one or more sample survey items for each. (The program outcomes are: “Reduced observations of unethical and illegal behaviors”; “Increased employee awareness of ethical and legal issues that arise at work”; “Creation of conditions that increase employee willingness to seek ethical and legal advice within the company”; “Increased employee willingness to report bad news to management”; “Increased employee willingness to report ethical violations to management, such as via ethics hotlines (often anonymous) and other reporting channels”; “Increased employee perception that the program is contributing to better (and more ethical) decision making in the organization”; and “Increased employee commitment to the organization.” (Note that this last outcome could “cut both ways” and one might add others to this list, but overall both the outcomes and related survey questions are, in my view, fit for purpose. )

– Discuss five aspect of ethical culture that can have a profound effect on employee behavior: the orientation of the C&E program (e.g., values based, compliance based): ethical leadership, ethical climate, fairness and trust.

Finally, the authors encourage companies to assess culture regularly; to “[i]dentify, through data and investigations, how the organizational culture contributes to misconduct”; and to “[d]esign interventions to improve conduct and culture.”

There’s much more in this article that will be helpful not only to those just getting started in seeking to develop ethical cultures in their respective organizations but also to those seeking to maintain such cultures over the long haul.