5 Key Components for Building and Maintaining an Ethical Workplace Culture
A strong ethical culture is essential to effective compliance risk management. There is no shortage of compliance failures to illustrate how a weak ethical culture can sabotage even the best corporate compliance programs. Almost universally, misconduct took hold in these cases because employees felt pressure to prioritize performance over compliance and, in response to such pressure, figured out how to evade controls meant to ensure compliance.
Given the importance of ethical culture in producing positive outcomes and enabling business goals as well as its profound impact in preventing significant compliance failures, boards and executive management teams should make sure the company’s approach to building and maintaining an ethical culture incorporate these key best practices:
1. Establish clear accountability for ethical culture as a management function
Ethics and compliance functions rely on similar skill sets, leverage similar tools and operationally need to be well-coordinated. While program management for ethics and compliance program elements can be combined, ultimately, an ethical workplace culture is determined primarily by senior executive management, not by an Ethics and Compliance Department.
To ensure that managers understand their accountability for setting the company’s ethical culture:
- Establish an Ethics Steering Committee comprised of senior business and operations executives along with senior representatives from compliance, Human Resources (HR) and Communications to ensure the ethics program is fully integrated in the business’ operations;
- Appoint a senior executive as the Ethics Officer (as a part time role) for each geography or business unit to evaluate and reinforce the ethical culture; and
- Connect ethical conduct to compensation and make it part of each executive’s performance objectives.
2. Evaluate your employee-facing compliance policies so they enable rather than inhibit ethical culture
Overly detailed and technical policies can undercut an ethical culture. This is especially true when responsibility for compliance falls on individual “line” employees and managers. Think of the core messages that are commonly associated with ethical business – “we are a values-based organization” or “we trust our employees to exercise good judgment.” – Now consider a lengthy compliance policy that reads like an excerpt from a federal regulation. The implied message this type of policy can convey may inhibit an ethical culture, and instead, imply counterproductive messages such as – “we are only concerned with bare legal or technical compliance” or “you could try your best but still get something wrong.”
To demonstrate that compliance policies are ethical culture enablers:
- Create a policy committee comprised of average level employees and managers to review new company policies to make sure they address employee needs with appropriate but not hyper-technical detail;
- Post employee compliance policies on their own intranet site supported by strong search functions; and
- Use reading level software on all policies – targeting readability at below the average education level of your employees as many are likely not familiar with the topic.
3. Include ethical behaviors in promotion criteria
When employees perceive that ethical behavior helps them climb the corporate ladder, it reinforces the emphasis that the organization places on building and maintaining an ethical culture. Many companies require some form of risk screening for employees under consideration for promotion to senior level positions. In some instances, this involves reviewing HR files to make sure there have not been any disciplinary actions or significant policy violations; in others, it can involve credit, litigation or public records review to make sure that the individual does not pose risks to the organization before ascending into a position of greater trust and influence. Keep in mind, however, that a lack of unethical conduct is not the same as affirmatively demonstrating ethical behavior.
To help ensure that your promotion process reinforces the importance of an ethical workplace culture:
- Incorporate specific ethical behaviors into performance and promotion expectations, such as keeping promises and commitments, upholding values while under pressure and demonstrating honesty and transparency;
- Require a manager to document instances of employee integrity before a promotion to a senior level position; and
- Conduct 360 degree reviews of high potential staff prior to promotion.
4. Ensure executives and managers have the skills to build and maintain an ethical culture
It can be tempting to confuse personal ethics with ethical leadership – to believe that because someone is an ethical individual with personal integrity that he/she will naturally become an ethical leader. To be sure, ethical leadership starts with personal integrity. But it also means understanding team dynamics, motivations and pressures and how those may influence employee perceptions and behaviors. Lastly, and perhaps the most intimidating to many managers, ethical leadership involves speaking confidently and effectively about the company’s values and “ethical narrative.”
To help ensure that your managers are ready to be ethical leaders:
- Explicitly incorporate ethical leadership into general leadership development courses, helping new managers understand that ethical leadership is just a key dimension of good leadership;
- Require managers to share a personal message about their values or a story about an ethical dilemma they have faced; and
- Provide managers with prepared discussion frameworksto help with discussions about ethical issues with their staff.
5. Prepare managers to identify and respond to employee ethics and compliance concerns
As with most workplace concerns, employees are most likely to raise ethics and compliance concerns with their managers – in most studies, reporting to management is favored by large margins over going to HR, the law department or the hotline. It is therefore all the more important to train managers to recognize signals from their employees. An employee’s offhand “comments” at the end of a meeting might be viewed by an untrained manager as just office banter, but for the employee, who was likely mulling over this issue for days and the potential risks and rewards of coming forward, he or she just raised the issue to management and expects some sort of response. In addition to missing the opportunity to address an issue early-on, if the manager misses these signals repeatedly over time, the team’s ethical climate can begin to erode as issues are not addressed and bad behavior becomes enculturated.
To help ensure that your managers can identify and respond to issues effectively:
- Make identification and responding to employee ethics and compliance reports part of your annual training program for managers;
- Provide managers toolkits on how to respond to employee concerns, including what to say and who to contact based on the issue involved; and
- Reinforce the importance of engaging company resources quickly rather than trying to solve the problem themselves.
The author, Michael Kallens, is an Associate General Counsel in Nasdaq’s Office of General Counsel and is a senior member of Nasdaq’s Global Ethics and Compliance Team. Michael has led industry working groups on developing best practices for corporate ethics programs and is a frequent speaker on ethics and compliance topics. In 2014, he received the Outstanding In-House Counsel Award from the Association of Corporate Counsel-National Capital Region for his work in the area of corporate ethics and compliance.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.