In this post, CREATe’s CEO Pamela Passman talks with Patricia Harned, chief executive officer of the Ethics & Compliance Initiative (ECI). ECI empowers its members in the ethics and compliance community to operate at the highest levels of integrity by providing them premier research and best practices, certification and networking opportunities. Through its membership, ECI represents more than 450 organizations across nearly every industry, each dedicated to promoting the highest levels of integrity in organizations worldwide. ECI is comprised of the Ethics Research Center, the Ethics & Compliance Association and the Ethics & Compliance Certification Institute.
Q/ The Ethics Research Center (ERC), the research arm of ECI, regularly presents its data, analysis and conclusions at conferences, via training and in meetings with senior management and directors. What issues are of most concern to CEOs and Boards today?
Boards and CEOs need to achieve their shorter-term growth objectives while also investing in longer-term efforts to build a healthy, sustainable organization. Balancing the short- and long-term needs of the organization is what successful boards and CEOs do best. As Warren Buffett famously said, “Someone is sitting in the shade today because someone planted a tree a long time ago.” When these objectives are in tension (or even conflict), however, the pressure to compromise ethics standards can increase. So, the boards and CEOs that we work with ask for our advice on how to build and sustain ethical cultures and develop and foster ethical leadership to counter these pressures. These organizations recognize that maintaining ethical standards is not just the “right thing to do;” it is a business imperative.
Q/ This year, the Ethics Research Center released a National Business Ethics Survey (NBES®) – “The State of Ethics in Large Companies.” Can you share some insights about how investments in ethics and compliance benefit companies?
When the largest companies (those with 90,000 or more employees) invest resources in ethics and compliance, they get impressive results. The strength of a company’s ethics culture and the effectiveness of its internal ethics and compliance (E&C) program are closely tied to workplace behavior. Each key indicator of ethical performance – pressure to compromise ethics standards, observation of misconduct, reporting of violations and retaliation for reporting – improves in large companies with strong ethics cultures. In fact, pressure and retaliation become extremely rare in the largest companies when they implement effective ethics programs. Pressure to violate standards and misconduct decline substantially; workers are far more likely to report the misconduct they see; and they are far less likely to face retribution for reporting when companies have effective E&C programs. Only one-third (33 percent) of workers observed misconduct in large companies with effective ethics programs, compared to a misconduct rate of almost 51 percent among all large companies and more than 62 percent for large companies that do not have effective E&C programs. Pressure and retaliation fall to extreme lows (3 percent and 4 percent, respectively) in big companies that have established effective E&C programs.
Q/ As part of your work, you advise CEOs and directors on effective ways to build an ethical culture and promote integrity in organizational activities. What are some of the key points you emphasize?
Ethical leadership begins with selecting leaders of strong character and a keen sense of right and wrong. Companies should build on leaders’ personal strengths by encouraging management actions and behaviors that correlate with ethical conduct by employees. These practices are likely to result in a workplace with reduced misconduct and less pressure to break the rules.
- Incorporate personal character as criteria in the company’s hiring process, especially for senior executives.
- Establish 24-7 integrity as an expectation for senior managers and make it part of annual performance reviews.
- Educate managers about trends in technology and social media and their impact on leadership responsibilities; emphasize the blurring of traditional division between public and private activities.
- Provide guidance to senior managers about the way employees form perceptions about and evaluate their managers.
- Review crisis management plans and training programs to emphasize corporate values and ethical performance in the face of stress and to account for the impact of social media.
- Encourage leaders to recognize employee contributions to organizational success and to seek honest feedback from employees about company standards and policies.
- Annually review company business objectives, policies, and procedures to ensure that they are consistent with company values and promote ethical performance.
Q/ Last year, ERC released a research report from NBES on the topic of “Ethical Leadership: Every Leader Sets a Tone.” What results were most interesting from this report?
Employees at all sizes of companies draw conclusions about their leaders’ character primarily on three factors:
- The overall character of their leaders as experienced through personal interactions;
- How senior managers handle crises; and
- The policies and procedures adopted by senior leaders to manage the company.
Employees want to know, for example, whether leaders treat lower level employees with dignity and respect, share credit when good things happen, and uphold standards even if it reduces revenues and profits. They watch to see whether leaders are steady in crisis, hold themselves accountable or, alternatively, shift blame to others. Workers also look at day-to-day management decisions to gauge whether ethical behavior is recognized and rewarded, or whether praise and promotions go to workers who bend the rules.
We also found that tone at the top doesn’t just come from the C-suite. When it comes to modeling good behavior, keeping promises or upholding company standards, direct supervisors may matter just as much or more than CEOs and other senior executives. In fact, two in five workers we surveyed pointed to their immediate supervisor when asked whom they consider senior leadership. However “senior leadership” is defined, workplaces in which leaders display ethical leadership tend to have lower rates of misconduct, less pressure to break rules and greater employee engagement.
Finally, ethical leadership is increasingly a round-the-clock job. When it comes to ethics, everything a leader does sets a tone. In a world where old distinctions between public and private are increasingly blurred, leaders’ private behavior can matter just as much as what they do at work. When leaders practice 24-7 integrity, workers’ own commitment to ethical conduct tends to be stronger. In matters of ethics, leaders are always setting a tone.
Q/ Any final thoughts about the state of corporate ethics and compliance today? What are the greatest threats and opportunities for companies embracing responsible business practices?
These are exciting and important times for ethics and compliance professionals. In our global, interconnected economy, with increasing regulatory intensity (and cooperation among regulators), mixed with the power of social media, an organization’s reputation is its most valuable asset, and its most vulnerable. Boards and CEOs look to ethics and compliance professionals to help them navigate these challenges. Building and sustaining a strong ethical culture not only reduces the likelihood of wrongdoing, but also is a real competitive advantage in today’s business world. The ethics and compliance professionals that we serve are at the center of those conversations and initiatives.