Boards and CEO lead an organisational culture that they help to create, whether intentionally or not. Corporate scandals show how organisational cultures can encourage employees to act without integrity. Learning from the mistakes of the past should be the goal. To do this, companies will need to find out how and why business leaders tolerate unethical behaviour. These habits can even flourish in companies. This is shown by Toshiba’s failure, WellsFargo, the Australian banking scandals and Volkwagen’s too.
To date, it seems that leaders have left it to their compliance departments to manage culture. However, the real motive behind this is often reducing risk to the bottom line. Leaving it up to others to address the culture is a narrow and avoidant style of active culture management. It causes employees and middle managers to lack the skills needed to manage ethical risks and tensions. These issues arise from the many conflicts of interest that go unmanaged in organisations.
Other factors such as time pressures prevent people from using the systems in place that promote good behaviour. Budget and cashflow pressures can prevent open and honest accounting procedures and duty of care to customers. The lack of job security can make employees hesitant to raise their concerns. All of these are typical workplace challenges that codes of conduct do not address. Leaders are often not willing to discuss these issues either.
Organisational cultures do not develop on their own. Company leaders are the ones who form and uphold the culture. These leaders could be those who recognise the financial value of a ‘good’ culture. Or the culture can emerge from the behaviours of upper management, for better or for worse.
Organisational ethical foundations need to be built using research insights into how employees behave. Building a better culture often begins by taking away barriers. These include finding out why employees are unwilling to come forward with issues. Businesses also need to discover why middle management hesitates to manage ethical risks. Compliance teams are reluctant to provide feedback on investigations, which is also an issue. Instead, sharing the learning from ethical failures would be far more useful.
When allowed to go unreported, poor management practices create doubt about whether leaders are committed to ethical behaviour. They ensure that people don’t learn from their mistakes, as they have consultants come in to clean up the mess.
The biggest barrier to organisational learning is the employees’ perceptions of organisational justice target=”_blank”. Leaders and managers may talk about the importance of ethics and integrity but what employees hear are examples of fairness, or the lack of it. Research shows us that employee opinions of overall fairness in the workplace strongly relate to the rate of misconduct. The more fairness, the less misconduct there is. The link between the perception of fairness and the willingness to report dishonest behaviour is apparent.
By building a sturdy ethical foundation and training middle and lower management on how to respond to issues raised, companies can increase the confidence of employees in their managers’ integrity. Leaders must also learn to recognise and prevent retaliation, so that staff are comfortable coming forward. Such actions build organisational cultures that help protect against damage to the reputation and profits of the brand. They build ethical resilience and pride in employees who know that they work for a company that values much more than short term results at any cost.
Addressing ethics in business involves leaders creating a new organisational context. In this setting, employees are aware of the ethical risks in their industry. They have the skills to speak up and cooperate with management to ensure that an ethical and respectful culture is maintained.
There’s a strong business case for embracing ethical leadership. Research shows a direct relationship between ethical behaviour, employee well-being and long-term success. Leading brands such as Unilever, 3M, Ikea, Aldi, Patagonia, Avon, and Starbucks show us the power of investing in skill development. No matter where you are in the world, this can accelerate the success of your business.
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