Having a scandal-free year is on top of most organisational leaders’ agendas.  Such are the times we live in that this can seem like a lofty ambition as the internet shrinks the world and consumers organise to hit out at brands falling short of their expectations of business conduct.

Putting profit goals ahead of the conduct risks they spawn has resulted in trust in organisational leaders being at an all-time low.  A report published by a University of Manchester professor in 2013 described the loss of public confidence in British banks between the early 1980s and 2009 as the biggest change ever recorded by the British Social Attitudes surveys, which had been conducted since 1983.  Social media has become the public noticeboard to “name and shame” and keep the pressure on organisations refusing to recognise changing societal tolerances.

Just last week For example. Google’S New York-based employees staged a sit-in to protest against a  perceived “culture of retaliation” against employees who demand higher standards of behaviour.  This protest then spread to other global offices and social media via the hashtag #NotOkGoogle. The latest protest follows on from a previous demonstration just six months ago when thousands of workers at Google offices around the world walked out to protest at how the company handled sexual misconduct claims.

Google, however, is far from being alone in its failure to respond appropriately to conduct risks and the ethical dimensions that accompanies them.  E&Y’S 2018 research shows that many employees don’t trust that their organisation will act on whistleblowing complaints or keep them confidential. The recent Royal Commission into Australia’s banks and insurance companies, involving most of Australia’s top brands in this sector, highlights the real shortcomings of their state-of-the-art compliance programmes and the loudest message about the ineffectiveness of a compliance approach.

Risk culture can no longer be delegated to the compliance or HR departments. It is, and always has been, CEO accountability since only they have the positional power to shape it.  What leaders do and reward sends the loudest message about how people should act and determines the extent of prevailing conduct risk. Hoping the advances in AI and big data can compensate for the past failures of the ‘three lines of defence’ model is not the answer either. Technology will not save ethical reputations. Leaders stepping up to purposely design their organisational cultures and preside over monitoring activities to ensure desired behaviour standards are maintained, will.

Why does unethical behaviour emerge in compliance run organisations?  There are several systemic sources, all of which emanate from the human dimensions of workplace culture.  Relationships and interrelationships, in all their complexity and messiness, are the roots of all conduct risk, and they cannot be managed by policy, no matter how sophisticated the surveillance is accompanying it.  Only when leaders themselves set and maintain behaviour standards will employees get the opportunities to develop the skills necessary to differentiate between unethical behaviour, risk management and criminal conduct.

 

What Does an Ethical Organisational Culture Look Like?

The good news is that most conduct risk is avoidable when leaders get serious about managing organisational culture or maintaining the one they may have been lucky enough to inherit. So, what makes for ethical workplace culture?

It is actions, not words that set the tone from the top and demonstrate for all employees how they should pursue business goals. Ethical cultures emerge when leaders lead by example. For the board, this means selecting executives who can champion the company’s ethical standards and values. When the actions of the board and top executives align with the company’s values, employees can relax, the rules are clear, and it’s safe to expose misbehaviours.

Since organisational culture is about human behaviour, an understanding of how personal beliefs, motivations, incentives, leadership styles, the design of policies and systems, and how they all interact to trigger conduct risk is the new  “must have.” It requires a lot of reframing of old ideas of why people do the things they do as well as new “mental models” of leadership and human motivations. The behavioural sciences are a powerful tool that can be used by leaders to engender responsible decision-making and significantly improve organisational behaviour. Aided by behaviour science insights, leaders sponsor strategic organisational interventions designed to forewarn and forearm employees about the ethical business issues they will face and how they can prepare themselves to offset contextual pressures.  The can also deliberately manage the “the mood in the middle” because it is middle managers who have the most impact on how employees behave.

Ethical organisational cultures embed formal and informal incentives promoting and reinforcing desired conduct.  Employees are rewarded not just for achieving operational goals but also for how these are gained, be it in the form of one to one praise or formal company recognition system acknowledgements. These are public symbols of leaders’ commitment to promoting ethical behaviour and importantly serve as validations for employees.

Ethical businesses jealously protect and promote their organisational culture because they know it is their competitive edge. They recruit in their likeness and ensure newbies sign up to their standards as part of their employment contract. The famous Zappo culture https://bit.ly/2JzGZmu  offers a prime example.  After four weeks of training and a week on the job, all new hires are offered payment for their time and a $2,000 bonus if they decide the company is not right for them – such is Zappo’s commitment to maintaining their cultural advantage.

Even where leaders formally manage culture misconduct can still emerge, although there is a much greater chance that it will be reported. When left unreported, unethical behaviour undermines cultural strengths enabling risk to flourish. Employees opt out of reporting risks, especially when their managers are involved because they believe nothing will be done about it. This significant internal barrier to risk management needs to be addressed by investing in building “speak up” cultures and showing zero tolerance for any sort of retaliation.  Removing the fear of speaking up enables the organisation to learn about where the system is failing and enables realignment between employee motivation, skill set and risk management.

Good governance requires a focus on leaders’ traits and behaviours and how they influence others through guidance, communications, rewards and disciplines.  Boards need to reframe the role of leaders to recognise ethical leadership as a process of social influence, where leaders steer organisational members towards a standard of behaviour and hold the line when standards are breached.

It’s time we distinguished between ethical leadership and leadership as usual.  Ethical leaders make it as easy as possible for employees to adhere to ethical standards.