Words are often co-opted into our language. In other words, they become trendy, and people start to use them in place of words that have become diluted. Take ‘ethics’, for example. Often considered a grey area, it is still a vital idea in business. However, the definition of ethics is continually changing.
Recently, there has been a trend towards using integrity and risk as more effective descriptors of managing an ethical culture. Risk is evolving as a more hard-edged term. This shift is possibly because boards are being held more accountable for the cultures that expose their companies to risk. Those risks can be both financial and non-financial. Regulators, such as APRA, warn businesses about risk culture. They are also beginning to signal that leaders and cultures can shape behaviour in the workplace. These factors may be even more influential than the people in that business.
Disregarding someone as a ‘bad apple’ is no longer an excuse for bad behaviour. Instead, there is more of a focus on ‘the barrel’. That is, how leaders are shaping culture, which in turn is shaping employee behaviour. Risk management is a category that will appear in many annual reports. By contrast, risk culture is only just starting to appear in those of progressive companies. More than just industries with negative reputations are taking it on now, with an uptake in the financial services industry as well. This is particularly pertinent in Australia where reputational damage is frequently occurring in our banking and insurance industries.
The Importance of Culture
According to a Gallup poll, today’s leaders have created the most disengaged, siloed, and disconnected workforce in history. How? By failing to manage company culture. So, it’s excellent that regulators are finally asking leaders to be accountable for purposely designing their company cultures. They are requesting that leaders manage known risks beyond the bottom line. As social scientists have argued for a long time, policies only signal intent but culture shapes decisions. Culture is what dictates behaviour on a daily basis. Risky behaviour emerges not because of who people are but despite who they are.
This search for integrity and conduct risk dashboards is likely to become even more intense. The new science of behavioural economics is shedding more light on how cultures corrupt individuals. Whether leaders like it or not, both character and competency define leadership. The number one demand of leaders today is to protect the enterprise and stakeholders. They can achieve this by building engaging workplace cultures that enable employees to have a sense of purpose and be encouraged to contribute their talents.
What Research Says
There is an upside too. Field research from the new sciences such as that of EthicalSystems.org can tell us a lot. It shows how leaders can design the cultures they want. There is field research to prove that leaders can improve workplace performance by creating cultures of choice. These businesses outperform those that are not intentional about culture on a whole range of indicators. These include risk, employee satisfaction, and even measurable bottom-line benefits. The contribution of culture to performance is substantial and quantifiable.
James Heskett’s research demonstrates how an effective culture can account for 20-30% of the differential in performance. That is when compared with ‘culturally unremarkable’ competitors.
The elusive search for trust can be built on cultural initiatives. Deloitte found that 81% of respondents working for companies with a strong sense of purpose said that stakeholders trusted their leadership team.
And lastly, companies can enhance public reputation. Deloitte and Glassdoor recently completed a combined study. The findings were that employees rate culture and values over salary or benefits. Culture and values are 4.9 times more predictive of a positive recommendation than salary or benefits. Millennials look behind the brand, behind the advertising and even behind the CEO to explore what it’s truly like to work there. For them, culture is more important than size or brand recognition. Increasing numbers of employees are looking for job satisfaction and recognition rather than rewards. As the majority of employees are either casualised or ‘gig workers’, choice is more prevalent than career.
Risk has to be re-classified as doing business ethically to protect the organisation. Build a healthy culture to risk-proof the enterprise. Risk and integrity are more essentially about focusing on how you do business rather than what business you do.
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