Boss yelling with megaphone

Integrity, honesty, transparency, and ethics.  These highly valued characteristics are critical in building trust, engagement, and commitment in the workplace.  But the importance of ethics goes beyond the accepted treatment of employees:  ethics represent the core values that will shape decision-making behaviors throughout the organization.

Many companies have published ethics and compliance policies.  By having employees read and sign these policies, organizations seek to protect themselves from illegal activities arising from unethical behaviors, including (but not limited to) financial fraud, conflicts of interest, discrimination, harassment, safety violations, illegal business practices, and misrepresentation.

However, the real benefits of an ethical workplace extend far beyond human resource issues.  Proactive ethics policies expand the organization’s focus from exclusively serving financial shareholders to serving the needs of all individuals or entities who are stakeholders in the business.  Because stakeholders represent a much larger group of constituents, decision-making based on stakeholder theory creates a cascading effect that enhances the organization’s brand:

  • Trust is built and nurtured by treating employees and all stakeholders ethically.
  • When workers trust that the organization has their best interest, they are more likely to be proud, engaged, and committed to better serving their customers.
  • And when customers receive superior service and products, their loyalty leads to greater corporate sustainability.

Decision-making, therefore, focuses on doing what is right for the largest possible population:  a company’s stakeholders.

But building an ethical workplace can be a daunting task.  As any corporate leader knows, written ethics policies in and of themselves are insufficient to ensure the widespread adoption of desired ethical behaviors throughout the culture.

The Business Case for an Ethical Corporate Culture

“Ethics” is essentially focused on making decisions based on fundamental values.  In other words, ethics is DIRECTLY related to business strategy. 

Far too often, “strategy” is simplistically viewed as a form of marketing:  which markets should the company pursue and how should we reach out to them?  But strategy is actually far more encompassing.  Strategy builds an organizational belief system in order to direct employees’ actions and behaviors toward achievement of a defined vision and mission.

In other words, the intangible soft skills of honesty, transparency, and integrity become critical determinants of the company’s brand and (ultimately) its success in the marketplace.

Beyond publishing a code of ethics, the most effective way to ensure that employees behave ethically in their jobs is to define and nurture the unwritten rules of the corporate culture.  While ethical values may be included in the employee handbook, these values may or may not be present within the daily operations of the organization.  The ethical behaviors that are (or are not) evident are influenced by the unwritten rules of the corporate culture.

The concept of “corporate culture” arose in the 1980s and gained prominence in the 1990s.  While everyone seems to be aware of corporate culture, precisely defining it is somewhat problematic.

According to Investopedia, corporate culture represents the beliefs and behaviors that determine how employees interact with each other and their clients.  BusinessDictionary.com defines it as specific “values and behaviors that contribute to the unique social and psychological environment of an organization.”  Deal & Kennedy (2000) simply defined corporate culture as “the way things are done around here.”

While these are all good definitions, perhaps the best definition that I’ve found is likening “corporate culture” to the organization’s pre-existing genetic code.  Whether the culture is found in a massive multinational corporation or a solopreneur’s start-up, all businesses will display a unique combination of characteristics, assumptions, and belief systems that represent its real brand.

How a company acts in the marketplace toward achievement of its goals is determined by the ethical values found in its culture.  When employees embrace the organization’s high ethical values, they tend to behave in ways that support attainment of the company’s vision and mission in an ethical, legally compliant way.  Such behaviors ultimately reward the business:

  • Ethical businesses are viewed more favorably by consumers, leading to higher sales and profits.
  • Ethical companies tend to avoid risky behaviors that may lead to regulatory and legal violations.
  • The stakeholder approach to business ethics builds sustainability through a positive triple bottom line (i.e., social, environmental or ecological, and financial results).
  • Job candidates consider a potential employer’s ethical reputation when evaluating job offers – ethical companies are, therefore, more likely to have higher quality candidates applying for job openings.

How to Build an Ethical Corporate Culture

Corporate cultures are discussed in employee handbooks, but they exist in the hearts and minds of employees.

Despite the advantages of an ethical corporate culture, ethics cannot be dictated by senior leaders – but its presence or absence in the culture is strongly influenced by their actions.

This means that organizational ethics spread through the use of a decentered ethical model, which provides a context in which employees can judge the acceptability of their actions and decisions.  Why and how an employee acts will be influenced (or even determined) by evaluating the results and consequences of actions taken by colleagues and managers in their work environment.

The influence of a corporate culture on employee behaviors is similar to peer pressure.  If an employee sees a colleague or manager “getting away with” actions that violate the company’s code of ethics, they will be more likely to also behave in this manner.  But if coworkers are reprimanded for unethical behaviors, then others will be less likely to replicate those behaviors.

It is, therefore, the unwritten organizational culture – the company’s genetic code or “the way we do things around here” – that will ultimately determine how ethical values will be incorporated in problem-solving and decision-making in all aspects of the business.

Most employees believe that they behave ethically.  However, studies have shown that, despite these self-proclaimed high ethical standards, people tend to over-estimate their ability to behave ethically in adverse situations.

To ensure that ethical problem-solving and decision-making are reinforced throughout the culture, consider the following recommendations:

  • Start with a compelling, noble vision. What do you want to be known for?  What are the primary characteristics of your interactions with customers?  What criteria will be used when making decisions? It’s not about numbers…it’s about values.
  • Have a clear purpose and encourage employee buy-in. When workers believe that what they do actually matters, they are more likely to be engaged and committed to achieving the desired outcomes.
  • Build your culture around defined values. Values are the core of corporate culture, providing guidance and guidelines on how employees should complete their tasks, duties, and responsibilities.
  • Establish practices that provide step-by-step directions. Values can be precariously imprecise; introduce processes and procedures to guide employees’ thought processes and actions in ways that lead to ethical outcomes.
  • Provide the necessary resources and empower employees to complete their duties and responsibilities.
  • Offer on-going ethics training. Provide a framework to help employees choose the most ethical action to take in challenging situations or other routine conundrums that they may face.
  • Create a formal process in which employees can confidentially discuss ethical dilemmas or report unethical acts.
  • Recruit, reward, and recognize employees who display ethical choices. This reinforces the cultural norms and importance placed on ethical behaviors.
  • Don’t be afraid to punish or reprimand employees who do not comply with ethics policies. Include ethical criteria in performance appraisals and directly confront unethical behaviors.
  • Communicate, communicate, communicate! Ethical behavior must be reinforced, so address ethical considerations in memoranda, reports, internal communications, shareholder reports, and marketing activities.
  • At all times, do everything in your power to create a culture of trust. Trust is a two-way street:  to encourage employees trustworthiness, a zero exception attitude toward trust as a core value must be included in corporate policies and modeled by managers.

These suggestions can help to create a culture that self-reinforces the importance of ethics in the workplace.  Conversely, your corporate culture can also create conditions in which workers will compromise their innate values and behave unethically – especially if they report to an unethical manager.

What to Do About an Unethical Boss

Unfortunately, not all managers act in ways that are honest, transparent, and ethical – and, when that happens, the result is an employee’s worst nightmare:  the dreaded unethical boss.

For organizational leaders, an unethical manager presents numerous challenges.  However, the company’s code of ethics provides an intracompany legislation that binds employees and provides specific sanctions for violations.  Therefore, your code of ethics should be the foundation for any actions taken in response to ethics violations by a manager.

  • Did your company provide a written ethics and compliance policy that was given to all employees? The language in this policy (or code of ethics) should directly reinforce the desired ethical behaviors, explain the complaint process, and identify the consequences for noncompliance.  Additionally, the code of conduct should stipulate specific behaviors that are or are not acceptable.  Be sure that all employees sign the document to acknowledge that they read the policy and agree to comply with it.  Be sure that your code of ethics also clearly explains how to file a complaint as well as the due process during the investigation and varying degrees of potential consequences for violations.
  • Did the manager successfully complete the company’s mandatory ethical training? As I mentioned in the previous section, employees cannot be expected to comply with ethics and compliance rules unless they have read the document, been trained in interpreting its edicts, and signed off to acknowledge that understanding.
  • How did you find out that a manager was behaving unethically? It is usually the employees currently reporting to an unethical manager who will be the first to notice the problem.  Was a complaint filed by the manager’s subordinate or a fellow employee?  Did an HR representative or senior leader observe the unethical behavior?  Document the allegations surrounding the behavior before beginning the investigation.
  • Is the manager aware that his or her behavior is unethical? Many situations that arise in business can be in the gray area of ethics:  there is no set response and sometimes the decision-making process is not clearly defined.  Rather than reacting to a complaint of unethical managerial activity with immediate disciplinary actions, it is better to investigate both the nature of the unethical behavior and the manager’s underlying rationale for these actions.  Perhaps the request was made in a gray area of ethics and the manager was unaware that the request was unethical.  Take the time to explore the reasons behind the potential ethics violation before taking additional action.
  • Was this the first time that the manager acted unethically – or is there a pattern? A pattern of unethical behavior indicates a more serious problem than a one-time occurrence.  If a pattern exists, understand why the behavior has continued:  has the manager chosen to continue the behavior despite the company’s appropriate response in compliance with its code of ethics OR has the company ignored previous complaints?
  • Is the alleged ethical breach a minor or major violation? Although unwanted, not all unethical behaviors are the same; therefore, the potential consequences can vary greatly.  Be sure that the different levels of ethical violations are discussed in the code of ethics.  Minor penalties could invoke progressive disciplinary actions, while major penalties can be so egregious that immediate termination may be warranted.  NOTE:  Illegal actions are generally considered to be a major ethical violation, but always seek legal counsel to inform and direct your ensuing actions.
  • Did the manager’s actions violate regulations or other laws? Equal employment opportunity laws identify and protect certain classes of individuals and workers from discrimination.  For example, if a manager was verbally abusive only to female subordinates, this could be grounds for a claim of gender-based discrimination.  If the manager’s behavior was unethical and illegal, then the company must respond in accordance with its code of ethics in order to limit its legal liability.  NOTE:  Although abusive behavior is one of the most common unethical behaviors in the workplace, bullying (unless it is directed toward a member of a protected class under employment laws) is currently not illegal.
  • What is the impact of this ethical breach on operations, morale, or company reputation? The impact and consequences of the manager’s unethical behavior must be considered in terms of both its internal and external environments.  In addition to responding to the ethical breach in accordance with the company’s code of ethics, care must be taken to perform “damage control” related to not only the foreseeable after-effects but also potential “ripple” effects.  Depending on the scope and level of severity, ethical breaches can damage your company’s reputation.
  • Finally, did the company’s culture, performance appraisal system, or goals contribute to the manager’s unethical actions? It is said that “what gets measured, gets done.”  If the company is focused on profits regardless of the behaviors used to create them, managers might revert to unethical behaviors in order to meet those demands.  Similarly, managers might be tempted to “fudge” financial or performance metrics in order to meet goals.  And if unethical behavior appears to be rewarded through promotions or other forms of recognition, then the culture might have contributed to the manager’s unethical actions.

Identifying, re-training, and potentially terminating an unethical manager is one of the most difficult challenges for HR and organizational leaders.  Care must be taken to avoid hearsay in order to ensure that the manager’s due process rights are maintained during the ensuing investigation.

If the manager is found to have behaved unethically, it is imperative to adhere to the process and consequences outlined in the code of ethics.  If not, the company and its leaders will be viewed as indifferent to ethical behavior in the workplace – a “nice to have” but non-essential component of its corporate strategy.

Ethical behavior in the workplace is essential to success, profitability, and sustainability.  Ethics go beyond mere compliance with laws and regulatory statutes.  Ethics are at the heart of corporate culture.

“In looking for people to hire, you look for three qualities:
integrity, intelligence, and energy. And, if they don’t have the first,
the other two will kill you.”
– Warren Buffet

Dr. Geri Puleo, SPHR, is the President and CEO of Change Management Solutions, Inc., an eLearning and Coaching company focused on eradicating workplace burnout through the B-DOC Model.  An entrepreneur for over 25 years, keynote speaker, author, blogger, business coach, university professor, and researcher, you can see her “in action” by watching her TEDx Talk on YouTube.  To contact Dr. Puleo, please go to www.gapuleo.com

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