change is coming

3 Ways to Affect a Different Kind of Climate Change

In light of the corporate compliance failures that have entered the news cycle, compliance programs have increasingly focused on the role culture plays in causing these failures. However, while most compliance executives understand the link between culture and employee misconduct, they are not sure how to act on it. In this article, Brian Lee discusses how leading companies are focusing more on how “climate” – that is, the practices and procedures they follow and behaviors they observe being rewarded and supported – plays into building a stronger organizational culture.

Recent headlines are a testament to how cultural failures can lead to serious misconduct within organizations. While one might call corporate “culture” intangible, the truth is that it is increasingly measurable, and even small improvements can have a significant impact on reducing employee misconduct.

For almost a decade, building a culture of integrity has been the most frequently cited goal of compliance executives. In fact, more than half stated it was their most critical objective in 2016, according to research from CEB, now Gartner. However, while this focus led to an increase in resources and training centered on improving corporate culture, these efforts have not meaningfully reduced the amount of misconduct present in organizations. Our analysis of nearly 2 million employee responses on corporate culture and misconduct showed that in the last eight years, there has been a less than 1 percent decrease in the number of employees who observed misconduct at their organizations.

So, what’s the problem?

Ancient Approach

Most companies typically build their culture from the top down, starting with ensuring leaders at the top exemplify strong ethics in interactions and communications with their teams. From there, middle managers reinforce talking points that support ethical behaviors when communicating with their direct reports. While this approach isn’t a lost cause, since it does have some efficacy, it’s limited in its effectiveness, primarily because it underestimates the greatest source of influence on employees’ perception of culture and the ethical decisions they make: their peers.

Underestimating the Power of Peers

The gap between employee perceptions of culture is larger than most organizations think. Approximately half of employees we survey believe their senior leaders are honest and possess integrity. This number is slightly larger when it comes to direct managers – both good signs that the top-down approach has some effectiveness. And while many compliance leaders would be happy with these numbers, it gets more troubling when it comes to front-line staff. Only 25 percent of employees believe their teammates engage in and model the right ethical behaviors. This is tremendously concerning, considering the impact that our teammates have on each other – on both how they feel and what they do. If companies want their workforce to do the right thing, this is the number that needs to improve.

Climate Changes

Through our research, we’ve found that the climate an employee works in – that is, the practices and procedures they follow and behaviors they observe being rewarded and supported – is the key differentiator between strong and weak cultures. Building a strong climate is critical, as it serves to either amplify or diminish the effectiveness of the organization’s efforts to improve corporate culture.  For instance, an organization’s efforts to reduce the fear of retaliation through training and policies can be greatly enhanced simply by improving the team climate in which employees work. For those employees working in organizations with strong climates, not only is their perception of the company’s culture higher, but they are also 90 percent less likely to observe misconduct.

These benefits are not limited to reduced misconduct. Companies with strong cultures of integrity see 10-year total shareholder returns 7 percentage points higher than companies with low perceptions of integrity. Additionally, employees from strong cultures of integrity are two to three times more likely to overperform on individual and team goals.

Unfortunately, our research shows that almost three-quarters of employees work in weak climates, rendering much of the work their compliance teams do to improve culture less effective, or worse, wasted. This is why little culture improvement has been seen in nearly a decade. In order to sustain and consistently improve corporate culture, companies must work to improve climate. Three ways they can do this include:

  1. Helping employees demonstrate good behavior in their work: While most employees know how to avoid bad behaviors, they are less sure of how to demonstrate positive ethical behaviors in their everyday jobs. Companies can help employees exhibit behaviors that strengthen their local climate by linking their business objectives with compliance and ethics objectives, which can enable them to identify specific actions to take.
  2. Ensuring managers send consistent messages: Most managers don’t actively encourage employees to engage in poor ethical behaviors, but they may tend to deprioritize compliance and ethics messages and requests because of other business needs. To guarantee teams receive consistent messages that promote ethical behaviors, organizations should help managers assess and understand what signals they may subconsciously send their employees.
  3. Making colleagues’ positive behaviors more visible: Many employees exhibit positive compliance and ethics behaviors; however, they are often not shared broadly. By encouraging employees to share ethical principles with one another, leaders can ensure positive behaviors are visible to employees at all levels.

Headlines surrounding cultural failures offer an opportunity for compliance and ethics teams to engage with senior leaders about the importance of an ethical culture. By focusing on climate – the key differentiator between strong and weak cultures – companies can improve their corporate culture and, as a result, improve employee and corporate performance.

Corporate Compliance Insights is a wholly owned subsidiary of Conselium Executive Search, the global leader in compliance search.  

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Brian Lee

Brian Lee is a Practice Leader in CEB’s Compliance & Legal Practice, which provides best practices research, benchmarking and management consulting advice to more than 1,500 legal, compliance and privacy heads worldwide.  He is responsible for the practice’s overall research agenda, strategic vision and day-to-day operations.  While at CEB, Brian has led a number of qualitative and quantitative research initiatives on a wide range of legal, compliance and privacy department issues, including risk assessment and management; department strategy and effectiveness; training and communications; and building an ethical corporate culture.

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