The 5 Key Ingredients to a Culture of Ethics

This article was republished with permission from Michael Volkov’s blog, Corruption, Crime & Compliance.

Every company wants to create a culture of ethics. If the senior leadership ignores or downplays a culture of ethics, they have narrowed business opportunities for the company, its shareholders and other stakeholders. A culture of ethics does not guarantee financial success, but it does add to the bottom-line financial performance of a company.

There are a number of necessary ingredients that have to occur for a culture of ethics to survive. There are probably more ingredients, but these are the most important five.

1. Leadership Commitment – This is just another in my continuing series of profound grasps of the obvious. A culture of ethics starts with corporate leaders. If they do not get it, no one will. Along with the commitment, however, corporate leaders have to be held accountable for their commitment and their actions. Corporate leaders who conduct themselves with the company’s ethical principles are the beginning and most important step in the process.
2. Internal Communications – The company’s ethical culture depends on internal communications, such as training, messaging, meetings and other events. Similar to a public relations campaign, internal communications have to persuade and motivate managers and employees to embrace the corporate commitment to ethics and compliance and to conform their actions and expectations of others consistent with the overall culture of ethics.
3. Measurement and Reporting – Assuming that a company has embraced an ethical culture as one of its primary objectives, the company has to dedicate sufficient resources and priorities to attend to its ethical culture. Two key aspects of this process: measurement of the company’s culture and reporting of the company’s culture to senior management and the Board as an important ethics and compliance driver.

   All too often, ethics and compliance officers rely on human resources personnel to conduct employee surveys on an annual or biannual schedule. That is insufficient. Instead, ethics and compliance, working with human resources (and IT) should begin a proactive culture survey process that targets specific operations or regions focused on higher-risk activities. A company’s culture has to be monitored and should be regularly reported to the Board. If actions are needed to shore up a culture in a specific area, product line or region, the company has to focus resources and efforts in those risky areas.

4. Responsive Interventions – A company has to dedicate enough time and attention to its culture to develop intervention responses to promote ethical values as the company changes. External influences on a company, such as economic downturns, unforeseen market forces and new competitors, have to be taken into account so that leadership commitment, internal communications, measurement and reporting can be adjusted or even revised to adapt to the changing circumstances. A company cannot be afraid of change, and its messaging cannot fall behind to relevant changes in the market and in overall company operations.
5. Accountability – A corporate culture without accountability is doomed to crash on the rocks of cynicism. Managers and employees are skeptical when it comes to trusting their leaders and their commitment to ethics. There are certain times that a leader’s commitment to ethics can be tested – if the leader is not held accountable for failing that test, managers and employees will retreat into cynicism. Similarly, if managers and employees are not held accountable on equal terms to senior leaders, the company’s culture will derail into poor morale and lack of credibility. Equal accountability is a necessary principle for an ethical culture. Successful CEOs who have created or maintained a culture of ethics recognize the importance of equal treatment of all corporate actors.