What allows major ethics and compliance scandals to continue to hit multinational organizations? When it involves bribery and corruption, the likelihood of a lengthy, extensive and expensive Foreign Corrupt Practices Act (FCPA) or other anti-corruption law investigation and enforcement action is a distinct possibility. In the wake of such an event, many companies will focus on building a more robust best practices compliance program. But what about the ethics side of the equation? How does a Chief Compliance Officer (CCO) or compliance practitioner think through building a stronger ethical organization?
A recent article it the MIT Sloan Management Review, entitled “Building an Ethically Strong Organization”, by Catherine Bailey and Amanda Shantz looked at this question. Most interestingly they began with what are now accepted as some basic foundations. These include that employees want to work for and work at ethical organizations and that ethical “employers are likely to attract and retain ethical employees.” Further, ethical leadership breeds ethical corporate action that leads to more productive work behavior.
The authors research turned up some interesting information for the CCO which has significant implications for every corporate compliance program. Their research found that “the ethical tone of an organization is the cumulative outcome of how its members address daily ethical dilemmas as the go about their work. Over time, a consistent mishandling of these micro-level issues can spiral into macro-level corporate scandal.” In other words, broken windows policing not only works on the streets of New York City and in securities law enforcement by the Securities and Exchange Commission (SEC) but it also has direct application in the corporate world and for every compliance practitioner.
It can begin as simply as inculcating the phrase “do the right thing” with your workforce. If your organization does not do so, it will become ethically weak and your employees will be left to make dubious ethical decisions, largely on their own. This is not the myth of the rogue employee at work but rather when the consequences of behaving unethically are non-existent, employees can begin to act in a way which the authors describe as idiosyncratic but really means putting the pursuit of profit ahead of ethical behavior. The authors found four such dilemmas which they found “muddy the ethical waters for individuals in decisions both large and small.”
The first is where there is a disconnect between an employee’s personal ethics and that of the organization. This builds upon the desire to fit it as the authors found that employees “have a strong desire to gain a sense of moral fit as well.” This means that if there is a gap, employees want to close that gap. If they cannot do so, they may perform actions which close the gaps or take the other path, which is to shut down or even leave the organization.
The second is conflicting stakeholder needs as every company has a wide range of stakeholders. In a commercial enterprise, it could be as broad as shareholders, senior management, company, colleagues, customers, the community, wider society and third parties. If you have an ethical program or policy framework which lays out how to think through an issue and other considerations that lead to a decision, this not only denigrates the framework but demeans overall institutional justice and at the end of the day trust. Consider if a Chief Executive Officer (CEO) or other senior management favorite is promoted over other more qualified candidates how that would impact morale. In the era of #MeToo, consider the whistleblower who steps forward only to be told that the alleged harasser is too high of a producer to face the consequences of their actions.
This example leads to the authors next point, which is knowing how or even whether to speak up. The authors believe that the culture which mandates or even allows employees to stay silent is ripe for a prime ethical fall and subsequent reputational hit. If your employees are unwilling or even unable to raise smaller issues up the line, you can be assured when a large one comes along there will be no appetite or perhaps even ability to do so.
The authors next point to the age-old problem of expediency over ethics. This can occur when the cost to make the ethical decision is too high or because of resource constraints, even impossible. This is where the government’s role becomes increasingly important and you can think about the growth in compliance programs that followed the increase in FCPA enforcement actions in the ten-year period from 2004 to 2014.
The authors then follow with six prescriptions which they believe “can help leaders set an ethically strong tone so that employees are better equipped to make the right choices day-to-day.” It begins with recognizing that ethical ambiguity does exist. If there is lack of transparency in this area or even denial that such ambiguity exists, employees will tend not to know when to have these appropriate discussions. The answer is greater transparency on how decisions are made. Not only will employees have a better understanding of what is expected of them from an ethical perspective but they will also know where to go and how to get help.
Next is to clarify ethical trade-offs when balancing differing needs, as it is often believed there is always an inherent tension between sales and doing business. The answer is to provide employees “a clear statement of vision” which can help them weigh competing concerns and make appropriate trade-offs. Note how clearly this is tied to transparency as noted above.
Next is one that is so obvious you might think it need not be stated but it is always good to be reminded that it all starts at the top. It is not simply senior management saying the right thing but doing the right thing. Here you can think of any corporate scandal, but Wells Fargo provides a prescient example of a CEO who said do the right thing but then set a corporate wide sales goal based a rhyme that a five year old could come up with (Eight is Great). How is that for ethical leadership? Yet, it is more than just top management as the message must be conveyed down into and modeled by middle management as well.
The authors believe that putting ethics into your compliance program is a critical step. Such concepts as anti-bullying, harassment and whistleblowing should be a part of every compliance program to create a strong ethical foundation. But its more than simply having a paper program. There must be training on these ethical values. Moreover, the authors even said it can start early in the hiring process so that employees will consistently know what is expected of them.
Next is having a speak up culture. One of the key concepts to come out of #MeToo is that stopping harassment is everyone’s responsibility if they see it happening to someone else. Employees must not only be empowered but also feel empowered to challenge corporate decisions which could compromise the organization from an ethical perspective. If employees fear retaliation or retribution for raising concerns.
Finally, and perhaps most provocatively, the authors write that company’s should embrace “a transcendent cause that unites the organization behind a vision and set of values that go beyond self-interest.” By having such an overarching sense of purpose, a company can create “a context within which micro-level ethical dilemmas can be resolved.” Once again it points towards something other than the simple pursuit of profit.
The authors conclude by noting that every organization will have ethical challenges. But by starting at the top and moving down throughout the company, with these ideas and concepts your organization can move from a detect phase to a prevent and even proscription ethics and compliance culture.
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