Thomas Fox - Compliance Evangelist

This paper will review the 2018 Global Business and Ethics Survey (GBES) of the Ethics and Compliance Initiative (ECI). For this paper, I visited with Patricia Harned, Ph.D., the Chief Executive Officer (CEO.) There were four GBES reports released by ECI in 2018: Q1-The State of Ethics & Compliance in the Workplace; Q2-Measuring the Impact of Ethics & Compliance Programs; Q3-Building Companies Where Values and Ethical Conduct Matter; and Q4-Interpersonal Misconduct in the Workplace: What It Is, Where It Occurs and What You Should Do About It.

We will consider the highlights from each survey and conclude by a review of a few key issues raised throughout the survey going forward. 

I-The State of Ethics and Compliance in the Workplace

The study was designed to take the pulse of employees in business workplaces. ECI has been doing this since 2000 and the survey has become, over time, the global benchmark on ethics in the workplace. Harned said, “every couple of years we ask employees about the extent to which they are observing misconduct and some of the other patterns and their perceptions of culture.” The good news is that fewer employees indicated that they have observed some type of wrongdoing, as defined by whether it was a violation of their company’s standards or the law, within the past 12 months. While the number was still high, at 47%, those responding told ECI they had observed something, this is lower than has been observed in quite a long time.

When it comes to reporting observed misconduct, Harned said, “The big question is, will people come forward and alert management to misconduct? And again, we found good news when we did this update to this study. 69% of employees told us that if they had observed some kind of wrongdoing, they found a way to report it to management in some way, shape, or form. That’s actually the all-time high highest level of reporting that we’ve had in the history of this study.” Unfortunately the news on pressure employees felt to compromise ethics standards was not as positive.

Harned noted, “16% of respondents told us that they are feeling some sort of pressure to compromise standards just to get their job done. That is the highest level of pressure that we have seen in the history of the study.” When you couple this with the fact that “84% of people who told us that they are feeling pressure are also observing some kind of outright violation in their workplace”; it becomes a worrisome metric. It is certainly not a good sign that pressure is on the rise.

Regarding retaliation, the study found 44% of respondents indicated that “if they reported misconduct to management, they experienced retaliation for having done so and that rate has doubled since the last time we took that measure.” Harned characterized this as “an alarming number for a lot of reasons. One, because we’ve seen over the years that retaliation is a leading indicator of a declining culture. If you think that if you come forward to report wrongdoing, you are going to be harmed for having done so, employees are going to be quiet in the future and problems will persist.”

We concluded by looking at culture which is such a powerful influence on people’s attitudes about how real their code of conduct is at their organization down to their individual workplace. Harned believes that culture not only trumps compliance “every day of the week” but also that “it is a huge influence on employees own decisions when they don’t know what to do.” Unfortunately, one of the things the survey found was the percentage of people who say they work in workplaces with strong cultures has not substantially increased over the past years. Yet when employees are working in companies with strong cultures, it makes a huge difference. The survey found 88% “of people who say they work in a strong culture reported wrongdoing if they observed it, and the level of retaliation was 43%, still not at the great greatest of numbers, but certainly less than if they’re working in an organization with a weaker culture”. The bottom line is that employees are far less likely to say they feel pressure to cut corners if they are working in an organization with a strong culture.

The outcome is that conduct in US workplaces continues to shift. Based on historic findings and current indications, ECI suggests that leaders brace for employee conduct to worsen in the days ahead.

Key findings:

  • Rates of misconduct have declined by 8% in the last 4 years, to near historic lows.
  • Employees are reporting misconduct at the highest rates since the inception of ECI’s research. Reporting has increased 23% since 2000 with 69% of employees saying they reported misconduct.
  • Pressure to compromise standards is at an all-time high
    • Increased pressure and rates of misconduct go hand-in-hand.
    • Rates of retaliation have doubled, with 44% of employees having experienced retaliation for reporting wrongdoing
    • Why has retaliation increased so much more than rates of reporting? 
    • Can strong cultures mitigate retaliation and misconduct?
    • Compared to orgs with strong cultures, those with weak cultures are:
      • 3x more likely to say they experienced pressure to compromise standards;
      • 3x more likely to say they observed misconduct;
      • 41% less likely to report; and
      • 27% more likely to say they experienced retaliation for reporting.

 II-Measuring the Impact of Ethics & Compliance Programs

This study was designed by ECI to actually look at data from employees and determine if a higher quality ethics and compliance program makes a bigger difference than having no or a minimum standard program in place. Initially, we began with a discussion of what is a “high-quality program”. Harned said, “over the years we’ve certainly as an industry talked about what does it mean to have an effective program. Often in our industry, by default, you talk about the minimum standard, the expectations of enforcement agencies or regulators or language in regulation or the law. And one of the things that ECI has wondered about over the years is whether that really is an inadequate definition of a very strong ethics and compliance program. So we convened a blue-ribbon panel in 2016 that helped us to work out a definition of what a high-quality program might look like.”

We then turned to the definition of a high-quality program. Harned identified principals elements, because “when you look across companies that really get it right, there are five principles that are essentially their way. First companies see ethics and compliance as central to their business strategy. It is understood within the organization not as an add-on or nice to have but as being primary to the success of the business. The second is that risks are identified and owned and managed and mitigated by leaders across the organization. 

The third is that leaders at all levels and across an organization recognize that they have an impact and a responsibility to build and sustain a culture of integrity. The fourth is that the organization creates an environment where people are encouraged and protected to come forward and report wrongdoing. And the fifth thing is that people are held accountable if they violate the standards. In past reports we’ve done, we’ve elaborated on that. What are some of the practices? What does it actually look like that'’ all available to the public on our website? 

But overall, we also look at certain kinds of outcomes of people who observe misconduct. Are they willing to report it? Will they raise bad news? Do they have strong perceptions of their leader’s commitment to integrity? And we call those ethics program outcomes. And what we found was that when an organization has a high-quality ethics and compliance program, those outcomes are 10 times better than in an organization with a minimum standard program or no program at all. And across the board metric by metric. What we found in this study is that the higher the quality of the program, the better the outcomes.”

Corporations have historically organized their ethics and compliance programs around a priority to align with legal and regulatory expectations. Yet increasingly, organizations are going above and beyond historic regulatory risk mitigation. With more and more organizations committing to higher quality programs, it begs the question: does it make a difference when a company dedicates more resources and heightens the priority of their E&C efforts?

Key findings: 

  • When the elements of a High-Quality Program (HQP) are present and perceivable by employees, favorable ethics outcomes are increased more than 10x.
    • Why is the perception important?
    • How do we define a High-Quality Program?
  • Program quality matters – Reporting/Satisfaction increase with each level of program beyond a minimum standard.
    • Why is this significant?
    • What does it say about ECI’s Principles of a HQP?
  • With no program present only 34% of employees speak up/report misconduct and only 20% are satisfied with the results of their speaking up.
    • In HQP organizations, 94% report and 93% are satisfied – What does this say about creating a speak-up culture and the importance of HQP elements?


III-Building Companies Where Values and Ethical Conduct Matter

This Q3 survey took the principals from ECI’s definition of a high-quality compliance program and looked at how they have been operationalized in corporate compliance programs. This survey started by reporting on proactive communications by corporate leaders. Harned noted, “We talk all the time with them about setting a proper tone from the top. At the same time we spend a lot of time thinking about how do you build trust in a workplace? We were looking first at proactive communication, not just when you’re talking at employees, but does it make a difference the way you go about speaking with employees about the importance of ethics? And we found that it actually does make a difference.”

She added an interesting way to consider proactive communication by senior management stating,  “when leaders talk about ethics in the workplace in a way that makes it relevant to the way employees are doing their jobs, they make it real to every day decisions that people make and when they encourage people to speak up in the workplace.” 

That led directly into a discussion about trust, which is absolutely critical to having an ethical organization. Harned began by noting, “trust is in a lot of ways it shows up on a lot of company core values statements. It’s something organizations articulate as being critical to the way they want to make decisions and behave in the workplace.” Further, while it may be a difficult concept to articulate, much like Potter Stewart, they know it when they see it. Moreover, “if employees do not trust their managers, they don’t trust that decisions are being made based on the ethical standards of the organization.” 

This final insight is the sum of two big observations. “The first is whether employees are believing and seeing tangible evidence that an organization holds people accountable to the standards of the organization. If you break the rules, will you be held accountable. The second is just having genuine interactions with your leadership. Among colleagues,  people interacting with each other in a way where the values are evident.”  

All of this is just another way of discussing institutional justice but ECI advocates taking it down to the individual manager, middle manager and senior manager levels. Some of the questions you might ask are the following: Are you accountable? Are you personally accountable? And is the company accountable in a way that is transparent and fair across the organization? Do you see that as equally important?

Interestingly, in this study employees related that when their managers and their supervisors are willing to admit mistakes, this demonstrates their own personal accountability. Employees believe they are holding themselves accountable to the standards. Harned said employees “are 25 times more likely to believe that their managers and their supervisors value employees and value genuine interaction with their employees.” This demonstrates that “seeing your own leaders, holding themselves accountable is a powerful influence on not only the way people see the culture of the organization, but how they see their own behaviors as well. People are more likely to hold themselves accountable when their manager is modeling that conduct.”

Few would argue about the importance of communication and trust in the workplace; these are well-known ingredients for harmonious working relationships and a productive working environment. But less is known about the reasons that communication and trust are so essential - especially within the ethics & compliance space.

Key findings:

  • What is proactive communication? Talking about ethics + speaking up.
    • When employees feel that managers talk about the importance of ethics, they are 12x more likely to believe that they are encouraged to speak up;
  • What is workplace trust? Accountability + genuine interactions (taking ownership + showing employees they care).
    • Accountability from managers and employees feeling respected go hand-in-hand; and 
    • Fewer than 4 in 100 employees feel that their managers demonstrate respect for employees when those managers fail to demonstrate accountability
  • Employees are 15x more likely to believe that their managers are committed to company values in organizations that can be characterized by having proactive communication + trust.

IV-Interpersonal Misconduct in the Workplace: What It Is, Where It Occurs and What You Should Do About It

A decade ago, companies made headlines for problems such as bribery, financial manipulation, and fraud. The attention has shifted, though. For the past year, mistreatment of employees, especially abusive behavior, sexual harassment and discrimination, has joined data privacy as a critical issue of our time. #MeToo and #TimesUp have given a name to the larger effort to unearth problems that have festered and to find a path towards safer more respectful workplaces. Efforts to expose the issues have uncovered repetitive patterns of interpersonal misconduct in organizations around the world. 

This topics of sexual harassment, sexual assault discrimination and/or abusive behavior has been a part of the compliance conversation, just as in society for at least the last two years. GBES is designed to measure trends in workplace misconduct. Unfortunately, one of the leading types of misconduct that people observe is always abusive and intimidating behavior by supervisors towards their employees. The Q4 survey was designed to explore that issue a more. ECI also wanted to take the pulse around sexual harassment and discrimination in the workplace.

Harned said the survey found, “12% of people observed some type of abusive behavior in the workplace and another 12% observed some type of sexual harassment. Even worse was the finding that 21% observed abusive or intimidating behavior and that most were not isolated incidents, with 62% happening on multiple occasions.  

One of the most important things about #MeToo has been to raise the awareness that these problems are not simply the responsibility of those harassed, discriminated against or abused. It is the responsibility of someone who sees such conduct to report it. I was therefore interested in what the survey showed on this issue. Harned said, “There are certainly a few risk factors that I think drive a fair amount of people’s decisions when they are observing these types of behaviors, whether or not they’ll come forward and actually report it. 

The first is their perception of leaders, whether or not this is something that we’ve sort of seen over the years, that people’s beliefs about their leaders, the conduct that they display, but also their belief about whether leadership really cares about this issue also affects their willingness to come forward.” 

The second factor is the focus of the environment of the business, which focused on processes versus outcomes. Harned said, “One of the things that we found was that when an organization focuses on performance and the way they incentivize people; it has a substantial influence on the extent to which they’re observing” untoward behaviors; whether it be abusive behavior, sexual harassment or discrimination in that environment. The survey found that if you have a focus on the overall outcomes as the bottom line, there is usually not an environment of accountability. As Harned stated, “it’s a real problem for a lot of organizations.” 

The third factor is the extent to which the organization is going through a fair amount of transition and change. These three items “drive employees decisions about whether they will come forward to report, whether they’ll take action when they’re seeing this kind of behavior in their environment. We have seen this to be a trend with other types of misconduct as well, that there are certain types of shifts that happen in an organization where misconduct is likely to be higher, for example, that would include expansion into new countries, mergers, acquisitions of another organization.” Yet, it can include other events which are familiar in the life of a corporation including  “substantial changes in top management, changes in leadership, layoffs, restructuring, downsizing, and any measures that companies take to cut costs.” 

The survey found that employees are “3.8 times more likely to observe discrimination if their organization is going through transition and they are 3.5 times more likely to observe sexual harassment. Finally, organizations going through such transitions are 2.5 times more likely to observe abusive behavior.” Harned concluded, “There’s something about organizations in transition that changed the way people relate to each other or it. Unfortunately, it allows this sort of behavior that goes over the line to take place if heightened awareness.” 

The bottom line is that heightened awareness of interpersonal misconduct and the toll it takes on individual employees and organizations is a positive development. But more needs to be known about the nature of the issues, the scope of problems, the factors that exacerbate problems and strategies for fostering respectful workplaces.

Key findings:

  • More than 1 in 5 employees observed abusive behavior in the workplace.
    • What is even worse? Most were not isolated incidents, with 62% happening on multiple occasions.
  • Nature of work disparity: Nearly 40% of employees in service/hospitality industries have experienced interpersonal misconduct, while 17% in “white-collar” professional industries have experienced interpersonal misconduct.
  • While some employees will always act with integrity and others will always act out of self-interest, most stand somewhere in the middle and can be influenced in either direction by the culture and those around them.
  • Key risk factors include: 
    • Poor Ethical Leadership;
    • “Performance”, Not Profit, Focused; and 
    • Organizational Change 

V-Where Are We Headed?

In terms of where the regulators may be headed, Harned noted that “First of all is increasing awareness by enforcement agencies regarding their influence on the behavior in our industry, but also with business leaders more broadly. They have a greater understanding that if they make an enforcement decision or declined to prosecute and they focus on one part of any effective compliance, it draws an immediate amount of attention. This has led them to think more broadly about not just to focus on certain program elements but on overall compliance program effectiveness.”

Harned believes we will continue to see the regulators advance the dialogue around compliance program effectiveness and she added, “one of the things that ECI has tried to do and will continue to do, is to also challenge the enforcement community to think encouraging higher quality programs.” While having a minimum standard program does make some difference, a company that really invests in a high-quality program receives much better results. To the extent that regulators help reinforce that message, they are helping to improve business behavior across all industries.

Next is the evolution of compliance from a rules-based paper program to a more proactive approach to compliance. A rules-based approach comes “from creating boundaries and guidelines for employees based on things that have happened. You can never have enough rules to anticipate all of the challenges that are on the horizon.” This is why compliance has “evolved to a more proactive mindset and a proactive approach.” One of the manners in which an  organization can act “is to focus on having a set of core values that articulate not just how and where are the outer boundaries are but instead focuses on the way an organization wants to do business.” 

Your company should focus on culture. This means institutional justice and institutional fairness. So are you creating an environment where people feel free to raise concerns? Will employees come forward and report wrongdoing? These are things help to help an organization to think more broadly about what the compliance and cultural challenges are ahead and does it have an environment where people will alert the company if there are things it needed to know about.

We concluded by exploring technology but not focusing the discussion on the new technological innovations that help to make the compliance practitioner more efficient, rather we explored the human side of compliance and the need, even with all of the explosion of tech we have seen in compliance, for the human element now. 

Harned said that while Artificial Intelligence (AI) is one of the examples of new technologies available to the compliance practitioner; it is also “one of the primary examples of what happens when you remove the human element from ethical decisions.” This will be one of the challenges in front of compliance professionals and organizations. She pointed to the example of “self-driving cars. In this field there are decisions that have to be made by a machine, by a programmed entity about in certain circumstances of what may be the best of all bad options. In some of these bad options, there are risks to people’s wellbeing.” She asked the question, “How does that decision get made?”

For Harned, the “bottom line, is that ethics is about trying to treat people well and doing good by others.” Yet there may be an ethical decision which has to do with making a decision, where “the outcome of which affects other people and you’re trying to do good in the world as opposed to doing harm or doing the wrong thing.” This quandary brings up the human element of compliance. Harned concluded, “You’re never going to be able to come up with rules to anticipate all of the risks on the horizon or how people will behave in certain situations. You can also never program a machine or create software that can anticipate all the human elements of an ethics issue that.” 

For more information on ECI, visit their website by clicking here. To obtain a copy of all four reports from the 2018 Global Business Ethics Survey, click here.