What the CFO's Are Reading
Including Ethical Behavior in Reviews & Bonuses - Skyrocketing
'5 Key Principles of Business Ethics'

This may come as no surprise, but a new survey of corporate ethics and compliance managers indicates that companies are trying hard to get their employees behave in an ethical manner.

Change is happening quickly, it seems. In the survey, which polled 480 such managers, 55% of them said their organizations factor ethical behavior into their workers’ performance reviews. In a similar study a year ago, only 35% of respondents said so.

Also, 31% of those surveyed this year said ethical behavior is now factored into bonus allocations, a huge jump from 11% in 2018. The study was conducted by LRN, a 25-year-old company devoted to, as its tagline says, “inspiring principled performance” in its client organizations.

The 2019 survey measured the incidence of key workplace behaviors that strongly correlate to a healthy ethical culture. Survey participants rated their organizations against eight statements using a five-point scale, from “almost always true” to “almost never true.” The statements were:

1. High performers who violate our code of conduct or values are tolerated.

2. Managers in my organization sometimes act as if they are above the rules.

3. Our employees trust that their leaders consistently make values-based objectives.

4. Employees in my organization feel pressured to achieve immediate objectives, even if it means acting in ways that are inconsistent with our values.

5. Employees hesitate to speak up/out during team meetings because they worry about how their managers will react.

6. Employees question decisions when they conflict with our values.

7. Employees do the right thing, even if it’s not in their personal best interest.

8. Employees are comfortable skipping levels or going to a level above their direct boss to raise ethical concerns.

Answers to the questions generated a “program effectiveness index” score for each participant’s ethics and compliance (E&C) programs. LRN then grouped such programs into quintiles in order to compare the impact of E&C programs across additional survey questions.

Programs in the top two quintiles of PEI scores were designated as having “high organizational impact.” Those in the bottom two quintiles had “low organizational impact.”

Through the research LRN found five key differences between high-impact and low-impact ethics and compliance programs.

High-impact programs go beyond meeting regulatory requirements to emphasize ethical behavior. The programs make it easy for employees to “do the next right thing, rather than the next thing right” and act ethically as well as legally.

“E&C programs driven principally by a desire to hew to regulatory requirements can have unintended negative consequences,” LRN’s survey report says. “In particular, elaborate rules necessary to maintain compliance often [send] employees hunting for exceptions or ways to bypass the very processes designed to uphold those rules.”

Some of the recent scandals involving airline employees who followed their rule book to the detriment of passengers’ well-being are good illustrations of the pitfalls of a rule-centric E&C model, according to LRN. “They show that real-life situations can evolve quickly, and because of that, employees need a moral compass, not a five-pound manual, as a guide.”

High-impact programs directly affect business decisions. Such programs are embedded in business operations, not merely codified in rules.

For example, in the survey, high-impact programs reported by a margin of two to one, compared with low-impact programs, that ethical considerations led to the modification or abandonment of a business initiative in the last year.

High-impact programs permeate their organizations and stakeholder groups. Senior leaders, middle managers, and boards of directors are engaged in the prevention of misconduct. The function is not left primarily to lawyers or ethics and compliance staff.

“It’s incumbent on boards as well as executives to deal effectively with ethical lapses, particularly those that occur at the C-suite level,” LRN wrote.

High-impact programs hold senior leaders accountable. These programs outscore others by a wide margin in taking concrete steps to drive ethical behavior. They embrace accountability even when it means holding senior leaders or successful performers accountable for their actions.

“Recognizing that actions speak louder than words, high-impact programs do a better job of encouraging and rewarding good behavior, and also penalizing misconduct,” according to the study report.

High-impact programs take a proactive and comprehensive approach to managing risk. Consistent with their emphasis on embedding E&C into the workflows of the organization and decision-making of employees, these programs do a better job of analyzing and mitigating risk to prevent misconduct.

“Static programs that rely on layers of inflexible rules may not be capable of meeting the needs of employees when they are faced with the new risks of an evolving business landscape [that] can disrupt or threaten an organization’s success,” LRN wrote.

Article originally published on cfo.com