One need only think of Uber, Wells Fargo, or Volkswagen to appreciate the importance of a strong ethical culture. Sadly, directors of these organisations discovered far too late that their corporate culture was not what they thought it to be.
Their boards remained ignorant while wrongdoing was taking place somewhere in company operations, and management failed to stop it.
It’s a common theme these days: problems in corporations erupt and hit the news, investigations occur, and the landslide begins. Later, in the aftermath, it becomes evident that the wrongdoing persisted because employees felt silenced, and management did not act because they had neither enough information nor the authority to do so.
In other words, corporate culture eroded and, as a result, scandal erupted.
Overlooked business risk
There was a time, not long ago, when I was invited to speak to boards about ethics and compliance, and I had to spend the first portion of my time making the case that safeguarding culture is an important responsibility for directors.
Now, thanks to some spectacularly high-profile incidents and stunning enforcement penalties against a handful of corporations, that is no longer necessary.
Today, most directors understand that culture is vital to business success. But the question remains…how can a board effectively safeguard it?
If you are a director and you want to monitor the wellbeing of your organisation’s culture, you should not allow any board meeting to adjourn unless the following questions have been answered to your satisfaction.
What have we done to communicate that integrity matters to us?
Boards should expect that in the time that has passed since their last meeting, multiple efforts have been made by management to communicate the importance of organisational values and standards in everyday business activity. Directors should ask for metrics showing:
- Direct mention of the organisation’s core ethical values in most formal and informal communications by the CEO and other C-suite executives;
- Visibility of the Code of Conduct and reference to policies that relate to key risk areas;
- Use of multiple methods of communication to promote helplines (and other reporting mechanisms);
- Encouragement of employees reporting concerns;
- Use of incentives to recognise employee performance that aligns with the organisation’s values.
To what extent do our employees feel pressured?
There is a direct link between employees’ feeling of extreme pressure and their observation of misconduct in the workplace. Pressure to perform is good, but undue pressure results in cutting corners.
Ask management to regularly distribute a pulse survey among employees to gauge levels and sources of pressure. When significant shifts occur, management should be able to explain root causes and address efforts to resolve any issues.
What’s the bad news, and how did it surface?
When cultures begin to erode, employees stop raising bad news to management. Management, in turn, stops sharing bad news with the board.
Ask business leaders to develop systems to capture reports made to supervisors about everyday mistakes, challenges, and other negative feedback that surface in operations. Management should be able to provide the board with a high-level summary report, on a regular basis, of the concerns that are being raised.
Additionally, directors should be aware that, on average, only 5% of reports of alleged violations are made to a formal company helpline. If business leaders are not providing insight into the reports that are made directly to supervisors or other members of management, ask them to do so.
What do employees think about the culture?
Employees often have strong views about the wellbeing of corporate culture, yet they are not asked for input nearly enough.
Directors should ask management to develop and implement a plan to gauge corporate culture on an ongoing basis. Methods can vary throughout the year, but board directors should be able to receive regular metrics demonstrating employee sentiment.
Ask management to utilise:
To what extent have our turnover rates changed?
When employees are dissatisfied with their jobs, they leave the organisation. When corporate culture becomes toxic and trouble is brewing, they leave in droves.
Ask management to provide regular reports of employee turnover, especially in key operations where performance pressure is higher.
Perhaps most importantly, as a director, the message that culture is important and that it will be vigorously pursued begins with you. If the answers to the above questions do not seem adequate to you, it’s your job to insist that management finds new strategies, better benchmarks, or additional sources of information to satisfy the board that your organisation is aware of the wellbeing of its ethical culture.
After all, the long-term success of your business depends on it.
Patricia J. Harned is chief executive at the Ethics & Compliance Initiative, Arlington, USA.