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What Makes for an Ethical Company?

Values, Behavior, and Organization Culture Underlie Ethical Behavior

Ethics is about how we treat others. It goes back to the Golden Rule “To treat others the Way we want to be treated.” Nowhere is this more important than in the workplace where most of us spend the majority of our time.

Organizations have formal ethics systems in place to prevent and detect unethical and illegal behavior. This includes codes of conduct, values and vision statements, an ombudsman, and compliance mechanisms that might include a top-level ethics officer to oversee ethical and legal behavior in the organization.

There are many reasons unethical behavior occurs in the workplace. The most important is, I believe, the tone set by supervisory personnel and top management. Regardless of the ethics of a person, if people perceive their boss or higher-ups sanction unethical actions and may engage in such behavior themselves, then it is bound to affect workplace behavior of others in at least two ways. First, it may lead workers to engage in unethical acts themselves especially if they see it as part of the informal culture of the organization. Second, it makes it less likely internal wrongdoing will be reported or that whistle-blowing will occur when an otherwise ethical person view’s his or her reporting obligations differently because of informal norms and values.

The Ethics Resource Center recently issued its 2011 National Business Ethics Survey (NBES) and the results are mixed. Here are some of the major results reported in its Executive Summary.

  • The percentage of employees who witnessed misconduct at work fell to a new low of 45 percent.  That compares to 49 percent in 2009 and is well down from the record high of 55 percent in 2007.
  • Those who reported the bad behavior they saw reached a record high of 65 percent, up from 63 percent two years earlier and 12 percentage points higher than the record low of 53 percent in 2005.
  • Retaliation against employee whistleblowers rose sharply.  More than one in five employees (22 percent) who reported misconduct say they experienced some form of retaliation in return.  That compares to 12 percent who experienced retaliation in 2007 and 15 percent in 2009.
  • The percentage of employees who perceived pressure to compromise standards in order to do their jobs climbed five points to 13 percent, just shy of the all-time high of 14 percent in 2000.
  • The share of companies with weak ethics cultures (i.e. informal systems) also climbed to near record levels at 42 percent, up from 35 percent two years ago.

Other results give me great pause including it appears that instances of bad behavior are on the rise; pressure to compromise one’s values has increased; and retaliation against whistleblowers rose sharply. It’s no wonder more companies have a weak ethical culture according to the 2011 survey when compared to past surveys. The weak economy and competitive global business environment may have something to do with these troubling results.

I was somewhat surprise that more employees have a negative view of their supervisors’ ethics: 34 percent in 2011 versus 24 percent in 2009. One explanation is that workers often perceive the ethics of those around them as weaker than their own. Another is that pressure in the workplace to compromise one’s standards typically comes from top to bottom.

Ethical behavior and creating an ethical culture is an ongoing process. Systems must be put into place and employees must be convinced that the organization values ethical behavior. A positive ethical tone must be set by those in top management. Violators of the code must be punished in some way and those who follow the code rewarded – a tricky proposition at best.

Ethisphere Institute, a leading international think-tank dedicated to the creation, advancement and sharing of best practices in business ethics, corporate social responsibility, anti-corruption and sustainability, recently announced the sixth annual selection of theWorld's Most Ethical Companies, highlighting a record 145 organizations that show leadership in promoting ethical business standards.

One of the companies on the list is Applied Materials. The following statement by its chairman and CEO clarifies the steps an organization should take to enhance its ethical culture:

 “We are honored to be named to Ethisphere’s 2012 World’s Most Ethical Companies list and to join this prestigious group of corporate citizens. Since its beginnings more than 40 years ago, Applied has based its values on ethics and integrity. Our reputation and success are measured by what we do, not just what we say, and we strive to attain the highest ethical standards in our work and in our interactions with customers, suppliers, competitors and our community.”

Blog posted by Steven Mintz, aka Ethics Sage, on November 14, 2012