Executives, brace yourselves for a surge in unethical behavior.
That warning comes from the Ethics Resource Center (ERC), a nonprofit, nonpartisan research organization that tracks and publishes ethical behavior. In its latest National Business Ethics Survey report, released in January 2012, researchers found “extremes and substantive shifts” in ethical behavior at U.S. companies, according to a foreword by ERC President Patricia J. Harned, Ph.D., and ERC Board Chair Michael G. Oxley. He is the Oxley who was House sponsor of the 2002 Sarbanes-Oxley law, which contained sweeping new regulations impacting publicly traded companies in the wake of the Enron scandal.
The new ERC report, 2011 National Business Ethics Survey: Workplace Ethics in Transition, is available free with registration from ERC, which is based in Arlington, Va.
The news isn’t all bad. Overall, reports of misconduct have reached an historic low, and observers of wrongdoing seem more willing to report it than in the past. However, ethics cultures are declining, and employees’ perceptions of their leaders’ behavior are also going down. Employees report substantial pressure to compromise ethical standards, and retaliation against those who report ethical violations is soaring.
The findings “indicate something is driving a shift in the American workplace,” the report stated. “American employees are doing the right thing more than ever before, but in other ways employees’ experiences are worse than in the past.”
Influence of Economy, Social Media
Two major factors are at play, according to researchers: The economy and the social media revolution.
“Companies behave differently during economic difficulties,” noted the report. Historically, as the economy improves and companies and workers get more comfortable about their futures, misconduct tends to rise because “profit takes precedence over proper behavior.” In addition, reporting of misconduct declines, pressure to compromise increases and retaliation for allegations rises during improving economic times.
As a result: “The stage is set for a larger jump in misconduct once a strong economy reduces companies’ ethics focus and eases employees’ worries about job security,” the report stated. It finds that misconduct “is already rising at companies where renewed growth is underway.”
“Companies need to step up if they want to avoid big problems,” Harned told SHRM Online. “As culture declines, retaliation happens more frequently,” which can lead to more unethical behavior and can suppress employees’ willingness to report it, said Harned.
Researchers were surprised to find the large role in ethics played by active social networkers, defined as those who spend at least 30 percent of their work day participating on social network sites. Active social networkers “report far more negative experiences in their workplaces,” according to ERC. “As a group, they are much more likely to experience pressure to compromise ethics standards and to experience retaliation for reporting misconduct than co-workers who are less involved with social networking.”
The reasons “are not apparent at this time,” the report said, suggesting that “they may relate to the differences in the nature of the work they perform or some personal characteristics.”
Social networkers are a special breed of employee, noted Curtis Midkiff, the Society for Human Resource Management’s director of social engagement and a member of the National Business Ethics Survey advisory group. The ERC report, said Midkiff, “underscores the fact that active social networkers are causing companies to revisit all aspects of their culture,” including what behaviors are considered unethical.
Among highlights of the report:
- The percentage of employees who witnessed misconduct at work fell in 2011 to a new low of 45 percent, down from 49 percent in 2009 and well below the record high of 55 percent in 2007.
- Those who reported the unethical behavior they witnessed reached a record high of 65 percent, up slightly from 63 percent in 2009 and well above the record low of 53 percent in 2005.
- Retaliation against whistle-blowers rose sharply. Twenty-two percent of employees who reported misconduct say they experienced some form of retaliation, up from just 12 percent in 2007.
- The percentage of employees who felt pressure to compromise standards climbed to 13 percent in 2011 from 8 percent in 2009, just short of the all-time high of 14 percent in 2000.
- The number of companies with weak ethics cultures rose to 42 percent from 35 percent in 2009.
The pressure to compromise principles and retaliation against whistle-blowers are particularly worrisome, said the report’s authors. “These trends heighten business risk by increasing ethical misconduct and discouraging reporting, thereby depriving organizations the chance to identify and fix potential problems before they become significant.”
The most common form of retaliation reported by employees was being excluded from decisions in work activity by a supervisor or management. The report added that retaliation destabilizes organizations, “driving talented people to look for other jobs and depriving businesses of key skills.”
The study examined critical aspects of ethics culture, including management’s trustworthiness, whether managers model and discuss appropriate behavior, how much workers value and support ethical conduct, levels of accountability, and corporate transparency. Eleven percent of 2011 survey participants said their organization’s ethics culture was weak, while 31 percent rated it as “weak leaning.” Only 18 percent rated it as strong.
‘Reason to Be Concerned’
Data from the 2000 ethics survey—before Enron and other scandals ripped through the American business community—can now be seen as warning signs of the decrease in ethics that followed, the report observed. “Given this history,” it continued, “there is reason to be concerned that the current weakness of ethics cultures could foreshadow a new surge in misconduct.”
Employees’ perceptions of senior leaders and supervisors—major drivers of ethics culture—declined in 2011. Confidence in senior leadership fell to 62 percent, equaling the historic low in 2000 and down 6 percentage points from 2009. In fact, “employees have become less confident in their own ability to handle ethics situations.”
In an analysis of the types of misconduct that pose risk for organizations, sexual harassment and substance abuse each increased 4 percentage points from 2009 to 2011. Insider trading, illegal political contributions, stealing and environmental violations also were observed more frequently in the latest survey.
The report offered several recommendations for executives and boards of directors to boost ethical behavior and drive down risk:
- Invest deeply in ethics and compliance programs, and make ethics a business priority. Organizations that do not have ethics and compliance programs should develop and implement them by adopting best practices.
- Make ethical leadership a part of performance evaluations for managers at all levels. Such leadership is shaped significantly by the actions of executives and immediate supervisors.
- Communicate your personal commitment to ethical conduct. Talk more about the importance of integrity, and integrate company values and standards in formal and informal communications.
- Develop ways to strengthen your ethics culture using social networks. Engage employees in discussions about ethics issues.
- Revisit your company’s nonretaliation policy and practices. Make any needed improvements, and communicate them to employees at all levels.
“The risks of an ethics downturn can be mitigated,” the report concluded. “When business leaders invest in a well-implemented ethics program and take steps to build a strong ethics culture in their organizations, the payoff is substantial.”
Steve Bates is manager of online editorial content for SHRM. He can be reached at firstname.lastname@example.org
Report: Red Flags Overlooked in Most Corporate Fraud, SHRM Online Ethics & Sustainability Discipline, August 2011
Preventing Misconduct in Business Will Prove Elusive, Report Says, SHRM Online Ethics & Sustainability Discipline, November 2010