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Cover Story
Creating an Ethical Workplace
Vol. 59   No. 4
Business decisions aren’t always black and white. How can you trust that your workers will do the right thing?

By Dori Meinert  4/1/2014
 

JPMorgan Chase paid the federal government $13 billion last fall—the largest corporate settlement in U.S. history—to settle charges involving conduct that prosecutors say contributed to the mortgage meltdown. The bank acknowledged that it made serious misrepresentations to the public about numerous residential mortgage-backed securities.

In January, the bank agreed to another $2.6 billion in payments to resolve charges that it failed to adequately warn its clients about Bernard Madoff's multibillion-dollar Ponzi scheme.

JPMorgan's troubles are the latest in a series of high-profile corporate scandals to grab the headlines, damaging company reputations and employee morale.

Last year, 41 percent of U.S. workers said they observed unethical or illegal misconduct on the job, according to the Ethics Resource Center's 2013 National Business Ethics Survey.

Not all of those incidents were major, budget-busting acts of wrongdoing. But ethical lapses tend to snowball. Once employees see others breaking rules without repercussions, they may believe it's OK for them to do so, as well. Or they may get fed up and leave the company.

In short, a culture where misconduct is tolerated—or, worse, encouraged—could result in higher turnover, lower productivity and, ultimately, a diminished reputation and profitability.

On the other hand, companies that work to build and maintain ethical workplace cultures are more financially successful and have more motivated, productive employees, studies have shown.

"If you look at the big picture, the livelihood of the company is at stake," says Holly Nowak, SPHR, director of HR for the Western New York division of Alcott HR, an HR outsourcing company with 50 employees based in Farmingdale, N.Y.

HR professionals are in a unique position to help build an ethical workplace culture because their involvement in hiring, training and evaluating employees allows them to influence their organizations at many levels.

They are—or should be—both guardians and champions of the ethical culture in their organizations, says Steven D. Olson, director of the Center for Ethics and Corporate Responsibility at Georgia State University in Atlanta.

As guardians, they have a duty to protect their organizations' employees, customers and clients from unethical conduct. As champions, they can help their organizations flourish by promoting ethical values in daily operations and by building trust, says Olson, author of Shaping an Ethical Workplace Culture, a SHRM Foundation report.

Changing Expectations

The 2008 financial crisis and recession tested people's faith in business leaders. Only 15 percent of Americans trust such leaders to tell the truth, according to the 2013 Edelman Trust Barometer. Globally, only 28 percent of the more than 30,000 survey respondents believe that businesses follow ethical practices. The scandal-plagued banking and financial services industry garnered the least trust compared with other industries.

Before 2008, corporate reputations were largely determined by financial success. Today, businesses build trust by treating employees well, demonstrating ethical practices and placing customers ahead of profits, according to the Edelman survey. The rapid rise of social media also is pressuring organizations to be more transparent—or risk exposure of unethical practices.

Meanwhile, researchers have found that ethical workplace cultures make good business sense. From 1997 to 2013, the annualized stock market returns of the Fortune 100 Best Companies to Work For in the U.S. were 11.8 percent compared with 6.4 percent for the Russell 3000 index and 6 percent for the Standard & Poor's 500 index, according to the Great Place to Work Institute.

More organizations are recognizing the value of creating ethical workplace cultures. The percentage of companies with "strong" or "strong-leaning" ethics cultures climbed to 66 percent last year, up from 60 percent in 2011, according to the National Business Ethics Survey of 6,420 employees.

When companies value ethical performance, misconduct is substantially lower. In 2013, only 20 percent of workers reported seeing misconduct in companies where ethical cultures are "strong," compared with 88 percent who witnessed wrongdoing in companies with the weakest cultures, according to the survey.

What Is an Ethical Culture?

Culture is often seen as abstract and tough to measure. It's more than all those carefully drafted corporate values statements and ethics codes—it's the way things really work. Workplace culture includes how employees dress, how they work with customers and how they interact with their bosses. HR professionals' initial challenge is defining an ethical workplace culture for business leaders who may doubt its effectiveness.

"What it means to me is an environment that makes it easy to do the right thing and makes it difficult to do the wrong thing," says Michael C. Hyter, senior partner, leadership and talent consulting, at Korn Ferry in Washington, D.C.

In the SHRM Foundation report, Olson describes an ethical workplace culture as one that gives priority to employee rights, fair procedures, and equity in pay and promotion, and that promotes tolerance, compassion, loyalty and honesty in the treatment of customers and employees.

When employers respect the law and treat employees in a fair and consistent manner, employees begin to trust managers and internalize the company's values as their own. Once that happens, ethics become embedded in the workplace culture, he says.

Managers' Influence

Managers play a major role in determining whether employees embrace a company's values. If managers and top leaders don't model ethical behavior or enforce rules in a fair manner, employees lose trust. Studies also show that people are more likely to override their own ethical concerns if their manager doesn't share those concerns.

So, recent survey results that show managers are responsible for 60 percent of workplace misconduct are especially troubling, says Ethics Resource Center President Patricia J. Harned. Senior managers are more likely than lower-level managers to break the rules, the National Business Ethics Survey found.

When managers are involved in misconduct, "it really has an impact on people's perceptions of the culture altogether," says Harned, noting it was the first time the survey asked who was committing the misconduct.

More than 1 in 5 workers who reported misconduct said they suffered retaliation as a result, up from 12 percent in 2007. A third of those who declined to report the misconduct said they feared they would be punished for doing so.

Employees are quick to pick up on inconsistencies, says Rebecca Barnes-Hogg, SPHR, founder of YOLO Insights, an HR consulting company in Little River, S.C.

She recalls an incident involving a midlevel manager who was running a side business from work. He rationalized that it was OK as long as he was getting his job done. However, when he disciplined a staff member, the staffer complained to HR about the double standard: Managers could break rules, but others couldn't.

"A lot of these things happen because no one speaks up," Barnes-Hogg says. "If we had known a year earlier, we could have avoided a lot of bad morale and turnover."

At a different company, a high-level executive was caught viewing pornography on his work computer. Although he was a valuable asset, the chief executive officer made the right decision and let him go, she recalls. An announcement was made at an all-staff meeting. Without giving details, the CEO let employees know that he had taken action, she says.

"I think the employees felt 'These are people we can trust,' " she says.

Can You Teach Ethics?

HR professionals help lay out the expectations for employees by developing written standards of ethical workplace conduct, providing training to make sure everyone is aware of the expectations and equipping managers to reinforce the company's values through their actions.

When interviewing applicants, many HR professionals say they strive for a good "cultural fit," asking for examples of how potential hires have juggled competing values in the past or responded to unethical behavior in others.

The Six Elements of an Ethics and Compliance Program

  • Written standards of ethical workplace conduct.
  • Training on standards.
  • Company resources that provide advice on ethics issues.
  • A process to report potential violations confidentially or anonymously.
  • Performance evaluations of ethical conduct.
  • Systems to discipline violators.

Source: 2013 National Business Ethics Survey, Ethics Resource Center.

Although psychological assessments are an option, most focus on the behaviors that people see, says Joyce LeMay, SPHR, associate professor of HR at Bethel University in St. Paul, Minn. In a survey of 210 HR professionals she conducted last year, just 5 percent said they believed it was possible to hire an ethical person.

Once individuals are hired, ongoing training is critical to maintain a heightened level of awareness of ethical choices employees will face on the job, HR professionals say. Harned sees positive signs.

For example, the percentage of companies providing ethics training increased from 74 percent in 2011 to 81 percent in 2013, the National Business Ethics Survey found. Other key indicators of strong ethical workplace cultures: Two-thirds of companies include ethical conduct as a performance measure in employee evaluations, up from 60 percent in 2011, and almost 3 in 4 companies communicate internally about disciplinary actions when wrongdoing occurs.

Many companies provide online ethics training, which can be easier to administer and track, but live training is more memorable, says Denise Messineo, SPHR, senior vice president of HR at Dimension Data, a global ITC solutions and services provider with U.S. headquarters in New York City.

Every other year, most of Dimension Data's 915 U.S. employees participate in a half-day ethics program, discussing how they would respond to various workplace scenarios.

"It just creates a great dialogue and awareness around what Dimension Data considers ethical behavior," Messineo says. "Because different people bring different things to the table based on their background, you can see some 'aha' moments as people talk through the different scenarios."

At Intuitive Research and Technology Corp. in Huntsville, Ala., new employees are required to attend a session called "Let's Talk Ethics with Hal." In the session, the company's co-founder and president, Howard "Hal" Brewer, discusses specific examples of ethical decisions employees will face in doing business with the government and other entities and how important their actions are to the company.

"He makes it clear that he is the ethics officer," says Juanita Phillips, SPHR, director of HR at the engineering and analytical services company, which has 282 employees. "I am in on those meetings, so they know I am a resource as well.

"His strength is that he means every word of it, and he shows it in how he lives every day in terms of running the company," says Phillips, adding that she knows it makes an impression because she has heard employees later paraphrasing some of his advice.

Howard Winkler, SPHR, project manager for ethics and compliance at Southern Co. in Atlanta, says he's constantly changing his company's training program to keep its 25,000 employees engaged and attentive to ethics issues. He runs contests, produces videos and uses internal social media.

Two years ago, the company invited a convicted felon to speak to employees about how a good person can go astray. The former chief financial officer for a major health care company served five years in federal prison for fraud.

"It made an enormous impression," Winkler says. "This person didn't start out his career looking to commit fraud. The main message was that once you make the first ethical compromise, you are embarking on a path that can lead all the way to a prison cell."

Winkler recently replaced the company's mandatory online ethics training, which required employees to read the code of ethics and certify that they had done so. "When it's put online, it usually has all the charm and engagement of a software licensing agreement," he says.

He worked with his corporate communications department to hire actors and produce "a really nice uplifting video that lasts less than 10 minutes as a far more engaging alternative to simply scrolling through a lot of words."

This year, Southern Co. is kicking off an online video ethics training series to ensure that new front-line managers have the tools they need to step into their new roles, Winkler says. He also tries to create opportunities for senior executives to talk to employees about ethics, which he says helps elevate the issue in employees' eyes.

Beware of Ethical Danger Zones

Sometimes good people can get swept into unethical behavior, warns Steven D. Olson, director of the Center for Ethics and Corporate Responsibility at Georgia State University and author of Shaping an Ethical Workplace Culture, a SHRM Foundation report. Watch out for these danger signs:

Conflicting goals. If forced to cut corners to attain performance goals or given objectives that they believe are unattainable, employees may feel pressured to compromise ethical standards and lose trust in their managers.

Fear of retaliation. The fear of payback for doing the right thing is a powerful cause of inaction in organizations.

Avoidance. When bad things go unpunished or are ignored, that can lead to even worse behavior. It sends the message "We don't care."

Rationalization. The "Everybody's doing it" mindset can lead people into murky ethical waters.

Lowered thresholds. With each unethical decision, the next one becomes easier. It's a slippery slope.

Euphemisms. Using neutral terms to describe questionable actions (e.g., "creative accounting") is a subtle form of rationalization.

Evaluation Time

To gauge whether their efforts are successful, many HR professionals use employee surveys.

At Southern Co., last year 73 percent of employees said executive managers earn their trust "by consistently demonstrating high ethical behavior," up from 68 percent in 2009. The company also tracks employees' fear of retaliation when reporting a concern: 69 percent said they had no fear of retaliation, up from 60 percent in 2009.

"We'd like the scores to be higher, but the constant improvement is gratifying," Winkler says.

In addition, the company measures employees' understanding of what the company expects of them. Last year, 93 percent of employees said they understood that, along with their business results, the success of their career at the company "depends on my ethical behavior." And 94 percent agreed that "I am personally responsible for reporting improper conduct."

FIS, a global provider of banking technologies with 37,000 employees worldwide, has moved away from employee surveys because the results were too predictable, says Michael Oates, executive vice president, general counsel and chief human resources officer at company headquarters in Jacksonville, Fla.

Instead, the company's top executives conduct employee meetings and roundtable sessions several times a year. "We found we can keep a thumb on the pulse better that way," Oates says.

Many organizations include ethics or related values in employees' performance reviews. Others monitor complaints and turnover for signs of a deteriorating culture.

"You start to see a decline in productivity because the workforce isn't engaged. People don't want to produce for an organization that they don't feel is ethical and operating in a compliant manner," says Nowak of Alcott HR. Another red flag is when employees suddenly stop raising issues, she adds. More than likely, they have given up.

Of course, the ultimate distress signal is when the organization starts losing valuable people.

"When I have seen organizations stall—someone brings something to their attention, and it's not handled in a timely manner—what I see is almost an unraveling of the organization," Nowak says.

Particularly in smaller markets, "you're going to have a hard time recruiting people to replace the ones who have left" if the organization has a reputation for treating its employees unfairly, she says.

Talk About It—A Lot

Finally, ethics needs to be brought up regularly so that it stays at the top of employees' minds. Ask managers to raise ethics questions in meetings. Encourage top executives to speak to it, as well. Managers can't monitor employees' every move, but they can help them recognize the right thing to do when company priorities clash.

"When an ethical issue arises, it does not come gift-wrapped with a note that says, 'This is an ethical issue. Prepare to make an ethical decision.' It just comes across as another business problem that needs to be solved," Winkler says.

"So if we can keep the chatter up and keep ethics on the minds of our employees, they are more likely to recognize and identify a business problem as having ethical ramifications than they otherwise would. Psychologists call it priming," he says. "That's what an ethical culture is all about: It's a place where people are more likely to see issues as having ethical implications."

As guardians of their workplace culture, HR professionals can not only lead the charge for ethical values but also inspire and empower employees at all levels to do the right thing. And they'll create a stronger organization in doing so.


Dori Meinert is a senior writer for HR Magazine.
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