Measuring Ethical Culture – Tapping Into “Open Secrets”

Scott Moritz, Managing Director Protiviti Forensic

Ethical culture and efforts to measure it are at the top of many board and audit committee agendas of late, and rightly so. A number of corporate scandals have played out on the front pages in the past year that have raised the discourse around ethical culture to new heights.

For those of us in the compliance investigations field, the linkage between organizational culture and ethical meltdowns is well known and by no means a revelation. Indeed, I can’t think of an internal investigation of corruption, fraud or misconduct in which the underlying conduct that was at the center of the need for the investigation wasn’t an “open secret” at the company.

Often, a large number of the people we interview in the course of such investigations very matter-of-factly state that they either knew or strongly suspected what was going on. What is most striking under that very familiar scenario is that, when asked why they didn’t say anything, the answers typically are variations of one of the following:

  • “I did report it, several times, and nothing was ever done about it and no one ever followed up with me.”
  • “The last time I reported something going on, I was retaliated against.”
  • “The people I would report it to are the very people who are the problem.”
  • “The people acting unethically are rainmakers, they are more important to the organization than I am. If it came down to them or me, I would be the one who would be fired.”

Wells Fargo, Harvey Weinstein and Volkswagen all had significant issues come to light that are now common knowledge in the marketplace, and when they did, it was quite clear that the problematic/illegal behavior had been going on not for months but years, and that the behaviors underlying these cases were in fact “open secrets.”

What is so interesting about these pervasive, frequently stated reasons why employees don’t report improper conduct even though they are well aware of it is how openly they share this information with investigators. In most cases, the reasons people share so freely is a combination of the fact that (1) we, as independent investigators, would have no reason to retaliate against them, (2) no one had ever asked them before, and (3) now that the cat’s out of the bag, they are free to rationalize their silence. Further, the person with the information often did not believe anything would be done about it before investigators got involved.

Until recently, this was a phenomenon to which one might just shrug and say “What are you gonna do?” or “That’s just the way things work here” – or some other rationalization for why it’s ok or why nothing is going to be done about it.

A Good Time to Survey Company Culture Is Now

As with so many issues that suddenly become board priorities, the board’s attention is usually due to public or shareholder outrage, and ethical culture is a prime example of such public-driven priority. And because directors’ attention spans and media cycles are short, the present time seems like a good opportunity to put ethical culture before the board.

If someone had asked me early in my career whether I thought people would answer a company-wide survey about culture honestly, I would have said, no way. Given how frequently I encounter people who are eager to share their unvarnished opinions about the company’s culture, however, I have come full circle. Culture surveys are not only useful but badly needed.

A well-written, thoughtfully executed ethical culture survey disseminated anonymously and confidentially is a very efficient barometer for organizational sentiment, good or bad. Companies that embrace the use of ethical culture surveys are accomplishing several things at once: They are letting their personnel know that the leadership team is interested in hearing from them and plans on doing something with what they learn. This alone can be a very positive message to employees and serves to offset other cultural signals that may have previously discouraged people from sharing their views openly. In addition to being evidence of an organization’s commitment to an ethical culture, the culture survey can serve as an early detection system of any open secrets that may be in play inside the organization that no one has inquired about before.

Measuring Ethical Culture

Measuring ethical culture may be a confusing concept since culture isn’t an object one can easily quantify. That said, there are characteristics, behaviors and impressions that can be examined to determine whether a company is on the right path or whether it has institutionalized bad behavior that, left unchecked, can lead to ethical failures down the road.

By delving into areas such as employee awareness of an ethics and compliance program, how those programs are perceived, prior examples of what has happened when someone observed problematic behavior and reported it, and whether incentive compensation and other pressures affect how often ethical missteps are committed or reported, companies can gain useful data for examination and help surface problem areas before they result in major issues for the company.

Other aspects of ethical culture that can also be measured and examined include whether management promotes ethical behavior by communicating and reinforcing ethical behaviors and whether management applies consistent forms of discipline to breaches of the code of conduct. Some commercially available ethical culture surveys include in the results not only how well respondents scored, but how they compare to employees at other companies.

Like so many activities in ethics and compliance, there are no silver bullets, and administering a survey alone isn’t going to have a measurable effect on an organization’s ethical culture. It is simply a tool, a way of teasing out signals within the data to provide some information as to whether the investments a company has made in ethics and compliance are having the desired impact or whether there are problem areas that need to be addressed. Often, it is both of those things.

What is important to understand is that administering an ethical culture survey is the start of an ongoing dialogue with your workforce. “We want to hear from you. We are committed to doing business the right way and fostering a work environment with which we are all proud to be associated. We are going to need your help in gauging what is going on, and then we will report back what we learned and what we plan to do with that information once we have it.” These types of dialogues initiated by the organization’s leaders, together with transparency of the survey results and the actions that follow, will help to move the cultural needle in the direction of a highly ethical organization.

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