Building Corporate Ethical and Compliance Strength

There is an endless parade of corporate scandals, making executives ask: How can we strengthen ethics and compliance by changing employee mindsets and behaviors?

No business executive wants to find the company the target of a government probe or the subject of a whistleblower's claim of widespread ethics breaches. Unfortunately, it happens frequently with one of the most recent being the Volkswagen emissions scandal, in which emissions software “defeat devices” were installed to fool government regulators during vehicle emissions tests.

Most employees want to do the right thing, yet they may decide to ignore ethical violations of coworkers and supervisors, often out of fear of job loss but also frequently due to a desire to avoid creating problems out of misplaced company loyalty or being accused of making unnecessary trouble. Then there are employees who make poor decisions and purposely violate compliance and ethics guidelines.

Either way, changing employee mindsets is the key to changing behaviors, and it comes down to the kind of culture and leadership the organization develops.

Choosing to Do the Wrong Thing
Ethics and compliance violations erode trust in brands and corporate reputations, and employee morale, and put companies in the line of fire for additional government investigations and regulations. Violations also promote public cynicism about the ability of large corporations to develop and manage ethical organizations. This can hurt talent recruitment and retention, reduce business value, and harm the ability to exercise social responsibility.

Ethical people and organizations are unlikely to align themselves with businesses that appear to be paying lip service to ethics or continually fail to comply with governmental requirements. Ethics and compliance are critical elements of a sustainable business, and yet every year a major scandal continues to hit the news.

Employees at all levels must make decisions that have significant business consequences, from the mailroom clerk who steals checks to the CEO who knows, but ignores, serious ethical or noncompliance issues. Business leaders are tasked with understanding the “why” of these decisions, meaning they must grasp the decision-making process employees go through.

The reality is that there are many reasons people choose to do the “wrong thing” which could mean committing the offense or failing to speak up when knowledgeable of misconduct. They include a misguided loyalty to coworkers, a supervisor or the company itself; personal fear of corporate retribution for reporting misconduct; personal financial problems; meeting unreasonable work goals; cultural pressures in which personal values conflict with company rules; following the lead of managers involved in misconduct; and pure greed, to name a few.

Developing a CORPORATE Values-Based Culture
It is becoming clearer that making corporate rules and demanding compliance is not a good strategy. From a psychological perspective, compliance is behavior based on either fear of not meeting rules or on a desire to satisfy the expectations of others. It is not ethics or values based. People are simply complying with what they are told to do, even if their reasons for complying vary.

Though compliance is important, the corporate scandals clearly prove that making rules and more rules is not effective. What is effective is creating a values-based culture in which ethical behavior is incentivized and unethical behaviors are appropriately punished. People must have the right mindset, and the biggest influencers are the corporate culture and leadership.

Ordering people to obey rules is not effective. It is based on negativity – “do this or else." Employees do not like language based in fear or feeling like they are forced to do something, rather than wanting to do the right thing because it is important and based on positive values.

Building a strong ethical culture is critical to changing mindsets because the corporate culture is pervasive and constant across the organization. The culture may seem abstract, but it creates an environment in which it is easy for employees to make good decisions on a day-to-day basis. An ethical culture rewards good behaviors in a variety of ways, from recognizing employees who consistently do the right thing to establishing human resources and talent management practices that recognize employee rights and promote loyalty, honesty, equity, and fair treatment.

Include Every Manager in Trust Building
Though creating a positive culture begins with the CEO and top executives, it is leadership down to the frontlines that ensure the culture is firmly embedded and that employees recognize and embrace the values. All managers must exhibit ethical behavior and leadership, making fair decisions, building employee trust, and enforcing rules and procedures in a fair way. When employees report misconduct, managers cannot retaliate.

There cannot be double standards – one set of behaviors for managers and one for employees. For example, a manager who fakes information on a compliance report experiences no punishment, but an employee who violates compliance rules is let go. Consistent ethical behavior on the part of leadership is critical to building employee trust and changing mindsets. Employees must trust that doing the right thing is recognized and rewarded, and aligns with personal values.

An ethical culture and ethical leadership are the two most important elements of an ethical and compliant organization. The appropriate resources should be put into training people at all levels. Training increases transparency because it reinforces the culture and publicly discusses ethics and compliance. It is important for training to reach all employees, from newly hired frontline employees to top leadership. Training includes discussion of the corporate values and the open lines of communication employees can utilize. Ethical behavior is reinforced as a priority for business success and is not relegated to compliance. Employee performance reviews can reinforce approval of ethical behavior with good behaviors given equal status with other evaluation criteria.

The Wells Fargo scandal involved 5,300 employees opening more than a million fake customer accounts. This kind of behavior is indicative of a culture that did not promote the right values. Managers rewarded employees for unethical behaviors, creating a mindset that justified fraudulent activity to meet unrealistic performance goals.

Ethics and compliance must be a routine discussion backed up by ethical leadership behavior. Policies and procedures should always reflect corporate values, and frontline managers need to discuss positive, as well as, negative examples of ethical behavior.

Changing employee mindsets to build corporate ethics and compliance strength is an ongoing and relentless process.