Building an ethical company culture: Why policy isn’t enough

By José R. Hernandez, Ph.D.

CEO of Ortus Strategies

Author of Broken Business: Seven Steps to Reform Good Businesses Gone Bad

THESE DAYS IT IS RARE to find a global organization that has not adopted a written Code of Ethics that applies to its employees, directors, and third-party business partners. These high-level codes are usually supported by more detailed policies that operationalize the company’s basic expectations for professional conduct. For example: don’t cheat, abuse, or deceive; respect and protect the corporate brand and other assets; and, act with integrity.

If most companies have such policies in place, why are the headlines so often dominated by scandals that originated in toxic corporate cultures and rotten business practices? Why are policies not enough?

The Philip Green scandal – which flared up in late 2018 after allegations of sexual harassment, bullying, and racism began swirling around the British retail magnate, leading to calls for the removal of his knighthood – is just another example of how written rules and superficial platitudes about “doing the right thing” simply aren’t sufficient to prevent toxic, abusive cultures from festering.

Understanding the human dimension of organizations – and the ways that human flaws, when unaddressed, can cascade into massive organizational failures – is critical in building an ethical culture. Company leaders need to take a hard look at the way our businesses operate. CEOs especially need to focus on building teams driven by integrity and actively promoting a culture of ethical decision-making. This means a culture that encourages people to reflect on their conduct, ask questions, and think critically about why things are done the way they are done.

So how can leaders of organizations achieve this?

  1. Walk the Talk – Be a Role Model

The most effective way for leaders to inspire ethical conduct in employees is to demonstrate it every day in their own behaviour. This means asking the right questions to arrive at ethically informed decisions, getting all the facts about allegations of misconduct, and being willing to say no to business practices (and business partners) that conflict with the stated values of the organization, regardless of how lucrative they might appear.

  1. Incorporate Ethics into Hiring, Promotion, and Reward

Reshaping the culture also requires changing how employees are hired, promoted, and rewarded. Looking at a candidate’s ethical track record is an essential component of HR due diligence, and should not be an afterthought in seeking out the best and the brightest. Ethical performance should also be a core consideration in promoting employees to positions of greater responsibility. Furthermore, if an organization fails to visibly reward people for good behaviour (and sanction them for bad behaviour), the integrity culture begins to erode, and the unrelenting drive for profit and growth can cloud judgment and lead to ethical lapses.

  1. Don’t Allow Double Standards

CEOs sometimes have ethical blind spots, especially around the conduct of their most ambitious, high-achieving subordinates. Highly intelligent, charismatic employees are often allowed to operate largely unchecked; their departments and business units sometimes become semi-autonomous kingdoms lacking sufficient central oversight. I call these potentially dangerous characters the ‘superstar managers’. Part of leading by example means holding these high performers accountable for their actions and not allowing ethical double standards to persist and undermine the organization.

  1. Communicate Your Expectations

This means that there must be clear, consistent, and frequent communication of the organization’s integrity standards and expectations to all its stakeholders, including third-party business partners. Communication can take many forms – for example, events such as town halls provide a visible platform for setting the ‘tone at the top’ as well as enabling open, two-way dialogue on ethical issues. It’s also important to introduce mandatory ethics training for all employees, training that is designed to address everyday risks and dilemma situations.

  1. Promote a Speak-Up Culture

Corporate leaders should do everything in their power to encourage a ‘speak up’ culture and investigate all allegations that come to them. Whistle-blowers help bring vision to the wilfully blind; the messages they send should never be ignored or suppressed. As a leader, it’s essential to remember that whistle-blowers are not the enemy. There are too many corporate boards and senior executives who think their companies are doing well because there have been few allegations raised. It is more likely that the lack of allegations is evidence of a problem. Allegations are important signals about the health and culture of a company, including the openness of communication. People should feel safe enough to make them, and leaders need to be wise enough to act on them.

Company leaders too often view ethics as a niche functional concern, or a series of talking points, or a hindrance to strategy and growth; this viewpoint impedes efforts at reform. Incentivizing ethical conduct, empowering whistle-blowers, eliminating double standards, and rejecting wilful blindness are all essential steps to infuse integrity throughout the fabric of your organization. In large organizations filled with high performers driven by relentless pressures to compete, these can be difficult actions to prioritize. However, in the long run, it will make for a more profitable, resilient, and sustainable business.

José Hernandez is the CEO of Ortus Strategies and the author of new book Broken Business: Seven Steps to Reform Good Companies Gone Bad (published by Wiley), which is available now in hardback and ebook.