How would you create a strong ethical culture in an entrepreneurial venture?

Once employees see other employees skirting the rules without any consequences, they often start to believe that it is okay for them to do the same.

Additionally, an employee who wants to do the right thing may increasingly feel pressured not to speak up about unethical behavior out of fear.

According to a 2013 study done by the Ethics Resource Center, 41 percent of U.S. workers reported that they had observed unethical or illegal misconduct while on the job. While not all of these incidents were likely major, small ethical lapses tend to grow into major missteps for companies.

It is your employer’s duty to create an ethical business culture that rewards employees who do the right thing. If you spot anything after reading this article that your employer might be doing that doesn’t seem to follow ethical business practices, you might want to speak with an employment attorney.

What is an ethical business culture?

A business’s culture is often seen as something abstract and difficult to quantify. It goes beyond the employee handbook and the company’s mission statement. A business culture is the method in which the company functions. The business culture can include how employees dress for work, how they interact with management and how they interact with customers and clients.

To define an ethical business culture for a business is to create an environment where doing the right thing is easy and doing the wrong thing will get you disciplined or fired. It also means involving employees in regular discussions about workplace ethics and the procedures that are designed to uphold ethical practices.

An ethical business culture also places a high value on fairness, employee rights, and equal pay, while also discouraging dishonesty, unpaid wages, discrimination and disloyalty to the company, its employees, and its customers.

Eliminate double standards

In order to create an ethical business culture, employers should strive to eliminate double standards and cultivate trust among the team by being honest in their communications. This means that there should not be policies that managers and supervisors are permitted to ignore which subordinates are required to follow or are even reprimanded for not following. This allows all employees to put the work ahead of their own interests, regardless of their individual ranks or roles within the company.

Foster a respectful environment

Ethical employers should actively work to create a workplace environment that makes it possible for managers and employees to take pride in their work and identify with the values that drive the organization as a whole.

In order to do this, the employer must ensure that all employees have the right resources and authority to fulfill their job responsibilities. In addition, the organization should respect the rights and dignity of all employees.

Encourage workers to report illegal or unethical conduct

Employers should encourage workers to report illegal or unethical conduct, such as discrimination or harassment, by making sure that there are specific procedures that employees can follow to inform their employer when these incidents occur.

In addition, employees should not be made to feel that they will be reprimanded or retaliated against by the employer if they do decide to do the right thing by reporting the behavior. Finally, all employees, including managers and supervisors should receive training on the company’s policies and procedures with regard to workplace conduct.

Create a clear path to reward and recognition

Employers should be transparent when it comes to outlining how decisions are made regarding performance, pay, and promotion. In addition, the criteria for achieving reward and recognition should be clearly defined. Ethical employers make information about ethical and unethical conduct visible to all managers and employees and avoid recognizing or promoting people who violate the values of the company.

Advice For Creating An Ethical Business Culture

While this is not a comprehensive list of the steps that employers should take to create an ethical business culture, it should provide you with enough information to help you identify whether or not your workplace places a high priority on ethical business practices. Workplace productivity, employee turnover and general sentiment towards an organization are all impacted by the culture your business creates. Create an ethical business culture and reap the long-term awards.

Ethics and compliance professionals talk about “building an ethical culture” so often, that sometimes I worry about that phrase—that it can become something of a crutch, carrying too big of an idea for four small words. 

So let’s talk about building an ethical culture in practice. What does the phrase actually entail, when a compliance officer goes about the building of that culture? 

Trust and Ethics Are Intertwined

First, appreciate the strong connection between building an ethical culture and building a culture of trust. Ethics are a set of principles. An ethical culture is a culture committed to pursuing those principles — and sometimes the pursuit of those principles leads an employee to take actions somebody else might dislike. Perhaps the employee reports suspicions of misconduct; perhaps he or she declines a lucrative business deal because it involves bribery or collusion.

Either way, the employee is putting a commitment to ethical principles ahead of commercial gain. He or she needs to trust that the company will support that decision.

So when compliance officers want to build an ethical culture, they need to think about how to build a strong sense of trust within the organization. The apparatus of a corporate compliance program—the training, the internal reporting systems, the Code of Conduct, the due diligence procedures; all of it—should work toward that goal. 

When you view “building an ethical culture” from that perspective, suddenly several tasks rise to the top of the priority list. 

The Importance of Management

For example, as much as we all love a strong internal reporting system, most employees report their concerns to managers. Most employees also take their cues about how to behave from managers. So training managers about how to weave ethical standards into the company’s daily routines is critical. 

Ethisphere recently published a report looking at the role managers play in promoting a speak-up culture. The research shows that across numerous criteria—from how often employees say they observe misconduct, to how often they report it, to how much they fear retaliation, and so forth—the more managers talked about ethics, the better employees rated their company’s culture. 

Formal training will always be important; employees will always need to know what the law says about bribery, or privacy, or collusion, or whatever else comes along. Culture, however, is much more than training, full of informal practices, norms, and expectations. So ethics and compliance programs must work with middle managers on what those practices, norms, and expectations are, and how to base them on the company’s ethical principles. That’s where you win or lose this battle. 

Senior leaders have a crucial role in building an ethical culture too since they send the signals about the corporate culture that middle managers translate into daily routines. Something as simple as flying coach on business travel, or as strong as firing a superstar sales executive for harassment or corruption—those acts get noticed, interpreted, and replicated at the local level, and that’s what defines an ethical culture.

If anything, then, an ethics and compliance officer should work with senior managers to talk about what signals to send; and with middle managers to help them build cultural norms that reflect the ethical values embedded in those senior executives’ signals. Work how, exactly? 

4 Ways You Can Build an Ethical Culture

1. Develop clear ethical values—honesty, respect, fairness; whatever fits your organization. Talk with senior leaders and the board about what those values should be. Put them in the Code of Conduct, in a place of prominence. 
2. Develop clear training materials based on those values. Create real-life scenarios that employees might encounter, where the resolution shows how ethical conduct is the higher priority than commercial success. 
3. Study the company’s incentive compensation, to be sure it drives the right behavior. If the firm has a rank-and-yank policy of firing the lowest performers every quarter; or heavy use of individual incentives that pits employees against each other—policies like that can drive the wrong behavior, where commitment to ethics goes out the window.
4. Refine your internal reporting system to assure the confidentiality of whistleblowers. Someone who does report an allegation to a hotline (or some other system that circumvents his or her manager) has a fear about doing the ethical thing. He or she needs to trust that the company will protect their identity—that is, they need to trust the system. So they need to see that your internal reporting system is trustworthy. 

Those are only a few examples of what building an ethical culture entails. It’s long, painstaking work, that relies on communication and collaboration but that’s how you get to an ethical culture.

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