Accountability for senior leadership is the foundation of ethical culture

One of the most significant developments in the ethics space in recent years is the recognition that “paper” programs don’t afford meaningful protection against misconduct or its consequences. Established companies such as Nissan and Pacific Gas & Electric and media companies reeling from #MeToo scandals generally have a compliance infrastructure of lawyers, Codes of Conduct, training and hotlines but nonetheless their CEOs and senior managers have behaved as if these safeguards didn’t apply to them.

As we’ve seen, CEOs and senior executives who use company resources for their own benefit, who mislead regulators and harass subordinates repeatedly and retaliate against well-intentioned whistleblowers without consequences, put their company at major risk.

Regulators “get ” the importance of organizational justice as well. The Department of Justice’s April 2019 Evaluation of Corporate Compliance Programs guidance instructs prosecutors to ask organizations: “Have disciplinary actions and incentives been fairly and consistently applied across the organization? Are there similar instances of misconduct that were treated disparately, and if so, why?”

Checking all the boxes when it comes to an ethics program only matters if the organization’s actions match its commitments on paper.

What hasn’t been so clear is the most effective way to strengthen an organization’s ethical culture, particularly in this critical area. More training? A better Code of Conduct? More rules? As anyone active in the ethics and compliance area knows, there is a plethora of solutions, software programs, advisors all eager to transform an organization’s culture for the better. But do they work?

As it turns out, new behavioral research provides insights into the most effective ways to build and sustain an ethical culture. Even better news, they don’t cost money but do require substantial focus, energy and commitment. These studies show that employee perceptions that the company is “fair” in allocating rewards and sanctions is both a foundation and driver of ethical culture.

The research shows that employees obey authority when they think the organization is ethical and evenhanded, thus earning moral authority, an essential foundation for ethical culture.

Studies also show that employee perceptions of overall workplace fairness strongly correlate to occurrences of misconduct – the less perceived fairness, the more misconduct and vice versa. Thus, failure by an organization in this critical area is costly. It undermines an E&C program’s entire edifice of rules, policies, training and procedures.

LRN’s research strongly supports the critical role of organizational justice. Our 2019 Program Effectiveness report asked respondents whether their management treats misconduct equally when it comes to imposing consequences. Programs that score high on effectiveness were more than twice as likely to respond affirmatively.

Some companies not only excel at organizational justice; they understand and embrace the impact it has on maintaining their ethical culture. Several months ago, BlackRock Inc, one of the most successful U.S. financial institutions, fired another senior executive — one mentioned as a possible CEO candidate —  for personal misconduct. Earlier in the year, the company terminated its head of global human resources on the same grounds. Most significantly, its leadership articulated the departures and publicly linked them to BlackRock’s culture.

“Our culture has always been one of BlackRock’s greatest strengths, and it is deeply disappointing that two senior executives have departed the firm in the same year because of their personal conduct,” BlackRock CEO Laurence Fink said.

Terminating high performers or C-suite members is never easy or something to celebrate. But protecting and enhancing the organization’s ethical culture always is.