Culture Matters – Ethical Culture

Ethical Culture refers to where the organisation assesses the existing ethical climate including observable, formal elements in the organisation and individual mindsets, to determine the degree to which the workforce believes the organisation expects and supports responsible behaviour and integrity.

It is important that one does not confuse the overall organisational culture with the organisation’s ethical culture.

One way to look at it is that ‘Ethical Culture’ is merely a slice or a part of the overall organisational culture.

The question that depicts organisational culture is “how are things done around here,” whereas for ethical culture, the question becomes “how we are things done around here in relation to responsible behaviour and integrity”.

Look around you. Look at the news. Would you be able to identify companies that have been hauled up recently as a result of unethical conduct? What were the consequences? Were the costs worth it?

Just some months back, one example would be Johnson & Johnson - in May 2019, where a jury in California ordered the company to pay more than $29 million to a woman who claimed successfully that asbestos in its talc-based powder products had caused her cancer. It claimed that Johnson & Johnson has, since the early 1900s, possessed medical and scientific data that raised concerns regarding the presence of asbestos in talcum powder and that demonstrated the existence of health hazards to those exposed to asbestos-containing talcum powder products.

The Volkswagen Dieselgate scandal would be another good example of unethical behaviour. And closer to home would be the current infamous 1MDB scandal and the alleged involvement of Goldman Sachs where one of Goldman's top investment bankers, Tim Leissner, has recently pleaded guilty in a federal criminal investigation of the fraud and has been ordered to forfeit about US$44 million and fined US$1.4 million for his role in the fraud, corruption and embezzlement.

While some may wonder how someone could do something that is so unethical and even illegal, the fact is, in most situations, it is seldom a mere single unethical decision. Rather it would have started from lax ethical habits and behaviours leading to increasingly questionable actions and eventually the corporate fallout.

The fact is unethical conduct is rarely the consequence of one “bad apple” but, rather, is often because of a “bad barrel.” It is often, the culmination of a series of unchecked actions, starting perhaps from one person and over time becomes the norm or acceptable by the others. A cover-up here and a compromise there –ignored or not addressed properly resulting in an unhealthy culture down that slippery ethical slope. So, it is not surprising that while Goldman had refuted their own role in the fraud and claimed that they were ‘misdirected’, Tim Leissner commented that the decision to hide information from Goldman's compliance officers was "very much in line" with company culture!

I am sure many would be able to relate to the fascinating 19th century science experiment of the frog in the boiling water. As the story goes, researchers found that when they put a frog in a pan of boiling water, the frog just quickly jumped out. On the other hand, when they put a frog in cold water and put the water to boil over time, the frog just boiled to death. The hypothesis is that the change in temperature is so gradual, the frog does not realize it’s boiling to death. While the results of the experiment are in question it is a good metaphor for organisation cultures.

Clear accountability and good conduct are essential to good governance and sound business practices whereas persistent misconduct and a lack of individual accountability by persons in charge will lead to unethical cultures and erode public confidence.

How then does one go about instilling the right ethical culture?

The OCEG Manual provides some questions that the leadership should periodically ask. The questions include:

● Perceptions about stated values/principles and organisational support for them;

● Clarity of procedures by which potential issues can be raised, discussed, and reported without fear of retaliation;

● How leaders and supervisors are demonstrating ethical fortitude and business acumen;

● Misconduct observed by employees;

● Types of misconduct observed;

● Pressure to engage in unethical conduct or perceived rewards for unethical conduct;

● Willingness of employees to report misconduct;

● Satisfaction with organisational response to reports of misconduct; and

● When and how leaders and supervisors discuss expected behaviour and integrity.

It also involved identifying how the organisation discusses the following through multiple avenues of communication:

● The importance of integrity, values and principles in decision-making;

● The importance of asking questions and raising issues when concerns arise;

● How to report incidents and ask questions;

● Assurance that incidents will receive a timely response;

● Assurance that reporting incidents will not result in any retaliation;

● A commitment to anonymous reporting options; and

● An approach to ethical decision-making.

Finally, define ethical climate objectives, measures, targets and initiatives.

According to the US Society for Human Resource Management, strong ethics builds trust and trust is the key to improving employee engagement and commitment. Ethical culture is no longer an option nor a mere buzz word to make a company look good. Indeed, I am of the strong opinion that it is demanded of every sincere and growing organisation because a positive ethical culture enriches the experience of a firm whereas a negative one diminishes it. There are, in fact, proven financial and non-financial benefits for organisations with strong ethical cultures; such as:

·      Higher employee job satisfaction.

·      Increased legal compliance and rule-following.

·      Increased organisational commitment.

·      Increased cooperation.

·      Increased management success.

·      Increased attraction of high potential talent.

·      Lower health care costs.

·      Lower legal risk.

I end this post with a statement that rings true, by Professor Emeritus Howard Stevenson, of Harvard University:

Maintaining an effective culture is so important that it, in fact, trumps even strategy.

RHT G.R.A.C.E. Institute is a social enterprise parented by RHT Rajan Menon Foundation (a registered charity and Grant-making Philanthropic Organisation in Singapore). Through our community and knowledge-sharing, we aim to encourage a mindset shift amongst our members to enable positive tangible and sustainable behavioural change, through the establishment of good governance, conscious leadership, and growing a values-based culture. We envision the elevation of good businesses in Asia, where there is opportunity for all to thrive, beyond profit and grounded in purpose.

RHT G.R.A.C.E. Institute is committed to creating a positive social impact with the greater ambition of encouraging next generation corporate citizenship. If this speaks to you, and if you would like your organisation or team to learn more about ethical business conduct and culture, we warmly welcome you to join our community. Enquire with us at grace@rhtgrace.com.