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What Building an Ethical Culture Actually Looks Like In Practice

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.

compliance technology

Matt Kelly

Matt Kelly is an independent compliance consultant and the founder of Radical Compliance, which offers consulting and commentary on corporate compliance, audit, governance, and risk management. Radical Compliance also hosts Matt’s personal blog, where he discusses compliance and governance issues, and the Compliance Jobs Report, covering industry moves and news. Kelly was formerly the editor of Compliance Week. from 2006 to 2015. He was recognized as a "Rising Star of Corporate Governance" by the Millstein Center in 2008 and was listed among Ethisphere’s "Most Influential in Business Ethics" in 2011 (no. 91) and 2013 (no. 77). He resides in Boston, Mass.

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