As the United States prepared to take a long holiday over the July 4th weekend, the Department of Justice set off some fireworks of its own: the department published a new edition of the FCPA Resource Guide, a one-volume compendium of all things related to the Foreign Corrupt Practices Act (FCPA). What does the Foreign… Read More
Tone at the Top
Businesses should be aware that ethical leadership can play an important role in preventing fraud, corruption, and other unethical practices from manifesting in lower levels of the organization. When leaders exemplify a strong culture of integrity and ethical behavior through their own actions, we might describe their actions as setting a good “tone at the top”.
What is Tone at the Top?
The idea of “tone at the top” originated in the discipline of corporate accounting. Auditors found that businesses whose board of directors and senior management team showed a favorable attitude towards internal financial controls were more successful at preventing unethical practices within their organizations. Tone at the Top seems to have a trickle-down effect on attitudes towards compliance and ethical behaviors within an organization.
How Does Tone at the Top Work?
Leaders within a corporation include the board of directors, senior management officials, and auditors. When corporate leaders value integrity, behave ethically, and respect the organization’s regulatory compliance requirements, employees of the business are more likely to adopt similar attitudes.
If the employees in a business have the perception that their leaders are simply paying lip service to integrity and ethical standards, they may be more likely to develop beliefs and attitudes that lead to unethical and even fraudulent behaviors. These can include:
- The belief that ethical guidelines may be ignored if they aren’t being equally applied to the board of directors or senior management team.
- The belief that unethical behaviors will go unpunished because senior management appears to disregard ethical guidelines and the organization’s ethics policy.
- The belief that the organization is generally corrupt, and that the appropriate way to advance in the organization is to engage in corruption.
In contrast, employees with the perception that their leaders operate with integrity, respect and follow ethical guidelines, and are mindful of compliance requirements, are more likely to develop attitudes and beliefs that support regulatory compliance and ethical behaviors in the workplace.
How to Improve Tone at the Top and Prevent Corruption
The board of directors for a given company has two important responsibilities. The first is to establish a system of corporate governance that allows the organization to consistently meet its goals and objectives, and the second is to protect the integrity of that system by following it at all times. When directors and C-level executives adhere to corporate governance policies, it sends a message to employees that policies must be followed and violations will be treated seriously.
Organizational leaders may also engage in the following activities to strengthen the tone at the top and promote ethical behavior:
- Establishing a Code of Ethics & Integrity – Organizations should draft a formal code of ethics and integrity policy to establish clear behavior standards and outline penalties for ethical violations.
- Promoting Ethics and Values – Leaders should promote organizational values and ethics in meetings, conversations with colleagues, and through their own words and actions.
- Establishing a Whistleblower Program – Leaders should establish a whistleblower program and encourage employees to report potential compliance violations or breaches of the organization’s ethical guidelines.
Rewarding Exemplary Actions – Leaders should recognize and reward employees who demonstrate integrity and uphold the organization’s ethical values.