The Sarbanes-Oxley Act of 2002 carried with it high hopes for a dramatic and immediate reduction in corporate fraud and gross misconduct. No such luck. In fact, a 2005 PWC survey, three years after SOX, reported that the incidents of fraud globally increased by 22 percent. And while we’ve seen some progress since then, in some ways the disappointing beat goes on. The media still reports periodically on corporate shockers, as well as creative misdeeds such as stock option backdating, global insider trading rings, and cases of personal misconduct or terrible judgment on the part of leaders and presumptive role models.
The “trust deficit” in American business.
According to the Ethics Resource Center’s 2007 National Business Survey, 56 percent of U.S. employees witnessed violations of company ethics standards, policy, or the law. And many saw multiple violations. Patricia Harned, president of the Ethics Resource Center said, “Despite new regulations, plus significant efforts to reduce misconduct and increase reporting, the ethics risk landscape in American business is as treacherous as it was before the implementation of SOX.” And I suppose we’ll all agree that personal character heroes are harder to find – in sports, education, politics, clergy and business – leading to talk of a “trust deficit.” Predictably, cynicism persists as some observers wonder whether “business ethics” and “corporate responsibility” are oxymorons! Others feel as if they’re experiencing “ethics fatigue” rather than the promise or at least the hope for a post-Enron ethics revolution.
What is an “ethical culture?”
These developments did not get lost on government authorities. In hearings conducted by the U.S. Sentencing Commission, the regulators got an earful. They heard from business executives, ethicists, and lawyers that strengthened audits, compliance training and whistleblower protection were fine, but not enough. Commissioner Cynthia Glassman was most candid in admitting that, “although the government can mandate legal compliance…we cannot legislate ethical behavior.” She and her colleagues heard that the key prerequisite for a compliant organization is not just the heavy hand of the law. Rather, it’s an enabling culture – its collective beliefs, attitudes, behaviors, values, rites and rituals, and traditions.
The revised Federal Sentencing Commission’s language was groundbreaking: Companies must “promote an organizational culture that encourages a commitment to ethics as well as compliance with the law.” Unfortunately, the commissioners never defined what they meant by “ethical culture!” So, what does an employer do, especially if it’s a public company? How does a leader strengthen his/her corporate culture in a way that is not only satisfactory to the regulators, but is also systemic, sustainable and engaging?
It’s all about small decencies.
Partly it’s about leadership’s dedication to a culture of decency – small decencies – gestures that are visible, affordable, actionable and scalable. Woven into the fabric of a corporate culture, these acts have the effect of not only lowering the risk of illegal behavior, but strengthening employee engagement and making the concepts of respect and integrity more vivid and palpable:
- Leadership accessibility and transparency
- Non-financial rewards (“psychic income”)
- Exhibiting trust
- Sharing credit but hoarding blame
- Handwriting notes of thanks or job-well-done
- Downsizing with a “velvet glove” when downsizing is necessary
- Remembering that there’s no such thing as "little people"
- Rejecting “executive pomposity” and pretentious perks Demonstrating the power of humility
- Remembering that “tough love” is not an oxymoron
- Decencies are maybe 2 percent of what we do, but represent 98 percent of who we are
- They're the “bubble-wrap” that keeps corporate cultures intact
A look at the big picture.
As for the bigger picture, I'm an optimist. The trauma of Enron, WorldCom, Global Crossing and others like it, as well as SOX, have certainly had some unintended consequences. Hopefully, those will become less critical over time. But there have been some positive byproducts.
An ethics industry was born, complete with consultants, associations, and important new roles: chief compliance officer, chief ethics officer, even chief responsibility officer. Corporate Social Responsibility and Sustainability have been given more prominence. There are fewer “celebrity CEOs.” Some corporate “bad guys” are paying their dues. Character, integrity and humility are sought-after leadership attributes. Business ethics is finding its way in business school curricula. Beyond the Fortune Magazine 100 Best Places To Work, there's America's Most Admired Companies; Ethisphere Magazine's World's Most Ethical Companies; and CRO Magazine's 100 Best Corporate Citizens. Reputation management is a growing leadership priority. And, it's all a golden opportunity for human resource executives as gatekeepers, interpreters and force-accelerators of corporate cultures.
Prominent compliance attorney, Joseph Murphy, is insightful. He believes that “…there's an unfortunate reality: In good times and in bad, there are always people looking for shortcuts, there are always people who do not care about the law, and there are always people who did not take the time to learn the rules. To put it simply, in good times people get greedy, in bad times they get desperate, and at all times companies should be on guard to prevent misconduct. This is about human nature, with the hypercharge of government enforcement initiatives and the specter of litigation and aggressive press coverage.”
The ROI of ethical behavior.
As the son of a psychiatrist, and the husband of a psychologist, I've come to learn that adult behavior modification is very difficult. But in the case of cultural decency and ethical behavior, it's well worth the try. And as a business person, I'm sensitive to the need to demonstrate that there's financial payback for the time, energy and money spent on culture-enrichment. There is a return on this investment and plenty of data to support the case. Financial payback or not, Lou Gerstner, IBM's legendary turnaround leader said, “Culture isn't one thing a CEO does…it's everything!”
Culture-enrichment isn't mushy psychobabble or HR-speak. It's what gives an organization sustainability, employer-of-choice reputation and, yes, even legal compliance. But, it's also about getting a uniformly positive response to the question, “How does it feel to live in this environment and be shaped by it?”
Poet Maya Angelou said it well: “I've learned in my life that people will forget what you said; they'll even forget what you did. But people will never forget how you made them feel.”
The global competition for increasingly scarce talent has challenged companies to compete on several fronts. Workplaces that have enabling cultures where innovation is stimulated, where performance is rewarded, where human capital is developed and where it “feels good to be here” will be the winners.
Interested to learn more? Contact LHH today to talk talent!