We all know the phrase – “A fish rots from its head.”  A perfectly accurate statement as to how corporate culture can suffer from leadership failures or C-Suite misconduct.  But there is much more to corporate culture than just what happens in the C-Suite. 

Day-to-day events throughout the company can infect a corporate culture as well.  A well-oiled machine means that corporate leadership establishes ethical and behavioral expectations through communications and their own observed conduct.  When we move down in the organization, compliance professionals refer to the “mood in the middle.”  It is at this level that a company’s culture is operating, where misconduct, if unchecked, can infect slowly but surely, a company’s culture.

An important part of any culture survey focuses on the concept of observed misconduct.  To the extent a respondent acknowledges observing misconduct, the key question for the survey is whether the person reported the observed misconduct.  Unfortunately, most surveys show that reporting rates can vary significantly in companies depending on the overall culture and value placed on promoting a Speak Up culture.  In other words, do employees trust that the system will work if they report misconduct?

To ensure the existence of a Speak Up culture, it is important for a company to operate a reliable reporting system, to communicate with reporters of misconduct to ensure prompt investigation and protection against retaliation.  And there has to be a prompt and reliable investigation system to substantiate reports of misconduct.  All of these factors have to be taken into account and implemented for a corporate culture to thrive.

One of many risks to these cultural requirements is the existence of supervisor or managerial misconduct.  Ethics surveys often report supervisor or managerial misconduct rates between 40 and 60 percent.  This is troubling.  A large percentage of employees want to report misconduct to their direct supervisors – often they trust their supervisors. 

But what if the bond of trust is broken?  If employees observe their supervisors engaging in misconduct themselves, employees are less likely to trust the supervisor and report any misconduct.  Also, if employees observe their immediate supervisors engaging in misconduct, they are unlikely to report their own supervisors’ misconduct.

Another troubling aspect of supervisor or manager misconduct is that such misconduct is likely to repeat itself, meaning if a supervisor or manager engages in misconduct, the person is likely to continue this misconduct. 

The risks of managerial misconduct is a significant risk for every company.  Yet, it is surprising how many companies ignore or downplay this risk.  It is easy to imagine that a manager who engages in misconduct that is observed by his/her direct employees can undermine corporate efforts to establish a strong, ethical culture. 

When this situation arises, a company’s reporting system will be tested – employees have to feel safe in reporting misconduct committed by their supervisors.  Such reporting will only occur if the employee determines that it is important for the employee to protect what is important to him or her – the company’s reputation and integrity.  Hopefully, it will not come down to this calculation; hopefully, the company’s controls will detect the supervisors misconduct but there is lots of room for supervisors to circumvent corporate controls and so-called non-material transgressions are unlikely to be detected.

While we often talk about the “mood in the middle,” we have to be realistic – tending to that mood requires more than happy talk and encouragement on ethical behavior.  To the contrary, as with any issue, our approach has to recognize the likelihood or risk of supervisor and manager misconduct and ways to protect against such conduct and harm to our corporate culture.