LRN Report Highlights (Again) the Importance of Ethical Culture (Part I of II)

in its latest report, The 2024 Benchmark of Ethical Culture Report, LRN has focused on the critical issue of corporate culture.  LRN is a pacesetter and the leader in reliable studies on complex ethics and compliance issues.  If not properly promoted or maintained, a defective culture can lead to serious misconduct, government investigation, reputational damage and collateral harm.  on the other hand, a positive and effective culture is a company’s most valuable intangible asset — it is tied directly to increased financial performance and sustainable growth. 

Over the past few years, business leaders have embraced what compliance and governance professionals already knew– companies with strong ethical cultures outperform other companies with weaker cultures.  Employees at ethical companies are more productive, more satisfied, less likely to seek a new job and committed to the company’s mission.

LRN’s report included several important findings:

  • Companies with the strongest ethical cultures outperform companies with moderate to weak ethical cultures.  LRN estimated that — by approximately 50 percent, across all measures of business performance, e.g. market share, customer satisfaction, employee loyalty, innovation, adaptability and growth.
  • Employees at organizations with strong ethical cultures observe misconduct at a lower rate and are 1.5x more likely to report their observations of misconduct.
  • An organization’s ethical culture is a strong indicator of whether an employee believes he/she works at a psychologically safe environment. 
  • Organizations suffer from a perception deficit: senior leaders report more favorable perceptions of their cultures; middle management report only an average culture; and the front lines report the lowest perceptions of their cultures.
  • Generation Z has a higher tolerance for unethical conduct (if needed to get the job done). Nearly a quarter of Generation Z reported they have personally engaged in unethical conduct.
  • Employees in hybrid work situations consistently report more favorable perceptions at their organizations. Hybrid workers are less likely to engage in misconduct and are more likely to report observed misconduct.

To measure an organizations culture, the LRN survey focused on:

  • Do employees perceive the organization as purpose driven and ethical?
  • Do leaders model and reinforce the importance of ethical behavior?
  • Do employees feel safe and supported to voice their opinions, share ideas, and report improper behavior?
  • Do employees behave ethically, even and especially when under pressure?
  • Are standards of conduct applied consistently, and do employees trust the process?
  • Is the E&C program (training, code of conduct, policies, communications) useful and relevant to employees?
  • Are employees rewarded and recognized for how they do things, not just what they achieve?
  • Is trust demonstrated and fostered within and across all levels?
  • Is information shared openly and honestly?
  • Has misconduct been observed? What types of misconduct are occurring and how is it being reported (or not)?

LRN used statistical modeling to conclude that nearly 70 percent of the variance in business performance is tied to an organization’s ethical culture. This variance is even higher than LRN’s previous report in 2021. 

In addition to business performance, organizations with strong and moderate ethical cultures have lower rates of observed misconduct, compared to those organizations with weak cultures.  Additionally, employees at companies with strong cultures are more likely to report their observations than those in weak cultures.

LRN cited the importance of a robust reporting system, along with an effective investigation and disciplinary process that is trusted by employees.  In its earlier 2024 Program Effectiveness Report, LRN found that a majority of companies globally lack basic hotline features, such as links to their non-retaliation policy or an explanation of how complaints are handled. 

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