LRN’s Call to Action: 5 Steps Every Company Should Take to Promote an Ethical Culture (Part II of II)

LRN’s  research consistently paints a picture that every board member, senior executive and middle manager should view — corporate culture is an organization’s most valuable intangible asset and is a significant determinant of success in the marketplace. Corporate leaders know how to mouth the words to express their commitment to ethical values, principles and culture.  The disconnect between words and action is easy to spot in an organization. 

Board members often fail to step up and demonstrate in words and action their execution of ethical culture principles.  Senior executives know, in today’s environment, that governance expectations require them to mouth the words of ethics and integrity.  But senior executives usually fall short when it comes to acting and leading in an ethical manner.

LRN’s research has for years shown the inextricable link between corporate culture and financial performance.  With this basic finding in mind, companies should invest in their culture with a focused plan.  To this end, companies should take the following five steps:

Step 1 — Conduct a Culture Assessment: No one should be surprised by this first step.  Whenever a company wants to implement compliance or culture controls, it is important to begin the process by assessing the current state of its compliance program or culture.  Modern culture research, by contrast, places greater emphasis on individual perceptions of observable, measurable practices and procedures within the organization.

Organizations should use a variety of techniques to manage and promote an organization’s culture. While the three foundational tools to measure culture are (1) surveys, (2) focus groups, and (3) interviews, culture assessments should be supplemented with data collected from other sources, including reported misconduct, rates of verified misconduct, and conflict of interest reports. Once a company collects culture-based data, the company gains the ability to measure and monitor the results over time and design remediation strategies to address identified cultural weaknesses.

Step 2 — Review and Improve Employee Reporting Systems: A critical part of a company’s culture requires significant investment in its employee reporting, investigation, discipline and remediation system.  An organization can only build a culture of trust and integrity when it encourages employee reporting, timely investigates the concerns, protects reporters against retaliation, and holds actors accountable for misconduct.

Step 3 — Create an Investigation and Discipline Review Committee: Companies need to bring together key internal stakeholders to oversee the employee reporting, investigation and disciplinary system.  A Review Committee facilitates effective performance accountability and consistent discipline by ensuring that key actors in the investigation and disciplinary process apply consistent standards and hold leaders accountable. An investigation system that applies different standards to equivalent misconduct based on seniority or performance factors is doomed to fail and undermine an organization’s ability to establish an effective culture of ethics and compliance.

Step 4 — Monitor and Remediate Your Culture: An organization has to monitor its culture.  On a quarterly basis, the compliance staff should be collecting relevant data on a variety of topics — misconduct reporting data, investigation completion rates, closure rates, substantiation rates, and other key indicators of potential misconduct and culture issues.  If possible, compliance staff should slice and dice this data to get a picture on the types of misconduct, the geographic areas, and business lines where such misconduct is occurring. 

Another effective monitoring tool is regular, targeted surveys that are focused on specific regions, countries or subset of the company’s global operations.  A rotating survey process that is execute each quarter could provide valuable data and insights.

Step 5 — Publicize and Report to Board and Senior Management on State of Culture: Compliance has a unique and trusted role to preserve and promote an organization’s ethical culture.  To this end, CCOs have to act as the Ethics Ambassador and repeatedly report on culture, at least quarterly, to the board, senior management and other key stakeholders. 

CCOs have a unique line of sight across the organization and can quickly inform and promote discussions among leadership on the state of a company’s culture, and steps needed to remediate deficiencies and possible concerns.  CCOs should embrace this responsibility as a key leader of the organization’s culture and promote accountability among the board and senior leadership team. 

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