Top 10 Characteristics of an Ethical Culture

We hear a lot these days about how organizations are striving to balance the need to reach lofty revenue and profit goals with the desire to create a culture built on a foundation of ethics and integrity. This raises an important question: What exactly is an “ethical” culture?

According to Dr. Albert C. Pierce, Director of the Institute for National Security Ethics and Leadership, the most ethical organizations are the ones that are able to develop these four abilities in their employees: moral awareness, moral courage, moral reasoning and moral effectiveness.

The National Association of State Boards of Accountancy views an ethical culture as one that is able to integrate two distinct systems: ethical culture, which focuses on teaching employees specific organizational values and the importance of “doing the right thing;” and ethical climate, which emphasizes the development of ethics-related attitudes, perceptions and decision-making processes throughout the organization.

Regardless of how one defines the concept of an ethical culture, the organizations that have the most success in creating and sustaining an ethics-based environment tend to adhere to best practices in the following 10 areas, as identified by Kirk O. Hanson, Executive Director of the Markkula Center for Applied Ethics at Santa Clara University:

  1. Strong Values Statement

    A values statement is a short, concise encapsulation of what the organization stands for, the values that its employees are expected to embody and what its products/services are intended to contribute to the world. In the most ethical organizations, these statements become deeply ingrained principles that serve as guideposts for employee and organizational decisions and actions.

  2. Well-Crafted Code of Conduct

    A code of conduct is a written set of principles that works in tandem with the values statement to serve as an ethical roadmap for the organization. The best codes of conduct are comprehensive, well-organized documents that are written in plain, understandable language instead of legalese. Developing a code of conduct is a multi-step process that typically requires extensive input from all areas of the organization.

  3. Leading by Example: Executive Modeling

    It is often said that ethics starts at the top. Even a well-crafted values statement and code of conduct won’t be worth the paper they are written on unless top executives “live and breathe” the principles they espouse on a daily basis. An excellent way for CEOs, CFOs and other key executives to set an ethical tone is by sharing examples of situations they’ve faced that posed an ethical dilemma, and how they chose the proper path when making their decisions.

  4. Comprehensive Ongoing Ethics Training

    Too many organizations only provide ethics training to brand-new employees. Ongoing training is also essential for firmly embedding ethics into the culture. The training should consist of much more than an online course that provides a quick review of fundamental ethics principles. It should encompass a thorough review of the code of conduct and the organization’s specific ethics policies and procedures. It should also include case studies and real-world scenarios that enlighten employees as to how to make ethical and values-driven decisions relative to their specific job functions. It is also advisable to conduct separate training for ethics and compliance.

  5. Integration of Values into Work Processes

    Any work process that organizations develop should include references to values and how they impact the decisions that pertain to the system. A good way to achieve this is by incorporating an ethics/values component into the employee performance evaluation process with a focus on how workers have applied ethics to their decision-making processes.

  6. Establishment of a Confidential Reporting Mechanism

    Even organizations that make ethics a top priority are likely to experience ethical breaches and instances of inappropriate behavior at some point. Establishing an anonymous third-party reporting hotline provides employees with a confidential mechanism for informing designated personnel within the organization whenever they witness or are the victims of wrongdoing. A hotline can be an extremely effective tool for stopping misbehavior in the early stages, before it can escalate into a major issue.

  7. Transparent Investigative Process for Ethics Violations

    Employees will be reluctant to use a hotline if they believe that their reports will simply disappear at the bottom of a desk drawer. The most ethical organizations have a mechanism in place to conduct a prompt, thorough, transparent investigation of all hotline reports so that the issue can be resolved in an equitable, timely manner. The administration of fair, just disciplinary action is also critical. The organization’s values message will surely be lost if top managers receive lighter punishments than front-line personnel for the same inappropriate behavior. Providing protection for whistleblowers against retaliation is also essential component of the investigative process.

  8. Effective Ethics Governance

    Best practices stipulate the appointment of a dedicated corporate ethics and compliance officer (CECO), a senior executive who oversees the ethics function and plays a key role in establishing the organization’s ethical compass. This individual should be given wide latitude to develop and implement ethics policies and procedures. Creating an ethics committee that reports to the board of directors is another effective corporate governance step.

  9. Periodic Revision of Ethical Standards

    It is important to review the ethical standards at periodic intervals to ensure they continue to meet the organization’s needs and to gain a fresh perspective on the overall effectiveness of all ethics initiatives. Hanson recommends a comprehensive revision of the standards every three years that takes into account any new ethical challenges the organization faces. It should also include an evaluation of any ethical breaches that may have occurred since the previous review.

  10. Unwavering Focus on Constant Improvement

    It’s easy for an organization to become satisfied with the status quo in terms of ethics, especially when no significant breaches have occurred over an extended period of time. However, when an organization lets its guard down and reduces the level of focus it places on ethics, it has the unwanted effect of fostering a culture that invites unethical behavior. The most ethical organizations are constantly seeking ways to keep ethics and compliance at the forefront of every action they take.

In conclusion, it should be noted that creating an ethical culture isn’t easy, and it doesn’t happen overnight. However, those entities that stay the course and endeavor to adapt these 10 characteristics stand an excellent chance of developing and implementing a culture of ethics that permeates every level of the organization.

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