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This article was first published in the May 2016 international edition of Accounting and Business magazine.

A recent report in the UK by the Prudential Regulation Authority and the Financial Conduct Authority into the collapse and bailout of HBOS is a reminder that corporate whistleblowing is not working. The report blames the board and senior management for the failure of the bank because they endorsed a flawed strategy that led it to make increasingly risky loans and investments and rely on short-term funding. They had, however, previously been alerted to this issue.

The Institute of Business Ethics (IBE) 2015 Ethics at Work survey highlighted that whistleblowing and speak-up mechanisms are still not being used by employees, and if they are, they are not considered effective. One in five of all British employees say they are aware of misconduct at their place of work. A growing number (now 84%), say their organisation provides a confidential means for staff to raise their concerns. Yet only half (55%) chose to raise their concerns, and 61% of those say they were dissatisfied with what happened after they had done so (it was 30% in 2012). This helps to explain why a significant proportion of employees say that they do not think anything will be done by management if they decide to raise an issue. 

The picture in Germany, France, Spain and Italy is not much better, with 54% of employees saying they chose not to raise » concerns of misconduct because they didn’t believe corrective actions would be taken. 

The Ethics at Work survey shows a disconnect between the provision of a speak-up or whistleblowing line, and its effectiveness. Boards need to listen to, act upon and report back on relevant concerns raised by their employees. Failing to do so is almost worse than not having a mechanism for employees to speak up.

Does ethics pay?

Employees are the key indicator of the ethical temperature in today’s organisations. They are at the frontline of how the organisation interacts with its customers and suppliers. If they are not listened to when they have the courage to raise concerns, it implies that a company’s talk of values and ‘doing the right thing’ is just that – talk. The way those that speak up about misconduct are treated shows how seriously an organisation really takes ethics. 

The ‘business case for business ethics’ has been well documented. Although the IBE would advocate doing the right thing for its own sake, there are always pressures to show that doing business ethically also pays. Fans of US economist Milton Friedman’s famous quote – ‘There is one and only one social responsibility of business – to increase its profits’ – always like to see a financial balance to questions of right and wrong.

Companies that operate to high ethical standards have been proved to show increased financial performance over time, due to increased employee engagement, attracting high-quality employees, enhanced reputation and generating trust among other stakeholders. Yet relatively little research has been produced that indicates how to create an ethical corporate culture. In order to affect business behaviour, ethical values need to be embedded throughout the organisation, from the shop floor to the director. The articulation of corporate values is the foundation of any ethics programme. A code of ethics, communications, ethics training, and supportive tools such as speak-up and advice lines help to embed these values. 

But the big question remains: do ethics programmes actually have any effect on corporate culture?

The IBE survey provides some evidence of tangible benefits resulting from investment in corporate ethics programmes. It shows that, in both the UK and continental Europe, awareness of corporate ethics programmes increases the ethical awareness of employees and their perceptions of ethical culture. 

Participants were asked whether their organisation provided each of the four common elements of an ethics programme: a code of ethics; a speak-up line; an advice/information helpline; and ethics training.

The survey also asked participants about their opinion on statements related to practices that can be seen as indicators of an ethical culture. These can be categorised into the three areas of management behaviour: communication of ethics, responsible business conduct and enforcement of ethical standards.

In both the UK and continental Europe, employees in organisations that provide a code of ethics, a speak-up line, advice/information helplines and ethics training are more likely to say that honesty is practised always/frequently in their organisation; are less likely to have been aware of misconduct in the preceding year; and are more likely to agree with each of the indicators of an ethical culture.

Creating a healthy culture

When it comes to speaking up, although the sample sizes are too small to draw a definitive conclusion, the positive indicators remain. Employees in organisations with a ‘supportive ethical culture’ were far more positive about the outcome of raising their concerns than those in an unsupportive one.

Creating a healthy culture that influences employee actions, decision-making and behaviour takes time and requires awareness, sensitivity, patience and resources. Unethical behaviour may be so ingrained into a company’s culture as to be considered ‘the way business is done around here’, and so may not be considered unethical at all.

To create and maintain a strong ethical culture, core ethical values need to be identified and integrated into everything the organisation does – from external processes such as buying and selling to internal ones such as governance and accounting. From the first interview to their last day of work, employees should feel that the company’s core values form the basis of every decision it makes.  

The role of managers at all levels is critical to the process of embedding ethics throughout any organisation. Line managers have an essential role in communicating ethics messages and acting as role models. Ethical acumen is a key competence for 21st-century business leadership

The quality and style of the leadership will influence the tone of the entire organisation. While the collective tone at the top of the organisation is of utmost importance, there are also ‘leaders’ at every level, who others will naturally try to emulate. ‘Tone from the middle’ is as important as ‘tone from the top’. Research into embedding ethics in the workplace indicates that employees consider their line manager as the biggest enabler and teacher of ethics in their organisation. Data from the Ethics at Work survey shows that, in Britain, 71% agree that their line manager ‘sets a good example of ethical business behaviour’ and 69% feel supported by their line manager in ‘following [the] organisation’s standards of ethical behaviour’. 

The marzipan layer

Yet this level of the organisation has often been referred to as the ethical ‘permafrost’ or the ‘marzipan’ layer where messages about ethics fail to penetrate. The survey indicates that, in continental Europe, corporate messages on support for ethics at work struggle to get beyond the management level. Recognising their impact and influence, some companies are now beginning to engage managers as a key component in cascading messages about ethics to their teams. 

Achieving buy-in from the management tier is therefore imperative. Organisations need to explain how their ethical values align with the business strategy to enable ethics to become a business priority. They should also frame ethical values as a positive contributor to the business. This will achieve greater buy-in from hard-pressed managers who are trying to deliver. By outlining the business case, managers can understand why it is important to consider the ethical dimension of decision-making and encourage their teams to do so, too. 

However, it is important that managers not only talk about ethics but embed it into all their decision-making. Setting the right example is key.

This is why data about management behaviour from the Ethics at Work survey is worrying. In 2015, British employees were more likely to say that their line manager explained the importance of honesty and ethics in the work they did (69% compared with 63% in 2012), but they were also more likely to say that they rewarded good results even if ethically questionable practices were used to achieve them (36% in 2015 compared with 26% in 2012). 

The IBE survey provides evidence that employee awareness of corporate ethics programmes increases ethical awareness. So for those looking for a return on investment in their corporate ethics programme, the survey shows that this is money well spent. But if results take precedence over ethics, then all the cascading of ethics messages via managers is meaningless.

Daniel Johnson is research hub manager at the Institute of Business Ethics

The Institute of Business Ethics has conducted a triennial survey into employees’ views of ethics at work in the UK since 2005. This has been widened to include France, Germany, Italy and Spain. Visit the IBE website