Ultimately, ethics will feed the bottom line

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Over the last decade there appears to have been an increasing focus on ethics in business.

• • Spurred by financial scandals at Enron, WorldCom, and other large corporations, in 2002 Congress passed the Sarbanes-Oxley Act. This omnibus legislation was intended to increase transparency and accountability in U.S. public corporations.

• • Business schools have introduced the requirement for graduation that all students take a business ethics course.

• • A new profession of ethics officers has grown up with its own professional association.

• • And in 2010, Congress acted again, this time to restrain excessive behavior in the financial industry, by passing the Dodd-Frank Act.

But can new laws and increased emphasis on ethics, by themselves, improve business behavior? Does the day-to-day pressure to show short-term financial results hold out the temptation to cut corners, or worse? Does the short-term focus push aside consideration of longer-term and wider consequences not reflected in the profit-and-loss statement?

From compliance to culture

At a recent workshop on handling whistleblower complaints that I facilitated, a participant made this astute comment: "Culture trumps process every time."

By this she meant that your company can have a policy encouraging employees to speak up about misconduct they observe--but if the organization's culture discourages open communication and thrives on creating caches of information, the whistleblower policy won't be effective.

As a lawyer, it's taken me many years to recognize that compliance with the law is merely a baseline. Ethical behavior requires more than mere compliance with written rules and policies, because law, rules, or policies can only go so far.

Compliance is not enough

Laws and rules are drafted retrospectively, to address known activities that endanger the well being of the organization or community. But now change--especially technological change--has accelerated to the extent that new risks and opportunities not addressed in the rules emerge from day to day, if not minute to minute.

Consider your computer use policy: Does it cover employees' Facebook pages or their smartphone use at work?

Policies are necessarily written in general, sometimes ambiguous terms. They need to be interpreted to apply to specific situations. But whose interpretation do we follow? The boss'? The U.S. Supreme Court's? The former may be ill-informed and arbitrary; the latter extremely expensive and takes an age to obtain.

This is not to say that you shouldn't have policies on employee conduct. You should. And they should be clearly written, well communicated, and consistently enforced. But your job as a manager or an HR professional goes further: building a workplace where employees at all levels engage in ethical decision-making, filling the gaps that law and policies don't cover; where ethical behavior becomes "just the way we do things here," part of the culture.

Best practices for creating an ethical culture

It is easy to say "Ethics must become part of the culture." Where does an organization begin to make that happen. Here are some steps towards creation of an ethics-driven culture:

• • Articulate the organization's values. Crafting a mission statement or describing the organization's values may seem more appropriate tasks for a non-profit association, just a waste of time for a bank whose raison d'etre is clearly to make profits.

But consider Johnson & Johnson's Credo: It challenges all employees to put the needs and well-being of the people they serve first, before profits. This credo was applied during the Tylenol poisoning in 1982, when the company halted all Tylenol manufacture and advertising, and issued a nationwide recall of all Tylenol products at an estimated cost of over $100 million.

• • Tone at the top. The behaviors--as well as the statements--of senior executives and board members are crucially important in influencing the bank's culture.

Let's say a CEO only gives lip service to what it means to be a "community" bank, without truly supporting the community with his time and talents. Then he can hardly expect subordinate employees to turn out for community events or get involved in community projects.

• • Reinforce messages in context. Link the bank's values to specific job duties.

For example, in coaching a manager on interviewing job candidates, go beyond warning what questions might get her into legal trouble. In addition, suggest questions that might elicit the candidate's positive identification with the bank's values.

• • Create and demonstrate incentives. Performance appraisals should include metrics on how a manager has enhanced the bank's culture, for example, employee satisfaction survey scores or employee retention numbers. Pay increases should be linked to these metrics as well as to the financial results obtained.

• • Two-way communication. Encourage employees to speak up about their concerns.

Provide alternative channels, including a confidential hotline. And make sure your "no retaliation" policy is thoroughly enforced by frequent follow-up with an employee who voices a complaint, and swift and serious discipline of any manager who breaches it.

• • Gather employee input on policies. Discuss proposals in staff meetings and invite employees to share their opinions before implementing a new policy. That way, you will get greater buy-in--and possibly a better policy.

• • Explain the "why" of policies. Don't rely only on technical controls that automatically flag a breach of procedure. Some employees will look for a way to "game" the system to get round these controls. If they fully understand why the procedure is in place, they are less likely to try and circumvent it.

Business ethics make business sense

In exchange for taking a large immediate financial hit, Johnson & Johnson, through its handling of the Tylenol poisoning, gained immense and long-lasting consumer goodwill and loyalty.

Every decision has costs, benefits, and risks.

Ethical decision-making merely takes into account a wider range of costs, benefits, and risks, and takes a longer time frame for analysis.

Considering environmental, social, and long-term implications, as well as immediate financial, operational, and compliance risks, may lead to reputational and strategic benefits that ultimately make for a stronger bottom line.

After all, it's really about profits, isn't it?

About Marian Exall

Marian Exall ( This e-mail address is being protected from spam bots, you need JavaScript enabled to view it ) is an employment lawyer and HR professional with more than 25 years’ experience advising banks and other employers on compliance issues. She is a principal and co-founder of Employment Law Compliance, Inc. which provides HR compliance solutions to banks exclusively through the American Bankers’ Association. She is a frequent speaker and writer on human resources compliance in the banking industry, including in ABA Banking Journal, on ABA Telephone Briefings, and at national and state bankers’ association conferences.

For more information on this or other employment compliance topics, please call Employment Law Compliance at 866-801-6302 or go to www.employlawcompliance.com.

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