Notes on Managers & Internal Reporting

Ethisphere has released its latest study of ethics and compliance best practices, this time exploring the crucial role that managers play in supporting a strong culture of ethics and internal reporting. Compliance professionals should give the report a read because, as usual, these best practice studies give you a lot to think about.

This report is a bit different from the first two, in that it combines data from two different sources. First the report looks at patterns in employee sentiment about reporting misconduct, based on analysis from Ethisphere’s Culture Quotient database, a long-running survey that now has more than 475,000 responses from employees around the world. Then the report cross-references those trends with best practices Ethisphere identified from its 2019 World’s Most Ethical Companies list, to see how firms are trying to respond.

There’s lots of insight here, if you look from the right perspective. For example, the report says 92 percent of employees generally want to report misconduct when they see it; that’s great news. More telling, however, are the reasons why employees want to report misconduct. By far and away, the most common reason is simply because “it’s the right thing to do.” See Figure 1, below.


Source: Ethisphere

Compliance professionals should love this chart, because doing the right thing and wanting to see corrective action are far more dominant reasons than, say, thoughts about support from your manager or protection of one’s identity. That suggests that the ethical impulses of employees are naturally strong. Employees want to speak up about misconduct, and will speak up, if they feel confident enough in the gamble they’d be undertaking. 

So the compliance officer’s job is to create ways that employees can feel supported. Once employees get that sense, and see that management will be on their side when they raise a concern, most of them will be ready to make that leap. Like I said, great news. 

How to Build Trust in Reporting

Let’s take that line of thought further. If we say employees want to report misconduct so long as they feel confident the company will take their allegations seriously, we can also say that employees won’t report misconduct when they suspect the company won’t take their allegations seriously — that is, if an employee fears that he or she will be hung out to dry. 

We see that in Figure 2, below, which lists all the reasons employees typically don’t report misconduct. Fear of retaliation, fear of losing anonymity, belief that nobody will care: those are all fears that the company won’t work with the employee as a partner to root out misconduct, but rather, work against the employee as a threat to be neutralized.

Source: Ethisphere

So the compliance officer’s duty here is to consider all the ways the company can foster a healthier relationship with would-be reporters, and push to implement those measures. That’s it.

One practical example is the whistleblower hotline. The more you can strengthen hotline protections, the less fear an employee will have about losing anonymity. Once employees understand that anonymity is a reliable path, their fears of retaliation should decline too. (The Defense Department recently had an audit of its whistleblower programs, which found numerous risks to anonymity. Worth reading if you’re looking for examples of how cracks can appear in your anonymous reporting protocols.) 

As much as we all love anonymous hotlines, however, the bulk of employees still approach their immediate managers when they have something to report — 61.1 percent, according to Ethisphere. Compare that to 11 percent of employees who use an internal reporting hotline, 8.7 percent who approach a compliance department staffer, and 8 percent who might use an online reporting portal. 

So if we’re truly interested in demonstrating that employees can trust the company when they bring an allegation forward, managers are the most important part of the equation to get right. The company needs managers who can create a comfort zone for employees who want to speak up, and who invite employees into that zone every day. 

Which brings us back to the training of managers, so they can play that crucial role the compliance function needs them to fill. 

The Importance, and Nuance, of Training

The second half of Ethisphere’s point starts with the obvious: that if you want employees to embrace ethical conduct, managers need to talk about ethics — at many times, in many ways. As one passage from the report nicely puts it:  

In other words, training managers to disseminate the message of the importance of ethics is not just about preparing the managers themselves to act ethically. It’s also about equipping them to instill comfort and confidence in their direct reports so they can internalize the message of ethics and support the program in their own work.

So really, it’s not the compliance function’s job to get employees to embrace ethical conduct; that’s the manager’s job. The compliance function’s job is to help the manager do that. In a perfect world, you might never interact with employees, because they’re always talking directly with managers. 

That raises lots of questions about precisely how one trains managers to talk about ethics and compliance. The Ethisphere report explores those issues too, which is great, because compliance professionals don’t consider that point often enough. Does the manager just say, “Ethics is important, so don’t cheat and do speak up?” Does he or she offer personal stories? Something else? Do you talk about ethics formally during monthly meetings, or informally from day to day? 

The Ethisphere report examines how World’s Most Ethical companies answer questions like that. Most train their managers on ideas such as creating an “open door environment,” or preventing retaliation, or understanding which types of concerns should be escalated to more senior executives. 

Companies also need to think about the “training lifecycle” for managers. That is, employees newly promoted to management need one type of training, since they might never have supervised others before. More experienced manages, on the other hand, might benefit from more training about how to lead by example rather than how to referee disputes. 

It’s all good, thoughtful stuff, well worth your time and reflection. Here’s hoping Ethisphere turns out more best practice reports soon.

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