Study Warns on Ethical Culture Disconnect

LRN released its annual compliance program effectiveness report last week, which is always worth a read to understand the challenges of holding your corporate culture together and driving it forward in a unified way. One big issue in this year’s report: a perceptions gap on ethical culture that exists between senior executives and other employees.

First, a bit about the Program Effectiveness Report itself. LRN has been publishing the report for 11 years running, so it has plenty of historical data. This year’s report surveyed more than 1,500 people (a mix of compliance professionals and other employees) at businesses around the world. Some of the findings are what you’d expect to hear from a compliance technology vendor, such as the importance of data analytics and benchmarking for a “high-impact program.” Other findings, however, touch on deeper issues worth your attention.

Foremost, there is a wide and growing disconnect between how senior management sees the company’s ethical culture and how everyone else does. Quite simply, the higher up the org chart you are, the more you believe the company’s culture and ethical decision-making are just peachy — while loads of people further down the organization wonder what planet you’re on. Figure 1, below, tells the tale. 

What’s striking here is the almost perfectly linear correlation between your place on the org chart and how much you do or don’t believe in your organization’s ethical culture. Either senior executives are deluded about how morally upright they and their company are; or rank-and-file employees are misinformed and riddled with cynicism about what the company’s doing. (This is not news; the LRN report has been flagging culture disconnect for years.)

That matters to compliance officers because you’re trapped in the middle. You have senior executives above you saying, “Hey, everything seems fine, so do we really need to spend money on all these improvements you want?” and low-level employees beneath you muttering, “Why bother with ethics and policies at all? We all know management just wants to hit quota.” 

Or, to quote the more genteel language of the LRN’s report: “The misalignment between leadership tiers not only risks diminishing the credibility of such programs, but also hampers their ability to instill consistent values across the organization.”

Diagnosing the Disconnect

OK, compliance officers have a lot to unpack here. Let’s break down that big messy problem into its smaller components. 

First, that finding about a disconnect between senior management and everyone else is a generalized conclusion. The disconnect probably exists at all companies to some extent, but every individual company will have its own unique “disconnect profile.” One of your first steps should be to pinpoint exactly what that profile looks like in your company.

In that case, you’ll need to work with the HR team to dig up data that will help you answer that question: exit interview records, employee sentiment surveys, analysis of chatboards such as GlassDoor.com or Blind, and so forth. (I’m sure LRN and other compliance vendors would also be delighted to help you too for a fee.)

Second, once you identify the disconnect that exists within your organization, you’ll need to repair it somehow. This brings us to the deeper issue of why lower-level employees come to believe that management isn’t serious about the ethical values they supposedly hold so dear.

As corny as this sounds, it’s about trust. When management says one thing (“You should always strive to act with ethics and integrity”) but employees see another (“OMG, the VP totally took his sidepiece on that last business trip at company expense and nobody called him out on it”) then employees will stop believing what management says. Employees will let misconduct they know about fester in your organization, because they don’t believe the company will do anything about it or cares about them.

LRN had a few other good ideas for how this disconnect comes to pass, too. See Figure 2, below. 

That knot of mistrust is what compliance officers need to untangle, if they want to convince cynical employees that, yes, the company is serious about ethical standards and will support them as they try to achieve those standards. 

Building a Stronger Corporate Culture

From there, compliance officers can start to see the specific, concrete actions you might need to take to resolve the disconnect that might exist in your organization.

Clear, consistent disciplinary actions. This is always going to be important. People are hard-wired to detect examples of unfairness; just watch toddlers complaining to their parents about who received more Fruit Loops at snack time. Any time employees see some action that they perceive as unfair, they’re far more likely to conclude “so therefore the company is full of it and doesn’t care” than “hmm, maybe there are extenuating circumstances I don’t know and should hold my fire.” 

To overcome all that, you’re going to need (a) clear investigation and disciplinary protocols, so all issues are investigated consistently; (b) strong data management and analytics capabilities, to confirm that, yes, everything really is done consistently; and (c) some sort of disclosure or outreach program, to bring as much visibility into disciplinary actions as possible.

Involving front-line employees in policy and control design. LRN raises an excellent point when it says one problem is the limited involvement of front-line employees in assessing the effectiveness of compliance enforcement. Of course you can try to address that by, say, asking employees their opinion in an annual sentiment survey of some kind — but why not go further, and solicit their opinion in building your actual compliance program? 

After all, we talk constantly about the importance of compliance officers engaging with other business leaders across the enterprise. A wise CCO would also try to engage with people further down the enterprise. That’s not to say front-line employees get to draft their own policies or design their own controls; but you could, for example, hold focus groups to ask them what types of policies or controls make the most sense to them. 

This would also give you a chance to humanize their interaction with you. For example, you could have communication along the lines of, “Here’s the goal we need to achieve with documenting travel expenses, or use of contractors. These certain things must happen. My best guess is that Policy ABC and Procedure 123 would do that, but tell me what you think would work.” 

(If you’re a compliance officer who already does something like this, I’d love to hear more. Drop me a line at mkelly@radicalcompliance.com if you don’t mind sharing strategies.) 

Ultimately, all of this is about transparency. The more employees can see how the compliance team works, and where the company’s policies, procedures, and ethical priorities come from — the more they’ll trust it, even if they don’t like it. You’ll need a blend of personal engagement and technology capabilities to develop that transparency. 

As to why all this matters, that’s because the disconnect is growing. I’ll just leave Figure 3 below to show the direction of things. We need to change it.