Words are often “co-opted” into our language; in other words, they become fashionable and trendy and are often used in place of words that have become diluted. Take “ethics”, for example. Often considered a grey area by business, it is nevertheless a vital consideration for business. In more than 20 years working in applied ethics, we have seen many changes in how ethics is defined.
But recently we have seen a trend towards the use of integrity and risk as more effective descriptors of managing an ethical culture. The latter is evolving as a more hard-edged term, possibly because Boards across the globe are being held more accountable for the cultures that expose their corporations to risk, both financial and non-financial. Regulators such as APRA warns on ‘risk culture‘ are also beginning to signal that behavior in the workplace can be shaped by leaders and the organisational cultures they oversee as much, if not more, than by individuals themselves. The old ‘bad apples’ excuse for behaving badly has given way to an intense focus on ‘the barrel’ and how leaders are shaping culture which in turn is shaping employee behaviour. ‘Risk management’ is a category that will appear in many annual reports but ‘risk culture’ is one that is starting to appear in those of progressive organisations, not only in the ‘reputationally challenged industry such as the extractive industries, but also now in the financial services industry. This is particularly pertinent in Australia where reputational damage is occurring on a frequent basis in our banking and insurance industries.
According to a Gallup poll, today’s leaders have created the most disengaged, siloed and disconnected workforce in history by failing to manage organizational culture. So it’s great that the regulators are finally asking leaders to step up to their accountability to purposely design their organisational cultures to manage known risks beyond the bottom line. As social scientists have argued for a long time, organisational policies only signal intent but organisational culture shapes decisions and dictates behaviour on a daily basis. Risky behaviour emerges and unethical behaviour happens not because of who we are but despite who we are.
This search for “integrity” and “conduct risk” dashboards is set to become even more intense as the new science of behaviour economics sheds more light on how organizational cultures corrupt individuals. Whether leaders like it or not, leadership today is being defined in terms of character as well as competency; the No. 1 demand of leaders today is to protect the enterprise and stakeholders by building engaging workplace cultures that enable employees to have a sense of purpose and be encouraged to contribute their talents . And do so ethically.
There is an upside too. Field research from the new sciences EthicalSystems.org. shows how leaders can design the cultures they want and we have field research to prove that by designing cultures of choice, leaders design high performing workplace cultures that outperform those that do not on a whole range of indicators, from risk to employee and customer satisfaction all the way through to measurable bottom line benefits. The contribution of culture to organizational performance is substantial and quantifiable.
In James Heskett’s research demonstrates how an effective culture can account for 20-30% of the differential in performance compared with “culturally unremarkable” competitors.
The elusive search for “trust” too can be built on cultural initiatives. Deloitte found that 81% of respondents working for companies with a strong sense of purpose also said stakeholders trusted their leadership team.
And lastly, public reputation can be enhanced. Deloitte and Glassdoors’ recent combined study found that an employee’s rating of culture and values is 4.9 times more predictive of a positive recommendation than salary or benefits. Millennials look behind the brand, behind the advertising and even behind the CEO to explore what it’s really like to work there. For them, culture is more important than size or brand recognition and increasing numbers of employees are looking for ‘job satisfaction’ and recognition rather than simple reward. As the majority of employees are either casualised or ‘gig workers’ choice is more prevalent than career.
Risk has to be re-classified as doing business ethically in order to protect the organisation, to build a healthy culture so as to risk-proof the enterprise and see that risk and integrity are more essentially about focusing on how you do business rather than what business you do.