Undertaking an Ethical Transformation

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By Dr. Caterina Bulgarella – Expert in organisational culture and behavioural ethics & Rebecca Turco – SAI Global’s Vice President of Learning

 

In recent months we’ve seen the impact of employees taking action. From the most recent Google employee worldwide walkout, where more than 20,000 ‘Googlers’ demanded the end of forced arbitration around sexual harassment, better reporting and greater transparency, to the exposure of sexual harassment behaviours at large and powerful Silicon Valley firms, the evidence is palpable.

These most recent organisational culture failure events have certainly turned heads and intensified concerns among business leaders and boards to retool their perspectives on what they know about their own organisational culture. The tide is turning; corporate culture and ethics are no longer being viewed as a side project but as a corporate imperative to future-proof an organisation. And it all starts from the top down – and the bottom up.

Ethical Boardroom: Culture is top of mind for CEOs and board members. What role can culture play in creating or preventing risks for an organisation? Is culture itself a risk that needs to be managed?

Caterina Bulgarella: We are seeing a remarkable acceleration in ethical risk in both large and small organisations across all types of industries. It’s not surprising. Companies are forced to deal with all types of pressure, day in and day out. This pressure, in turn, pushes people to look for shortcuts and/or makes it more difficult for them to make good decisions. This is why culture is a key source of risk today. When we talk about culture, we are referring to what a business values – for example, the things that are given priority; the behaviours people are expected to demonstrate; the processes that are used to support performance; how people think about challenges, and so on.

An unhealthy culture will heighten ethical risk in a number of ways. It will add pressure; it will reinforce bad habits; it will encourage self-interested decisions. Conversely, a healthy culture will help people remain sensitive to the difference between what is ethical and what is not; it will provide the tools to tackle dilemmas in a less biased way; it will engage employees and turn them into owners of the organisation’s ethics.

Rebecca Turco: Culture is the identity of your organisation, it’s the people, the services, products and infrastructure that are the heart of your business. Culture plays a huge role in creating and preventing risks for your business. Many organisations focus on meeting their business and financial goals, they rarely speak about their culture goals or the importance of culture. If you do not have strong ethical culture, then you run the risk of employees focussing on meeting their goals by any means necessary, including potentially unethical and illegal decisions. With the right culture, you see businesses thriving, employees are happy and proud of where they work and they make the right decision for the business every time. They know what risks are acceptable to take, they know what risks they shouldn’t take and they know how to speak up. Culture is more than a word, more than a poster or a saying, it is the DNA of your business and it absolutely needs to be managed and be front of mind for the whole business.

EB: How has the relationship between culture and risk management changed in the past three years, and what factors are driving those changes?

Bulgarella: The corporate scandals we’ve witnessed in recent years are creating a new level of awareness. First, it’s becoming increasingly difficult to explain ethical failure in organisations as the wrongdoing of only a few rogue employees. The issues we continue to see are often systemic, tend to lead to some type of domino effect and end up costing too much in terms of lost reputation, brand identity and trust. The public, and even regulators at this point, understand that people do not operate in a vacuum. In addition, plenty of insights indicate that there is far greater risk in regular people being nudged toward a slippery slope by the wrong culture than in rogue individuals doing something unethical.

Second, we are also getting plenty of evidence that organisations cannot solve their ethical challenges by simply introducing a set of corporate values. Though this has become a common way for organisations to show good intentions, it has little to do with their ability to actually be ethical. Most organisations that have gotten into trouble over the past years had nice values, yet those values didn’t stop them from engaging in egregious misconduct. These two shifts have real consequences because they reinforce the idea that we need more than policies and values. In fact, we need to build systems and processes that help employees feel responsible for the state of ethics in the organisation, reason in a less biased way and actively engage to protect the organisation’s ethical core.

Turco: The relationship between culture and risk has strengthened over the past few years. Many organisations have focused on investing in solutions to manage their risk, they look to put in tools, processes and people to make sure they understand their risks and what to do if something happens. The shift we have seen is that you need the tools and solutions in place to manage your risk as well as an attention and focus on the culture you are creating in the business. The culture that you have within the organisation will drive the risk your employees will take.

“If your employees are engaged with your business objectives, the values of the organisation, and seen as core contributors, your business has a higher chance of being successful”

Organisations are increasingly putting more pressure on their employees to do more, make more decisions and use technology to drive business outcomes. Effectively, what businesses are doing is giving employees more accountability and decision-making authority. If we don’t have a culture of always making the right decision, if we haven’t trained employees on how to deal with these decisions, to understand the risks to the business – both short- and long-term – then we aren’t managing the risk the business is facing. We haven’t increased the capacity to make ethical decisions; instead we have put more pressure on employees to make more decisions.

EB: Why should CEOs and senior leaders focus on employee engagement today more than they have in the past and what are the pros and cons of a workforce that is engaged?

Bulgarella: Senior leaders must actively manage to curb ethical risk and to avoid ethical failure. Risk depends on the organisation’s ethical capacity, a layer of culture linked to employee engagement. Two aspects of ethical capacity – ethical ownership and ethical voice – are especially relevant in this context.

As an example, would you expect employees to own the organisation’s ethics if they were disengaged? Or would you count on them exercising their voice or otherwise taking action to protect the organisation’s ethical core while being disengaged? It would be unlikely. This is why employee engagement is an outcome we should monitor to better understand ethical risk. When employee engagement is low, people tend to check out; they may become inattentive and more self-interested, and so forth. However, when employee engagement is robust, people are more likely to care. Importantly, when it comes to ethical risk, it’s not just generic engagement that is important, but whether employees are morally engaged. This deeper level of engagement is especially desirable because it counters certain potential negative effects of out-of-bound engagement, such as a focus on winning at all costs.

Turco: Employees are one of the biggest assets and risks to an organisation. They are also one of the hardest risks to manage because most of the risk that employees face are ones that organisations cannot see. With the change in technology and the way people consume content and use social media, the engagement of employees is even more critical than ever.

How many articles have you read where an employee gets fired for something happening to them and then goes to social media to talk about what happened and how they have been wronged? The result: the community around them speaks up, they boycott the product or service, they demand the company responds. Your employees have a very powerful voice, they are speaking to your customers every day, they are the reason you will succeed or fail as an organisation. If your employees are engaged with your business objectives, the values of the organisation, and are seen as core contributors, your business has a higher chance of being successful.

EB: Because risk exists everywhere in an organisation, how does a senior leadership team balance the management and mitigation of technical, process-driven risks vs. human, behavioural risks?

Bulgarella: For a long time, risk management has stressed technical, process-driven risk. Yet, most processes depend on humans making the right call. So, whether or not we want to separate behavioural risk from process-based risk, the truth is that these two categories of risk are tied to each other. This is why the effective management and mitigation of risk requires a focus on behaviour and decision-making at all times. The benefits of managing behavioural risk in a proactive way go beyond the realm of ethics. When people are aware, mature, morally engaged, and better able to self-regulate, not only are they positioned to make ethical decisions, but also they can make better decisions all around.

Organisations will benefit from this in two ways. First, certain unwanted consequences, such as those associated with ethical failure, will be less likely; second, employees will be more likely to contribute in positive ways. For example, we can expect people to have meaningful insights, exercise initiative to improve current processes, connect the dots in a proactive way, and so on. This is to say that when senior leadership starts with culture, they are enabling the very human core of an organisation in all the right ways, sharpening the very impact of process and technical risk management, among other things.

Turco: Organisations shouldn’t think about a balance. They need to connect both the operations risks and the human risks, as both are equally important and will drive business outcomes. Most organisations are focused on the operational, process-driven risks because those are easier to see and are the ones that can be tracked. Human and behavioural risks are much harder to manage because sometimes they cannot be seen. These risks happen outside of business hours, in conference rooms, within teams, in a five-minute phone call, or Skype chat, making them harder to see and harder to fix.

Let’s be honest, if we aren’t looking for them, asking the right questions, and engaging our employees, then we probably think our human risks are low. There is a connective thread that needs to exist between the senior leadership, HR, and employees; the thread that weaves the operational, process-driven risk, with the behavioural, ethical risks sitting within a culture of speaking up and making the right decision at any cost. Understanding where your highest risk employees are within your business helps you start to understand how to manage the operations risks around them as well as their behavioural risks. A modern approach to learning and employee communication are part of the solution. Understanding where employees sit on the risk spectrum will allow you to develop solutions to manage that risk.

EB: Changing an organisation’s culture, or rebuilding it, can be extremely challenging. What guidance would you give to those embarking upon that journey to ensure they are successful and focus their efforts and attention in the right places?

Bulgarella: Culture change work is challenging and complex, and this is why it is important to know where an organisation is and what its change agenda needs to be for the next 12 months. There is no way to start an efficient process of culture change without measuring culture first. What are the strengths and weaknesses the organisation presents today? How can we direct certain bad habits and what is the smartest way of doing it? What capacities are missing? What are the most pressing gaps that need to close if we wish to reduce risk?

Only culture measurement, informed by the right culture measurement model, can provide the right answers to these questions. The ambition for senior leaders shouldn’t be to transform the organisation’s culture in the shortest period of time but instead to identify the right culture architecture and to have a tangible, effective change plan to implement that architecture – one process and one system at a time.

Turco: Start from the bottom up. Empower your employees to drive the conversation around the organisation’s culture and what does need/not need to change. Culture is driven by your employees, the decisions they are making and what they say about the company. They need to be the voice of culture. Top down and middle management need to lead, direct and participate in the culture conversation, but employees are the owners.

“Understanding what your employees’ risks are, where they tend to make unethical decisions or struggle with making the right decision, these are some of the assessment points you need in order to understand where your strengths and weaknesses are”

Take a look at Google: the employees did not accept a culture where misconduct is rewarded so globally they walked out and asked senior management to change their policy.  This example showed two things about Google’s culture: Somewhere in its DNA, speaking up is encouraged; that employees shouldn’t be afraid to say something; and they are the voice of the business.

The CEO and executive suite can make decisions on behalf of the company but they can’t speak for the employees. Employees are building communities around your business and around your brand. They will connect with each other and they will change what they don’t like. If they feel that they don’t have a voice or things won’t change, then they will leave. And while backlash to an organisation’s culture often comes in the form of lost revenue or negative press, the Google walkouts showed that employers who fail to engage cultural issues don’t just risk customer attrition or litigation, they risk losing large swaths of top talent – even if they’re Google.

EB: Whether you are building a new culture or assessing your current culture, some element of measurement needs to exist to benchmark change and understand your strengths and weaknesses. What are some universal data points or indicators that organisations should attempt to measure?

Bulgarella: There are six areas of measurement that are critical. In particular, to establish if and where the organisation is pursuing conflicting priorities, and, therefore, delegating risk to employees, an organisation needs to know three things, starting with what principles of conduct are currently ingrained within their own fabric. It also needs to understand how managers and leaders conduct themselves and exercise their power. And it must clarify the impact of both implicit and explicit incentives (i.e. overt and covert rewards and penalties) on employee behaviour.

Gauging ethical capacity is also a must. Specifically, the assessment as to what level of ownership exists across the organisation and various roles with respect to ethics. In addition, an organisation must establish what resources and conditions support ethical reasoning. Finally, the measurement of whether ethical voice is strong or weak. By covering these six areas, the organisation has a real game plan for change and impact. Generally speaking, internal benchmarking should be given precedence over external benchmarking when it comes to ethical risk. This is why culture measurement should be conducted periodically and internal comparisons across business units and demographic groups should be performed using the right frame of reference.

Turco: Most organisations release all types of cultural and business surveys on a regular cadence, asking their employees a range of questions to gauge what employee’s thing and feel about the business, their manager, co-workers, etc. This is why we still don’t have universal data points, despite the need for it. These surveys are usually long, not actionable and not distributed in a way where employees feel that they can answer questions honestly. While these surveys are important they do not get to the level of information, you need to manage your culture.

Understanding what your employees’ risks are, where they tend to make unethical decisions or struggle with making the right decision, what decision they make when no-one is looking, these are some of the assessment points you need in order to understand where your strengths and weaknesses are. It starts with an honest and transparent story with your executive team, your managers and your employees. To understand what needs to be fixed, you need to understand what is happening within your organisation.

 

About the Authors:

Dr. Bulgarella is an expert in organizsational culture and behavioural ethics, and author of SAI Global’s Strategic Culture Framework. Her work over the past 15 years with institutions and organizations is focused on advancing ethical practices in business and fostering human-centric work environments. Throughout her career, she has brought a rigorous approach to system design and development – on an organizational, team and individual level – by integrating scientific insights and applied best practices. Dr. Bulgarella holds a Ph.D. in Organizational Psychology and Master’s degrees in organizational and personnel psychology. She serves as an adjunct professor in the I/O psychology Master’s program at New York University (NYU)

Rebecca Turco is the Vice President of Learning at SAI Global, a recognized leader of Integrated Risk Management. She leads their global compliance and ethics solutions for their product portfolio. She has helped transformed the way companies think about their compliance program and how they can reach and impact learners. She is passionate about helping organizations change their cultures and helping employees feel empowered and educated to do the right thing.