THE COMPLIANCE AND ETHICS LEADERSHIP COUNCIL
™
Stewarding a Culture of
Integrity
Key Findings for The Board and
Senior Executives
Executive Summary
• Integrity Matters to Your Company’s Bottom Line
•
Integrity and values drive employee performance
– Of all potential drivers that increase employee performance, manager demonstrations of corporate values
and ethical behavior are the most effective, improving performance by 12% and 9%, respectively.
•
High levels of integrity are correlated with lower levels of misconduct
– Companies with low integrity scores* are much more likely to experience misconduct as companies with
high integrity scores
– Employees with the lowest perceptions of integrity* are ten times more likely to observe misconduct than
employees with the highest perceptions of integrity at their firm and significantly less likely to report
observations of misconduct.
•
The financial and legal costs of unreported misconduct are high
– U.S. organizations lose an estimated 7% of their annual revenues to fraud - equivalent to more than $1
trillion of the 2008 gross domestic product. (The Association of Certified Fraud Examiners, 2008)
– Nearly a third of managers report observing serious misconduct – such as fraud, insider trading,
accounting irregularities, and improper sales – that could have a significant financial impact on their
company.
• What Leaders Need to Do to Strengthen Integrity
•
Drive Comfort Speaking Up
•
Train Leaders to Model and Communicate Corporate Values
•
Foster a Perception of Organizational Justice
Legal, Compliance and Ethics Leadership Council
© 2009 The Corporate Executive Board Company. All Rights Reserved.
* As Measured by CELC’s Integrity Index - a score of ethical health across an organization determined by CELC’s Cultural Diagnostic Survey
2
ROAD MAP FOR THE PRESENTATION
Why Integrity
Matters to Your
Company
Strongest
Integrity
Drivers
Our Efforts to
Foster Integrity
Legal, Compliance and Ethics Leadership Council
© 2009 The Corporate Executive Board Company. All Rights Reserved.
3
To drive company-wide
performance during a
downturn, organizations
must train managers to
demonstrate corporate
values and ethical
behavior
INTEGRITY AND VALUES DRIVE
PERFORMANCE
Maximum Impact of Manager Characteristics of Ethics and Values
Corporate Leadership Council Research, Q1 2009
• Managers exhibiting
corporate values can
improve employee
performance by 12%.
Of all potential drivers that
increase employee
discretionary effort, manager
demonstrations of corporate
values and ethical behavior
are the most powerful.
• Managers demonstrating
ethical behavior can improve
employee performance by
9%.
Talking Point:
For many years, HR
Performance surveys didn’t
test for the impact of integrity.
In 2009, after including
integrity for the first time – the
survey found that ethical
behavior informed the top two
drivers for performance
n-= 11,761
*Definition – Discretionary Effort is the respondent’s willingness to expend effort beyond typical expectations.
Examples of this behavior include willingness to invest additional time and effort to accomplish a task or
looking for ways to perform one’s job more effectively.
Legal, Compliance and Ethics Leadership Council
© 2009 The Corporate Executive Board Company. All Rights Reserved.
4
Employees with the
lowest perceptions of
integrity are ten times
as likely to observe
misconduct as
employees with the
highest perceptions of
integrity at their firm.
HIGH INTEGRITY TRANSLATES INTO
LOWER LEVELS OF MISCONDUCT
Integrity Index* Score Distribution, 2008 Overall Sample
• Nearly 75% of employees in
business units with the
lowest integrity have
observed misconduct.
• In contrast, in a business unit
with the highest integrity,
only 7.3% of employees
have witnessed misconduct.
N = 172,593
* The “Integrity Index” is a score of ethical health across an organization determined by CELC’s Cultural Diagnostic Survey
Legal, Compliance and Ethics Leadership Council
© 2009 The Corporate Executive Board Company. All Rights Reserved.
5
Failure to foster a
culture in which
employees can
comfortably escalate
concerns can have
serious legal and
reputational
consequences
UNREPORTED MISCONDUCT CAN HAVE
SIGNIFICANT COSTS
Illustrative: 2008 Countrywide Lending Fraud Scandal
Timeline
• Had Countrywide’s legal
department been involved
once the incident was
reported to the hotline, the
lending violations in question
could have been addressed
and remediation steps taken.
• The compliance
department’s ability to
mitigate this issue was
drastically diminished once it
was leaked to the media.
Legal, Compliance and Ethics Leadership Council
© 2009 The Corporate Executive Board Company. All Rights Reserved.
6
Relevant information
about (potentially
damaging) business
misconduct degrades
significantly as it travels
across the company,
reducing Compliance’s
ability to detect key
risks
MOST OBSERVED MISCONDUCT DOES
NOT REACH COMPLIANCE
• Fifty percent of observed
business misconduct is
never reported by
employees.
• Even when that information
is reported to managers by
employees, sixty percent
never leaves the business or
reaches the compliance
function.
Legal, Compliance and Ethics Leadership Council
© 2009 The Corporate Executive Board Company. All Rights Reserved.
7
Employees in business
units with high integrity
scores are significantly
more likely to report
observed misconduct
• Managers are more likely to
report misconduct than rankand-file line employees, but
both groups are more likely
to report when integrity
levels are high.
HIGH INTEGRITY INCREASES
EMPLOYEE REPORTING RATES
Profile of a Typical Company
Illustrative
• A single low-scoring
business unit may hold twice
as many misconduct
observations as a business
unit with a high Integrity
Index score.
Key Insight for Company
Leadership:
When thinking about
misconduct at your
organization, don’t just
look at company-wide
averages. There can be
important disparities
between business units.
COMFORT SPEAKING UP > ORGANIZATIONAL JUSTICE > CORPORATE VALUES > BUSINESS UNIT PRIORITIZATION
Legal, Compliance and Ethics Leadership Council, 2009
© 2009 The Corporate Executive Board Company. All Rights Reserved.
8
ROAD MAP FOR THE PRESENTATION
Why Integrity
Matters to Your
Company
Strongest
Integrity
Drivers
Our Efforts to
Foster Integrity
Legal, Compliance and Ethics Leadership Council
© 2009 The Corporate Executive Board Company. All Rights Reserved.
9
Strongest Drivers for Cultivating a Culture of Integrity
Key Findings
1. Drive Comfort Speaking Up
Example: Kraft’s Speaking Up Campaign
2. Train Leaders to Model and Communicate Corporate Values
Example: Lockheed Martin’s Ethics Leadership Facilitation Guide
Novartis’ Fused Performance & Ethics Criteria
3. Foster a Perception of Organizational Justice
Example: DuPont’s Ethics Bulletins
General Electric’s Cultural Accountability Videos
COMFORT SPEAKING UP > ORGANIZATIONAL JUSTICE > CORPORATE VALUES > BUSINESS UNIT PRIORITIZATION
Legal, Compliance and Ethics Leadership Council
© 2009 The Corporate Executive Board Company. All Rights Reserved.
10
Employees’ fear of
retaliation for raising
concerns is the leading
indicator of misconduct.
DRIVE COMFORT SPEAKING UP
Top Three Leading Indicators of Misconduct
• Council research has
determined that when
employees report a strong
fear of retaliation. It is the
most likely signal that levels
of misconduct among those
employees are also high.
Rank of Predictive Strength
• Fear of retaliation is also a
compounded risk because it
is the main concern
employees cite about
reporting observed
misconduct.
• Therefore, if a strong fear of
retaliation is present in the
workforce, not only are levels
of misconduct likely high, but
the organization is also not
likely to hear about it.
COMFORT SPEAKING UP > ORGANIZATIONAL JUSTICE > CORPORATE VALUES > BUSINESS UNIT PRIORITIZATION
Legal, Compliance and Ethics Leadership Council, 2007
© 2009 The Corporate Executive Board Company. All Rights Reserved.
11
HARNESSING EMPLOYEES AS BETTER
CONDUITS OF INFORMATION
Best Practice:
Kraft provides
employees with policies,
tools, and processes to
remove uncertainty
about when and how to
report compliance
concerns
Employee Tools and Protocols to Report Misconduct
Kraft Foods
• To clarify company
expectations and awareness,
Kraft launches a speaking-up
initiative that defines what
employees should do to
report and why it matters.
• Kraft also emphasizes how
the company will follow
through on reported issues,
clearly outlining the issue
resolution and investigations
process.
For more info on this practice, please visit:
www.celc.executiveboard.com
COMFORT SPEAKING UP > ORGANIZATIONAL JUSTICE > CORPORATE VALUES > BUSINESS UNIT PRIORITIZATION
Legal, Compliance and Ethics Leadership Council
© 2009 The Corporate Executive Board Company. All Rights Reserved.
12
In the current
environment, employee
perceptions about
organizational justice
explain 74% of their
perceptions about the
ethical culture of their
company
FOSTER A PERCEPTION OF
ORGANIZATIONAL JUSTICE
Components of a Culture of Integrity
Illustrative
• 74% of employees who
agree that organizational
justice operates in their
culture are likely to regard
their organization as a
culture of integrity – on the
basis of that single factor.
COMFORT SPEAKING UP > ORGANIZATIONAL JUSTICE > CORPORATE VALUES > BUSINESS UNIT PRIORITIZATION
Legal, Compliance and Ethics Leadership Council, 2009
© 2009 The Corporate Executive Board Company. All Rights Reserved.
13
DRIVING ORGANIZATIONAL JUSTICE
ACROSS THE LINE
Best Practice:
DuPont demonstrates
its commitment to
business ethics by
sharing examples that
reinforce workforce
perceptions that
organizational justice
operates across the
corporation
Examples of Traditional and Progressive Ethics Bulletins
• To demonstrate a uniform
corporate response, DuPont
details the nature of the
violation, the attendant
penalties, the source of the
allegation, the type of
investigation, the specific
policy violated, and any
relevant training modules.
• To celebrate high ethical
standards among
employees, DuPont extends
its use of business ethics
bulletins to share examples
of demonstrated business
integrity.
For more info on this practice, please visit:
www.celc.executiveboard.com
COMFORT SPEAKING UP > ORGANIZATIONAL JUSTICE > CORPORATE VALUES > BUSINESS UNIT PRIORITIZATION
Legal, Compliance and Ethics Leadership Council
© 2009 The Corporate Executive Board Company. All Rights Reserved.
14
HOLDING LEADERSHIP ACCOUNTABLE
TO THE SAME STANDARD
Best Practice:
To insure managers are
held accountable for
their culture, General
Electric produces
videos that discuss
actual, internal integrity
lapses to demonstrate
how the company
anticipates, detects, and
responds to compliance
and ethics issues
General Electric’s Accountability Videos
Illustrative
• Recognizing that obligations
to cultural duties vary by
level, General Electric
produces videos aimed at
the broader employee and
executive populations to
emphasize different aspects
of accountability.
For more info on this practice, please visit:
www.celc.executiveboard.com
COMFORT SPEAKING UP > ORGANIZATIONAL JUSTICE > CORPORATE VALUES > BUSINESS UNIT PRIORITIZATION
Legal, Compliance and Ethics Leadership Council
© 2009 The Corporate Executive Board Company. All Rights Reserved.
15
An employee who
perceives strong tone at
the top is more likely to
be strongly committed
to corporate values
TRAIN MANAGERS TO ‘WALK THE TALK’
Scatter Plot of Correlation Between Tone at the Top and Commitment to
Corporate Values
Illustrative
• Employees view the actions
of senior executives as
synonymous with actions
made by “the company.”
• Leverage this overlap in
perception by encouraging
senior leaders to drive
commitment to corporate
values thereby also driving
employees’ commitment to
company.
COMFORT SPEAKING UP > ORGANIZATIONAL JUSTICE > CORPORATE VALUES > BUSINESS UNIT PRIORITIZATION
Legal, Compliance and Ethics Leadership Council, 2009
© 2009 The Corporate Executive Board Company. All Rights Reserved.
16
CONNECTING ETHICS AND
LEADERSHIP
Best Practice:
Lockheed integrates
compliance and ethics
components into
leadership
competencies and
reinforces their
importance to business
objectives and career
growth through
leadership training
Manager Performance Review
Illustrative
• Build ethics and compliance
education into existing
leadership curricula and
performance reviews to
demonstrate the alignment
between expected behaviors
and strong business
performance while creating
accountability.
For more info on this practice, please visit:
www.celc.executiveboard.com
COMFORT SPEAKING UP > ORGANIZATIONAL JUSTICE > CORPORATE VALUES > BUSINESS UNIT PRIORITIZATION
Legal, Compliance and Ethics Leadership Council
© 2009 The Corporate Executive Board Company. All Rights Reserved.
17
LINKING PERFORMANCE AND
INTEGRITY
Best Practice:
Novartis holds leaders
accountable for
promoting and
embodying integrity
standards by linking
business results and
ethical behaviors in the
annual performance
appraisal
Novartis Performance Assessment Matrix
Illustrative
• All Novartis employees,
including managers, are
evaluated using the
Performance Assessment
Matrix.
• Annual results of peer
reviews affect end-of-year
compensation.
• Novartis then provides
targeted training to help
senior managers make
responsible decisions and
manage others for
responsible business
outcomes.
For more info on this practice, please visit:
www.celc.executiveboard.com
COMFORT SPEAKING UP > ORGANIZATIONAL JUSTICE > CORPORATE VALUES > BUSINESS UNIT PRIORITIZATION
Legal, Compliance and Ethics Leadership Council
© 2009 The Corporate Executive Board Company. All Rights Reserved.
18
ROAD MAP FOR THE PRESENTATION
Why Integrity
Matters to Your
Company
Strongest
Integrity
Drivers
Our Efforts to
Foster Integrity
Legal, Compliance and Ethics Leadership Council
© 2009 The Corporate Executive Board Company. All Rights Reserved.
19
Example: Our ThreeTiered Approach to
Driving a Culture of
Integrity at [YOUR
COMPANY NAME]
INSERT SLIDE HERE OF EFFORTS AT
YOUR COMPANY TO FOSTER INTEGRITY
Focused Senior Manager Training
Chart Subtitle/Question Answered/Units Measured/etc. [Arial 10]
• Step 1: [insert text]
• Step 2: [insert text]
• Step 3 [insert text]
[ CUSTOMIZABLE
FOR YOUR
COMPANY ]
Legal, Compliance and Ethics Leadership Council
© 2009 The Corporate Executive Board Company. All Rights Reserved.
20
CORPORATE EXECUTIVE BOARD
WWW.EXECUTIVEBOARD.COM
™