HR’s Role in
Organizational Ethics
Penny Miller, SPHR, SHRM-SCP, CEBS
Venture HRO, LLC
940-867-9761
Penny@VentureHRO.com
© Venture HRO LLC, 2015
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Where Can I Get Slides?
http://venturehro.com/resources/presentatio
ns/upcoming-presentations.aspx
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HR’s Role
To protect the employer
from risk due to unethical
behavior by
creating/maintaining an
ethical culture
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Ethics
A set of standards of conduct that
guide decisions and actions
derived from core values.
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Why Is Ethics So Important?
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Enron, Tyco, Worldcom, VW, etc.
Brand
Culture
Compliance
– Uniform Sentencing Guidelines
– Sarbanes-Oxley
– FASB Regulations
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The Cost is High
• More than half of the largest corporate
bankruptcies since 1980 have been due to
unethical business practices
• The cost of unethical practices to business
owners and the economy: $1.28 T (10% GDP) in
2011
• In 2013 businesses paid $8B in fines for fraud
against government/taxpayers
• 2008 financial crisis due to systemic breakdown
in ethics
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The Benefits are Great
According to the most widely used measure of
ethical workplace culture, stock growth of the 100
firms with the most ethical cultures outperformed
stock market and peer indices by nearly 300%.
From 1998 to 2011, annualized returns for the 100
Best Places to Work in the US were 11.06%
versus compared to 4.26% for Russell 3000 and
3.83% for S& P.
Great Places to Work Institute 2012
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2013 National Business Ethics
Survey (NBES)
Significant shifts over previous years
• Misconduct at a historic low (41%)
• Reporting of misconduct higher (65%)
• Ethical cultures eroding (42%)
• Employee perception of leader ethics
slipping
• Pressure to compromise standards
improving (9%)
• Retaliation rates alarming (22%)
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Organizational Culture
System of shared values and beliefs
(including reward systems) that
interact with a firm’s strategy and
people to produce behavioral norms.
Shapes organizational identity.
Strong Ethical Cultures
• Fewer feel pressure to commit misconduct
• Rates of observed misconduct markedly
different (90% in weak culture; 29% in
strong culture)
• More likely to report misconduct (85% vs.
65%)
• Retaliation much less
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Policies vs. Behavior
• Any conflict between structures and
processes and behaviors….
• employee will generally follow the behaviors
witnessed.
Management: Not Leading the Way
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60% misconduct by management
24% misdeeds by senior management
26% misconduct on-going
12% misconduct company wide
21% of people who report experience
retaliation
2013 NBES
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So Why Bother with
Ethics Programs?
Ethics Programs Work
• Companies in which strong emphasis on
ethics have less observed misconduct and
higher reporting (20%/93%)
• Companies with low emphasis on ethics
have higher observed misconduct and
lower reporting (88%/54%)
Source: 2013 NBES
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Ethics Programs and Culture
• 86% of companies with well implemented
ethics and compliance programs have a
strong ethical culture
• 23% of companies with little or no ethics
and compliance programs have a strong
ethical culture
Source: 2011 NBES
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Uniform Sentencing Guidelines
• Applies to all felonies and Class A
misdemeanors committed by employees in
association with their work
• Organizations that have demonstrated due
diligence in developing effective compliance
programs that discourage unethical and illegal
conduct may receive lower organizational
penalties for employee crimes
• Applies to ALL organizations
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Demonstrating Due Diligence
• Code of conduct: required standards and key risk
areas
• High ranking personnel must have oversight
• Background check of people in authority
• Ethics training
• Reporting system; monitoring and audit systems to
detect misconduct
• Appropriate and fair disciplinary action
• Corrective action
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2004 Amendment
• Requires business’s governing authority be well
informed on ethics program
– Content
– Implementation
– Effectiveness
• Boards must:
– Ensure high ranking manager accountable for day-to-day
oversight
– Provide adequate authority, resources and access to
board
– Confidential reporting system
– Oversee discovery of risks
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Sarbanes-Oxley
• Establish a system of federal oversight of
corporate accounting practices
– Make fraudulent financial reporting a criminal
offense
– Strengthen penalties for corporate fraud
– Requires corporations to establish codes of
ethics for financial reporting
– Requires corporations to develop greater
transparency in financial reporting to investors
and other stakeholders
• Public Company Accounting Oversight Board
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Some Troubling Shifts
• Significant portion of misconduct reported
to be multiple people or company wide
and ongoing versus individual incidents of
misconduct
– Offering items of value to customers
– Offering something of value to public officials
– Health and safety violations
– Violating wage and hour rules
– Violating internet policies
2013 NBES
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Good News
In companies with strong ethical cultures,
only 4% of reported misconduct involved
multiple individuals—almost all committed
by individuals
NBES 2013
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Observed Issues
• Top ethical issues:
– Personal business on the job (29%)
– Abusive behavior (22%)
– Lying (21%)
– Discrimination (18%)
– Health and safety violations (18%)
– Internet abuse (17%)
– Company resource abuse (17%)
• Standards do not exist
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Why Don’t People Report?
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Avoid conflict
Settle it among themselves (28%)
Type of misconduct (stealing versus internet)
They don’t think it will do any good (79%)
Fear of retaliation
– Reporting 18% higher in companies where
employees feel retaliation is not tolerated
• Disengagement
– Engaged employees 30% more likely to report
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Who Do They Tell?
• 90% of people who report misconduct tell
someone in their company first
• 82% tell their supervisor
• 52% eventually went to higher management
• 32% HR
• 9% Hotline or internal reporting system
• 9% reported to the government
• 20% talked to someone outside their company
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Culture and the Bottom Line
 Higher job satisfaction
 Increased legal compliance and rule following
 Increased organizational commitment
 Increased cooperation
 Improved change management success
 Increased attraction of high level talent
 Lower turnover
 Lower healthcare costs
 Lower legal risk
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Organizational Factors
• Workplace organization’s values have greater
influence than person’s values
• Corporate culture: values, beliefs, goals, norms
and ways of solving problems that employees
share
• Ethical culture: corporate policies, top
management leadership, influence of coworkers,
opportunity for unethical behavior
– More ethical employees perceive culture to be, less likely
to make unethical decisions
– Ethical values of culture positively correlated to employee
commitment to the firm and perceived fit
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Opportunity
• Conditions that limit or permit ethical or unethical
behavior
• Conditions that either provide rewards, or fail to
erect barriers against unethical behavior
• Comes from immediate job context, knowledge
• Formal codes, policies and rules must be
rigorously enforced
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Building Blocks of Ethical Culture
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Compliance
Fairness
Motive-based trust
Ethical working self-conduct
Shaping an Ethical Workplace Culture, SHRM Foundation,
2013
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Creating Culture
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Leadership Behavior
Organizational Structure
Systems and Procedures
Stories and Rituals
Social Learning
Formal Socialization
Evolution through New People
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“A leader communicates strong
messages to his employees about his
values through his own actions…role
modeling, teaching and coaching.
Leaders reinforce the values that
support organizational culture.”
Ronald R. Sims & Johannes Brinkman, Journal of Business Ethics, Vol.
35(4)
Leadership
• Power to motivate others
• Power to enforce organization rules and policies
• Less than half of employees in large companies see their
senior leadership as highly ethical
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Confidence in Leadership
• Only 62% of employees have confidence
in senior leadership (all time low)
• 34% employees say their supervisors do
not display ethical behavior (highest ever)
Source: 2011 NBES
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How Employees Judge Leaders
• Factors employee consider to determine if their
leadership is ethical
– Overall character as experienced through
personal interactions
– How senior managers handle crises
– Policies and procedures leaders adopt to
manage the company
• For employees, the supervisor has as much or
more influence as the CEO on ethical behavior
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Leadership Behaviors
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Challenging prevailing wisdom
Communicating compelling aspiration
Building coalitions
Transferring ownership to a working team
Learning to persevere
Making everyone a hero
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Governance Structure
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Develop values statement/code of conduct
Internal controls
Audits and reviews
Boards of Directors
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Ethics Audits
• Compliance audit
– Determine degree to which ethics program and
individual behavior complies with law
• Cultural audit
– How employees and stakeholders feel about
standards and behavior of the organization
• Systems audit
– Degree to which ethical principles, guidelines and
processes are integrated within the organizational
system.
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Systems and Procedures
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Selection and hiring
Compensation systems
Reward and incentive programs
Performance evaluations
Internal controls
Investigations
Discipline
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Stories and Rituals
• Stories create a picture of the behavior
desired—reinforce values
• Rituals surrounding recognition and social
events
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Social Learning
• Organizational response to critical
incidents
• Risk tolerance
• After actions reporting
• Lessons learned
• What is rewarded and punished
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Formal Socialization
 Recruitment
◦ Provides an opportunity to set the stage
◦ Weed out undesirable traits
 Selection
 Training
◦ Onboarding process
◦ Messages should be consistent with values statement
◦ Should include ethics standards and reporting
guidelines
◦ Workcenter OJT should emphasize internal controls
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Ethics Training
• Part of new hire orientation
• Continuing Education
• Components:
– Overview
– Ethical situations in their jobs
– Reporting and investigative procedures
• Reinforced by stories/rituals and social
learning
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Growing Ethical Leaders
• Pay attention to character when hiring
• Make integrity a 24/7 job expectation
• Educate managers on how employees evaluate
leaders
• Encourage managers to share credit
• Encourage managers to seek honest feedback
• Regularly review business objectives and
policies and impact on ethical behavior
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Evolution
• Change through new people and attrition
of old
• Replace natural selections with “selective
breeding”
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Simply put: High ethics creates high
trust. High trust creates high
performance.
Shaping and Ethical Workplace Culture, SHRM
Foundation, 2013
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Questions?
Penny Miller, SPHR, SHRM-SCP, CEBS
penny@venturehro.com
940-867-9761
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