Making ethics real

Written on Mar 21, 2017

AccountingAuditing

What does it mean to demonstrate a commitment to integrity and ethics?

By Laura Hay, CPA, CAE

Establishing a culture of ethics is a commonly accepted best business practice, a core component of ERM, TQM and quality control systems. Multiple frameworks exist for how to implement an effective ethics culture and compliance program. Common elements include:

•Organizational values
•Tone from the top
•Policies and procedures
•Communication and training
•Enforcing accountability
•Incentives and rewards
•Risk management, monitoring and reporting
•Escalation, investigation and discipline
•Resolution management
•Continuous improvement processes

If a culture of ethics is so fundamental, and effective frameworks are designed, implemented and monitored in well-run organizations, then why do bad things still happen?

Many forces and factors influence people taking ethical shortcuts. Policies, procedures and sanctions are insufficient to align the actions of individuals with a desired business culture. Training can help people become more aware of “the rules,” but without connecting to personal motivations, will not translate into behaviors.

A few intangible factors might be among the most critical elements of an ethics and compliance program, and are scalable to all sizes and types of organizations:

1. Mission and values driven

Does your organization understand why it wants to be ethical? Ethics compliance might traditionally have been viewed as an element of risk protection, but is fundamentally about mission protection. Identifying what the organization believes in and why is an important first step in being able to communicate values clearly and connect them to individual motivations.

Values drive behavior. An initial goal in establishing a culture of ethics is to reach a high level of organizational agreement on what is valued. To accomplish that, the business needs to establish a clear set of organizational values that begins with emphasizing its commitment to legal and regulatory compliance, integrity and business ethics.

However, a purely business case for a set of values is insufficient. Addressing ethical dilemmas from the perspective of what provides the best concrete business benefit in the short-term might not result in doing “the right thing” to protect the organization’s mission. Identifying the strongest case for being ethical in this organization, linked to mission and values, becomes the organization’s story.

2. People focused

At heart, ethics is about human relationships – how we treat one another as persons and in groups, and about individual decision-making. How do you connect organizational values to shared goals and individual inspiration?

People’s intrinsic values might differ. Ethical theories provide a framework for corporate codes, but individuals might approach a situation from different innate frameworks: religious, intentions-based, outcomes-based, or rule-based, as well as bringing differing cultural inclinations and unconscious biases. Making ethics real and accessible for everyone is a heightened challenge.

Corporate codes of conduct seek to translate these frameworks into guidelines that can be applied in day-to-day decision making. Given a diversity of base perspectives, it’s important that the underlying company values are clearly understood and communicated as the reason behind the rules – why does this matter – so that employees understand both the why and the what.

Core values such as integrity, excellence and respect for people are communicated with examples of how to “do the right thing.” For example, “We do not violate our integrity to retain business.” “Respect for people drives our human resources practices.” To inspire compliance, rather than sanctioning non-compliance, employees are treated as capable of exercising good judgment and training is focused on exercising judgment.

Recruitment for character, consistent messaging about values, integration of messaging in onboarding, alignment of recognition systems with desired values, focusing on not just results, but how results are achieved, and respectful separations are all critical components of human capital systems to reinforce a culture of ethics.

3. Learning oriented

It's important to recognize that the application of judgment is fundamental to implementing an effective culture of ethics, but teaching people how to do it on an ongoing basis is much more difficult. Stories that bring values to life are important to clearly connect values to actual requirements.

An organization’s stories illustrate “good reasons” to be ethical, in addition to defining and explaining “how we do things here.” Consistently telling stories in both written and spoken opportunities reinforces understanding of the organizations’ reasons for being ethical.

Learn, validate and assess: ongoing assessments determine whether employees not only understand the organization’s values, but believe in them, and trust that the leadership of the organization believes in them. Again, it’s not enough that rules are being followed, but do employees perceive that they are being followed for the right reasons.

How the organization lives out its values reinforces the perception of whether they are authentic. Ensuring a healthy “mood in the middle” with management’s ability to consistently translate values into everyday behaviors is an important part of a learning system.

Why is a culture of ethics important?

Something more than good business continues to drive this initiative to the top of priority lists. Culture brings great candidates to organizations. Culture tells you what to do when the boss isn’t in the room. Culture stimulates enthusiasm and gets people working together on the same mission. The best people want to have a voice, and want to share in creating something that has meaning. When we get it right, the pieces are able to be in alignment: self-actualization, corporate mission and values, fulfilling our public responsibility, and doing a shared “right thing.” There are no guarantees, but realizing the importance of the intangibles: meaning, people, and continuous learning, and not just following a process will provide better odds of success.

Laura Hay, CPA, CAE, is executive vice president of The Ohio Society of CPAs and staff liaison to the Accounting & Auditing Committee. She can be reached at Lhay@ohiocpa.com or 614.321.2241.

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