How Ethical Culture and Business Performance Successfully Partner

A report insists ethics and business performance can co-exist and thrive together. Ethics don’t have to be tenuous or ignored to achieve growth and results.

LRN (Legal Research Network) lays this out in its Benchmark of Ethical Culture, how ethical behavior drives business performance in the new world of work.

Emily Miner, director of advisory services at LRN, a company that provides advising and education on ethics, regulatory compliance, and corporate culture, counseling executive leadership teams on how to actively shape and manage their culture. She talks with Communication Intelligence magazine about the details of the report.

Communication Intelligence: One of the key findings, I believe at least, in the report on the state of ethical culture is: “There is a leadership disconnect. Senior leaders report more favorable perceptions of the state of their cultures. Middle management ‘report average,’ and individual contributors and those on the front lines report the lowest perceptions of their cultures.”

This is of course not surprising; it is, however, fascinating. In your professional opinion, why the disconnect from reality and what does this most communicate to leadership? 

Miner: There is an interesting dynamic where, as you go up the corporate ladder, you gain information — access, knowledge about the business, the real reason behind decisions — but at the same time you can lose some information — how things are really playing out on the ground, how people really feel about what’s going on.

This latter loss of knowledge, which contributes to the leadership disconnect we discuss in our research, can be attributed to a number of factors but perhaps the overarching one is that trust matters.

For so many people, trust is facilitated by relationships – and leaders simply have different relationships in an organization, both in terms of whom they interact with and the nature of those interactions. People may be less inclined to tell it to you straight or share feedback on how a company communication came across, for example, if they don’t know you or know how you’ll react.

Of course, there are also situations where people do know how a leader will react – to bad news, questions of “why,” a process suggestion that, while reasonable, might slow down a timeline, and it is precisely because of those behaviors you’re modeling that your people might be less inclined to speak up. 

So, what does this mean for leaders? In our work studying and measuring culture within organizations, some key factors routinely come up as significant drivers of trust in leadership: leaders talk openly when things go wrong; leaders play by the same rules as everyone else; leaders explain how company values informed their decision-making; and leaders do what they say they will. Embracing and adopting these behaviors cultivates trust, which in turn narrows that leadership disconnect.  

Communication Intelligence: the report also says, “There are aspects of culture that have an outsized influence on achieving ethical behavior. There are strong correlations between what we refer to as Cultural Catalysts and demonstrated ethical behavior. For instance, having high levels of Trust and Organizational Justice—meaning employees report experiencing workplace behaviors that foster trust and that the organization maintains a sense of fairness— are correlated to more people speaking out about misconduct and employees upholding ethical standards even when facing pressure to perform.”

I'm not so sure most organizations value this approach because it creates some work and problems it prefers not to interact with and become responsible for yet we know this is shortsighted. How can the importance and benefits of this type of approach most successfully be marketed, so to speak, to leadership to inspire them to build healthy and protective cultures?  

Miner: One angle would be to frame this type of approach in terms of risk. In our study, we broke respondents into quartiles based on the strength of various ethical culture dimensions. We found that while rates of observed misconduct are fairly consistent across quartiles, employees working in top-quartiles companies report their observation of misconduct at much higher rates: 93%, compared to 67% of the employees in the bottom quartile.

Since companies can only address that which they are aware of, this higher level of reporting represents a significant reduction in risk. So, if you want people to speak up? Cultivate levels of trust and confidence in organizational justice processes. With whistleblowing on the rise, smart leaders should want to get their own house in order rather than see employees seek redress from regulators. 

Communication Intelligence: “People identifying as female and persons of color observe unequal treatment in the workplace in the U.S. The numbers are particularly troublesome given the increasing corporate commitments to Diversity, Equity, and Inclusion, globally and particularly in the U.S.”

I read a lot of articles, tweets and LinkedIn message boards so I have observed this as well, which inspires these questions, Emily: How committed to improvement must organizational leadership become and what really must become the bare minimum — yes, a low bar — for improvement? And what is reasonably possible — a high bar — when it comes to improvement? Throwing a lot at you here: Finally, what benefits will organizational leaders and their missions realize through improvements?

Miner: Commitment to improvement is an important first step. Equity and inclusion are top of mind for Gen Z employees, which will make up one-quarter of the workforce in the next few years. A recent Tallo survey shows that 72% of Gen Z applicants seek a fair and ethical boss, 61% want the ability to be heard, and 87% say DEI strategies are very important. Focusing on this is essential for any leader looking to train up and lead a modern workforce.

As a leader, you play a large role in shaping organizational culture. So, it’s crucial to establish mechanisms to gain feedback from employees at all levels. Ask your employees: What do you value? How would you describe our culture? What should we change? How can I improve?

Corporate culture has a significant impact on employee retention and business results. According to LRN’s Benchmark of Ethical Culture report surveying 8,000 employees across 17 industries, companies with the strongest ethical cultures outperform their peers by 40% across all measures of business performance: from levels of customer satisfaction to employee loyalty, innovation, adaptability — even growth.

Emily Miner

Communication Intelligence: “There are three primary drivers of employee loyalty. These are environments characterized by high trust, a sense that one’s company is ethical, and purpose driven, and a clear company commitment to Diversity, Equity, and Inclusion.” What has to happen for organizations to see this as a valuable, if not invaluable pursuit and commitment?

Miner: I think it has already happened, in the form of the Great Resignation, or as it is beginning to be known now, the Great Reshuffle.

The costs to companies for recruiting and onboarding new employees are quite significant — it is far more cost effective to retain the great talent you already have. There are a lot of encouraging signs suggesting that leaders already know this.

For example, in June 2021 Fortune and Deloitte surveyed CEOs about, in part, the actions they have taken to strengthen their talent recruitment and retention efforts. The top actions were increased flexibility around work, which is a demonstration of trust (80%), increased emphasis on corporate purpose (68%), and a focus on DEI (68%). 

Communication Intelligence: LRN’s Ethical Performance Model; two areas most stood out to me: work atmosphere and ethical performance, which are what team members most care about. When it comes to work atmosphere, how can leaders make the default atmosphere one of reliable “trust, organizational justice, belonging and freedom of expression?” 

Miner: Some aspects of culture have an outsized influence on achieving ethical behavior. There are strong correlations between Cultural Catalysts and demonstrated ethical behavior. For example, companies that foster trust and create confidence in systems of organizational justice experience lower levels of misconduct as well as more people speaking out when they see it.

Three approaches that we’ve seen to be particularly effective at strengthening organizational justice and trust are (1) to demystify the reporting and investigation process, (2) share stories and statistics that bring the company’s commitment to ethical behavior and accountability to life, and (3) ensure managers at all levels are equipped to handle concerns appropriately.

Cultivating a default atmosphere of reliable “trust, organizational justice, belonging and freedom of expression” also comes down to how leaders are behaving themselves and what examples they’re setting. I actually wrote a blog describing nine practices leaders can reflect and work on to promote this type of organizational environment (linked here). 

Communication Intelligence: “With ethical performance, what specifically can leadership throughout the organization do to create a default atmosphere of reliable “(ethical) values-based conduct, (honorable) performance under pressure and (effective) speaking up about misconduct?”

Miner: I’ve discussed some of these themes already, but to add as it relates to values-based conduct and honorable performance under pressure: demonstrating that such behavior is what you value as an organization, actually incentivizing such behavior, and then leading by example.

Companies can say “we always operate with integrity” all they want, but if employees don’t see that, it’s not going to stick.

Share stories of people that did the right thing and incorporate these examples into communications and training. Incentivize this behavior by incorporating ethical conduct as a meaningful component in performance management, promotion criteria, and bonus potential.

And lead by example by talking about your company values and how they helped guide decision-making: companies’ COVID responses have shown some great examples of this; connect everything back to purpose, and most importantly, listen up when your people flag an issue or raise a concern. Take the time to really understand what’s going on rather that respond with a “I don’t care, we’ve gotta meet the deadline” attitude. As we’ve unfortunately seen, this type of response and pressure to perform can literally have deadly consequences.

Communication Intelligence: My observations have been that unethical leadership or organizations usually stem from either they believe they are ethical when the evidence proves otherwise or ethics, in their mind, must always come second to performance, revenue, profits and growth. And of course, at times, there are instances where ethics are the goal, yet a series of seemingly small decisions lead an organization off course.

What can leaders most do to assure their organizations stay above the line, as the saying goes, with ethical mindsets, conduct and culture? How can they create really uncomfortable “friction” for themselves to reject, avoid or fear unethical practices?

Miner: I love this question, and your observations are so true. Leaders obviously need to ensure that they have robust ethics and compliance programs, the right controls, and governance oversight. But they also need to kick the tires on a regular basis.

This means conducting periodic audits, risk assessments, and evaluating how your ethics and compliance efforts are standing up to regulatory expectations. But, as we know from any number of attention-grabbing corporate scandal headlines, having a strong program with all the things — code, policies, training, third party management, etc. — isn’t enough. You’re only as good as your culture. And so, leaders also need to ask themselves, do we know what our culture is? How do we know? 

There are a lot of direct and indirect sources that leaders can mine to get a read on their company culture — engagement surveys, exit interviews, promotion and turnover rates, social media sentiment, etc. — but the most direct is to go straight to the source: your employees. Ask them!

And consider how you’re asking them, too. Is it anonymous? Are you conducting this in-house or engaging a third party?

One of the ways we at LRN help companies build resilient ethical environments is by providing assessments of their ethical culture, typically a combination of surveys, focus groups, and interviews. We often hear that the participation rate in our efforts is greater than that of internal efforts, likely because employees have greater confidence that their responses can’t be traced back to them. 

It’s also important to consider the timing of these efforts considering any significant organizational changes, such as an acquisition, geographic expansion, significant and public misconduct, or leadership transition.

Communication Intelligence: Any words in parting that will be wise to readers and leaders?

Miner: Leaders need to have humility in receiving the results of these efforts. Don’t try to explain away the data that you don’t like.

Embrace the feedback and create space for people to contribute to any change efforts that may results. And then, repeat. That’s when the insights really get valuable, as you’re able to measure your progress over time. 

Thank you to Emily Miner, director of advisory services at LRN, for her time, expertise, insights and excellence of conversation for this interview and discussion.