Monthly Archives: March 2017

The Five Levels of Building an Ethical Culture

The Five Levels of Building an Ethical Culture

This guest post is by Alison Taylor, Director, BSR,  and  first appeared on BSR here

How to build and sustain an organization whose employees are happy, motivated, and ethical remains one of the most complex, elusive questions confronting business leaders. Organizational culture is determined by the interaction of systems, norms, and values, all of which influence behavior.

Much discussion of organizational culture still focuses on structural changes to corporate governance and compliance systems, along with drives to identify “bad apples.” Alternatively, we find glossy brochures, chief happiness officers, bonding exercises, and free beer. Still, public trust in business keeps falling and corporate scandals persist.

In a new BSR working paper, “The Five Levels of an Ethical Culture,” we argue that companies seeking to understand and build an ethical culture should consider systems thinking and group dynamics theory. In the paper, we define what a successful approach looks like, drawing on our experience helping companies create cultures of sustainability, reviewing a broad range of academic theories, and interviewing 23 ethics experts.

Our findings suggest that companies often overlook relationships among and within groups in the organization. Organizations are open systems: Their properties are greater than the sum of their parts, and these properties nest within other systems, forming a network of relationships. Efforts to change culture must therefore focus on every level in the system. These efforts should target individual engagement and motivation, interpersonal interactions, group dynamics, relationships among groups, and interactions with external organizations, including suppliers, customers, competitors, and civil society. Without a comprehensive, multilevel approach, employees will notice any mismatches in the signals an organization gives, and this will undermine efforts to build an ethical culture.

The paper explores five levels at which companies should build an ethical culture.

  1. Individual: How individual employees are measured and rewarded is a key factor that sustains or undermines ethical culture. In the face of pressure to meet growth targets by any means necessary—a belief that the ends justify the means—unethical behavior is to be expected. Therefore, the rewards system is an excellent place to start. And diversity and inclusion initiatives enable individual employees to bring their whole selves to work: Employees who feel it unnecessary to hide aspects of their social identity to fit into the dominant culture will experience less conflict between personal and organizational values and will express themselves more confidently—making them more inclined to raise concerns about ethics.
  1. Interpersonal: Organizations can also focus on how employees interact across the hierarchy. Abuse of power and authority is a key factor that degrades organizational culture. When decisions around promotions and rewards seem unfair and political, employees disregard organizational statements about values and begin pursuing their own agendas. Building an ethical culture from an interpersonal perspective requires meaningful protections that empower all employees and stakeholders, even the least powerful, to raise concerns and express grievances. Meanwhile, leaders must recognize the outsized role they play in setting culture and driving adherence to ethics, and they must learn to exercise influence carefully.
  1. Group: Socialization into group memberships and relationships is a core aspect of human culture. At work, the key determinant tends to be an employee’s group or team. As organizations become more geographically diffuse and loosely aligned, it becomes harder to set and define consistent organizational culture. Focusing on team conditions can empower middle managers to feel responsible for changing culture and group dynamics to foster more effective ways of working. While clarity in roles and tasks is key to a successful team, so is psychological safety. If employees feel secure in taking risks and expressing themselves, teams will be more creative, successful, and ethical.
  1. Intergroup: The quality of relationships among groups is critical to consider in any attempt to build an ethical culture. Celebrating a team whose high performance may stem from questionable conduct gives it power and a mystique that is difficult to challenge, and this can undermine values across the organization. Teams working in sustainability or compliance often need to scrape for power and resources; when members are attached to matrixed working groups, accountability can get watered down.
  1. Inter-organizational: Most discussions of organizational culture focus on internal relationships. Still, employees are keenly conscious of how a company treats suppliers, customers, competitors, and civil society stakeholders, so building and maintaining stakeholder trust will improve organizational culture. Moreover, companies need to ensure that their values and mission statements amount to more than words on a website. Business success and core values are not contradictory concepts. That said, building an ethical culture sometimes means walking away from lucrative opportunities. Companies can be sure their employees will notice.

However enormous the long-term rewards, there is no single, simple formula for building an ethical culture. We at BSR hope to gather ideas and continue this discussion. We’ll be grateful if you download this working paper and send us comments, criticisms, and real-world examples of approaches that you have found successful—or not.

Join Alison Taylor at the OECD Integrity Forum, in Paris March 30-31, where she will speak on the plenary panel “Equality, Inclusion, Trust: The Real Value of Integrity.” Download BSR’s new working paper, “Five Levels of an Ethical Culture.”

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What Does the “Good News Cocoon” Mean to Business & Compliance?

What Does the “Good News Cocoon” Mean to Business & Compliance?

Recently, I had the pleasure of engaging with compliance and business leaders in Europe and Asia. It’s an honor to be traveling again, and to hear about ethical and compliance challenges from those who work in the middle of risk, as well as from leaders who are tasked with supporting the commercial workforce in how they address issues of ethics, integrity and values.

Over a nice walk along the Neckar River (pictured) in Germany, I thought about the need for business leadership to take a more active role in what we think of as “ethics and compliance” issues. And that’s more than just intranet quotes and wall posters – what I am speaking of here is dialog, engagement and action. It’s about business leaders making sure that commercial teams understand the “definition of success,” which addresses not only compliance issues, but matters around commercial objectives, strategy and incentives.  Furthermore, when I reference “business leadership,” I mean executives with P & L responsibility.  In this context, compliance needs and issues are addressed and embedded through business leadership and action, as a part of strategy, objectives, and incentive planning, as opposed to ‘compliance from afar.’

It’s a call for leadership dialog and engagement, not only in how goals get executed via a disbursed commercial workforce, but also around how leaders demonstrate care for their teams, as individuals, who might work in places where ‘culture appears to conflict with the rules,’ and where there could be risk that people start to look at their environment for behavioral cues, as opposed to corporate leadership.

If you are a business leader, and like the concept, but not sure where to start, or if you’re a compliance leader looking for some coaching, there’s a great article in the Harvard Business Review’s March-April 2017 issue, Bursting the CEO Bubble, by Hal Gregersen (link here). But don’t be dissuaded by the title, as the CEO challenge which he addresses is “every leader’s dilemma,” and those issues surround what happens when there are “too many layers between yourself and the front lines of business.” And what lies among those layers is ‘what you don’t know,’ and hence my challenge to business leaders, CEO’s included, to get there.

While I often speak about the “cocoon of corruption,” as discussed in a prior interview with Jamie-Lee Campbell, Gregersen talks about the “good news cocoon,” which business leaders often encounter where they don’t receive news of challenges, problems, and shifts in the environment, because they haven’t demanded it, or “because they don’t know how to ask for it.” So back to where to start? It’s that image of vulnerability, humility and humanity, where business leaders are willing to acknowledge that they might not always get it right, even with good intentions, and acknowledging that their ‘definition of success’ might look confusing in some regions. But that vulnerability needs to be coupled with a call to the workforce that where confusion reigns, to speak up about it.

In many parts of the world, there’s going to be some inevitable tension between objectives, ethics and compliance, and that discord needs to get untangled. So, as Gregersen shares, by “projecting an approachable attitude that inspires other people to speak up,” leaders will be exposed to a wide variety of constituencies and differences of opinion. That reduces the power and probability that employees will attempt to unpack those conflicts on their own, and instead will reach out to their leadership for solutions. And that’s true teamwork, as always attacking what might be weak points in the system.

I ask, when was the last time a business unit leader in your organization met with the commercial workforce, especially those working in remote, thinly supervised locales, and asked “if you were in my job, what you be focusing on,” or Gregersen’s call to probe, “what’s broken?” He shares the work of one CEO who goes with his senior leaders on “global listening tours looking for weak strategic signals.” When leadership sets out to “be on the lookout” for times when they are wrong, and embrace the “notion of being wrong,” then instead of transmitting messages, they will “switch over to receiving them.” That’s getting to what you don’t know, and demonstrates leadership that not only embraces ethics and compliance practices, but is willing to dig into how that all looks from the people who work in the middle of risk, and where trouble is most likely to occur.

Gregersen makes a great point, most executives generally don’t get paid “for being mistaken,” and when “leaders are determined to have all the answers, they stay within the bounds of what they know.” Thus, I think business leaders would be well advised to follow Gregersen’s simple solution to “get out of the office,” and “spend more time being wrong, being uncomfortable, and being quiet.”  If you do, “the odds quickly decline that you’ll stumble upon what you didn’t know” and just as important, “before it’s too late.”

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A China Compliance Diary

A China Compliance Diary

When my supervision (probation) ended in January 2017, the US District Court in DC released my passport, and I could once again travel internationally.  And with that milestone, a note of thanks to all the international event organizers, from London to Shanghai, that have been so patient and cooperative in bringing in my experience and perspective, over the past three years, to events via satellite uplinks and live studio feeds. As to my first international trip in what’s been about seven years, it was to China, with visits to Beijing and Shanghai, addressing law firms, multinationals, and cross-industry compliance groups. And before taking that flight, I tried to study up on current compliance challenges in China, while getting briefed on the culture, the economic environment, and of course, issues pertaining to local customs. Having not been to either Beijing or Shanghai during my work in the defense field, I wanted to immerse myself in what to expect as much as possible.

And for that, a special thanks to Dan Harris,, who was incredibly generous in sharing his viewpoint and experience in getting me up to speed on what to expect when it was wheels down in Beijing.

While in today’s compliance environment, we see a very robust debate on what the new administration might mean for anti-bribery compliance, the new ISO standard, and the recent DOJ “Evaluation of Corporate Compliance Programs” memo, those weren’t on anyone’s “what keeps me up at night” moments in China. Yes, those are all meaningful topics for the field of practitioners, but from conversations at graceful Buddhist restaurants (with thanks to my hosts for indulging my vegan preferences) to live engagements and panels, much of the focus was on the “what happens when local customs conflict with the rules” dilemma. And that’s not to say that there’s an inherent conflict in China between ethical business practices and commercial success, but in an emerging market environment, with a young, dynamic and engaged workforce, the challenge is daunting, and not to be ignored.

The Importance of Defining  Success

Compliance programs in China, like anywhere else, address the importance of lawful and ethical conduct, but during my seven days in-country, I saw a profound focus around “how to execute on both values and objectives,” in an environment where people are extremely focused on success, and the rewards of success. This desire to succeed manifests itself in a way that’s much different in an emerging economy than in a developed one. Employment with western based brands are coveted jobs, and commercial teams are anxious to demonstrate their ability to execute on financial objectives – in other words, to succeed. But that goal driven model often widens what’s a cultural and operational disconnect between the support functions at HQ and those forward based teams which are deployed in less supervised locales. And you can’t bridge those gaps with compliance paperwork and contracts.

So, it’s often left to the compliance team to work as partners with commercial leaders in order to define and embed success in a way that’s deeper than quantifiable commercial objectives, and to do so without ambiguity.  If that sounds easy, it isn’t. It also becomes more complex in cultures where people might feel more reserved and apprehensive about speaking up where there’s tension between objectives and ethics. Encouraging commercial and compliance teams to talk about those tensions together was one of my goals.

As one leader paraphrased, “apply your values to business goals,” and if there’s a conflict “talk about it so we can come up with a solution.” I witnessed an inspiring leadership recognition that from the field, compliance, ethics and commercial objectives can be confusing, with an incredibly humbling message of “we understand that, so let’s untangle it together.” And much of the messaging was geared towards middle level management, where leaders were tasked to create and sustain an environment where they could support their teams to be successful by operationalizing ethics and values.

Servant Leadership

One executive called on mid-level leadership to be “servant leaders.” That really captured my attention, as he empowered his executive teams to push power down into the organization instead of up. As defined in The Center for Servant Leadership,  a “servant-leader focuses primarily on the growth and well-being of people and the communities to which they belong. While traditional leadership generally involves the accumulation and exercise of power by one at the “top of the pyramid,” servant leadership is different. The servant-leader shares power, puts the needs of others first and helps people develop and perform as highly as possible.”  Yet another reminder as to why it’s so exciting to be back in the field-  these are the business practices that one can only learn via immersion, and you don’t get that from the home office.

As to some more of the challenges, yes, anti-corruption was a big part of it, but not the only part. In China, corruption can intersect a work-force in both directions, as bribe payers as well as receivers. Commercial personnel who are responsible for dealer, intermediary and distributor networks might be subjected to requests for bribes, passed through those third parties to government officials- a set-up that’s familiar. But in China, employees are also exposed to the receiving side of corruption, as dealers might want to curry favor with respect to discounts, product allocations or marketing allowances through corrupt offers.

In an environment which is based on relationships and hierarchy, that’s a complexity that might be hard to appreciate it unless you are in front of it. It’s much more than anti-corruption compliance, it’s about ethical conduct in a broader sense, on hours and off. And those offers don’t come, or they don’t start, with brown bags of cash or numbered off-shore accounts. A dealer offering his beach flat for a holiday weekend to an employee might seem innocent enough, until a situation arises where that dealer might need a special allowance or discount. It’s a peril that often hides under the radar of friendship and association.  It’s part of what I called on the FCPA Blog as the “dangerous charm” of third parties. After all, who likes to say no to a friend?

What I saw was an appreciation and focus on how to develop a commercial workforce free of conflict of interest, and how to inspire commercial leaders to embrace their roles as brand ambassadors. And those efforts were backed up, including my own experience, with a “you can’t hide bad conduct behind your third parties,” and “what you don’t know can hurt all of us.” We spent a lot of time sharing with the workforce how they have an obligation to know the values and integrity of the people they do business with, and not to switch their ethical radar “off” after the third-party vetting process. In China, with state investment and divestment in industry and commercial entities, risk can quickly change over the life of a relationship.

In sum, those are just a few of the elements to which I was honored to engage. Having spent the better part of ten years living and working overseas 250 days a year, this was my first visit to mainland China. It left me wanting more, to return, and to read more about China’s role in today’s global economy along with their internal struggles as to how that gets implemented. China’s experiencing what I heard called the “new normal” where the period of exponential growth is slowing down, creating yet new challenges for commercial teams to succeed in a tightening marketplace. It’s a fascinating place, I found it personally contagious, and privileged to play some role in how to engage and inspire commercial and compliance leaders to work together as each other’s ambassadors.

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