How to Build an Ethical Organizational Culture

Courtesy of DDI

Companies want to know what they can do to ensure their leaders and other senior stakeholders behave ethically. Toward this end, companies are seeking to understand how to build an ethical organizational culture.

Why?

Maybe it’s due to the scandals that keep appearing in the news. Or maybe it’s because of increased regulations in their industry. Or perhaps it’s because of increased pressure from customers and employees.

Regardless, it seems every week we hear of another company that has broken the law or violated the public’s trust. Or another leader that made a deal behind closed doors. Or another safety violation swept under the rug that has been uncovered.

Indeed, having an ethical organizational culture has never been a greater concern.

How building an ethical organizational culture is more important than we realize

Why do organizations need a culture that promotes ethical behavior? There can be several obvious reasons and numerous advantages to having an ethical organizational culture.

Throughout my career as leadership and organization  consultant, I encountered research from multiple sources confirming organizations with more ethical cultures often have:

• reduced legal liability
• fewer employee absences
• increased employee engagement
• reduced turnover
• increased innovation
• higher firm performance

Organizations with more ethical cultures are also more likely to benefit from positive branding, as well. This leads to increased sales and the ability to attract top early career talent. In fact, Millennials often use easily-obtainable company information to determine the companies they buy from and apply to work for.

How to build an ethical culture in your organization

So, what do we do about it? Some organizations may choose to screen for more ethical individuals. However, this solution may not be realistic for all occupations or industries.

The type of person you hire is only part of the equation for predicting behavior, even when it is possible to hire for integrity. It’s important to think through the situations that a person encounters, as well. Some theorists even suggest that strong organizational cultures may cause seemingly unethical individuals to engage in ethical behavior, or vice versa.

There are many aspects of culture that can be developed or addressed to encourage ethical behavior in your organization. However, it’s important to also consider the amount of effort required for any change and target those areas where you find the greatest opportunity for impact.

In today’s age of information transfer, big data, and transparency, the need to ensure ethical behavior is especially critical. But, of course, organizational change efforts are never easy. They require a great deal of planning and insight to ensure they are effective in the short term and sustainable for the long term.

The first step to any good organizational change effort is to think through your situation, evaluate where you have gaps, and determine what your obstacles to success may be moving forward.

Once you have completed that analysis, here are a few areas you can tackle right away to begin building an ethical organizational culture:

1. Set clear ethical guidelines.

Make sure you have a clear and updated code of ethics that covers modern issues and settings. Regularly updating, disseminating, and requiring knowledge of the code can go a long way toward ensuring individuals in your organization behave ethically.

It’s also important to make sure your employees can seek guidance, pursue clarification, and report ethical violations easily and (preferably) anonymously. Employees should know that the code of ethics is not something that sits on a shelf somewhere but is instead a central part of how business is conducted both internally and externally.

2. Ensure transparency.

One way to promote ethical behavior is to make widely known the types of ethical decisions made in the organization. For instance, if a senior leader makes the tough decision to refuse a client because signing a contract would have violated the code of ethics in some way, share that information with the entire organization. Let every employee know what is being done well and let them see the importance of acting ethically at all levels of the organization.

This transparency allows employees to see their good behaviors will be acknowledged, and their bad behaviors will be noticed. It also provides employees with examples on which they can model their own behavior.

3. Treat ethical violations appropriately.

Of course, it’s not enough to just talk about ethical behavior within the organization. Organizations and their leaders must be as willing to punish bad behavior as they are to reward good behavior.

The code of ethics should clearly spell out the repercussions for unethical behavior. Leaders must also be willing to partner with human resources to enforce the code. This is one of the most critical and powerful elements of an ethical organizational culture. Organizations where violations can be swept under the rug quickly develop an internal reputation lacking integrity. And, it is only a matter of time before that reputation becomes external-facing as well.

It's hard work

Now that you may better understand how to build an ethical organizational culture, it’s also important to understand that it's not easy to do. As alluded to above, it takes dedication, time, and everyone’s involvement. After all, it only takes one dishonest, or even careless leader or employee to put an organization at risk.

That’s a gamble no organization should be willing to take.

Hear more about the importance of building an ethical organizational culture on this episode of the Leadership 480 Podcast.

Explore the impact leaders have every workday.

Elizabeth Ritterbush, Ph.D., is a leadership consultant at DDI based in Atlanta. She partners with clients globally and across industries to design, implement, and manage leadership development and selection strategies. In her spare time, she can often be found traveling or working on organizational research. Her research interests include a wide variety of topics such as ethical decision making, cross-cultural leadership, organizational culture, and performance management.