Building an Ethical Culture

By: Rich Kramarik

Ethical Leadership

A distinction that is sometimes misunderstood is the difference between compliance issues and ethical issues. Compliance programs deal with external issues that have internal implications on a company (i.e. compliance with the SEC, IRS, Sarbanes-Oxley, and the law). Ethics programs deal with internal issues that have external implications (i.e. company values and codes of personal and business conduct). A frequently unrecognized challenge for CEOs and business owners is to fully understand how they are the symbol and the source of the culture of their organizations.

Close scrutiny of a CEO’s personal conduct occurs every day by employees, customers and business partners. Ethical behavior by the company’s leadership will establish respectful business relationships and solidify employee loyalty. Unethical behavior will undermine the integrity of the company. If there is a difference between what a leader says and what a leader does, everyone will see it, and employees and business partners will emulate the bad behavior.

Whether it is simply through ethical behavior or by instituting a full blown ethics program, the company's leadership must fully stand behind their actions. Establishing an ethical culture is a process, not an end, requiring the company’s leaders to demonstrate the highest standards of integrity and accountability.

Types of leaders

Ethical leaders are committed to acting ethically and insist upon that from their organization and from their business partners. Not only are they demonstrably accountable for their actions, they are perceived that way as well. They foster a culture that emulates their own dedication to ethical behavior.

Ethically neutral leaders are inherently committed to ethical behavior, but no one knows it. They are perceived as leaders who have done nothing ethically wrong, but their decision making process has no context of values or code of conduct.

Unethical leaders believe that ethics is not relevant to the business world. They make pragmatic decisions, without concern for their ethical implications, which sometimes don’t stand up as ethical behavior under external scrutiny.

Foundation for ethical behavior

Executives must establish the ethical foundation for their companies, which will serve as the cultural underpinnings that guide their leadership. Ethical behavior is founded in:

A set of values that spell out the way employees will relate to each other and the company will relate to its customers and business partners.

A framework of principles for personal and business conduct that is unambiguous and integral to everyone’s behavior; so that unethical behavior is not an option.

Selling ethics to others so that ethical behavior is fostered by exemplary conduct by the company’s leadership, where decisions and actions send a clear message of what is tolerated and what is not.

Standing for what is right in everyday actions by rewarding positive ethical behavior and counseling others when a breach in ethical behavior occurs.

There's no way around it. Ethical behavior cannot be delegated and unethical behavior cannot be tolerated. Leaders have to be conscious of what is right and what is wrong, and set the example for others by asserting their integrity and honesty. As their reputation grows, so will the respect and dedication of others.

An Ethical Environment

In a small business where the founder/owner's presence is felt by everyone, it may not be necessary to document his or her values. However, it is necessary to act appropriately on those values with ethical behavior. Large or small, the leaders must establish a culture that fosters ethical behavior in the context of the company’s values.

If something serious happens in your company, you want people to feel safe in coming forward and talking it over. The CEO or business owner is often the last person to hear about such things. A strict "no retribution" practice for people wishing to express their concerns will instill the trust required to encourage open communications.

Other actions toward building an ethical environment are:

Communicating what ethical conduct is to everyone in the company is essential so they know where you stand on ethical matters and don’t just assume what it is. Misunderstandings will be avoided when the leader speaks clearly and forthrightly about the importance of ethical behavior as part of the company’s vision and mission.

Decisively addressing issues must be a priority of a responsible executive who is charged with investigating the problem and taking appropriate action. As part of the process, examine the types of behavior that may have caused the problem in the first place.

Accountability

Ethical conduct flourishes in an environment of openness and leadership-by-example. Unethical conduct flourishes in an atmosphere of secrecy and misinformation. For this obvious reason the goal should always be to create accountability in decision-making. This applies first to the people at the top and then throughout the organization.

When decision making is done in the context of clearly communicated and demonstrated values and code of conduct, it is much harder for employees to fall prey to bad behavior and to blame others when something goes wrong. Each individual should be held accountable for their actions, regardless of rank or seniority.

The rewards of an ethical company

In an ethical environment, employees and business partners understand that ethical behavior is the means by which business success is achieved. They see through example after example that ethical behavior is rewarded and unethical behavior is not tolerated. They understand that leadership holds itself to the highest standards and that absolutely everyone, no matter how vital to the company, is responsible for the safe-keeping of the ethics of the company. All good things will follow.

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            Bob De Contreras                                                  
            Rich Kramarik