Ring in Year With Good Business Ethics -- The Innovators - TheStreet

Ring in Year With Good Business Ethics -- The Innovators

Strengthening a company's ethical culture could lead to more productive workers and lasting success.
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The new year presents a fresh opportunity for companies to make a clean start when it comes to business ethics. According to a recent survey from the Ethics Resource Center, now is a great time to do it.

The ERC survey, released at the end of 2009, suggests that many companies have been practicing better business ethics since the recession hit. This happy result contrasts nicely with initial data and earlier predictions by ethics pundits who thought that tougher economic times would give companies an excuse to cut ethical corners.

According to ERC, fewer employees in 2009 said they had seen misconduct in the workplace compared with 2007; the measure fell to 49% in 2009 from 56% in 2007. The number of employees who reported misconduct when they saw it increased to 63% from 58% in the same two-year period. ERC's measure of the strength of ethical cultures in companies increased nine percentage points to 62%. Employees also reported that perceived pressure to commit ethics violations declined to 8% from 10%.

All of this good news led ERC to conclude that businesses are "experiencing an ethics bubble." It's encouraging to think that in tough times companies have risen to the challenges facing them while staying true to their ethical principles. Unfortunately, the ERC survey data may not entirely support that "happily-ever-after" conclusion.

The positive trends that ERC observed typically involve only a few percentage points, hardly cause to rejoice. The one exception to that was the nine-point percentage improvement in ERC's measure of the ethical strength of companies. That was good news, but the total number of 62% is far from an A+.

Let's look a bit more critically at the ERC survey data. One in five employees who responded to the survey said his companies' management wasn't transparent about business decisions. About one-quarter of respondents agreed that "the recession has negatively impacted the ethical culture in my company."

One in 10 respondents said that "to stay in business during the recession, my company has lowered its ethical standards." Almost half of employees responding to the survey said they had seen unethical conduct in the workplace. Of those who did, more than one-third failed to report what they'd seen. Worse, the survey results showed that retaliation against those who had reported misconduct actually increased over the same two-year period.

If this is an ethics bubble, Heaven help us when it bursts.

One could argue that business ethics really aren't all that important, or that employees don't necessarily know whether their company is ethical or not. Both arguments are tough to sustain.

Research has demonstrated that a decline in the measured ethical strength of a company's culture can predict misconduct before it happens, and certainly before it appears on the company's financial statements or explodes in the press. And it's often the rank-and-file employees of a business who first recognize that something isn't quite kosher. Managers can get so involved with elaborate plans to keep a company's earnings high that they lose common sense and a realistic perspective about how their schemes will look to the outside world. By the time a scandal breaks, it can be too late to avoid deadly damage to a company's reputation.

Although the survey isn't quite as heartening as ERC suggests, it offers several important lessons for business executives. At companies with reportedly weak ethical cultures, employees who responded to the ERC survey tended to be more receptive to regulation and government intervention. They also were less likely to think that their bosses deserve lavish executive compensation.

Executives who are eager to limit regulatory oversight and preserve their autonomy would do well to shore up their businesses' ethical culture. If the culture is strong, employees may be more inclined to think well of management and may not seek regulatory intervention when things seem to be going wrong. They also may be more productive, happy to put in a good day's work without grousing constantly about how much the boss is paid.

In companies whose ethical culture was reportedly weakened by the recession, employees who felt that their employers' ethical standards had been lowered as a result of the recession reportedly observed 23% more unethical conduct. Perhaps they simply saw what they expected to see -- more likely, they accurately reported a deterioration in their colleagues' conduct. Such deterioration should come as no surprise. If employees think that management has lowered its ethical standards they may see little reason not to follow suit. If executives don't want to spend a lot of time disciplining their employees, they need to examine the ethical tone they set.

Employees answering the ERC survey reacted badly if their companies used apparently unethical tactics to adjust to the negative economic circumstances of the recession. In many cases, companies cut work schedules, laid off senior employees or retired them early, reduced salaries and benefits, closed factories, or froze hiring. All of these actions may have been essential to keep the company afloat in difficult economic times, but some companies apparently did a better job than others of explaining to employees the ethical principles that guided their tough decisions and won their employees' respect in the process.

The recession won't last forever. Eventually, companies will need to hire replacement employees and bolster the loyalty of those who remain. Perhaps the single most important lesson of the ERC survey is that employees care deeply about their companies' ethics. They think better of employers that maintain strong ethical cultures and are more likely to act ethically themselves in companies that make business ethics a priority.

As 2010 begins, businesses will face competing priorities. It may be tempting to put profits first and worry about ethics later. But if executives want their companies to thrive over the long haul, strengthening their ethical cultures could be a crucial first step to lasting success. The ERC survey suggests that we're not doing too badly -- but we can still do better.

Lauren Bloom is a Washington, D.C. attorney and the CEO of Elegant Solutions Consulting, a consulting firm dedicated to helping professionals, business and association management executives build trust with their clients, customers and members by "walking the ethics talk" in their daily practices. She is the author of the "The Art of the Apology -- How to Apologize Effectively to Practically Anyone."