In recent months, AT&T has been blanketing the airwaves with its latest advertising campaign featuring a variety of professionals who don’t quite make the grade. These include a surgeon who has “almost” been reinstated, an amusement park ride operator who tells a pair of patrons that, if something bad happens, they just move to the next town and a shady tax professional who admits to a client that he is going by an alias and is under audit. The catchphrase repeated in each of these commercials is – “Just OK is not OK.” The same is true for the strength of your firm’s ethical culture.
Consider for a moment your sentiments regarding key business objectives. Do you strive for OK customer service or excellent customer service? Do you try to be an OK employer or an employer of choice? Do you desire to provide OK products and services or exceptional products and services? Do you work to have an OK relationship with the community in which you operate or a strong relationship? Clearly, aiming for mediocrity in any aspect of business is not a formula for success. To the contrary, it virtually guarantees failure. This is the reason why responsible business professionals strive for excellence in everything they do.
So, here’s the question, what are you doing to achieve excellence in your firm’s ethical culture? What, if any, metrics do you gather? What performance goals do you set for yourself and your employees? These are not purely academic questions. Ethical culture strength is foundational to business success because it is the single most important factor in reducing enterprise risks, creating a productive workplace and earning stakeholder trust and loyalty. There is a mountain of data to back this up.
In their March 2018 “State of Ethics & Compliance in the Workplace” report, the Ethics and Compliance Initiative (“ECI”) observed that compared to employees in strong ethical cultures, employees in weak ethical cultures are:
Three times more likely to say they experienced pressure to compromise standards;
Three times more likely to say they observed misconduct;
41 percent less likely to report observed misconduct;
27 percent more likely to say they experienced retaliation after reporting misconduct.
Moreover, these data are consistent with the results of dozens of ECI National Business Ethics Surveys taken since the early 1990s. The moral of the story is that failure to consciously drive ethical excellence to secure a strong ethical culture makes firms far more vulnerable to internal turmoil and governmental enforcement actions.
Multiple studies confirm what many successful business professionals have known for many years: When it comes to business performance, “culture is king.”
The Report of the National Association of Corporate Directors Blue Ribbon Commission on Corporate Culture as an Asset observed that “[I]f led and managed well, culture is the rocket fuel for delivering value to stakeholders.” This statement is well supported by financial performance data gathered by numerous organizations.
In their 2010 report entitled “Ethical Leadership: The Important Links between Culture, Risk Management, and Business Performance,” the Compliance and Ethics Leadership Council stated that its data showed that companies with strong ethical cultures had:
Higher employee productivity;
Better strategic management; and
Improved business performance.
Data gathered by Raj Sisodia and published in the “Conscious Capitalism Field Guide,” shows that over a 20 year period ending in June 2017, companies who subscribe to the four tenets of Conscious Capitalism that includes a “conscious culture” that “intentionally fosters cultures with high levels of trust, authenticity, transparency and genuine caring” outperformed the S&P 500 index by a factor of nearly 8 to 1.
Similarly, a 2016 Great Place to Work Institute report entitled “The Business Case for a High-Trust Culture” observed that between 1998 and 2016 firms that have high “trust indexes” and comprised their lists of the “Top 100 Companies to Work For” over that time period have collectively outperformed the Russell 3000 stock index by a factor of nearly 3 to 1.
The Great Place to Work Institute report also cites several studies that found a compelling connection between factors key to ethical culture strength and company performance. These included a 2013 study led by Luigi Guiso, of the Einaudi Institute for Economics and Finance & CEPR, concluding that in companies where employees reported that their leaders act with integrity (an essential component of a strong ethical culture), a number of competitive advantages emerged, including:
Better industrial relations;
Greater attraction of top job applicants;
Another 2013 study cited in the Great Place to Work Institute report conducted by Herbert Nold, Professor of Business Administration at Polk State College in Winter Haven, Fla., came to similar conclusions. Specifically, Nold found that the great workplaces achieved superior results over a period of several years in:
Operating income per employee;
Return on assets;
Tobins’s Q (the ratio between an asset’s market and replacement value).
The fact that ethical culture strength reduces risk and drives superior financial performance should not be surprising. Given the power of social dynamics in driving behavior in organizations, the most potent protection against systemic corporate corruption is a robust ethical culture sufficiently strong to ensure compliance with legal and ethical requirements. Further, corporations are human institutions whose performance is dependent upon relationships between internal and external stakeholders. These relationships are universally enhanced by cultures governed by ethical values like honesty, respect, responsibility, fairness and compassion.
The centrality of culture in achieving superior business performance is, perhaps, best reflected in the words of former IBM CEO and chair Lou Gerstner who said:
“Until I came to IBM, I probably would have told you that culture is just one among several important elements in any organization’s makeup and success – along with vision strategy, marketing, financials, and the like. … I came to see, in my time at IBM, that culture isn’t just one aspect of the game – it is the game.”
As with any other critical aspect of your business, when it comes to your ethical culture strength “just OK is not OK.” Don’t take this aspect of your business for granted. Instead, take deliberate steps to promote a strong ethical culture by striving for ethical excellence in everything you do.
Jim Nortz is Founder & President of Axiom Compliance & Ethics Solutions. He serves on the Conscious Capitalism Rochester Board of Directors, is a member of the International Association of Independent Corporate Monitors and is a National Association of Corporate Directors Fellow. Jim also is a former Board member of the Rochester Area Business Ethics Foundation (“RABEF”) and the Ethics and Compliance Officer Association (“ECOA”). Nortz can be reached at jimnortz@AxiomCES.com.