|Ethics & Employees
Ethics Resource Center
Retaliation – Whether Perceived or Real – Undermines Employees’ Commitment - Ethics Resource Center issues report derived from its key National Business Ethics Survey.
According to the ERC, fear of retaliation for speaking up about ethical violations in the workplace not only affects whether workers are willing to report wrongdoing to management, it drives the level of misconduct itself.
ERC study shows that employees take cues from top management, pressure from peers to do the right thing
Organizations with strong ethical values – from top executives to middle managers to workers – experience less misconduct, more frequent reporting of misbehavior and less retaliation on the job, a newly released study by the Ethics Resource Center shows.
The ERC study indicates that strong ethical culture in a company has a “profound” impact on the kinds of workplace behavior that can put a business in jeopardy.
According to the study, organizations with stronger cultures find far fewer employees (4 percent) feel pressure to commit misconduct than in weaker cultures (15 percent). Likewise, the rate at which employees observe misconduct by co-workers is nearly twice as high in weaker cultures (76 percent) as in stronger cultures (39 percent).
The report also finds that actions by top managers (and the way they are perceived) have a significant impact on outcomes and that co-worker culture – peer pressure – is particularly powerful in cutting the amount of financial misconduct witnessed by employees.
“The work of the ERC is exemplary,” said Roy Snell, CEO of the Society of Corporate Compliance and Ethics (SCCE) and the Health Care Compliance Association (HCCA), which sponsored the study. “They have many years of experience and tremendous data. The ethical culture is one of the most reliable measurements of compliance and ethics program effectiveness, particularly when you have such a broad set of comparison data.” This information should help many compliance and ethics officers in their effort to build awareness and understanding of their leadership.”
“The Importance of Ethical Culture” is based on results from ERC’s 2009 National Business Ethics Survey of 2,852 respondents. The survey findings had a sampling error of +/- 1.8 at the 95 percent confidence level. For more information on methodology, go tohttp://ethics.org/nbes/methodology.html. The NBES survey is conducted every two years and is widely used by chief ethics and compliance officers in business and government and by academicians.
“The NBES data consistently tell us that a strong ethical culture offers the best protection against risky workplace behavior, which can easily land a company on the front page in a very damaging way,” said Patricia J. Harned, Ph.D., president of the Ethics Resource Center. “Rules and a code of conduct are always necessary, but it’s good leadership and peer pressure to do the right thing that often saves the day.”
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Ethics Resource Center Publishes 2009 National Business Ethics Survey® (NBES)
Survey Shows Ethics in the Workplace Improved During the Recession
In 2009, 3,010 responses were collected. Review of the data revealed that 158 respondents worked in the government sector. These cases were removed from all analysis, meaning that 2,852 re¬sponses were from employees in the for-profit sector. Participants in the 2009 NBES were 18 years of age or older; currently employed at least 20 hours per week for their primary employer; and working for a company that employs at least two people. They were randomly selected to attain a representative national distribution. All interviews were conducted via telephone, and participants were assured that their individual responses to all survey questions would be confidential.
ERC President Patricia J. Harned concludesnthe data shows:
The NBES is the only research of its type to track patterns and trends in ethics in the American workplace since 1994. This year's survey found, for example, that most measures of ethics have improved since the recession began in late 2007. Observed misconduct declined by 7 percentage points and reporting of misconduct improved by 5 points. The survey also showed that steps taken to combat the recession – such as layoffs, buyouts, adjusted work schedules and plant closures – had a negative effect on ethical behavior among employees.
From the ERC's press release of November 18, 2009 -
Seventy-eight percent of U.S. employees say they or their colleagues experienced the impact of the recession. Yet key measures of ethical behavior – the amount of misconduct observed, the willingness to report misdeeds, the strength of ethical cultures and the pressure to cut corners – all improved since ERC’s last survey in 2007, shortly before the recession started. Only retaliation against those who reported misconduct ticked upward by 3 percentage points.
• Fewer employees said they had witnessed misconduct on the job; the measure fell from 56 percent in 2007 to 49 percent in 2009 • More employees said they had reported misconduct when they observed it ; 63 percent in 2009, up from 58 percent in 2007 • ERC’s measures of ethical culture in the workplace increased from 53 percent in 2007 to 62 percent this year – a positive sign • And overall, perceived pressure to commit an ethics violation – to cut corners, or worse – declined from 10 percent two years ago to 8 percent • Only retaliation against those who reported misconduct appeared to increase – a negative development.
NBES data show, however, that the improvements tend to be temporary and that management needs to stay alert as the economy gradually improves and businesses and other organizations return to business as usual.
NBES detected a similar pattern from 2000 to 2003, when the economy was rocked by the bursting of the dot com bubble, the events of 9/11 and corporate scandals including Enron, WorldCom, Tyco and Adelphia. ERC’s ethics metrics all improved during that period, only to fall back until the onset of the current recession in December 2007.
Former Rep. Michael Oxley, co-sponsor of the Sarbanes-Oxley Act of 2002 and chairman of the ERC board of directors, said, “Business ethics is one of the pillars of a strong economy and in today’s environment, it is more important than ever that our nation’s business leaders set and meet the highest standards of ethical conduct. This survey provides an important measure of the strengths and weaknesses of our culture of business ethics.”
Sarbanes-Oxley established tougher accountability standards and requirements for public companies in the wake of the Enron scandal. “The anxieties of a shrinking economy did not translate, in general, into a free fall in ethical behavior. Far from it,” said ERC President Patricia J. Harned, Ph.D. “Yet our research suggests that the improvements in ethical conduct will be temporary. The focus needs to stay on ethical culture and the tone at the top, starting with an organization’s directors and most senior executives.”
To gauge fallout from the recession, the 2009 NBES also posed questions about transparency and accountability in the workplace. A strong majority of employees – 71 percent – considered their senior leaders to be open and informative with employees in their organizations. Eighty percent considered their organizations to hold employees accountable for wrongdoing.
The results also show a strong connection between the strength of an organization’s ethical culture and positive employee attitudes about the appropriateness of the CEO’s compensation. In a weak ethical culture, 34 percent of employees said that their CEO was motivated to take excessive risks to achieve business goals. “Employees are highly influenced by their perceptions of senior executives,” Harned said. “If they believe risk is rewarded at the top, more risk may be taken throughout the organization.”
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Nonprofit Organizations’ Ethical Reputation Shows Signs of Erosion
Levels of misconduct still lower than in business and government
For the first time, the Ethics Resource Center (ERC) has issued a survey on the status of ethics in nonprofit organizations, completely separate from its previous two reports on businesses and government. Since 1994, ERC has issued these surveys to serve as benchmarks for each sector, and the organization has included data from the nonprofit sector since 2000. The separate report provides a useful comparative look at how ethical conduct in nonprofits stands up to the other two sectors. The latest report provides in-depth analysis and data to support the claim that despite a history of having a better ethical reputation, nonprofit organizations exhibit the same problems on a similar level to the private and public sectors.
Ethical misconduct on the rise
Overall, nonprofits still show evidence of having stronger ethical cultures and a greater alignment of employees’ personal values with the missions and values of their organizations when compared to the public and private sectors, but not by much. According to ERC research, 11 percent of nonprofit organizations have strong ethical cultures and one-third have well-implemented ethics programs – both fundamental factors ERC believes contribute to an ethical workplace. However, the survey also says that the percentage of employees who observe misconduct is on the rise and that number of ethical violations in 2007 is comparable to numbers in both business and government. In addition, ERC found that employees in nonprofits are the least confident about the future of ethics in their organizations.
Financial fraud observed most often in nonprofits, other violations have sharply increased
The survey shows a significant increase in a number of ethical violations since 2005. Putting one’s own interest before the interests of the organization rose significantly with 18% of employees reporting in 2005 and 24% reporting in 2007. The number of people who observed alterations of financial records rose from five percent in 2005 to eight percent tin 2007. Finally, those observing Internet abuse rose from 14% in 2005 to 18% in 2007. The number of employees who observe financial fraud in their organizations is the highest out of all the sectors surveyed.
A problem of governance
ERC attributes this rise in misconduct to the inability of governance standards to keep pace with the growing size of nonprofit organizations. The problems that ERC observed in this sector is mainly due to poor governance, ERC states. The board of directors tend to be more influential in nonprofit organizations than anywhere else, but at the same time, boards are not setting ethical standards for the organization. Interestingly, ERC observed that in organizations where the board is viewed as top management or setting the tone, there was a higher level of misconduct observed.
Ethics programs show near-perfect results
Despite some of these negative findings, ERC also found that in nonprofit organizations, if well-implemented ethics programs are in place, misconduct is virtually eliminated. Those employees who report instances of ethical misconduct are also less likely to experience retaliation. Overall, ERC states that feelings of fear or futility when reporting misconduct in decreasing in this sector.
Based on this data, ERC especially encourages nonprofit organizations to implement a strong ethics program and set a strong ethical culture that emanates from the top. The components that ERC believes are most essential to a strong approach to organizational ethics are:
To download the full report, please visit the Ethics Resource Center website.
National Government Ethics Survey Shows Employee Misconduct is High
On all levels of government, there is a lack of programs and incentives to encourage ethical behavior, the report says
In the follow-up to the 2007 National Business Ethics Survey, the Ethics Resource Center (ERC) has just released the National Government Ethics Survey. This is the fourth in a series of reports which surveys US government employees about their workplace environment. Overall, the findings are sobering. According to the report, the number of employees who have observed misconduct is on the rise, and the strength of ethical cultures in the workplace is declining. One-third of employees still do not report incidents of misconduct, so management is largely unaware. ERC states these statistics suggest that public trust is at risk.
Levels of Government
Types of Misconduct
The most common type of misconduct observed in government offices include conflicts of interest, abusive behavior, and lying to employees. However, overt, illegal misconduct has declined since 2000. The survey also shows that fraud in government offices is as common as in business offices. While the government has taken many steps to try to combat business fraud, it should also be aware of fraud in its own offices.
Only 1 percent of reports are made using whisteblowing hotlines. There are very few effective interventions in place. Local government employees are also the most likely to face retaliation for reporting misconduct.
The report states that government employees are most likely to report to their supervisors rather than to management. The overall perception of senior level employees is negative. The survey found 21 percent believe top leadership is not held accountable for their own ethics violations while 25 percent believe that top leadership tolerates retaliation against those who report violations.
The Good News: Government Can Change
The ERC emphasizes the importance of good ethics and compliance programs along with creating strong ethical cultures. Research has shown that effective implementation of both has reduced incidences of misconduct. The report says the government is weakest in embedded ethical values in the workplace. Offices can change if ethical values are instilled at all levels of government and throughout each organization. The ERC recommends there be strong ethical leadership, supervisor reinforcement, peer commitment to ethics, and embedded ethical values.
An Inside View of Private Sector Ethics in the United States
The 2007 survey includes the results of interviews done with almost 2,000 employees from the private sector. Below are some key findings which show some significant changes from the previous report in 2005. For additional methodology related information, the full National Business Ethics Survey report is available at www.ethics.org
This year’s survey declares corporate America is at great risk. Reports of misconduct are on the rise – since 2005, there has been a four percent increase in the number of misconduct reports. The Ethics Resource Center (ERC), publisher of the study, says misconduct reporting is back to “pre-Enron levels.”
Overall, no progress has been made in minimizing misconduct. Three forms of misconduct have risen significantly since 2005 – putting one’s own interests before the organization, lying, and e-mail and Internet abuse. There is also an increasing percentage of employees who believe their co-workers are not committed to ethics.
These three types of misconduct pose the most severe risks to companies, according to the survey. High risk offenses happen often and are often not reported. They include Internet abuse, misreporting hours worked, lying to stakeholders, discrimination, safety violations, sexual harassment, and improper hiring practices. The last classification is those offenses which the ERC says pose a guarded risk to companies, or types of misconduct that happen less frequently, but often go unreported. They are environmental violations, misuse of confidential organization information, alteration of documents, and paying bribes.
Misconduct on the Rise
This year, more than half of the employees surveyed are reporting misconduct (56%). The three most common types of misconduct reported include conflicts of interest (23%), abusive or intimidating behavior (21%), and lying to employees (20%). The statistics are more troubling in “negative” work environments. ERC describes a negative work environment as one where employees feel:
The number of strong ethical cultures, ones where the above characteristics are absent, is on the decline. Only 10 percent of U.S. companies have strong ethical cultures. ERC attributes this to low management awareness of misconduct and few successful ethics and compliance programs.
Little has changed in the number of people reporting misconduct. Although the number of reports is increasing, 42 percent of employees still do not report misconduct. The survey indicates that many people, one-third, prefer to take matters into their own hands. Many are also not taking advantage of established hotlines – a troubling one in four did not know about them.
The top reasons employees do not report misconduct are skepticism that reporting would make a difference (54%) and fear of retaliation (36%). This suggests a clear disconnect between managers’ attempt to have reporting outlets and employees who either do not know about them or are reluctant to use them.
High numbers of misconduct reports also suggests that ethics programs are not being instituted successfully, or at all. The number of programs that exist is rising, 38 percent of companies have them this year and 25 percent had them in 2005, but there are still relatively few. ERC statistics show that companies that have programs have 29 percent of employees who fail to report misconduct, whereas companies that do not have programs have 61 percent who fail to report misconduct.
ERC emphasizes that companies must institute programs that emphasize what employees should do, rather than what they should avoid. Some examples of positive encouragement include training, evaluation, and advice lines. The survey says creating an “enterprise-wide culture” will reduce misconduct by three-fourths and retaliation for reporting will be virtually eliminated.
The 2005 survey was done via telephone with 3,015 American workers in the contiguous 48 U.S. states. Below are the key sections of the October 12, 2005 ERC press release on the 2005 survey (the previous survey was in 2003). For additional methodology related information, the full National Business Ethics Survey report is available at www.ethics.org.
More than half of American workers have observed at least one type of ethical misconduct in the workplace, a slight increase from 2003, despite an increase in worker’s awareness of formal ethics programs, according to the 2005 National Business Ethics Survey (NBES) released today by the Ethics Resource Center. Employee reporting of misconduct they observe is also down by 10 percentage points. Despite the decrease in ethical conduct, according to the NBES report, “Ethics and compliance programs can and do make a difference. However, their impact is related to the culture in which they are situated.”
The survey of more than 3,000 American workers, analyzes trends in workplace ethics, the implementation of formal programs, the ethical culture within organizations, the impact of programs, and factors that pose risks of misconduct.
Some of the key findings include:
“Regulation resulting from Enron and other corporate scandals spurred a renewed emphasis on corporate ethics and new laws and regulations related to compliance,” said Dr. Patricia Harned, president of the Ethics Resource Center. “Since that time organizations, especially for-profit companies, have invested significant resources in ethics and compliance programs, but we are not seeing much change in the direct impact that these programs are having. Organizations need to evaluate what will work most effectively, including a closer look at the role workplace culture plays.”
Types of misconduct most observed by employees include:
Levels of observed misconduct were distributed evenly throughout different sectors with 29 percent of employees in government agencies observing some type of misconduct followed by 26 percent of non-profit organizations, and 25 percent within publicly traded and privately held for-profit companies.
The smallest organizations, those with under 25 employees, were the least likely to have some employees who observed some type of misconduct with 16 percent. Organizations of other sizes all had higher, similar rates of observing misconduct, and ranged from a high of 31 percent for organizations with 500-1999 employees, to a low of 27 percent for organizations with 25-99 employees and 2,000-9,999 employees.
Rise in Formal Programs
Five of six elements of a formal ethics and compliance program measured by NBES have increased over the 2003 NBES and consistently since the first NBES survey in 1994. The six elements are based upon suggestion by the Federal Sentencing Guidelines for Organizations regarding an effective ethics and compliance program, and include:
Nearly nine-in-ten employees, 88 percent, indicated their supervisors disciplined employees who violated ethical standards. This was followed by 86 percent of employees who indicated their organizations had written standards of conduct, 73 percent who indicated there are means to report misconduct anonymously, and 69 percent who indicated there was training on ethics and mechanisms to seek advice. The only element to decrease since the 2003 NBES was the percentage of employees who said their supervisors evaluate ethical conduct as part of their performance, down to 67 percent from 74 percent in 2003.
“Top corporate leaders must make ethics a very high and serious priority, not only within their own organizations but throughout the business world,” said Ira A. Lipman, Chairman and President of Guardsmark, LLC, Principal Sponsor of both the 2005 and 2003 surveys. “The leadership of corporate America should see ethics as one of their top responsibilities, and as an integral part of their stewardship and service to shareholders and customers."
"Senior executives should implement strong ethics programs within their companies," said Lipman, who has made ethics a central focus within his company for a quarter of a century. "But, equally important, they must build the type of ethical culture that will really make a difference. Ethics is not one employee in one department publishing a code of ethics. It is a responsibility given to every employee in the company, but it must be led by top leadership. An ethical culture is one where actions from the top down are met from the bottom up in an all-encompassing process. Ethics then lives and breathes and moves with the organization itself.”
One critical finding of the 2005 NBES is the importance of an ethical culture in organizations, the informal and social system that sets norms for the employee behavior that tells employees how things really work in that organization. The NBES measures elements of an ethical culture such as the ethics-related actions of employees at all levels, and perceptions of accountability for ethics violations.
Employees in organizations with a weak ethical culture reported a much higher level of observing at least one type of misconduct than employees in an organization with a strong ethical culture (70 percent compared to 34 percent). Those employees in organizations with a strong ethical culture were more likely to report the misconduct than those in weak-culture organizations (79 percent compared to 48 percent).
Culture had a stronger impact on the results or outcomes reported by employees than did formal ethics and compliance programs. In 2004, the U.S. Sentencing Commission recognized the importance of a strong ethical culture for organizational compliance. Their guidelines stated the establishment of an ethical culture was one essential area of focus for an organization’s program dealing with ethics and compliance.
“Creating a strong ethical environment should be a top priority of all companies,” said Harned. “We know formal programs are critical and work well initially, but we must now focus greater attention on building the right culture in which programs operate. This data shows, for example, that management needs to lead by example to set the right tone throughout the whole organization.”
Recently, the U.S. Sentencing Commission also highlighted the identification and reduction of risk to the areas of ethics and compliance for organizations. Companies must now regularly assess the risk of criminal conduct within their organization if their ethics and compliance programs are deemed effective by the Commission.
For the first time in 2005, the NBES examined the potential for employees to encounter situations that are likely to result in misconduct. The NBES defines risk factors as:
Also see our page on NBES on Whistleblowing
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