Which of the following is the first step in developing a corporate culture designed to support ethical behavior?

Ethics is a growing priority for business leaders but they are struggling to embed an ethical culture, according to a recent CGMA survey.

To fully embed an ethical culture, organisations must improve training, communication and leadership. The way in which these practices are embedded and implemented is critical to the organisation’s ability to gain the most from an ethical performance culture.

Whether related to supply chain issues like the European horse meat scandal, fixing the Libor rate, or mis-selling insurance, many organisations have had to learn from experience how failing processes and bad practices can deter customers and damage reputation. With the influence of social media and overall global connectivity, sharing negative experiences or opinions takes just a few taps on a screen. By contrast, there is extreme difficulty and expense involved in restoring a damaged reputation, not to mention the potential impact on the organisation’s customers, industry peers and other stakeholders.

CGMAs are ideally positioned to be key influencers, to support organisations in achieving this increasingly important task. Here are five steps CGMA designation holders can take:

1. Develop a code, and make ethical performance a strategic priority. A relevant code of ethics, conduct or similar policy that sets clear objectives, standards and expectations is a key requirement for ethical performance. A code needs to be supported by a focus on ethical performance in wider decision making.
2. Set the tone from the top. Senior management teams must show leadership and be seen to live the organisation’s ethical values. Only once that happens can employees get in step and ensure the whole organisation lives those values.
3. Engage, communicate and train your staff. Engage staff and other stakeholders such as suppliers, investors, regulators and consumer communities, through effective and informative communication. Good, regular and consistent communication and training will help to embed an ethical culture.
4. Provide support routes for staff. Organisations need to develop clear routes for reporting suspected fraud and violation of company policies on ethical behaviour. Too many organisations are weak in this regard and must adopt a zero-tolerance approach.
5. Measure effectiveness of your ethics programme. To ensure best practice, organisations need both to measure their ethical performance and to foster open discussion.

 Read the CGMA ethical performance briefing

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assessment

From Volkswagen’s emissions fiasco to Wells Fargo’s deceptive sales practices to Uber’s privacy intrusions, corporate scandals are a recurring reality in global business. Compliance programs increasingly take a legalistic approach to ethics that focuses on individual accountability. Yet behavioral science suggests that people are ethically malleable, so creating an ethical culture means thinking about ethics not simply as a belief problem but also as a design problem. The authors suggest four ways to make being good as easy as possible: Connect ethical principles to strategies and policies, keep ethics top of mind, reward ethical behavior through a variety of incentives, and encourage ethical norms in day-to-day practices.

Unethical behavior ruins reputations, harms employee morale, and increases regulatory costs—not to mention damages society’s trust in business. Yet corporate scandals are a recurring reality.

Compliance programs take a legalistic approach to ethics that focuses on individual accountability—but a large body of behavioral science research suggests that even well-meaning and well-informed individuals are ethically malleable.

Leaders must design workplace contexts that encourage good behavior. Keeping prosocial values top of mind for employees as they make decisions will reduce the likelihood of transgressions while making workers happier and more productive.

From Volkswagen’s emissions fiasco to Wells Fargo’s deceptive sales practices to Uber’s privacy intrusions, corporate wrongdoing is a continuing reality in global business. Unethical behavior takes a significant toll on organizations by damaging reputations, harming employee morale, and increasing regulatory costs—not to mention the wider damage to society’s overall trust in business. Few executives set out to achieve advantage by breaking the rules, and most companies have programs in place to prevent malfeasance at all levels. Yet recurring scandals show that we could do better.

A version of this article appeared in the May–June 2019 issue (pp.144–150) of Harvard Business Review.