Why Leadership Sets the Standard for Workplace Ethics

Pam Sornson, JD

Pam Sornson, JD

Remember the Enron scandal? Somehow, one of America’s largest corporations disintegrated into disaster, costing hundreds of employees their jobs and thousands of investors their life savings.

How did it happen? The collapse was caused by epic accounting scams and thousands of falsified documents created and published by Enron’s corporate leadership.

Why did it happen? Evidence revealed that advisors at Enron’s fiduciary accounting firm, Arthur Andersen, repeatedly – over the course of 12 years – ignored the “extreme” or “very significant financial reporting risks” contained in Enron’s financial filings and tax records.

Both companies collapsed when their leadership became more interested in making money than maintaining professional and fiduciary obligations to clients and workers.

A recent report indicates that a corporate culture that exhibits a high commitment to work ethics standards – unlike those at Enron or Andersen – plays a significant role in an employee’s election to commit some form of workplace misconduct.

 

Internal Workplace Ethics Create or Alleviate Risk Factors

The willingness of workers to commit some form of misconduct occurs in every company and at all levels of workforce and management. The forces pushing people to ‘bend the rules’ are many, including meeting their performance metrics, keeping their jobs, or advancing their personal financial goals, among many others. However, research indicates that workers who perceive a high tolerance for unethical behavior in their corporate leadership are more likely to commit misconduct than those whose jobs require a higher standard of ethical care.

In its report, the 2020 Global Business Ethics Survey, the Ethics & Compliance Initiative (ECI), discusses the significance of those workplace ethics violations. The study reviewed six categories of ‘misconduct’ – abusive behavior, conflicts of interest, corruption, discrimination, sexual harassment, and health and safety violations – and asked participants if they had personally committed any of those behaviors. Then they asked if the workers had been influenced by witnessing such behaviors by co-workers or management.

The resulting statistics reveal that people who witnessed workplace misconduct felt comfortable committing misconduct themselves, almost twice as often as those who took the step without that additional influence. While more than one in five workers (22%) in five global regions have personally violated their corporate ethical obligations, those who saw others acting inappropriately followed through on their comparable impulse almost twice as often (37%).

 

Even more interesting was the reported origin of the unethical impulse: those workers who perceived a ‘lack of ethical leadership or organizational values’ in their company were more likely to feel comfortable breaking the rules. Specifically, when workers sensed that corporate leadership lacked a commitment to ethical standards, they felt less pressure to behave ethically and became more comfortable with committing ethics violations themselves:

Almost half (49%) reported a willingness to break the rules when they saw their bosses – and their boss’s bosses – cutting ethical corners.

One in four (25%) took the step when they perceived only moderate leadership investment in maintaining ethical standards.

However, when workers sensed a strong management commitment to workplace ethics, the percentage of workers willing to act beyond those parameters dropped to 13%.

The study revealed that even management personnel are willing to bend the rules when they see someone in a comparable or more superior position doing the same. Almost one-third (30%) of top management respondents reported thinking about committing misconduct after witnessing colleagues act on their impulses. A quarter of middle managers reported the same, while 22% of first-line, lower management fell to that standard. Remarkably, only 17% of workers who were not in management positions reported knowingly committing misconduct on the job after watching a peer or supervisor do the same.

 

Preventing Ethics Violations Starts at the Top

Clearly, the ECI report indicates that maintaining appropriately high ethical standards across any organization is set and modeled by those in top leadership positions. Other experts indicate that ‘high ethics’ are about more than just following rules. In addition to not committing the offenses listed above, the HR professionals at Chron also suggest building into corporate culture the foundational principles of decency and fairness and exhibiting those principles at all opportunities. Doing so will enhance the corporate reputation as well as develop and sustain high company morale.

To achieve these goals, Chron suggests taking three affirmative steps to signal to the workforce that leadership has and will maintain a high commitment to ethical practices at every level of the enterprise:

1) Stress the value of acting with integrity in all situations. The ECI report shows that people who witness unethical behaviors are more likely to behave unethically themselves. This chain can be broken when each individual is reminded that they have an independent mind and an independent obligation to behave appropriately. Leadership can model that behavior by praising the high ethics demonstrated when people do their best work.

2) Promote a ‘team player’ approach for all workers, regardless of their status within the company. Often, lower-level employees develop resentments when they feel that supervisors are receiving credit for their work. Applauding the work contributed by every worker and underscoring the success of working together as a team will reduce the likelihood that someone feeling less than valued will act out by committing an act of misconduct.

3) Establish clear corporate policies about which behaviors will not be tolerated, including the six listed above, and any additional standards that may be relevant to particular industries.

Be sure to spell out the consequences when workers don’t comply with the rules. Consequences could include a verbal reprimand, a written report, a note in the HR file, or, when circumstances warrant, suspension or termination.

If appropriate, post a written notice of the policies where everyone can see and read them.

Finally, provide a safe system for employees to report unethical activities so they can act ethically without bringing unnecessary attention to themselves.

These standards should be presented at hiring and reviewed with all employees regularly throughout the year.

 

The damage caused by the Enron scandal was, for some victims, tragically permanent. The situation was made so much worse, though, because it was also completely avoidable. If at any point after the misconduct began, any one of the offending employees at either Enron or Andersen had resolved to pursue their ethical obligation and report their concerns to the appropriate authorities, then they would have avoided the sometimes catastrophic calamity that caused thousands of investors to lose of millions of dollars.

 

Final lesson: don’t be an Enron.

 

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