Conformity: Why culture is part of business risk

Companies need to address culture as part of managing business risk.

Investors surely deserve to understand the style of leadership and the awareness of ethical, safety, diversity and sustainability issues that could easily lead to contravention, regulatory fine, or even criminal action.

We’ve looked in earlier articles at how easily conformity can increase the risk of ethical contraventions.

Addressing this as risk management is good sense: it’s also prudent for legal compliance.

If companies tolerate bad practice, without advising directly of the required behaviour, they will be viewed less kindly by the regulator and by UK Law. The 2010 Bribery Act is specific: any company that ends up defending itself against a case must be able to demonstrate that they have properly and fully made employees aware of the rules, and how to make discretionary decisions based on guidelines.

We’ve related in previous articles the cost of high-profile ethical contraventions, and the many sector-wide scandals.

The implications for business are serious. Boards do not have license to ignore this. And investors are more and more concerned to have an assurance of assiduous ethical leadership.

Accountability of Boards for unethical actions of employees

It’s not enough of a legal defence to say “The Code of conduct’s on our intranet somewhere”. Or to say how many people have been to an ethics workshop. Companies have to show meaningful action to ensure widespread good practice by employees.

The 2010 Act is explicit: Board members of any UK registered PLC are accountable, and criminally liable, for the unethical actions and any act of bribery or corruption by any employee in any part of the world. As one client put it

“Oh yes, the Board is certainly taking ethics and culture seriously now. After all, if there’s a case, it’s not me that’s going to be in the orange jumpsuit…”

Closing the door after the ethics has bolted…

Most of the ethics programmes I’ve worked on over the years have been promoted by a serious incident and regulatory action: a serious fine, and a demand by the Regulator that the company demonstrates its work with employees to maintain good ethical practice.

In the 2011Commons Committee investigation into the phone-tapping scandal, the widespread scale of this practice by tabloid journalists was laid squarely at the feet of the Boards of the companies involved. When James Murdoch, Deputy COO and son of the Media Baron, said something to the effect of :

‘Well, phone-hacking was clearly against our code of conduct, which was available on the intranet for any employee to find, so it’s not our responsibility that a few individuals operated this way’ (respectfully paraphrased here)

The response was firm:

  • You need to do a whole lot than leave it on the intranet, to make sure all employees understand the rule, what’s expected and why it matters
  • The editors, senior management and Board knew of this practice and tolerated it
  • Journalists were under pressure to find newspaper-sales-worthy content by this or any means, and even sometimes explicitly asked to hack into people’s phones
  • No, none of that is OK

It didn’t end well for News Corp or the Murdoch clan. Though James Murdoch has made some effort to rehabilitate himself into an ethical media leader.

Whether by unconscious conformity or by conscious direction, unethical behaviour can quickly become the norm.

Prevention is better than cure: establish and sustain a culture of ethics 

That’s why we’ve developed approaches to help companies establish and sustain an ethical culture – so that belonging to your business means upholding those shared standards.

Our conclusion about ethical culture is the same as the UCL psychologists’ conclusion about how conformity works: it’s all about context.

That’s where to start, in order to prevent ethical risk: with the context for the business and the relevance for people’s work.

An effective approach is for people to work through the consequences of actions. The impact of an ethical breach might not be immediate in their work or visible in their sphere of influence, but by working through the broader context they can understand the wider consequences. Something apparently  innocuous can have catastrophic consequences on another part of the business, or on customers at a later date.

Part of setting the context is to look also at the consequences  of NOT addressing sensitive issues, and of tolerating bad practice.

Rules and guidelines need context to help people understand why they matter, and therefore to follow them, illustrated with relevance to daily work and decisions.

How we can help
(or how your CEO can avoid the orange jumpsuit…)

Building a culture of ethics is not straightforward. It takes effort, conscious application, constant vigilance, and shared commitment.

And (because this is how culture works) it must be systemic.

We have a whole range of tools and techniques, and provide a kit tailored to your company. We train a team of ethics leaders to get this practice right deep into the business.

Here are a few ways we support clients:

  • Diagnosing the strength of ethics and conformity in your culture, how well are you doing?
  • An assessment of your current Code of conduct
  • Framing the rules and guidelines. Improving the Code of conduct (For example, making it human, in accessible language rather than complex legal phrases).
  • Showing why each principle matters. Illustrating the rules with context and relevance. (We’re happy to run through a few good examples in a meeting)
  • Shaping guidelines so that the approach is beyond rules-based, enabling people to make good decisions in daily business, rather than following the crowd and confirming with bad behaviour.
  • Ethical Risk Assessment and scenario planning to stress-test and improve ethical culture, working through the scale and consequences of significant ethical risks
  • Helping you host an appropriate forum for your leaders and teams to understand your ethics and address sensitive subjects.
  • Sharing the context, promoting understanding of how their own practice relates to the rules, confront ethical dilemmas in their own work – and in the company in general – and work through the consequences of decisions
  • Coaching leaders to establish a culture of candour and openness, and to support teams in challenging rather than confirming to bad practice
  • A Belonging Framework and culture management to make sure that upholding ethics is a part of what it means to belong to your organisation

 

It’s worth the effort.
When enough people are aware of good practice, and can lead it confidently, then they become the ‘norm’ that others follow. Then conformity can work in your favour.

If you’d like to look at how to start, give us a call.

Or if you’re happy for senior leaders to be convinced it’s fine to carry on conforming with what everybody else is doing… then carry on.