Every year, the Ethics and Compliance Initiative (ECI) completes a global survey on ethics and compliance. The survey puts a spotlight on workplace misconduct associated with breaches of values and ethics, and violations of policies, laws and regulations. Although the ECI survey does not define misconduct, it has traditionally focused on six types of misconduct: conflicts of interest, corruption, violations of health and safety regulations, abusive behaviors, sexual harassment and discrimination. According to the Collins Dictionary, misconduct is “bad or unacceptable behavior, especially by a professional person.” From a legal perspective, there are two broad categories of misconduct: 1) general misconduct (which normally results in discipline); and 2) gross or serious misconduct (which typically results in termination for cause). Gross misconduct is an infraction or crime serious enough to justify dismissal without severance payment.

Most organizations adopt values, which are beliefs and standards of behavior that they want employees to exemplify. Examples include fairness to others, maintaining a collaborative working environment, acting with integrity, etc. Ethics is the application of moral principles (including values) in a personal or business environment. It is defined by the Collins dictionary as “the moral fitness [appropriateness] of a decision or course of action” in a given context or set of circumstances. Ethics is often linked with compliance, but they are not the same. Ethics is guided by moral principles, while compliance is guided by policies, laws and regulations. Moral principles are sometimes in conflict with rules outlined in policies, laws and regulations. Blindly following policies, or strictly enforcing laws and regulations, is not always ethical. For this reason, many organizations have an ombuds-person appointed to investigate complaints and recommend acceptable solutions.

Why are values and ethics so important?

Deficient values and ethics are among the most significant sources of risk. Companies with weak values and ethics are known to experience levels of employee misconduct as much as ten times higher than companies with strong values and ethics.¹ Misconduct causes good employees to complain, disengage and leave. Stakeholders such as investors, customers and suppliers also complain and may decide they no longer want to associate with an organization. Misconduct tarnishes organizational reputation, and leads to fines, lawsuits and declining performance. In short, deficient values and ethics undermine the trust that stakeholders rely upon. When trust is broken, there is no alternative but to restore it very quickly to prevent organizational failure.

What is the extent of misconduct in the workplace?

According to the ECI, “businesses face a higher risk for misconduct and loss of trust than ever before.”² During the past 30 years, the ECI has surveyed and reported on the global state of ethics and compliance in organizations using simple yet revealing measures. They include:³

• Pressure to compromise ethical standards – driven by greed, recklessness, etc.
• Observations of misconduct by employees – unethical or unlawful actions observed.
• Reporting of misconduct by employees – including but not limited to whistleblowing.
• Retaliation after reporting misconduct – direct or indirect reprisal for the reporting.
• Strength of the ethics and compliance culture – support or disregard by management.

Since 2020, almost 30% of employees report pressure to compromise ethical standards, up from an average of approximately 20% in the previous decade. The negative effects of the pandemic on organizational performance and results may explain the sharp increase in pressure to compromise. By extension, levels of misconduct observed by employees also increased dramatically, from approximately 45% during the 2010’s, to a high of 65% in 2022-23. The highest and lowest levels of misconduct observations range from a high of 85% in Kenya to a low of 40% in Japan, to a (Figure 1).

Overall, 72% of employees who observed misconduct in the 12 months ended January 2023 reported their observations (to their direct superior or formal channels setup for such reporting) representing a 4% increase in reporting from 2020. The ECI considers this increase to be a “promising result.”⁴ However, 46% of employees who reported misconduct experienced retaliation. The level of retaliation is consistent with prior surveys. According to the ECI, retaliation is “one of the most intractable obstacles to achieving higher reporting levels and reducing [misconduct] risk for an organization.”⁵ The ECI further states that “the current retaliation rate is of major concern because of its silencing effect within an organization, which tends to precede the erosion of culture.”⁶

The ECI survey reveals a noticeable erosion of ethics and compliance culture within organizations, where 48% of respondents believe that their organizational culture is “weak” or “weak leaning” up from 42% in 2020 (Figure 2). The ECI notes that “an alarming 87% of employees indicate that their workplace does not have a strong ethical culture.”⁷ The ECI also suggests that “given the influence of culture on employee conduct, a strong-leaning culture is not sufficient. (…) If employees at all levels do not act ethically in an organization, and if accountability for wrongdoing does not exist, it is only a matter of time until there is widespread discontent, as well as heavy liabilities.”⁸ It is very concerning that only 13% of employees believe that their organizational ethics and compliance culture is strong.

What are the causes of misconduct in the workplace?

According to behavioral science researchers from Brigham Young University and Northwestern University, “people don’t enter the workforce with a fixed [permanently anchored] moral character. Just as employees can nurture (or neglect) their skills and abilities over time, they can learn to be more or less ethical.”⁹ Unfortunately, “many organizations treat ethics training as a onetime event, often limiting it to the onboarding process. If they do address ethics thereafter, it may be only by espousing codes of conduct or establishing whistleblower hotlines. Such steps may curb specific unethical actions, but they don’t necessarily help employees develop as moral people. Ethical learning is a lifelong process” as explained by the researchers.¹⁰

Although the onus for ethical behavior lies with employees, employers are responsible to set the right tone and conditions for ethics and compliance. Employers must also take action when cases of misconduct are discovered or reported. The high rates of misconduct observed by employees, along with the relatively weak state of ethics and compliance culture, suggest that a majority employers are falling short. Despite years of focus on ethics and compliance in North America, more than half of employees continue to observe misconduct in the workplace. More effective approaches are needed by a majority of organizations for strengthening values and ethics.

What kind of approach is needed?

Misconduct is likely to occur wherever values and ethics are not clearly stated, communicated, understood and reinforced. When it comes to fixing problem cultures, the approach needs to be comprehensive and sustained. Half measures only get you half way, and that seems to be exactly what the ECI surveys indicates. Putting a brighter spotlight on ethics and compliance is necessary, and forceful actions are needed to address problem cultures. These actions include:

• Conducting employee surveys to determine the nature and extent of problems.
• Drafting clear value statements, ethics guidelines and codes of conduct.
• Screening new employees for character and requesting character references.
• Mandating all employees to attend training on values and ethics every 3 to 5 years.
• Outlining examples of how values and ethics apply in each operational area.
• Making values and ethics expectations part of employee performance evaluations.
• Recognizing and promoting individuals who are role models for others to follow.
• Monitoring behaviors, and encouraging employees to report misconduct.
• Protecting employees from retaliation after they report misconduct.
• Taking disciplinary action against employees acting contrary to expectations.

When values and ethics are deficient, strong leadership is needed to communicate the changes required. Because changing a problem culture is very difficult, chief executives must leave absolutely no doubt on their commitment to effect behavioral changes. To make sure that change is taken seriously, chief executives must personify the desirable values and ethics with key messages, and with visible and persuasive actions. These actions must include rewarding and promoting employees who exemplify the desirable values and ethics, and terminating those who don’t.

Conclusion

Trust is an essential condition for doing business. According to the ECI, “businesses today face a higher risk of misconduct and loss of public trust than ever before. (…) All current indications point to a rampant risk for misconduct to occur. Should this take place, these organizations will not only lose the trust of their employees, but that of consumers and stakeholders.”¹¹

The benefits of ethical organizations are well documented as noted by the behavioral science researchers of Brigham Young University and Northwestern University. “Such organizations are more attractive than others to employees, are less likely to become embroiled in scandals, and are more likely to be rewarded by investors, who increasingly focus on good governance and strong cultures as sources of sustainable value creation.”¹² “Organizations should aim to design a system that makes being good as easy as possible” suggest other researchers of the University of Chicago and University of Texas.¹³ “That means attending carefully to the contexts people are in, making ethical principles foundational in strategies and policies, keeping ethics top of mind, rewarding ethical behavior through a variety of incentives, and encouraging ethical norms in day-to-day practices. Doing so will never turn an organization full of humans into a host of angels, but it can help them be as ethical as they are capable of being” emphasize the researchers.¹⁴

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¹  Corporate Executive Board, Research Reveals That Integrity Drives Corporate Performance: Companies With Weak Ethical Cultures Experience 10x More Misconduct Than Those With Strong Ones (PR Newswire, September 15, 2010).
² Ethics and Compliance Initiative, ECI’s Global Business Ethics Survey – The State of Ethics & Compliance in the Workplace, A Global Outlook, 2023 Update (Accessible through www.eci.com). p.3.
³  Ethics and Compliance Initiative, ECI’s Global Business Ethics Survey (…), p.3.
⁴  Ethics and Compliance Initiative, ECI’s Global Business Ethics Survey (…), p.6.
⁵  Ethics and Compliance Initiative, ECI’s Global Business Ethics Survey (…), p.7.
⁶  Ethics and Compliance Initiative, ECI’s Global Business Ethics Survey (…), p.7.
⁷  Ethics and Compliance Initiative, ECI’s Global Business Ethics Survey (…), p.8.
⁸  Ethics and Compliance Initiative, ECI’s Global Business Ethics Survey (…), p.8.
⁹   Isaac H. Smith and Maryam Kouchaki, “Building an Ethical Company” Harvard Business Review (Nov–Dec 2021).
¹⁰  Isaac H. Smith and Maryam Kouchaki, “Building an Ethical Company” Harvard Business Review (Nov–Dec 2021).
¹¹  Ethics and Compliance Initiative, ECI’s Global Business Ethics Survey (…), p.10.
¹²  Isaac H. Smith and Maryam Kouchaki, “Building an Ethical Company” Harvard Business Review (Nov–Dec 2021).
¹³  Nicholas Epley and Amit Kumar, “How to Design an Ethical Organization” Harvard Business Review (May-Jun 2019.
¹⁴  Nicholas Epley and Amit Kumar, “How to Design an Ethical Organization” Harvard Business Review (May-Jun 2019.