Building an Ethical Culture

By Eric R. Feldman

While visible engagement of senior leadership and the board of directors on ethics matters is a critical element in building and maintaining a strong ethical culture, the “tone at the top” of an organization is often over-relied upon as the singular requirement of a strong ethical culture. The reality remains that it is not the C-suite that has the greatest impact on employees. Rather, it is their immediate supervisor who exerts everyday influence. Employees see “leadership” as their supervisor or the local management at their work location. For that reason, a comprehensive training and review program targeted at front-line managers can have the greatest impact on the ethical culture.


Management must also prove that it means business by supporting whistleblowers. Although most organizations have established anonymous reporting hotlines where employees can confidentially report observed misconduct, the 2011 Ethics Resource Center report found that retaliation against employee whistleblowers rose sharply. More than one in five employees (22 percent) who reported misconduct say they experienced some form of retaliation in return. That compares to 12 percent who experienced retaliation in 2007, and 15 percent in 2009.

Employees continue to identify the fear of retaliation, and a perception of a lack of management responsiveness to their reports, as the main reasons for not reporting misconduct. Although the percentage of employees who report observed misconduct is higher than in previous years, 35 percent of employees responding to the survey said that they did not report observed misconduct at their companies.

Employee fear of retaliation as well as hesitance to use reporting hotlines are indicators of a weak corporate ethical culture, undermining or eliminating opportunities to strengthen controls and mitigate risks. Hotline reporting trends provide valuable insights into the areas of an ethics and compliance program that requires additional focus and attention, and can transform a reactive program into a proactive mechanism to prevent fraud and misconduct.
Strengthening the corporate ethical culture as part of a comprehensive anti-fraud program can help organizations better manage fraud risk. The payoff is likely to far exceed the costs.

Eric R. Feldman, CFE (Certified Fraud Examiner), CIG (Certified Inspector General), is managing director of corporate ethics and compliance programs for Affiliated Monitors, Inc.



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