How to Reduce Unethical Behavior Among CEOs

HR can discourage unethical behavior by shaping an ethical culture.

By Dori Meinert Jul 25, 2017
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​In the not-so-distant past, the misdeeds of corporate leaders would often be swept under the rug. But that’s happening less frequently these days.

The percentage of CEOs forced out of their jobs for ethical violations increased to 5.3 percent of all successions between 2012 and 2016 from 3.9 percent between 2007 and 2011, according to a study by PwC’s Strategy& released in June. The study analyzed CEO exits at the world’s 2,500 largest public companies over the past 10 years.

However, it’s not clear whether more ethical violations are occurring. 

“That’s a nearly impossible statistic to measure,” says Kristin Rivera, forensics services partner with PwC U.S. and study co-author. “It’s fair to say that it seems the world is less tolerant and more apt to take action than in previous times.”

Public trust in large corporations has declined significantly since the 2007-09 Great Recession. Business scandals have led to increased government regulation. And more companies are moving into developing markets where the rules of operation are murkier and global supply chains raise their risk.

Meanwhile, digital communication methods such as e-mail and social media make it easier to capture evidence of misconduct—and a 24/7 news cycle ensures that such revelations are disseminated quickly.

The study captured data from CEOs whose departures were triggered by their own acts of impropriety or by ethical lapses of those further down the chain of command. That points to a cultural problem that HR professionals can help address, Rivera says, by taking the following key steps:

• Ensure that the company isn’t creating incentives for employees to act unethically.

• Develop business processes and financial controls that discourage bad behavior.

• Prevent employees from rationalizing improper conduct.

“One thing that HR can do to help prevent employees from starting on that slippery slope is to call out those small issues early on and nip them in the bud,” Rivera says. In cases of major fraud, there was often an early red flag that was ignored or inappropriately addressed, she says.

Changing a culture that encourages unethical behavior can be tough, especially when corporate leaders are among the violators. 

“There should be someone who is objective that the HR professional can work with,” such as an external audit committee or an internal auditor, compliance officer or legal counsel, Rivera says.

It’s far easier to build ethics and integrity into the corporate culture from the start, says Teri Barros, HR director at Pyrotek Inc. in Spokane, Wash. It helps if that message comes from the top. At Pyrotek, each new hire receives a letter signed by the company president stating that every employee is expected to maintain high ethical standards.

The company also adopts processes to help achieve those high standards. For example, it doesn’t pay bonuses to its salespeople because that might encourage them to sell for the wrong reasons, says Barros, who is a member of the Society for Human Resource Management’s Ethics/Corporate Social Responsibility and Sustainability Special Expertise Panel.

To maintain an ethical culture, HR leaders must ensure that the rules apply equally to everyone—even executives. That takes courage, but it can be easier if the HR leader has built prior relationships with members of the executive team and the board of directors, she says.

“It’s important for every company to have someone from HR at the executive table so they can be an influence for good,” Barros says. “If HR isn’t courageous and willing to make those decisions, then who will?”    

Dori Meinert is senior writer/editor for HR Magazine.

Photo Illustration by ​Laura Bruce for HR Magazine.

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