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How to Cultivate Ethical Leaders

The best leaders care about doing what's right—and want employees who will follow suit.


​When Craig Haydamack interviewed at Milliken & Co. four years ago, he was impressed by the eight banners lining the driveway to the company’s Spartanburg, S.C., headquarters—one for each year the business was named one of the most ethical in the world by the Ethisphere Institute, an organization that promotes good corporate character. Today, there are 12 such banners.

“You are aware of the importance of ethics here from the minute you walk in the door,” says Haydamack, now senior vice president of human resources at the company, which makes specialty chemicals, textiles and floor coverings.

That focus on ethics is a point of pride for Haydamack, who holds the SHRM-SCP certification, and it is communicated to employees and would-be employees in multiple ways. The business’s interview process is rigorous, and new employees go through a week of orientation that emphasizes the organization’s values, which include transparency, fairness and honesty. Signs promoting the company’s ethics hotline are everywhere. Annual ethics and sexual-harassment education is mandatory—and everyone got a refresher course in response to the #MeToo movement. Company leaders are adding sensitivity training to the mix, and last year they created an ethics award for employees.

​“We set the message, and we pound it every day,” Haydamack says.

That sets Milliken apart. A look at headlines today suggests that honor isn’t always a business priority. From the sexual assault allegations against Hollywood and media executives to the revelation that Equifax leaders waited weeks to inform investors and customers of a massive data breach to the millions of fake bank and credit card accounts created by Wells Fargo staff, corporate America teems with examples of wrongdoing.

Moreover, there has been a stream of stories describing possible political malfeasance. Ben Carson, secretary of Housing and Urban Development, shelved plans to purchase a $31,000 dining set after a public outcry. Former Environmental Protection Agency chief Scott Pruitt’s questionable expenses included a $43,000 soundproof phone booth in his office and an extra-large security detail. That’s not to mention the ongoing investigations of Trump administration officials and the president himself, casting a pall over the federal government.

“There is no question that watching what happens in Washington―the retaliatory language that is part of the headlines, the exorbitant spending―affects companies,” says Pat Harned, chief executive officer of the nonprofit Ethics & Compliance Initiative, an Arlington, Va.-based nonprofit that promotes robust codes of conduct and compliance programs. “There is more pressure [on business leaders] to say, ‘That’s not how we do business here.’ ”

It often falls on HR leaders to build strong ethical cultures. From hiring to performance management, discipline and pay decisions, HR does a lot to set an organization’s standards. The best way to promote principled behavior is to work with the legal department and, most importantly, the C-suite—and, of course, to act in an ethical manner yourself. 

That said, Milliken’s leaders also understand that acting responsibly is about more than compliance. A statement on its website about ethics acknowledges that no code of conduct can ever cover every thorny situation or circumstance, so it is ultimately up to every employee to do what is right. “We do not simply follow the letter of the law; we follow and exceed the spirit of the law,” the statement reads.

It starts at the top. Senior leaders must act decisively to boost corporate integrity. If they are ambivalent or, worse, engage in unsavory behavior, there’s little chance that an ethical atmosphere will flourish.

Good for the Bottom Line

​The benefits of an ethical culture extend beyond banners and bragging rights. Stock prices of the companies that Ethisphere recognized this year outperformed the U.S. Large Cap Index by nearly 5 percent from 2015 to 2017.

At Milliken, integrity is important throughout the ranks, Haydamack says, though the significance rises with the corporate hierarchy. Bad conduct at the top of the ladder can have a much more serious impact than a failing of a junior staffer.

“One bad decision can cost a huge amount of money and put us in the news in a negative way,” he explains. 

​Most companies seem to be failing at either infusing integrity into the ethos or communicating the importance of ethics to their workers. Only 21 percent of employees believe they work in a business with a strong ethical culture, according to the results of a recent Global Business Ethics Survey published by the Ethics & Compliance Initiative.

What’s more, 40 percent said their companies had weak or weak-leaning ethics―a number that has remained consistent since 2000.

“I think companies assume that they are doing well, but they aren’t putting enough effort into the culture they want to establish,” Harned says. “Leaders always have a rosier view than is actual reality.”

How to Develop an Ethical Culture

Create a detailed code of conduct. Include the consequences for breaking the rules and ensure that the standards are widely available to employees.

Hold regular training sessions. Highlight the importance of ethical behavior and allow staff to ask questions.

Weave the company’s ethics policy into conversations about other corporate issues. Reinforce the idea that the values are central to the organization’s mission.

Recognize individuals. Celebrate displays of outstanding integrity.

Update the company principles regularly. Make sure they reflect societal changes and concerns.

Set up multiple channels for people to report misconduct. Include hotlines or other methods that allow for anonymity. Act decisively when the code has been violated.

Survey employees regularly. Learn their impressions of the culture and what changes they want to see.

[SHRM members-only resource: Code of Ethics and Business Conduct]

Leaders Set the Tone

​A universal attribute among all the firms Ethisphere has recognized over the years is a leadership team committed to doing what’s right, says Erica Salmon Byrne, executive vice president of compliance and ethics at the Scottsdale, Ariz.-based organization.

“We’ve tried to figure out if we can find a trend in size or industry, but we haven’t found any,” she says. “It’s about the leaders and the board members standing up and saying, ‘This is who we are.’ ”

Values held by the C-suite must be pushed down through the company, she adds. Executives must ask themselves, “How do we institutionalize it?”

​About 18 months ago, software maker Convercent hired its first ethics chief, even though the Denver-based business had been operating since 2012.

Convercent’s co-founder and CEO Patrick Quinlan says when the firm was smaller, most new hires had a connection to someone on the management team. That changed when the business grew to more than 70 workers and Quinlan decided it was time to codify the organization’s values. The ethics chief, the HR team and senior management helped create the standards that focus on such traits as honesty, curiosity and positivity.

Quinlan says that hiring only people you know isn’t the best path to a diverse workforce and that, as the company has grown, broadening its employee base has become a priority.

The company’s website describes how workers can interact with colleagues and clients in a respectful manner, and the site has a chatbot that asks users if they want to discuss a specific ethical issue. That simple query shows that management is concerned about employees and the culture, Quinlan says.

As CEO, he believes it is crucial that he embodies the code of conduct. Not long ago, for example, he openly, though gently, reprimanded a colleague for using the b-word in a meeting. Even though the word wasn’t directed at a specific person, Quinlan says using a gendered slur is inappropriate in an office setting and he didn’t want to let it slide. His reprimand wasn’t an attempt to embarrass the individual but rather a way to show the group that the rules on conduct are enforced.

“When you find a coachable moment, you have to take it,” he says.

He experienced another teachable moment a few months ago when he pushed the development team to work too fast on a project, leading to mistakes. He directed everyone to refocus the work on quality, and now he approaches the head of the product group and asks within earshot of everyone working on the effort, “Are you still comfortable with this release?”

“It’s a small thing, but it is important,” Quinlan says. “It’s in these everyday actions that you are reinforcing the values.”

Past Is Prologue

​Finding managers and executives who will embrace a firm’s principles can be a challenge for HR departments. Job candidates aren’t going to brag about how they cut corners or padded their expense accounts. And while there are some bright lines between right and wrong, sometimes ethics can be a bit fuzzy. What one person considers crossing the line might be seen by another as just rubbing up against the border.

Still, leaders can instruct new hires on how the organization does business. “Companies have to make sure people know what the rules are,” Salmon Byrne says.

Even before that, information gleaned at the interview stage can help gauge candidates’ views about ethics. The first thing Brett Cohen asks prospective employees to do during interviews is describe the best work culture they have ever been a part of.

​“You get a sense of their value perspective,” says Cohen, vice president for human resources and employee development at Elbit Systems of America, a Fort Worth, Texas-based defense and aviation electronics company.

Particularly when interviewing candidates for senior positions, delve into how they handled difficult situations in the past. “Past behavior is still the best predictor of future behavior,” says Gareth Fox, Hilton Worldwide’s vice president for human resources in the Americas, based in the Washington, D.C., area.

Another tactic is to lay out ethically challenging scenarios to see how a candidate reacts. For example, Cohen might query prospects about what they would do if asked by their boss to hire one of his or her friends who isn’t as qualified as other candidates. 

Or he might describe a situation where a salesperson knows his or her boss wants a deal closed with a difficult client and the client offers box seats to a coveted sports event in exchange for a lower price tag from Elbit. Would the candidate accept the tickets? What would the candidate say if the boss asks how he or she got the tickets?

Candidates for top positions often meet with a variety of executives alone and in group settings. “What we really want to discuss are the areas of potential weakness,” Cohen says. “Maybe you will find a fatal flaw.”

Winnowing candidates through interviews, however, is getting more difficult as applicants learn how to address almost any question or situation through hiring coaches or by scouring the Internet.

“The bar for interviewers has been raised,” Fox says, adding that they “have to be really prepared and know what they want to dig into.”

Hiring managers at Elbit put significant stock in references, Cohen says, though not necessarily those the candidate provides, as they will likely provide only positive reviews. Instead, Elbit employees reach into their professional networks to try to find people who have worked with the contender. Cohen maintains that business connections will give a frank assessment of a job candidate as a professional courtesy.

“We’ve had good success with this,” he says.

On the other hand, Fox finds using references “a little dangerous.” He says, “You just don’t know what kind of bias people have.”

Cognitive and personality tests are other tools that can help determine a candidate’s principles. While there isn’t a specific assessment for ethics, surveys created by companies such as Hogan and Caliper can measure traits like ambition, sensitivity, temperament and style. (However, there are also services that help candidates prepare for these tests.)

“There is no silver bullet for hiring the right person,” Fox says.

​The Good and Bad News on Corporate Ethics

The Bright Spots

Misconduct is down. The percentage of employees who said they observed actions that violated organizational standards or the law fell to 47 percent in 2017, down from 51 percent in 2013, the last time the Global Business Ethics Survey was conducted.

Employees are speaking up when they witness bad behavior. The proportion of people who reported inappropriate conduct rose to 69 percent in 2017 (the highest amount in 17 years), up from 64 percent in 2013 and 56 percent in 2000.

Source: Ethics & Compliance Initiative.

The Problem Areas
Workers feel compelled to cut corners. Last year, 16 percent of employees felt pressured to compromise standards. That’s up from 13 percent in both 2013 and 2011, and 8 percent in 2009.

There has been an enormous jump in revenge against whistle-blowers. Last year, 44 percent of workers said they were retaliated against for reporting wrongdoing―double the figure recorded in 2013.

Methods Vary

​There’s also no one way to create and maintain an ethical workforce. A cocktail of different approaches is needed, and there are no recipes that work across all organizations. However, many HR executives believe it’s important to give employees anonymous channels through which to make complaints. Training is another crucial ingredient to building a principled culture.

Two years ago, Pawtucket, R.I.-based Hasbro Inc. started a 14-week management academy for its top 1,000 leaders, with one segment revolving around ethics. The toy maker’s values include competence, integrity, empathy and community involvement, and the program helps managers learn how to put such virtues into action. The instruction includes lessons on how to integrate a diverse workforce and make sure everyone’s opinion is considered.

“It’s about making ethics part of the company fabric,” says Dolph Johnson, Hasbro’s executive vice president and chief human resource officer.

​When complaints are received, Johnson says, you have to give managers the benefit of the doubt. Maybe they don’t know they are doing something offensive, he notes. Nevertheless, he might deliver a written warning to a manager or develop a detailed plan for attitude and style improvement so there’s a way to document progress—or lack thereof. 

Part of the process of creating an atmosphere where employees feel safe and respected is letting go of workers who refuse to follow the standards. HR managers don’t like to see individuals lose their jobs, but retaining people who continually disregard company norms without punishment threatens the overall environment. It’s critical that no one receives special treatment because of their rank or contribution to the bottom line. 

“Removing unethical employees is just as important as hiring ethical ones,” Cohen says. “You can never say, ‘We can’t afford to lose someone.’ ”

Elbit’s leaders back their message with money. Half of workers’ pay is based on job performance, while the rest is determined by behavior.

“We want an atmosphere of dignity and respect,” Cohen says. 

Theresa Agovino is workplace editor for SHRM.

Illustration by Pete Ryan for HR Magazine.