A Recent study of ethics at companies across the country reveals early warning signs of a potentially significant decline in ethics on the horizon.

According to the National Business Ethics Survey conducted recently by the Ethics Resource Center, negative indicators include a sharp rise in instances of retaliation against employees who blow the whistle, more pressure on employees to compromise standards to complete their jobs, and a growing number of companies that are considered to have weak ethics cultures.

“We were surprised with all the findings,” says Patricia Harned, president of the Ethics Resource Center “They are very different from our expectations,” she says. Harned says she had expected the results to paint a more positive picture of workplace ethics, given the increased focus by companies on compliance issues over the past two years.

 She says the results could be due to a shift in focus at many companies. “At the height of the recession, senior leaders were doing a better job to uphold ethics and culture to weather difficult economic times. Now that the economy is sort of recovering, business leaders are changing their perspectives,” says Harned. The biggest risk facing companies on the ethics front is when they take a business-as-usual approach, placing more emphasis on business metrics such as profit and market share over compliance and ethics, she says.

Numbers have increased over prior years in several categories that indicate a decline in ethics. For example, more than one in five employees who report misconduct at their companies.

s say they experienced some form of retaliation, up from 15 percent in 2009 and 12 percent in 2007. The number of companies that are considered to have a weak ethics culture is also on the rise, growing to 42 percent, up from 35 percent in both 2010 and 2009. “While compliance programs help raise awareness that integrity is important,” says Harned. “Even the best compliance programs do not automatically build a strong ethics culture. It takes deliberate attention from management on a daily basis.”

Social networking may have also influenced the findings of a decline in ethics. According to the survey, employees who use social networking sites report far more negative experiences in their workplaces than their peers who do not regularly use such sites. One third of social networkers say they occasionally feel pressure to cut corners at work. “The social networkers behave differently from other employees. We don't know a lot about this group but they had a large influence on the results,” says Harned

“At the height of the recession, senior leaders were doing a better job to uphold ethics and culture to weather difficult economic times. Now that the economy is sort of recovering, business leaders are changing their perspectives.”

—Patricia Harned,

President,

Ethics Resource Center

It wasn't all bad news for compliance and ethics programs. ERC's ethics survey did find a few bright spots. Of the 4,683 respondents, fewer employees say they have witnessed misconduct at work in 2011 (45 percent) than did in 2009 (49 percent) and in 2007 (55 percent).

The study also finds that employees are more willing to report misconduct at work. A record high of 65 percent of respondents claimed they have reported bad behavior at work in 2011, compared to 63 percent in 2009 and 53 percent in 2007. Harned says the positive results may reflect the efforts by companies to boost training and to establish robust whistleblower programs over the last few years.

Perception Over Reality

Despite the survey results, some do not see a decline in ethics at U.S. companies coming. “I do not necessarily agree with the ERC's conclusion that there is likely a downturn on the horizon in ethical behavior,” says Bert Lacativo, senior managing director of Mesirow Financial Consulting. He says the increase in employees reporting bad behavior is likely due more to the increased focus on whistleblower programs than an actual increase in misconduct. “In my opinion, this indicates that companies are doing a good job with their compliance programs,” he says.

Joseph Murphy, of counsel at Compliance Systems Legal Group and co-founder of Integrity Interactive Corp., says the poll is an ethics perception survey which does not necessary reflect the current state of compliance among corporations. “You can only look at the survey as how employees perceived the ethics culture,” he says. For example, of the whistleblowers who reported being retaliated against, many of them said that one of the forms of retaliation was “getting the cold shoulder.” That could be more a perception than a reality, says Murphy. However, he adds that perception can be just as important as reality. “I think the study should trigger companies to evaluate their policies, especially those regarding whistleblower retaliation.  “I think that most companies are asleep when it comes to retaliation activities against whistleblowers,” says Murphy.

ETHICAL CULTURE IN 2011

The chart below from the Ethics Resource Center's “2011 National Business Ethics Survey” provides information on the strength of corporate ethics cultures in 2011.

Source: Ethics Resource Center.

According to the study, employee satisfaction with company follow-up after misconduct is reported is mixed. While 62 percent say they have knowledge of an investigation of their report taking place, only 47 percent believe the investigative process is fair. Another troubling finding of the survey is that employees are losing confidence in top managers and supervisors to properly handle whistleblower complaints, with 38 percent of respondents reporting that they  don't have confidence in their superiors, the lowest number since the survey hit the same nadir in 2000.“In the future, they [employees] will not go to their supervisors again,” says Harned. She says employees will increasingly go outside of the company to report the wrongdoing, seeking avenues such as government agencies, media, or lawyers, including the Security and Exchange Commission's new whistleblower office.

 “If employees do not believe management is serious about dealing with improper activity, they will likely turn to external reporting,” agrees Lacativo.

Murphy says in general, supervisors are not well trained to handle complaints. Although setting the tone at the top is an important aspect of compliance program, he says companies must also set the tone in the middle. “Provide appropriate training to middle managers. Have a management evaluation to assess their skills on how they handle the issues,” he adds.

To guard against a decline in ethics, Lacativo advises companies to use repetition to constantly remind employees of the need for a commitment to ethical behavior. “It is a constant challenge to remind employees that companies are serious about upholding their ethical standards and companies need to constantly remind and reinforce their ethical standards,” he says.

And to combat whistleblower retaliation, Murphy says it's important to have someone from the compliance program available onsite to listen to employees' concern. “Designate a person as compliance liaison who employees can talk to,” he says.

Harned says that companies need to measure the effectiveness of their whistleblower programs and other compliance systems to find trouble spots to focus on. “Companies should conduct assessment on their programs to determine not only they have everything in place but that employees are aware of the standards and resources available and they are being actively used,” she says.

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