With the Theranos trial underway and Frances Haugen continuing to testify about Facebook, whistleblowing is in the news. Smart companies should be thinking about how they can avoid similar headlines in the Wall Street Journal. Employees choose to “blow the whistle” when they’ve raised their concerns through established channels to no avail (as in the case of Theranos), or when they have such low trust in their organization’s willingness to do the right thing that it seems the only recourse (as with Facebook).
New research from LRN suggests that a lack of organizational justice and trust—two dimensions of organizational culture at play in these recent whistleblower motivations—has an outsized impact in governing ethical behavior and decision-making in the first place. The research also uncovers a stark gap between when employees do and don’t report misconduct, and the reasons why. Let’s explore these insights and the steps you can take to strengthen these foundational elements of your ethical culture.
Employees at companies with strong ethical cultures report misconduct at much higher rates
In 2020 and 2021, LRN sought to understand the state of ethical culture in companies around the world, surveying nearly 8,000 employees across industries and geographies. We broke our respondents into quartiles to understand specifically how ethical conduct and speaking up about misconduct differed depending on different cultural characteristics.
Our study found that while rates of observed misconduct are fairly consistent across quartiles, employees working at top-quartile, or “Inspired,” companies report their observation at much higher rates: 93%, compared to 67% of the employees in the bottom quartile. Since companies can only address that which they are aware of, this higher level of reporting represents a significant reduction in risk.
Our analysis found that confidence in organizational justice—that is, the extent to which standards of conduct are applied consistently throughout the organization and employees trust the reporting and investigative process—was the number one predictor of whether that employee was willing to speak out and report their concern. Employees in the bottom quartile, representing organizations with “Nascent” ethical cultures, were far less likely to report positive indicators of organizational justice.
We also identified some basic knowledge gaps in understanding how to report misconduct.
Employees report concerns to management—not the hotline
After isolating those survey respondents that had observed misconduct or unethical behavior in the last 12 months, we asked if they had reported their observation and, if so, how. The hotline was the least used reporting channel: only 7% of respondents utilized this method. The majority (54%) reported their concern to their immediate manager.
This is the ideal scenario from an ethics and compliance perspective. We want employees to bring their concerns forward in person for a few key reasons:
- It allows for a two-way human exchange.
- It often makes investigations easier, as opposed to starting from anonymous reports
- It’s an opportunity for companies and management to engender trust through appropriate action and follow-through.
However, our research shows this desired behavior occurs far more often in top-quartile organizations with strong “Inspired” ethical cultures.
Organizational justice and trust are “cultural catalysts”
When we look at the reasons for not reporting misconduct, a lack of confidence in organizational justice processes is the primary driver. Employees fear retaliation, do not think their company will do anything about their concern, and don’t trust that their confidentiality will be protected.
In addition to being critical cultural drivers of employees speaking up about misconduct, we found that organizational justice and trust are primary catalysts of employees doing the right thing, minimizing the risk of misconduct occurring overall. It’s easy to do the “right thing” when it’s easy. As many corporate scandal headlines show, it is far harder when under pressure to meet production timelines, sales goals, and other business targets. Our analysis finds that the top two predictors of ethical behavior and decision-making when under such pressure are environments characterized by high trust and a sense of organizational justice.
Building a strong foundation of trust and organizational justice in your organization
Ethics and compliance professionals have many tools at their disposal to inspire ethical conduct, mitigate risk, and protect their company’s reputation. In an era where many are being asked to do more with less, our research suggests that organizations should prioritize building a strong foundation of trust and confidence in organizational justice to achieve these goals. Below are three approaches that we’ve seen to be particularly effective in our work with hundreds of organizations over the past 25+ years.
- Demystify the reporting and investigation process. Employees often tell us they just don’t know what would happen if they were to raise a concern. So, speak out! Make it clear! In addition to having specific policies on reporting, investigations, and disciplinary actions, a simple one-page infographic, flow chart, or summary can help provide that clarity. Include it in communications such as an internal or ethics newsletter, embed it into your code of conduct, post it to your intranet, and promote it as part of general ethics awareness. Even better if it’s accompanied by a story or concrete example to bring the process to life.
- Share stories and statistics to make it real. Sometimes we hear E&C professionals bemoaning “we actually did do the right thing and held this person accountable, but employees don’t know it.” To that, we say: then tell them! Many organizations include sanitized examples drawn from their hotline or reporting system in communications, education, and ethics campaigns. Concerns about breaching confidentiality or exposing your organization to liability, while common, are not always founded. There are ways to avoid doing so. For example, share statistics—no details—about the number of reports received, what type, and from where. Share the number of substantiated reports and the types of disciplinary actions taken. (JLL has a great example of this approach.) The Department of Justice even asks, “What communications have there been generally when an employee is terminated or otherwise disciplined for failure to comply with the company’s policies, procedures, and controls (e.g., anonymized descriptions of the type of misconduct that leads to discipline)?” We have a striking case study in our research report about a company that went so far as to issue a public press release acknowledging a senior leader’s misconduct because they thought the benefit to their culture in demonstrating they take misconduct seriously far outweighed their risk of liability.
- Ensure managers are trained to handle concerns appropriately. It’s wonderful that most employees would raise a concern to their manager, but it also underlines how critical it is that managers are trained to handle these concerns appropriately. And not just concerns over misconduct; any employee concern should be received seriously. Many times we’ve had employees tell us “I raised an issue and my manager didn’t do anything about it. Why would I speak up again?" Demonstrating respect and following through—even if the result is not what the employee hoped for—is critical to maintaining trust and confidence in the organization. LRN offers a variety of scenario-based education resources designed specifically to train managers on their obligations and expectations in this regard.
The key takeaway
If you want your employees to speak up when they have a concern, you must create a culture where they feel heard, respected, and comfortable reporting misconduct. To learn more about the role of culture in fostering ethical behavior and impacting your company’s bottom line, we encourage you to check out our LRN Benchmark of Ethical Culture report. And, if you have examples of how you’ve been successful at fostering trust and confidence in organizational justice in your organization, we’d love to hear! Drop me a line at Emily.Miner at LRN.com.