Ethical Management: Your Best Defense Against Misconduct

by SUSAN DIVERS

_{WINTER 2025 |}_{OTHER FEATURES}

Ethical Management: Your Best Defense Against Misconduct

Recent enforcement actions, regulatory headlines, and the uncertainty of an incoming Presidential administration brightly underscore how management systems rooted in strong ethical behaviors build value for your organization.

by SUSAN DIVERS | Advisor, ethena

With a new Administration stepping into office, and a world full of challenges facing everyone, now is a good time to get back to basics in the ethics and compliance space. In particular, the primary purpose and mission of E&C programs and professionals: preventing misconduct and remediating it when it occurs. Program essentials such as Codes of Conduct, policies, and training are a means to this end—but not the end itself. To be effective, programs need to focus directly on ethical management at all levels of the company, not just “tone at the top.” Ethical management means integrating profit, operational goals, and revenue targets with legal and regulatory compliance, as well as company values.

If anyone has any doubts, the downfall of an iconic U.S. global company, Boeing, is an illustration showing what happens when ethical management is weak or lacking. In 2018 and 2019, a faulty system caused two crashes killing everyone onboard and resulting in a settlement of federal fraud charges totaling more than $2.5 billion. Prior to the crashes, one of Boeing’s senior test pilots had told a colleague (according to texts later made public) that he wouldn’t permit his family to fly in an aircraft using the system in question, but apparently took no action. Despite the fine and urgency of aircraft safety, last year a door flew off a Boeing jet in flight due to faulty maintenance. Rumors that the company may have to file for bankruptcy abound.

All this happened despite Boeing’s ongoing investments in its ethics and compliance program. And in case anyone thinks that this type of disaster is limited to large manufacturing companies, the costly scandals involving cryptocurrency firms FTX and Binance show that tech and start-ups require ethical management to avoid compliance and commercial meltdowns.

Let’s take a look at the key building blocks of ethical management.

Set clear expectations

Boeing documents released during Congressional hearings show that other managers were keenly aware of the shortcomings of the faulty system in the crashed jets but nonetheless failed to raise them up the chain of command, showing that a good “tone in the middle” doesn’t arise by itself. Organizations need to set clear behavior goals through training and the performance review process, not just exhortations to be ethical or fair. Similarly, Boards of Directors need to hold the C-suite similarly accountable for ethical behavior.

If anyone has any doubts, the downfall of an iconic U.S. global company, Boeing, Boeing is an illustration showing what happens when ethical management is weak or lacking.

Practical training that 1) focuses exclusively on ethical management as an important topic requiring time and attention, 2) includes examples derived from real company experiences, and 3) models desired behaviors is essential. Even enlightened or well-meaning managers don’t necessarily know how to talk about ethics and compliance with their teams or handle an ethical question or dilemma when it occurs.

An equally important part of setting clear behavioral expectations is rewarding good behavior and penalizing ethical or compliance lapses. In March 2023, the Department of Justice updated its Evaluation of Corporate Compliance Programs (ECCP) to include guidelines on how

effective E&C programs should include criteria in performance reviews and bonus awards that evaluate ethical management and provide real incentives and disincentives based on performance.

The DOJ strongly encouraged the use of “claw-backs” of compensation or awards for anyone involved in misconduct. An effective E&C program requires that the organization’s HR processes align with ethical management incentives.

Another aspect of ethical management is the ripple effect. If executives and managers are modeling ethical behavior, there is a good chance the employees will do the same. The reverse is also true: if a manager engages in unethical behavior himself or herself, it legitimizes misconduct in their teams.

The bottom line is that ethics and compliance messages are only effective when they are incorporated into the actions of the company and its management at all levels.

Organizational Justice

Employee perceptions that the company is “fair” in allocating both rewards and sanctions is both a foundation and driver of ethical culture and underpins ethical management. Failure by an organization to hold everyone to the same standards simply isn’t consistent with ethical management and destroys trust. A good first step is developing and embracing transparent and clear standards for determining workplace rewards and sanctions, and including formal audits or assessments in these areas—with transparent results—to verify that organizational justice is taken seriously and working as intended (or needs refinement).

A second major step is to take an open approach to investigations and disciplinary actions. Simple measures—including a disciplinary matrix to identify how compliance breaches will be evaluated, an outline of the investigative process to identify the steps taken when a concern is lodged, and sanitized summaries of significant investigation results—can build trust in the organization’s processes.

If executives and managers are modeling ethical behavior, there is a good chance the employees will do the same.

Introducing independence into investigations, whether through external investigators, including functions outside the business unit in the investigation or otherwise, also engenders confidence.

Consistent, open engagement with individuals reporting concerns (as well as witnesses) can reduce the risk that employees will view the company or its processes as unfair, opaque, abusive, or subjective. Sending out a short, five-question survey at the end of an investigation to the parties involved is also a good way to capture feedback and ensure that any concerns are heard.

Speaking Up & Listening Up

According to Ethisphere’s 2024 Ethical Culture Report, 15% of employees witness what they believe to be misconduct every year. 93% of employees say they would report misconduct if they witnessed it, but at the moment of truth, only 50% of employees actually report misconduct when they see it, usually out of fear of retaliation or low confidence that anything will be done about it. On average, this “speak-up gap” allows for as many as 75 acts of misconduct to go unreported annually per 1,000 employees.

Investing in speak-up programs should be a priority, including offering and advertising multiple channels of reporting, such as email, messaging, internet drop-boxes, external compliance committees or ombudsmen. Ethical management, at its core, involves taking into account feedback, identifying issues, and resolving problems consistent with company values.

Yet many organizations content themselves with a hotline rather than casting as wide a net as possible to capture employee input and concerns. Employees may be comfortable lodging concerns in different ways, most often by talking informally with their managers. Training managers how to listen to employee concerns and providing a means of resolution for such employee feedback can go a long way to promoting speaking up in the normal course of business and facilitates more robust data collection…especially when Ethisphere data shows that one of the most commonly cited reasons employees give for their willingness to report misconduct is “My manager will support me.”

SOURCE: 2024 Ethical Culture Report, Ethisphere

Moreover, the updated ECCP stresses the DOJ’s expectations that corporations should actively promote internal whistleblowing and safeguard individuals who report misconduct. The ECCP revisions outline how organizations should inform employees of the various channels for reporting, including outside the company and pursuant to various statutes and regulations. Going forward, the DOJ will evaluate whether companies have adequate policies and training to encourage whistleblowing and prevent retaliation, as well as how companies treat employees who report misconduct.

Helping and coaching managers on how to listen to employee concerns without retaliation is part of good ethical management. If the organization welcomes employed feedback, it can capture critical data and identify problems before they get worse. One good way to do this is to showcase employees who do speak up and flag potential problems before they become disasters. Plus, utilizing surveys creatively to capture feedback on investigations at the end of training modules or more generally can go a long way to promoting speaking up in the normal course of business and facilitates more robust data collection.

The Bottom Line

Too many E&C programs still spend most of their resources and efforts on rules and checklists, the “skeleton” that outlines the program’s structure and components rather than ethical management — the goal of the program. By focusing on elevating manager behavior, implementing organizational justice, and speaking up/listening up, an organization can establish and enhance an ethical culture as the heart of any effective E&C program. ■

Susan Divers is a compliance industry veteran & consultant with decades of experience in ethics. She is currently an Advisor for Ethena, an integrated compliance platform.

Lead the way to an ethical workplace with new training from Ethena & Ethisphere!

Ethena is joining forces with Ethisphere to launch a new training course on Ethical Management this April. This ground-breaking new course will empower managers to shape a workplace where ethics thrive — fostering trust, transparency, and a culture of speaking up. Sign up now to join the VIP Access List and you’ll receive a free preview of the course as soon it becomes available!

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