The Connection Between Ethics and Workplace Culture

You may have heard that the term “business ethics,” like “jumbo shrimp” and “original copy,” is an oxymoron. The joke persists because many people view industry as a dog-eat-dog, survival- of-the-fittest arena where nice guys finish last. But here’s the punchline: not only can business and ethics coexist—they’re also a winning formula.

Organizations committed to integrity often rise above competitors because top talent and consumers are attracted to companies with a moral compass. This tendency became more prevalent after people reevaluated their priorities during the pandemic and sought out like-minded employers and places to do business.

But ethics-based companies need to do more than develop core values and an honorable mission to succeed. They must also build and sustain a workplace culture that will drive this aspiration. Without that vital element, the principles business leaders want their organizations to reflect will remain little more than good intentions.

How Ethical Culture Affects Employees

A company’s culture is the amalgamation of its staff’s everyday behaviors and directly impacts their judgment. So when an organization grounds its culture in integrity, employees use it as a rudder to guide their actions and decisions.

But people who work for companies lacking ethics form a corresponding culture. In Business Ethics: What Everyone Needs to Know, authors J.S. Nelson and Lynn Stout explain that the “ethical traps” of opportunity, motivation, and rationalization kindle poor behaviors that can poison a company’s culture.

Without moral guidelines, staff members are more likely to cross the line in pursuit of profit, personal agendas, and gaining an advantage. This can start a snowball effect where others feel compelled to follow suit so they can keep up with their coworkers—regardless of the consequences.

Nelson and Stout cite studies that show almost a quarter of U.S. workers feel pressured to bend the rules. They also note that managers are responsible for 60 percent of all misconduct, which either intimidates their direct reports or emboldens them to do the same things.

As a result, trust, respect, and teamwork suffer. And while companies lacking integrity may maintain a fast pace and rake in profit, their workplace morale is likely to be low. Stress escalates in these environments because people often feel like they’re operating against personal values. Unsurprisingly, low-ethics organizations have high turnover.

The Impact of Ethics on Business

The tone of an organization’s culture, whether ethical or not, is heard loud and clear by customers and other stakeholders like vendors and investors. People like doing business with companies operating under a moral code because they feel they can trust them. And demonstrating good ethics helps businesses maintain high share prices and protects them from takeovers.

Conversely, when a company’s lack of business ethics becomes public knowledge, its credibility declines, and customer loyalty quickly sours. Some enterprises might be able to use well-crafted marketing to restore their image after an ethics breach. But it takes considerable time and money to rebuild consumer confidence.

Most companies deemed unprincipled will lose their customer base and investor pool and suffer damaged relationships with business partners. Severe cases of unethical business conduct can lead to legal issues and costly penalties.

Creating an Ethical Workplace Culture

Leaders who want their company to demonstrate integrity must be intentional about building an ethical culture. To achieve that goal, they need to develop an actionable plan that includes four crucial steps:

• Defining ethical behaviors
• Leading by example
• Weaving ethics into evaluation
• Positive reinforcement

DEFINING ETHICAL BEHAVIORS

People come from various backgrounds and often have different perceptions of certain values. So leaders can’t expect employees to know what ethical conduct should look like in their organization unless they lay it out for them.

A leader’s first step is determining which behaviors illustrate the principles they want their company to reflect. Then they need to clearly define those behaviors to align everyone’s expectations and understanding.

For instance, if they want honesty to be a priority for employees, they need to spell out how to implement it as they interact with customers and coworkers. Or if they want their staff to demonstrate respect, they need to explain how it should be conveyed.

LEADING BY EXAMPLE

Companies can only develop an ethical culture if top managers and others in supervisory positions set the right example. Employees take their cues from their superiors and pay particular attention to what their boss does versus what they say.

As CultureWise CEO and author David J. Friedman wrote in Culture by Design:

“Not only are our people learning from everything we do, they’re learning from what we don’t do. And if we see team members behaving in ways that run counter to what we profess our culture to be and don’t address it, we’re teaching people that those behaviors are acceptable.”

Leaders must make it clear through their words and actions that ethics are at the organization’s core. And they must have the courage to root out managers who refuse to adhere to these standards, regardless of their expertise or ability to build business.

ETHICS IN EVALUATION

Nicholas Epley and Amit Kumar explain the effectiveness of weaving ethics into performance evaluations in a Harvard Business Review article. They maintain that this practice underscores that ethics are a priority to the organization and also encourages good behavior. They cite the following example:

“At Johnson & Johnson, for instance, each executive’s 360-degree evaluation is built on the four components of the company’s famous credo, which expresses commitment to customers, employees, communities, and stakeholders.

In one version of the evaluation we saw, each executive was rated on items such as ‘nurtures commitment to our Credo,’ ‘confronts actions that are, or border on, the unethical,’ and ‘establishes an environment in which uncompromising integrity is the norm.’

POSITIVE REINFORCEMENT

B.F. Skinner’s principle of operant conditioning states that it’s possible to reinforce the behavior we want to see in others. The basic premise of this widely accepted theory is that rewarded behavior will likely be repeated, and discouraged behavior will occur less frequently.

To fortify an ethical culture, leaders should regularly extend meaningful acknowledgment to employees who demonstrate integrity. This kind of positive reinforcement has a tremendous impact, whether conducted one-on-one, in a group setting, or via team-wide communication.

Leaders must also guard against sending the wrong signals to their team. For example, hitting financial goals should be a cause for celebration, but not if the profit comes at the expense of doing the right thing for customers or other stakeholders.

Companies should also take measures to discourage poor behavior. But instead of firing a good employee over a single ethics violation, they may choose to provide appropriate feedback and institute a short probationary period. To help their people grow, leaders should respond to these situations in the spirit of teamwork and education rather than punishment and blame.

An Ongoing Process

After taking steps to form an ethical culture, it takes an ongoing effort to sustain it. Leaders need to activate a continuous process that encourages their people to live up to the organization’s values and standards.

And for integrity to permeate a company’s culture, leaders must do more than push their people to perform specific behaviors. They should also help their employees feel like co-creators of the environment by stressing that the culture’s maintenance is everyone’s responsibility. Having employees take collective ownership of tactics and outcomes promotes buy-in and initiates positive peer pressure.