Bad behavior goes back to work

Five years after embarrassing scandals touched off a wave of efforts to clean up corporate America, a new survey finds unethical conduct in the workplace has only gotten worse in the interim. Ethics experts aren't entirely surprised by the results.

"Very few organizations have established strong ethical cultures," says Patricia Harned, president of the Ethics Resource Center, a Washington, D.C., research organization that produced the 2007 National Business Ethics Survey, released last month. "Companies are more likely to focus on ­compliance-related elements in building their programs and less so on the proactive things that help to build a strong culture."

As a result, Ms. Harned says, American firms face an "ethics crisis" that's beckoning more scandals. According to the survey, 56 percent of 1,929 respondents at a broad range of companies said they witnessed ethical misconduct on the job within the past year. That's up from 55 percent in 2000 and 43 percent in 2003, when firms were scrambling to do better. Topping the 2007 list of common infractions were conflicts of interest, lying to employees, and abusive or intimidating behavior. Most kept mum about what they observed, however, because they feared speaking up would either make no difference or lead to retaliation.

The outlook is brightest among the 9 percent of firms with a strong ethical culture. There, leaders and peers regularly encourage fellow workers to abide by a robust code of right and wrong. When such a culture exists, the chances of witnessing misconduct on the job drop by 75 percent.

In an era when companies spend millions on public relations and insurance to protect hard-won reputations, America's dearth of ethical workplaces testifies to the steep challenge at hand. But observers agree that internal systems and incentives could often be improved to reward ethical behavior in settings where it's all too often punished.

"A strong culture is not one that's highly rule-bound [and says] 'off with your head if you do something wrong,' " because that leads employees to cover up mistakes rather than come clean, says Kenneth Goodpaster, a professor of business ethics at the University of St. Thomas in St. Paul, Minn., and author of the 2007 book, "Conscience and Corporate Culture." "A strong culture involves a lot of motivation from the inside out. It's building that kind of culture that takes a long, long time."

Why ethical cultures hard to instill

Ethical cultures are rare, observers say, because they're difficult to create. Ethics in business sometimes requires saying "no" to lucrative opportunities when they threaten the integrity of other relationships and that can be a tough task, according to William Ury, director of the Global Negotiation Project at Harvard University in Cambridge, Mass. Others add it's often easier, especially in settings rife with pressure to deliver near-term results, to establish procedures that suggest to regulators that everything is on the up and up.

"Ethics officers aren't going to make a corporation or a business more ethical," says John Bruhn, an Arizona management consultant with a specialty in ethics. "They're just going to make sure that what you see on the surface is not illegal."

Some firms learn the hard way

Still, some companies are exploring how to cultivate environments where respect for client and colleague trumps everything else. For role models in this regard, experts point to two categories: firms that have nurtured ethics in their cultures since inception, and firms that have learned the hard way to be vigilant.

In the latter category, aerospace and defense contractor Lockheed Martin Corp., traces its roots to Lockheed Aircraft Corp., which endured a series of foreign bribery scandals that came to light in the mid-1970s. Now Lockheed Martin has hot lines for anonymous reporting of ethical breaches and relies on more than 80 full- and part-time officers commissioned to guide employees when they aren't sure what to do in a given situation. The company wins kudos from Ethics Resource Center's Harned for having invested heavily "in preparing management to recognize and respond to ethics issues."

"It's an unfortunate thing when one incident can cause a problem for all the good work that the company does year after year," says Alice Eldridge, Lockheed Martin's vice president for ethics and business conduct. "We're trying hard not to be in that position."

Fast-food chain Chick-fil-A earns Mr. Bruhn's praise for making ethics a priority since its first in-mall store opened in 1967. By closing stores on Sundays, Bruhn says, Chick-fil-A shows respect for employees by giving them a rest day and also sends a message that some things are more important than maximizing profits. He also commends the company for awarding scholarships to more than 22,000 employees on the basis of such factors as teamwork, work ethic, and leadership potential.

Incentives to encourage behavior

"I would encourage corporations and businesses to look at value incentives – over and above salary and direct benefits – that they might offer employees for engaging in exceptional behavior," Bruhn says. "You could make this a group thing, so it's not a popularity contest," but instead all employees in a division would earn rewards for maintaining benchmarked ethical standards.

Innovations notwithstanding, companies face an uphill battle. Dr. Goodpaster notes that ethical cultures constitute long-term investments, sometimes at the expense of near-term profits, but firms routinely face enormous pressures to put quarterly earnings ahead of other priorities.

What's more, the 2007 Business Ethics Survey found that employees don't like to use hot lines, which corporations rushed to set up after the scandals of 2002 and 2003. Workers say they would rather discuss a situation with someone they already know. And yet 2 in 5 chose not to come forward when they witnessed ethical misconduct because they would have had to report the behavior to the person involved.

Find and close 'hypocrisy gaps'

Within this mix, Goodpaster says wise firms make a point to look for areas where practice doesn't properly reflect an organization's professed values, and to tweak incentives accordingly to close the "hypocrisy gap." When that happens, workers feel better about their organization and the risk of incurring a devastating scandal is reduced.

"This cultural challenge is a much bigger undertaking than just stating a set of corporate values and making sure they get put on public display," Goodpaster says. "It's got to do with how we hire, how we promote, how we take care of succession in moving from one leadership group to another over time. To integrate that kind of moral awareness that deeply in a company is not an easy thing."