Beyond the Numbers - South Central Minnesota SHRMscshrm.shrm.org/sites/scshrm.shrm.org/files/Center...

Copyright © 2014 by the Center for Ethical Business Cultures® Celebrating over 37 years of business commitment to ethical cultures.

Beyond the Numbers The Critical Role of HR Professionals

as Ethical Leaders

Bob Shoemake Director, Programs & Membership

Center for Ethical Business Cultures

September 11, 2014

Copyright © 2014 by the Center for Ethical Business Cultures®

About the Center for Ethical Business Cultures

Mission

To assist business leaders in creating

ethical and profitable business cultures at

the enterprise, community and global levels

Background

37 year old nonprofit organization

Began partnering with University of St. Thomas in 1988

Member of the Advisory Group to the US Sentencing Commission

Advises Boards and Executive Leaders on “Tone at the Top”

Building a Bridge Between Thought and Practice Leadership

Recipient of numerous awards and recognition for ethical leadership


Why is it Important?

Organizations that build an ethical culture

Do it because it’s the right thing to do

Outperform organizations that don’t

Reduce their exposure to ethical lapses

that cause breakdowns


5

Today’s Agenda

HR Professionals as Ethical Leaders

Examining some of the challenges

Scanning the Environment

What are people saying about ethics in business

What are employees seeing?

Describing an Ethical Culture

What are the characteristics of an ethical culture?

How does an ethical culture add value?

Questions


Ethical Challenges

Rapid growth

Many mergers and

acquisitions

Working internationally

Code of conduct—Foreign

Corrupt Practices Act

(FCPA)

What don’t I know?

Differing global norms for

business entertaining

Internal controls–making

certain that they are strong

enough.

Problems with

decentralization of

processes led to theft and

embezzlement.

Transparency of

information.

Economic downturns put

pressure to cut corners

6


Ethical Challenges

Hiring processes and

procedures to insure

getting the right people.

Hiring and retaining right

people in increasingly

competitive job market.

Ethics touches everything,

from corporate governance

to corporate integrity to

fiduciary responsibility to

people policies.

Ethical, engaged

employees lead to engaged

and satisfied customers.

Pressure to meet numbers

to keep bank happy.

May lead to poor decision

making regarding people.

Uncertain economy leads

to uncertainty in business

planning.

7


Ethical Challenges

Setting the tone at the top–

leaders have to both talk

the talk and walk the walk.

How can ethics be part of

the company’s DNA?

Increasing pressure to not

only be ethical, but to be

transparent about how

we’re doing it.

Insuring data privacy, both

customers and employees.

Can’t just send a memo

and say ―Be ethical.‖

Technology brings ability

to be better connected;

also creates vulnerabilities.

People—in spite of your

best efforts, an individual

or group of people can

decide to do something

wrong, and it takes down

the entire firm.

8


Ethical Challenges

Identify 2 of these challenges which you and

your company experience.

Add a challenge of your own which is not on

this list.

Share your list with the others at your table.

9


Scanning the Environment


Who Do You TRUST?

Percent America’s

US/Canada/Brazil

Europe France/Germany/

Russia

Asia China/Japan/

India

Business 2009 36/45/67 30/34/52 62/63/71 Business 2010 54/na/62 36/40/42 62/57/67 Business 2011 46/50/81 48/52/41 61/53/70 Business 2012 50/56/63 28/34/41 71/47/69 Business 2013 62/58/64 44/48/40 74/52/81

Business 2014 58/62/70 43/57/45 77/53/79 Govt. 2009 30/51/51 34/36/48 72/45/42 Govt. 2010 46/na/39 43/43/38 74/42/43

Govt. 2011 40/52/85 49/33/39 88/51/44 Govt. 2012 43/56/32 31/33/26 75/25/53

Govt. 2013 53/58/33 49/48/29 81/32/57

Govt. 2014 37/51/34 32/49/27 76/45/53

How much do you TRUST each institution to do what is right?

Source: 2013 and 2014 Annual Edelman Trust Barometer


0

10

20

30

40

50

60

70

80

20012002

20032004

20052006

20072008

20092010

20112012

Source: Harris Poll May 21, 2012

Confidence in Leaders


How Do You Measure-Up?

Rating the honesty and ethical standards of

people and professions (very high/high): Nurses 85% 82%

Medical Doctors 70% 69%

Police officers 58% 54%

Clergy 52% 47%

Accountants (43% in 2011)

Bankers 28% 27%

Local Office Holders 23%

Business Executives 21% 22%

Lawyers 19% 20%

State Office Holders 14%

Members of Congress 10% 8%

Car Salespeople 8% 9%

Source: Gallup Poll. Honesty and Ethics December 2012 (December 2013).


Financial

Performance

Behavioral

Performance

Two Languages of Business


15

Misconduct at Work

Source: Ethics Resource Center's 2013 National Business Ethics Survey


16

Reporting Misconduct

Source: Ethics Resource Center's 2013 National Business Ethics Survey


17

Overall Senior Mgmt Manager Non-

Mgmt

Where I work, people do

not ―get ahead‖ unless

their behavior clearly

demonstrates company’s

values.

66%

57%

48%

Where I work, ethical

issues discussed w/o neg

consequences.

77%

72%

60%

Source: Kenexa WorkTrends 2008

The Disconnect


18

Top 5 Drivers of Unethical Behavior

Pressure to meet unrealistic business

objectives

Desire to further one’s career

Desire to protect one’s livelihood

Working within a cynical, demoralized

environment

Ignorance that the act was unethical

Source: AMA/HRI The Ethical Enterprise, 2006


The Cost of Ethical Breakdowns

58% of victim organizations do not

recover any fraud-related losses

Over 40% of fraud detected through tips

2008: U.S. organizations lose 7% of annual revenues

(estimated value ~ US$994 billion)

2010: typical organization loses 5% of annual revenues

(estimated value ~ US$2.9 trillion worldwide)

2014: typical organization loses 5% of annual revenues

(estimated value ~ US$3.7 trillion worldwide)

Source: ACFE 2014 Report to the Nation on Occupational Fraud & Abuse


Driving Ethical Culture: The Legislative/Regulatory Response

Sarbanes-Oxley Act of 2002

Public Company Listing Exchanges

United States Sentencing Commission

Dodd-Frank Act of 2010

SEC Rule Making (2011-2012)


A Collective View: The Legislative/Regulatory Response

Setting the

―Tone at the Top‖

Ethical Culture

Codes of Conduct

Conflicts of Interest

Disclosure/

Transparency

Whistleblower

Rewards

Board Independence Audit

Compensation

Nominating-Governance

Consultant Independence Audit and Tax

Compensation

Shareholder Access Executive Compensation


Legislative/Regulatory Theme

―…requirement that an organization shall -

promote an organizational culture that

encourages ethical conduct and a

commitment to compliance

with the law.‖

But you can’t legislate integrity!


Building & Sustaining Ethical Cultures


Stakeholder

Balance

Leadership

Effectiveness

Long-term

Perspective Process

Integrity

Values

Driven

•Mission Before Profit

•Long-term before Short-term

•Triple Bottom Line

•Board Takes the Long View

•Leaders Build for Next 50 Years

•Establishes & Models Behavior

•Demands Ethical Conduct

•Exhibits Great Personal

Integrity

•Doesn’t “Shoot the Messenger”

•Does What He/She Says

•Balances Interests

•Consistent Approach

•Balances Value & Profit

•Community / Global

•Respect & Fair Treatment

• Dedication to Quality

•On-going Training

•Aligns Performance

Appraisals & Promotion

•Corporate Governance

•Open / Transparent

•Mission is Evident

•Clarity of Values

•Institutionalizes

•Trust & Respect

•Eliminates Misfits

•Builds for Long-term

•Scope & Methods of Evaluation

•Feedback

•Measurement Driven Adjustments

Assessment


25

Mission Purpose

Vision Image of the future

Values Principles that guide behavior

Ethics & Compliance Codes Legal and regulatory compliance and beyond

Laying the Foundation Values


26

Data Illustration:

The behavior of the people I work with is consistent with my company’s mission, vision and values.

Executive Manager Frontline

75% 63% 57%

The 1st Element Laying the Foundation

Source: Gantz Wiley Research WorkTrends 2008


27

Leadership is the key ethical culture factor

Leaders must set the tone by ―talking the

talk‖ and ―walking the talk‖

Top management is generally perceived to

exert more pressure on ―getting the results‖

and not on ―how the results are achieved‖

This translates into get the results ―at all

costs.‖ ―The ends will justify the means!‖

Leadership

Effectiveness

Modeling Ethical Behavior is Crucial


28

Data Illustration:

My senior management supports and practices high standards of ethical conduct.


78% 73% 68%

The 2nd Element Effective Leadership



29

Data Illustration:

Where I work, ethical issues and concerns can be discussed without negative consequences.


77% 72% 62%

The 2nd Element Effective Leadership



30

30

Stakeholder Reciprocity

Community

Investors

Regulatory Suppliers

Competitors

Environment

Balancing

Stakeholder

Interests

Employees Customers


31

Data Illustration:

My company strives to serve the interests of multiple stakeholders not just the shareholders (financial performance).


77% 72% 65%

The 3rd Element Balancing Stakeholder Interests



32

32 32

Marketing

Purchasing Finance

Human

Resources Sales

Production

Communication Recognition

Incentives Hiring

Advancement Evaluation

Process

Integrity

With Organizational Processes Aligning Core Business Functions


33

Data Illustration:

Where I work, people do not ―get ahead‖ unless their behavior clearly demonstrates my company’s values.


67% 57% 50%

The 4th Element Process Integrity



The 5th Element Long-Term Perspective

• Mission Before Profit

• Long-term before Short-term

• Triple Bottom Line

• Board Takes the Long View

• Leaders Build for Next 50 Years

34


What’s your experience?

With the people at your table, discuss the

ethical breakdowns you have experienced or

observed as a result of a failure from your

assigned element.

35

Copyright © 2014 by the Center for Ethical Business Cultures® 36

Stakeholder

Balance

Leadership

Effectiveness

Long-term

Perspective Process

Integrity

Values

Driven

The CEBC Model of Ethical Business Cultures


SOME DATA FOR HR FOLKS

37


Global Employee Perspectives: Ethical Perception Index

Ethics themes benchmarked through Kenexa, an IBM Company, High Performance Institute’s WorkTrendsTM with employees around the world

CEBC Ethics Themes:

Senior management practices ethical conduct

Company serves interest of multiple stakeholders

Co-workers behavior consistent with values

Able to discuss ethical issues/concerns

Must demonstrate company values to get ahead

The Ethics Themes: Integrated to

form the Ethical Perception Index

Globally (35,000 participants)

By Country (33 countries)

U.S.:

Multi Year Trends

By Industry

The Gap

By Country

By Tenure

Correlated to business performance

& employee engagement indicators

http://www.kenexa.com/


The CEBC Ethical Perception Index by Year


The CEBC Ethical Perception Index by Country


The CEBC Ethical Perception Index by Industry

Government/Public Administration

Restaurant

Education

Transportation Services

Food Industry Retail/Wholesale

Other (specify)

Light Manufacturing

Retail/Wholesale Trade

Heavy Manufacturing

Health Care Services

Communication Services/Utilities

Other Personal Services

Health Care Products/Pharmaceuticals

Construction/Engineering

Hotel/Lodging Services

Electronics and Computer Manufacturing

Banking Services

Accounting/Legal

Mining

Other Financial/Insurance/Real Estate

Business Services

Agriculture/Farming, and Forestry

3.28

3.38

3.43

3.44

3.47

3.51

3.52

3.52

3.54

3.56

3.60

3.63

3.63

3.69

3.70

3.72

3.76

3.77

3.78

3.80

3.83

3.88

The CEBC EPI by INDUSTRY - Means


The CEBC Ethical Perception Index by The Gap

CQ7_3 - Where I work,ethical issues andconcerns can be

discussed withoutnegative consequences.

CQ7_4 - Myorganization's senior

management supportsand practices high

standards of ethicalconduct.

CQ7_6 - My organizationstrives to serve the

interests of multiplestakeholders (e.g.,

customers, employees,suppliers, and

community), not just theshareholders.

CQ7_7 - The behavior ofthe people I work with is

consistent with myorganization's mission,

vision, and values.

CQ7_8 - Where I work, people do not 'get ahead'

unless their behavior clearly demonstrates my

organization’s values.

EPI

3.45

3.59 3.58

3.38

3.18

3.45 3.53

3.64 3.68

3.46

3.25

3.52

3.72

3.83 3.85

3.67

3.42

3.70

4.21 4.20 4.23

4.11

3.89

4.13

The Gap - Means Individual Contributor Front-Line Supervisor Mid-Level Manager Executive/Senior Manager


Minding the Gap by Tenure


The CEBC Ethical Perception Index by Strong/Weak Ethical Culture


Final Thought

"We shape our [institutions]; thereafter

they shape us.―

Winston Churchill

45


46

Questions?

47

®

®

Values

Driven

Leadership

Effectiveness

Balancing

Stakeholder

Interests

Assessment

Process

Integrity

Long-term

Perspective

Characteristics in Building & Sustaining an Ethical Culture

Copyright 2011 © by the Center for Ethical Business Cultures ®


49

Federal Sentencing Guidelines

Established by the United States Sentencing

Commission (USSC) in 1991 with focus on

compliance

Imposes fines, sentencing to probation, orders

of restitution and public notices of conviction

Offers incentives for organizations to ―do the

right thing‖

Updated to emphasize ethical conduct in 2004


50

The Seven Minimum Steps

4. Provide communication and training

5. Utilize monitoring, auditing, and reporting

6. Consistently enforce through discipline

7. Take appropriate corrective action

1. Establish standards and procedures

2. Make high-level individuals

responsible

3. Exercise due care in delegating

authority


51

Oversight & Management Roles and Responsibilities

Separate attention now given to the roles and

responsibilities of three types of organizational

officials:

Members of the governing authority (i.e., Board)

Executives comprising an organization’s

managerial leadership (i.e., ―high-level

personnel‖)

One or more specific individual(s) having day-

to-day operational responsibility for an

organization’s compliance and ethics program


52

Board of Directors/Governance:

Must be knowledgeable about content and

operation of Compliance & Ethics Program

Must exercise reasonable oversight of

implementation and effectiveness of Compliance &

Ethics Program

Must receive training that is practical, effective and

is appropriate to their roles and responsibilities as

Board members

Oversight & Management Board of Directors/Governance


53

Oversight & Management High-level Personnel

High-level Personnel:

Must ―ensure‖ Compliance & Ethics Program is

effective

Must have ―direct, overall responsibility‖ for the

Compliance & Ethics Program

Must receive training that is practical, effective and

is appropriate to their roles and responsibilities


54

Oversight & Management Day-to-day Responsibility

Individual(s) with day-to-day operational

responsibility (ethics and compliance officer):

Must report to High-level Personnel and, as

appropriate, to the Board

Must be given ―adequate resources‖

Must have ―appropriate authority‖ and have

―direct access‖ to the Board


55

Global Employee Perspectives: The Ethics Index

Ethics themes benchmarked through Kenexa’s WorkTrendsTM with employees around the world

CEBC Ethics Themes:

Senior management practices ethical conduct

Company serves interest of multiple stakeholders

Co-workers behavior consistent with values

Able to discuss ethical issues/concerns

Must demonstrate company values to get ahead

The Ethics Themes: Integrated

to form an Ethics Index

Globally

By Country

U.S.

Multi year trends

By Industry

By Job Type

Correlated to business

performance and employee

engagement indicators


56

U.S. Integrity/Ethics Trends

61 60

53 52

37

59 59

5351

43

66 67

58

63

50

0

10

20

30

40

50

60

70

802005 2007 2008

Multiple stakeholders

Sr. mgmt supports ethics

Coworkers live values

Ethics discussed freely

Must live values to advance

Note: values represent percent favorable Source: Kenexa WorkTrends™ 2008


57

> 5 points

above norm

± 5

points

of norm

> 5 points

below norm

51

53

54

54

60

61

62

63

67

75

62

Skilled trades

Operators

Laborers

Service

Sales

Clerical

Technical

Professional

Supervisor

Manager

Executive/senior manager

Source: Kenexa WorkTrends™ 2008

CEBC Integrity QuickCheck™ U.S. Job Type

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