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Assessing, And Improving, Ethical Culture

Melissa Klein Aguilar | August 22, 2006

Post-Enron, scrutiny of the ethics of Corporate America remains a high priority for investors and regulators. Companies have responded by beefing up their ethics and compliance departments, with many creating chief ethics or chief compliance officer posts and devoting considerable resources to those functions.

But after they’ve put their programs in place, how do companies gauge whether those programs are having the desired impact? Like anything else, experts say culture can be measured.


Sanchez

“The Enrons and the Tycos sharpened the focus on concerns about culture and culture measurement,” says Paul Sanchez, director of employee research at Mercer Human Resource Consulting. “Sarbanes-Oxley has sensitized public companies to the need to ensure values-driven behavior.”

Beyond lip service, experts say there’s good reason to pay attention to culture. “Culture, in our research, has been shown to be the most important indicator in whether an ethics and compliance program is working,” says Abby Davidson, senior project manager at the nonprofit Ethics Resource Center.

“Whether they do it formally or informally, no organization can manage its risks without understanding what the perceptions and resulting behaviors of its workforce are,” Sanchez adds. “If you don’t know what those are, the risks increase exponentially that an organization will get into an environment where it’s exposing itself and its stakeholders to severe risk, financial or reputational, that could damage the organization.”

One of the most effective and common ways to measure ethical culture, Davidson says, is an employee perception survey, to provide quantifiable data on workforce attitudes. Companies can benchmark against their own results and against industry peers and national averages to track progress.

For example, PepsiCo conducts a survey of all of its 150,000-plus employees every two years. The survey, comprised of more than 100 questions, covers a number of aspects related to culture: the company, senior management, work environment, manager quality, job and career, and compensation and benefits, says Erica Desrosiers, PepsiCo’s senior manager of organization and management development.

More than 10 of the survey questions are on values, such as whether employees feel comfortable reporting ethics violations, or if they feel pressure to violate the Code of Conduct. During alternate years, PepsiCo also conducts smaller, quarterly “pulse” surveys that ask about values, ethics and compliance.


Desrosiers

The results are reviewed by all of senior management and local-level managers. “Everyone from the CEO down to the manager level looks at the results of their organizations, and strongly relies on them for tracking cultural progress and how we’re doing as an organization, as well as using the results to create and implement action plans to help drive culture change,” Desrosiers says.

PepsiCo also produces custom analytics around its survey results. For example, Desrosiers says, the company once analyzed compliance data by location to identify any isolated trouble spots. “We did a deep-dive analysis to see where we needed to further investigate and potentially intervene.”

Leveraging Data For Progress

Like many companies, to ensure confidentiality of responses PepsiCo uses an outside consulting firm to administer the survey, collect and keep the data, and create reports on the results. For similar reasons, PepsiCo doesn’t report results to managers of groups with fewer than six employees, Desrosiers says.

Sanchez says the ability to benchmark is critical for measuring progress. “You can’t begin to change the culture until you know where you are,” he explains. “Then, you decide which areas you want to work on and prioritize your activities based on your resources and your stamina to move ahead.”

The Regence Group, a $7 billion health care company, has been conducting an annual employee survey on culture for about five years. The survey is sent to a random selection of the company’s 6,000 employees, asking whether employees believe the company is committed to ethical principles and clearly communicates them to workers.

ETHICAL QUESTIONS

Below are several ethics-related questions PepsiCo asks its employees every other year to survey workforce attitudes. Each question has a range of answers, from “strongly agree” to “strongly disagree.”

  • I would feel comfortable challenging someone at a higher level if his or her behaviors were not aligned with the PepsiCo values.

  • I am NOT pressured to compromise my company's Cod of Conduct to achieve results.

  • Employees can be successful here at my company and have ethics and integrity.

  • I can report unethical practices without fear of reprisal.

  • If a product or action could raise a serious problem of trust with consumers or the public, I would definitely bring the issue to management.




Source: PepsiCo

“We have to find out from employees through as many means as we can how they view our ethics program, and whether they’re engaged,” says Randy Romrell, assistant director of compliance. “The results are used as one indicator of the areas we should emphasize in our annual training.”

Regence also asks about the frequency of ethics communications. Romrell says past survey results have revealed a “strong correlation” between the frequency of ethics messaging and employee perceptions. Employees who reported that they attended at least three meetings in the prior 12 months where workplace ethics were discussed were more likely to say they didn’t feel pressure to compromise ethical standards on the job. Last year, Romrell says, virtually all of those employees reported that they felt comfortable going to their manager with a question or to raise a concern.

As part of its annual employee survey, computer giant Dell’s 70,000-plus workers are asked whether they understand the company’s ethics and compliance strategy, whether they think it relevant, and whether they know where to go to raise concerns, says Giovanni Tosonotti, the company’s global ethics and compliance director.

In addition, an anonymous semi-annual global employee survey dubbed “Tell Dell,” asks about employee perceptions of whether their manager displays ethical behavior, and includes space for employees to comment. Results are reported to managers with at least five employees; comments are only reported to managers with more than 15 direct reports to guarantee confidentiality. Both surveys are administered by an outside party.


Tosonotti

“If we have managers who aren’t seen as role models for ethical behavior, we have specific action plans to address those situations,” Tosonotti says. Measures could include coaching sessions with managers, communications campaigns, and one-on-one training on issues that emerge.

Indeed, experts say the follow-up after a cultural assessment is just as important as the assessment itself. Sanchez at Mercer HR says one of the gravest mistakes is for companies to conduct a cultural survey and then do nothing with the results.

“Once you’ve started a dialogue with employees, if you don’t keep it going, you can poison the wells for a long time to come,” Sanchez says. “Employees—and possibly shareholders—may assume the worst if you don’t carry through.”

Adam Turteltaub, a corporate relations executive at LRN, a provider of governance, ethics and compliance software and services, agrees.

“Culture change isn’t something you can flip a switch on,” Turteltaub says. “You have to convince people that this isn’t just a 30-day effort.”

Related coverage, columns and resources can be found in the box above, right.