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What are the Keys to Developing an Ethical Business Culture?

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January 12, 2022
Author: NCH

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Back in 2001, the Enron Corporation scandal was heavily publicized, leading to the bankruptcy of the Houston-based energy company, as well as the dissolution of Arthur Andersen, one of the largest global audit and accountancy partnerships. Many Enron executives were indicted and sent to prison, and Arthur Andersen was forced to close its doors.

Just one year later, the WorldCom scandal came to light after senior executives at the huge long-distance telephone company inflated earnings by more than $11 billion to maintain WorldCom’s stock price.

While these financial scandals led to the most severe corporate collapses in U.S. history, they generated numerous important lessons for the entire business world. These included the need for accounting and corporate governance, as well as the development of an ethical business culture within each and every American company.

Today, being an ethical organization makes good business sense because companies that adopt ethical practices perform better during strong and weak economies. The reason is quite simple: Strong governance, accountability, and social responsibility are the keys to success.

To find this success, companies must combine ethics—defined as the guidelines for appropriate conduct toward others— and risk management—the decisions that are developed to minimize the negative effects of an organization.

These two elements should work together within an organization to achieve strong business practices, which equates to a positive reputation and corporate culture, strong customer service, and favorable attraction and retention practices.

In today’s business world, it is critical for every organization—big and small—to develop an effective ethics program. In addition to risk management, the program must encompass the following essential elements:

Governance: It is important for senior management to set the tone for the rest of the company. This tone should create an environment where ethics and compliance are a top priority with the entire organization.

Culture and values: The company culture, as well as every company value, should emphasize the need for ethical behavior and accountability.

Rewards: Employee compensation and incentives must encourage ethical behavior. At the same time, non-ethical activities should always be punished in some way.

Policies and procedures: Ethics and compliance policies and procedures must be developed and shared with every employee in the organization. In addition, every organization should develop a code of conduct, which supports compliance, marketing, and risk mitigation. This code serves as an internal guide to help employees with decision-making, as well as an external statement of corporate values and principles.

Communication: A detailed communication plan outlining the ethics program within an organization is a necessity.

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Monitoring and reporting: Organizations must consistently monitor and report all ethical issues and potential problems.

Investigation and internal audit: Confidential and anonymous reporting is necessary for all organizations. This reporting must result in a full investigation with disciplinary action if deemed necessary. In addition, organizations should examine all reported issues and evaluate the problems and causes via an internal, unbiased audit.

Training: It is imperative to educate and train all employees on the ethics program so they understand their ethical responsibilities and the risks involved with being unethical. How can organizations establish an effective ethics training program for employees? Below are some tips to consider:

Develop important company values: Take the time to establish company values for the organization. These values must be clearly communicated in a code of conduct and supported by every level of management. It is not possible to provide ethics training for employees if your company is not clear about their values.

Understand the purpose of ethics training: Training is not a one-time event. Instead, this training should take place regularly to focus on educating employees on how to make smart decisions that support the company and its culture.

Always involve the leadership: It is vital to include leadership from the very beginning. This will show employees how important ethics is to the entire organization.

Make training fun and interesting: Training sessions that require participants to sit in a large, stuffy auditorium for several hours with a lecturer are not effective at keeping peoples’ interest. Instead, make the sessions interactive and exciting. Consider group activities, breakout sessions, gamification, role playing, and interactive presentations to keep people focused and engaged.

Consider incentives: Incentives are very effective. Think about offering gift cards, bonuses, or company swag for employees who take ethics seriously and use their training in their daily jobs.

There is no question that the abrupt downfall of both Enron and WorldCom were vital lessons for America’s business world. In order to avoid the ethical issues and consequences experienced by these large companies, all organizations must create an ethics and risk management plan. The bottom line is that these plans make very good business and ethical sense—and that’s a clear win-win for every organization doing business in today’s climate.

The Enron and WorldCom scandals tell us that anything can happen in an instant. That’s why it’s important to incorporate your business as soon as you start operating, so that whatever happens in the future, your hard-earned assets are protected. Nevada Corporate Headquarters can help you every step of the way, ensuring you are on the right track to succeed in your business. Start your Nevada LLC today or call us at 800-508-1729.

Read more about how to maintain your startup culture. Click here.

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