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Business Ethics Round Up: The Usual Suspects

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In a climactic scene from the film classic Casablanca, Captain Renault sees Rick with his gun smoking and says to his subordinates, "Major Strasser's been shot... Round up the usual suspects."

In the world of business ethics, that scene reminds me of the impact of the actions taken by many organizations in addressing ethics issues. It's too hard to take the action that will actually get to the heart of the matter, so leaders take the easy path and make it seem like they're doing something.

For example, many organizations that have run afoul of the regulators and the Department of Justice have entered into deferred prosecution agreements (DPA) or corporate integrity agreements (CIA) which outline the remedial steps the organization must take to avoid prosecution or regulatory restrictions. Many of these CIA's and DPA's require the company's employees to undergo compliance training, often requiring all employees to take online ethics courses. Like rounding up the usual suspects, this is an easy way to implement an intervention, even though it has limited utility. However, taking the easy way out can also be worse than doing nothing: it deflects responsibility for taking meaningful actions, and creates a false sense of what is effective tone at the top. Employees are often resentful and feel that they are being punished for the deeds of others.

Culture Drives Behaviour

How can leaders take actions that matter and stop wasting time with ineffective interventions? Organizations must start looking at what will in fact change the behaviour they want to stop.

An organization cannot change behaviour; only individuals can. And it is true that sometimes individuals will change their behaviour when they are introduced to new incentives or information, such as new sales incentives or better ways to do my work.

But changing behaviour to align with desired values, such as acting with integrity, rarely happens by merely informing people of what is expected of them. In my career I have never seen anyone have an "aha" moment and suddenly realize that they did not know what was the right thing to do was. And then, based on a message from leadership, instantly act ethically. With regard to values, it is the organization's culture that drives behaviour. We act based on the norms of our environment.

While all of us intend to always do the right thing, many of us will succumb to the pressures and fears generated from intense working environments. Leaders must focus on the climate they create more than the words that they speak.

Yet, too few organizations understand the role that culture plays in driving behaviour. And too few of those organizations understand how to effect the changes they need to create the cultures they want. Some self-aware leaders understand and take responsibility for their actions in creating climates that are feeder grounds for ethical ambiguity. Most leaders need a kick in the rear.

In 2016, FINRA, the Financial Industry Regulatory Authority, gave such a kick to the 640,000 brokers under its supervision. FINRA has acknowledged the "profound influence" of corporate culture on how a broker-dealer conducts its business, including how it manages conflicts of interest. "A culture that consistently places ethical considerations and client interests at the center of business decisions helps protect investors and the integrity of the markets. Conversely, failures in these areas can impose significant harm on investors and the markets as well as firms themselves. One estimate places fines and litigation costs to firms, or their parent companies, related to cultural failures at over $300 billion since 2010. This underscores the critical importance of firms establishing and implementing strong cultural values."

FINRA recently announced that it will formalize its assessment of firm culture while continuing its focus on conflicts of interest and ethics. In its assessments of its members, FINRA will focus on the frameworks that firms use to develop, communicate and evaluate conformance with their culture. They will assess cultural indicators such as whether control functions are valued within the organization, whether policy or control breaches are tolerated, whether the organization proactively seeks to identify risk and compliance events, and whether supervisors are effective role models of firm culture;

So how can organizations stay ahead of the regulators?

- Boards must hold management accountable for culture-based risks and for taking positive steps to create healthy organizational cultures
- Leaders and managers must come to understand how they individually and collectively impact their organization's culture
- Organizations must understand the nature of the behaviour roadblocks employees face and what steps are needed to clear them away.

Culture matters.

David Gebler has over 25 years' experience advising global leaders on how to manage culture-based risks and create climates needed for their organizations to achieve their highest potential. His latest book is "The 3 Power Values" published by Wiley Press (Jossey-Bass).

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