Building and Sustaining Strong Ethical Cultures

1. Building and Sustaining Strong Ethical Cultures American Society for Quality April 9, 2014 Jim Nortz jimnortz@builtonethics.com 585-260-8960

2. Built on Ethics Advisory Services • Helping organizations thrive by building sound internal controls and strong ethical cultures.

3. Today’s Agenda • What is a strong ethical culture? • Why should I want a strong ethical culture? • How can I build and sustain a strong ethical culture?

4. 1. I am an ethical person. • Agree • Disagree

5. 2. It is very important to me that the organization I work for is ethical. • Agree • Disagree

6. 3. There have been times in my career when I felt pressure to compromise my ethical standards. • True • False

7. 4. There have been times at work when I saw things going wrong and even though I spoke up, I was unable to get the organization to change course. • True • False

8. 5. Our organization has an accurate gauge to measure the strength of our ethical culture. • True • False

9. What is a strong ethical culture?

10. Strong Ethical Culture A strong ethical culture is one in which the dominant social dynamics consistently encourage/reward ethical behavior.

11. Strong Ethical Culture A strong ethical culture is one in which the dominant social dynamics consistently encourage/reward ethical behavior. A culture in which it’s “cool” to be good – where the odd person out is the one who breaks the rules.

12. Why should I want a strong ethical culture?

13. 2006 LRN National Survey “A majority of workers – 94 percent – say it is “critical” or “important” that the company they work for is ethical.”

14. Reduced Misconduct Rates 2013 National Business Ethics Survey

15. A Strong Ethical Culture it Good for Business

16. Benefits of a Strong Ethical Culture Organizations with strong ethical cultures: • Minimize risks. • Maximize teamwork. • Recruit, retain and motivate the best in the industry. • Earn and sustain the trust of key stakeholders (customers, shareholders, suppliers and communities) • Maximize opportunities for superior financial performance.

17. 2013 National Business Ethics Survey

18. The Big Question How can I build and sustain a strong ethical culture?

19. Unacceptable Behavior Zone Acceptable Behavior Zone Catastrophic Behavior Zone Organizational Behavioral Boundary Legal Behavioral Boundary Industry Behavioral Boundary Catastrophic Behavioral Boundary Ideal Behavior Organizational Behavior Distribution Curve Number of People

20. Unacceptable Behavior Zone Acceptable Behavior Zone Catastrophic Behavior Zone Organizational Behavioral Boundary Industry Behavioral Boundary Legal Behavioral Boundary Catastrophic Behavioral Boundary Ideal Behavior Organizational Behavior Distribution Curve Pressure to Cheat Number of People

21. Pressure to Cheat External to Organization • Shareholders • Government Officials • Customers Inside the Organization • Leaders • Peers • Job Demands Inside Self • Desire to win • Desire to get job done • Desire to save time • Desire to look good

22. Unacceptable Behavior Zone Acceptable Behavior Zone Catastrophic Behavior Zone Organizational Behavioral Boundary Industry Behavioral Boundary Legal Behavioral Boundary Catastrophic Behavioral Boundary Ideal Behavior Organizational Behavior Distribution Curve Pressure to Cheat Number of People

23. Unacceptable Behavior Zone Acceptable Behavior Zone Catastrophic Behavior Zone Catastrophic Behavioral Boundary Organizational Behavioral Boundary Legal Behavioral Boundary Industry Behavioral Boundary Ideal Behavior Organizational Behavior Distribution Curve Purpose Structures Systems Pressure to Cheat Number of People

24. A Live Demonstration

25. Unacceptable Behavior Zone Acceptable Behavior Zone Catastrophic Behavior Zone Organizational Behavioral Boundary Legal Behavioral Boundary Industry Behavioral Boundary Catastrophic Behavioral Boundary Ideal Behavior Organizational Behavior Distribution Curve Purpose Structures Systems Pressure to Cheat Number of People

26. Unacceptable Behavior Zone Acceptable Behavior Zone Catastrophic Behavior Zone Organizational Behavioral Boundary Legal Behavioral Boundary Industry Behavioral Boundary Catastrophic Behavioral Boundary Ideal Behavior Organizational Behavior Distribution Curve Purpose Structures Systems Pressure to Cheat Number of People Individual Attributes (Knowledge, Attitudes, Choices & Habits)

27. Unacceptable Behavior Zone Acceptable Behavior Zone Catastrophic Behavior Zone Organizational Behavioral Boundary Legal Behavioral Boundary Industry Behavioral Boundary Catastrophic Behavioral Boundary Ideal Behavior Organizational Behavior Distribution Curve Purpose Structures Systems Pressure to Cheat Number of People Individual Attributes (Knowledge, Attitudes, Choices & Habits) Social Dynamics (Obedience to Authority Conformity to Social Norms)

28. Obedience to Authority

29. Conformity to Social Norms

30. Unacceptable Behavior Zone Acceptable Behavior Zone Catastrophic Behavior Zone Organizational Behavioral Boundary Legal Behavioral Boundary Industry Behavioral Boundary Catastrophic Behavioral Boundary Ideal Behavior Organizational Behavior Distribution Curve Purpose Structures Systems Pressure to Cheat Number of People Individual Attributes (Knowledge, Attitudes, Choices & Habits) Social Dynamics (Obedience to Authority Conformity to Social Norms)

31. Unacceptable Behavior Zone Acceptable Behavior Zone Catastrophic Behavior Zone Organizational Behavioral Boundary Legal Behavioral Boundary Industry Behavioral Boundary Catastrophic Behavioral Boundary Ideal Behavior Organizational Behavior Distribution Curve Purpose Structures Systems Pressure to Cheat Number of People Leadership Individual Attributes (Knowledge, Attitudes, Choices & Habits) Social Dynamics (Obedience to Authority Conformity to Social Norms)

32. A Failure of Leadership

33. A Tale of Two Leaders

34. I wish my leaders were here to listen to this talk because they need to change for our organization to improve its culture. • Agree • Disagree

35. Avoid the Blame and Change GameTrap

36. A Path to Ethical Leadership Focuson yourself - Take personal responsibility for modeling and promoting ethical behavior. Reflecton a significant failure of leadership and re-write the story. Lookfor and emulate role models.

37. Two Leadership Challenges • Good intentions alone are insufficient to secure the “good” in organizations. • The primary behavioral drivers are invisible.

38. Two Leadership Challenges • Good intentions alone are insufficient to secure the “good” in organizations. • The primary behavioral drivers leaders seek to influence are invisible.

39. Unacceptable Behavior Zone Acceptable Behavior Zone Catastrophic Behavior Zone Organizational Behavioral Boundary Catastrophic Behavioral Boundary Industry Behavioral Boundary Legal Behavioral Boundary Ideal Behavior Important Leadership Tools Purpose Structures Systems Pressure to Cheat Number of People Leadership Individual Attributes (Knowledge, Attitudes, Choices & Habits) Social Dynamics (Obedience to Authority Conformity to Social Norms)

40. Leadership Tools • Purpose – Define the “why,” “what” and “how” of your organization in ethical terms and integrate it into all aspects of your operations. • Structure – Ensure spans of control and accountability are designed to promote ethical behavior. • Systems – Evaluate your key systems to ensure their reliability.

41. Two Leadership Challenges • Good intentions alone are insufficient to secure the “good” in large/complex organizations. • The primary behavioral drivers leaders seek to influence are invisible.

42. Unacceptable Behavior Zone Acceptable Behavior Zone Catastrophic Behavior Zone Organizational Behavioral Boundary Industry Behavioral Boundary Legal Behavioral Boundary Ideal Behavior Catastrophic Behavioral Boundary The Key Behavioral Drivers Are Invisible Purpose Structures Systems Pressure to Cheat Number of People Leadership Individual Attributes (Knowledge, Attitudes, Choices & Habits) Social Dynamics (Obedience to Authority Conformity to Social Norms)

43. The Primary Behavioral Drivers are Between Our Ears Perceived pressure to cheat Perceived leadership Knowledge Attitudes Choices Habits Perceived pressure to do wrong. Perceived encouragement to do right

44. Measuring the Invisible

45. Revealing the Invisible Anonymous Polling

46. Essential Information • Do employees know the rules associated with their jobs? • What are employees’ attitudes toward the rules? • Are employees pressured to violate the rules or encouraged to follow them? • How frequently do employees see misconduct in the workplace? • What kind of misconduct are they seeing? • When they see misconduct, do they report it? If so, to whom? If not, why not?

47. Key Takeaways • Focuson yourself - Take personal responsibility for modeling and promoting ethical behavior. • Reflecton a significant failure of leadership and re-write the story. • Lookfor and emulate role models. • Optimize your chances of building and sustaining a strong ethical culture by: • Periodically evaluating and improving your organization’s purpose, structures and systems; and • Measuring the direction and magnitude of the invisible key behavioral drivers using anonymous polling.

48. Thank You

49. Building and Sustaining Strong Ethical Cultures American Society for Quality April 9, 2014 Jim Nortz jimnortz@builtonethics.com 585-260-8960