Ethical misconduct, by the numbers

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istockphoto

The headlines may be filled with news about business scandals, from charges of insider trading at SAC Capital to the alleged Libor rate-rigging manipulation involving major banks. Yet workplace misconduct is actually at a historic low, according to a newly released survey from the Ethics Resource Center, a research nonprofit focused on ethical standards at both public and private organizations.

The biannual report, released Tuesday, finds that 41 percent of the more than 6,400 employees surveyed have observed misconduct at work. That's down from 45 percent in 2011, the last time the survey was released, and from 55 percent in 2007, the high-water mark for the survey. The National Business Ethics Survey has been conducted since 1994, and it has been asking the question about how many employees have observed ethical wrongdoing at work since 2000.

Patricia Harned, the president of the Arlington, Va.-based organization, says the findings were a surprise. In the past, a rising stock market has typically come with a rise in ethical violations. Moreover, the 2011 study found high rates of reported retaliation against employees who spoke up and pressure to compromise standards, which they thought would predict a jump in the number of misdeeds this year. But as more companies do the right things to address ethics and compliance — adding training, recasting performance evaluations to encourage ethical behavior, and reprimanding workers who don't uphold standards — the trend went the other way, she says. "We're seeing more companies across the country that have taken good, strong steps to put into place systems, incentives and are taking disciplinary measures."

That's the good news, but the report also had far more alarming findings. Sixty percent of the ethical violations employees observed were done by someone with managerial authority, whether they be first-line supervisors or senior executives. This was the first time the Ethics Resource Center asked that question, so there's no historical comparison, but Harned was still concerned the percentage was so high.

"There's an old saying that says fish rots from the head," Harned recalls. "In a lot of ways that's what's most troubling. When a company has senior leaders engaging in misconduct, it very much harms the culture of the organization."

And while the rate of corporate wrongdoing may be at an all-time low, at least as measured by employee observations, the percentage of employees who were retaliated against for reporting ethical violations is roughly the same as 2011's record high. Twenty-one percent of respondents said they suffered from retribution as a result of reporting misconduct at their organization, just below the 22 percent who said the same in 2011. In 2007, just 12 percent of employees said they felt retaliated against.

So what about the possibility that these workers might think they're being retaliated against when they're actually not? "It really doesn't matter if it's real or perceived," Harned says. "Even if it's not based on any facts whatsoever, if they genuinely believe there will be retribution, they won't report it. They're more likely to tell their peers not to do it, they're less likely to be engaged, and they're less likely to stay on the job. Perception is reality when it comes to this problem."

Not everyone is reporting the ethical violations they see. Just 63 percent of employees in the survey said they shared the misconduct they observed, down from 65 percent in 2011 but the same as in 2009. When they do report misdeeds, employees overwhelmingly turn to their direct supervisor (82 percent), far more than to senior management (52 percent), ethics officers (15 percent), hotlines (16 percent) or external government regulators (9 percent).

That's worth noting in the wake of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which included whistleblower incentives that authorize the government to pay for tips that lead to successful prosecutions for misdeeds. The survey found not only that workers rarely turn to external parties to report misconduct, but that just 14 percent of those who do said they were motivated by the possible money they'd receive. It was the least commonly cited reason among 10 choices for why employees chose to go outside to report what they observed. Far more said they were afraid they would lose their job or did not trust anyone in-house.

That's a key reason that the high rate of managerial misbehavior is so concerning, Harned says. If employees see their managers engaged in wrongdoing, they're less likely to turn to those people even about other misdeeds they see going on. "We've seen over and over again that the culture of an organization and people's perceptions about how much ethics really matters is driven," Harned says, "by the tone coming from the top and the extent to which their own supervisor is upholding the standards."

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