According to the Ethics Resource Center, each year almost half of U.S. employees report witnessing unethical or illegal behaviors in their workplaces. The costs of these lapses in ethics can be costly both in terms of financial metrics (fines for fraud, bankruptcies, etc.) and employee morale. Also, according to the Great Place to Work Institute report in 2012, the stock price growth of the 100 firms with the most ethical cultures outperformed stock market and peer measures by almost 300 percent. Thus, researchers have shown that a firm’s culture is the strongest predictor of how much market value that firm will create for shareholders’ investments.

Recently, I had the pleasure of listening to Wes Bush, the CEO of Northrop Grumman, as he delivered a compelling talk at the Robert H. Smith School of Business. In his talk, he highlighted three characteristics that distinguish great leaders from others. He talked about being passionate and committed to one’s work; having real competence, knowledge, and expertise; and having ethics and integrity. He said ethical behavior must be the underpinning that everything else is based on, and the senior leadership team must epitomize it.

This is where it gets messy for many firms – they don’t have senior leaders that really “walk the talk” when it comes to ethics. Instead, too many of them are caught in scandals themselves or they condone illegal, unprofessional or unethical behavior by their employees. Sometimes they simply don’t want to deal with it so they do nothing. Yet, by doing nothing, they are condoning unethical behaviors. They are sending the message loud and clear that nothing will be done to you if you engage in unprincipled behaviors. According to the Ethics Resource Center, employee views of leaders’ personal conduct drives perceptions of their ethical leadership. As they note, leadership can make the difference between success and failure for an organization.
Bush said that at Northrop Grumman, everyone is held accountable for ethical behaviors and for fostering an ethical culture. Managers are evaluated on the extent to which they address unethical behavior and foster an ethical culture. Thus, they are held accountable. But this often isn’t the case in many firms. Some firms still rate an employee high if his/her performance is high, even if the person does not follow the firm’s ethical mandates. Many leaders over the years have asked me how you let employees know that the unethical employees have been let go without telling too many personal details about the case. At Northrop, Bush said they have a company ethics newsletter that highlights successful ethical practices and mentions actions taken against unethical behaviors. By holding people — especially managers — accountable for their own ethical behaviors and those of their employees, it makes it crystal clear that infractions will not be tolerated.

In 2013, the Society for Human Resource Management (SHRM) put together a foundation report entitled “Shaping an ethical workplace culture.” In it, they provided specific suggestions for how firms can create a more ethical culture. Some of their suggestions: make employees feel genuinely cared for and respected; encourage employees to put the work and interests of others first; encourage employees to hold themselves accountable to the highest ethical standards. They also provided an Ethical Culture Inventory whereby you can evaluate your firm to assess its current culture and determine what changes you might need to make. For example, maybe there is no training for managers on ethics or ethical practices, or violators are not punished. The Ethisphere Institute puts out its rankings for the Most Ethical Companies in the world. To get on the list, firms must have robust corporate compliance programs, strong corporate social responsibility policies, and adhere to various trade and other laws. There are also lists of the most unethical companies and practices. Similarly, the Ethics Resource Center identified what leaders can do to set an ethical tone at the top and inspire employees to do the right thing. They recommend that firms that want to support strong ethical leadership should make it part of the hiring process; should train managers on ethics and employees’ perceptions of ethics, and annually review business objectives and policies to ensure they promote ethical performance. For example, Raytheon is another company that takes a strong stance on ethics by numerous training programs on ethics. They have EthicSpace, which is a values-based mini-series that dramatizes what happens when employees face workplace dilemmas, and core company values are put to the test. They also have Ethics Checkpoint, which is a decision-making tool to encourage employees to pause and take an “ethics check” before proceeding with an action.

The latest report by the Ethics Resource Center they indicated that workplace misconduct is at an historic low (only 41 percent of those surveyed reporting it), having steadily declined since 2007 where it was reported to exist from 55 percent of those surveyed. Plus the report found that fewer employees felt pressure to compromise their standards than in the past. This is indeed good news, yet there is still much work to be done. Since leaders are “watched” 24/7 both on and off the job, it is imperative that they continue to set a good ethical example and reward others who do the same. Only then will we have companies that truly embody an ethical workplace.

Joyce E. A. Russell is the director of the Executive Coaching and Leadership Development Program at the University of Maryland’s Robert H. Smith School of Business. She is a licensed industrial and organizational psychologist and has more than 25 years of experience coaching executives and consulting on leadership and career management. She can be reached at