There is a tangible cost to organisations which suffer from a lack of ethical leadership and culture, according to an expert in the area, who said this can ultimately lead to the loss of customer trust and in turn, the loss of market share.
Some leaders fail to recognise that the impact of poor leadership is rarely ever confined within the four walls of the organisation, explained Vanessa Pigrum, CEO of the Cranlana Centre for Ethical Leadership, a not-for-profit organisation which promotes informed discussion on matters of responsible leadership, ethical cultures and practice.
“If they’re operating in an unethical manner internally, this is almost guaranteed to impact their external image and will eventually impact customer sentiment and loyalty,” said Pigrum.
She observed that consumers today have access to more information than ever before, making them savvier and more ethically conscious in their purchasing decisions.
“This is all the more reason for organisations to reflect on their operations and challenge their own ethical standards,” she said.
“If organisations fail to take action where necessary, they can wind up compromising their share of the market.”
Equally though, Pigrum noted that poor and unethical leadership results in low morale and growing cynicism among staff – especially millennials.
“Low morale tends to breed a culture of mere compliance and minimum effort, rather than an energised and engaged workforce,” she said.
“This can also lead to high turnover which of course has a financial impact.”
Staff are significant stakeholders and need to be recognised as such, according to Pigrum, who observed that a proud and engaged employee is the best ambassador a business can have.
“Conversely, they can be vocal critics of their employer if they’re wanting to distance themselves from an unethical culture,” she said.
Why HR needs to develop moral courage in an HR role?
HR can play an important role in the process of improving ethical leadership within organisations, according to Pigrum.
“We need to keep in mind that the role of HR is just as much about strengthening the longevity of the organisation and its public reputation as it is about dealing with immediate needs of staff and management,” she said.
“If organisations fail to take action where necessary, they can wind up compromising their share of the market”
“There is a real risk of HR leaders getting trapped in the tactical nature of the job and getting stuck in the minutiae,” said Pigrum, who added that HR also plays a critical role in keeping the organisation on track in terms of its core purpose and corporate social responsibilities.
To increase one’s moral courage in the HR role, she said HR leaders could remind themselves and each other – through peer support networks – of what the higher, long-term purpose of their role and the organisation is.
“When you sense your own values or ethical code is being tested, step back, slow down your decision making, and seek counsel from a trusted peer who can help you think your way through both the short and long-term ethical implications of the decision you’re being pressured to make,” she said.
Changing behaviour at executive levels
Confronting unethical behaviour is one of the more challenging responsibilities of HR, particularly when this behaviour is exhibited at executive levels.
“First of all, no one thinks they’re unethical,” said Pigrum.
“The vast majority of us think we’re doing the right thing, but we can get caught up in our own bubbles, particularly CEOs and executives who are often time-poor and in decision-making overload.”
She explained that an excellent HR leader acts as the coach or mentor to their executives, who often don’t realise they need one.
“HR can play a role in changing an organisation’s culture and fostering ethical behaviours and decision-making by bringing case studies and external examples to the attention of CEOs and execs,” said Pigrum.
“This can happen in whatever format is available to them, for example strategy days or team meetings, but this should be done regularly, as a way to make it a part of the organisation’s culture.”
External case studies can also provide examples and counterpoints to challenge the bubble that executives can get caught up in.
“There is a real risk of HR leaders getting trapped in the tactical nature of the job and getting stuck in the minutiae”
“We should also look at ways of working and successes from other industries, not just direct competitors,” she said.
“There’s so much to learn from how other industries deal with their own issues.”
Changing culture through moral frameworks
There are a number of steps HR can take to help change when it comes to creating more ethical leadership and cultures.
Firstly, Pigrum said leaders need to expose staff to ethical decision-making framework.
“There needs to be a critical mass of people in an organisation who are aware of a variety of moral frameworks, which can be learned through educational programs, whether internal or external,” she said.
Second, there are no quick fixes for changing an organisation’s culture and Pigrum said there needs to be real commitment from management to change the type of conversations they’re having internally.
“Organisations need to commit to investing time, resources, and empowering people to work on ethical issues,” she said.
“An ethics focus needs to be given some commitment and muscle, a token gesture won’t cut it.”
Lastly, Pigrum said it’s crucial that organisations encourage a diversity of thought and viewpoints.
“Tokenistic diversity doesn’t drive cultural change,” she said.
“You need a cohort of people who are ready to ask challenging questions and it should be encouraged and seen as healthy for people to ask all sorts of questions including ‘why?’ and ‘how?’
“This includes CEOs all the way to frontline staff. It needs to be seen as okay to question the status quo.
“This shouldn’t be ignored, but rather given oxygen.”
“Analysing your supply chain can be complex and uncomfortable and might even mean more expensive choices have to be made”
The most common ethical challenges
One of the biggest ethical gaps in Australian organisations is not looking thoroughly into supply chains.
“We often fall into the trap of only thinking about our immediate workforce, without thinking more broadly about the extended network of suppliers and asking questions such as, ‘How are they being employed?’ or ‘Are they being paid a living wage?’” Pigrum said.
There is a growing body of ethical businesses which are starting to ask these difficult questions and make changes as a result (Patagonia being one good example), she observed.
“Analysing your supply chain can be complex and uncomfortable and might even mean more expensive choices have to be made,” she added.
However, the organisations doing this are creating strong market shares for themselves as a result of not shying away from having a broader social conscience and making tough decisions about their ethical choices.
Another challenge for organisations can emerge when boards operate very remotely from the day-to-day decisions being made in an organisation.
“Decisions made at board level can be very disconnected from customer reality at times,” she said.
“You only need to look at the number of Royal Commissions happening to see this.
“Ethics at a board level shouldn’t just be about codes of conduct or compliance, but should also be looking at the societal and ethical impact of the organisation.
“This discussion needs to be happening at board level.”