Measuring Ethical Culture recording

Alison:  How information is collected needs to reflect the information we want to obtain. Understanding culture requires a broad spread of information, so a diversity of approaches – both quantitative and qualitative – is generally required.  Qualitative evidence can help shed light on the reasons behind survey results, and stories are certainly valuable in communicating findings and making them relevant and memorable. Survey results and quantitative data, meanwhile, can confirm that stories are not isolated anecdotes but illustrative of a wider picture. They can also suggest where (often, more time intensive) qualitative work may be useful, and be used more readily to monitor changes over time and within or across firms. 

One technique we have used at the FSCB to combine quantitative and qualitative research methodologies is ‘grounded theory’. We used survey data to identify relatively high and low scoring business areas within firms on particular themes (e.g. accountability) and then systematically compared the output from focus group discussions held within these business areas. By noting the frequency with which characteristics or practices were mentioned in focus groups from higher and lower-scoring business areas, we could see whether particular practices appeared to be associated with higher or lower survey scores on specific questions, and therefore potentially with good or poor outcomes. While analysis from focus groups is not statistically representative, combining data sources in this way enabled us to analyse this qualitative data more rigorously and extend our overall understanding.

Muel:  Yes, quantitative data is useful for understanding ethical culture, qualitative data is useful for understanding ethical culture, and the combination of quantitative and qualitative data is most useful for understanding ethical culture. For that reason, many organizations survey their employees to assess ethical culture followed by, for example, focus group sessions or interviews.

Oonagh: Yes indeed we need qualitative and quantitative depending on our audience and our roles and purpose. As leaders we also need to get out across our organisations to hear first hand the lived experiences of our colleagues.

Do you have any thoughts on what justification or validation of a set of metrics could be for a sound risk culture? Or, to put the question slightly different, what would, in an ideal world, a maximum score on an ideal set of metrics on risk culture have for an effect on the (ethical) performance of a company? 

Alison:  In a firm with an effective risk culture, employees, managers and board members will seek to avoid or (as instances emerge) identify, address and learn from behaviour that is illegal, unethical or inappropriate. A set of risk culture metrics that does not take into account the ethical dimension and focuses only on conduct risk, gives only a partial risk picture.  While some aspects of the FSCB’s assessment approach may be of particular interest to risk managers, we look at organisational culture as a whole rather than viewing it through a specific ‘risk’ or ‘ethics’ lens; all of a firm’s cultural norms are relevant when considering risk.  

Muel:  The model that was presented with the 8 dimensions of ethical culture is also used by organizations to assess their risk culture. The more these dimensions are embedded, the more the organization is in-control and the less risks the organization runs.

Oonagh: Your questions illustrate the challenge of measuring culture risks. We do not have a simple set of metrics. We are in our infancy is developing consistent and reliable metrics that can be compared across all organisations. That said, there are always at least 10% of any organisation not behaving consistently with the culture expectations of the organisation and as Alison says the critical thing is to know who they are, identify the nature of the risks and address and learn from them to implement systemic change to address the more significant risks. We all need to work together to identify and develop culture risk metrics that can indicate improvements in culture or proactively identify emerging risks before they become significant risks to reputation.

Muel:  Yes, but not every behavior and intention to report makes the culture.

Oonagh says "we should measure behaviors" rather than perceptions.  Muel says "ethical culture is about the perceptions of your employees".  We know that perception often exceeds reality, and that surveys that ask about ethical culture often reflect the perception--not the reality or the actual behaviors.  Should we stop measuring ethical culture in surveys, and start measuring actual behaviors...? 

Alison:  Perceptions are important in ethical culture, and in particular beliefs about how other people act or how they think. What people perceive as generating admiration or disapproval, for example, matters to ethical decision making; beliefs about the adverse consequences of speaking up, even if incorrect, will inhibit people from doing so. 

Perceptions influence behaviour, and behaviour in turn informs perceptions. Identifying where there is a disconnect between perceptions and reality is valuable for firms seeking to manage their culture, but requires information to be collected on both dimensions; using both carefully thought-out direct questions (in surveys, focus groups, interviews etc), and information gathered indirectly from observation, HR data etc. 

Muel:   Many organization use surveys as it is a very valuable and efficient way to assess ethical culture. Realizing the disadvantages of only using surveys, the number of organizations is increasing that use other methods and also focus on behaviors. But only focusing on behavior has also disadvantages, as it can be complex and costly. By the way, Muel indeed said that ethical culture is about perceptions, but he also said that ethical culture is about patterns in behavior. 

Oonagh: I agree with both Muel and Alison. The answer is “Both, And”. 
Measuring perceptions is a quick and easy way to get a feel of culture and as Alison says perceptions influence behaviours. Even if, just on one “off” day, an individual’s perception prompts a behaviour that damages the organisation that could be replicated across the business. With a big enough sample size and engagement by enough of the organisation such surveys can be very valuable. 
Measuring behaviours as Muel points out is indeed expensive but the sophisticated tools that are now available, when used well, can save organisations millions by identifying which behaviours by either or both of the individuals and the organisation are supporting or undermining the behaviour that is expected. Then change programmes can be targeted more effectively. But these tools are for the organisations that are well progressed in their culture development and have a team of experts who can interpret the data from these tools to inform policy and plans for change.

If risk and returns are not commensurate, is this a sign of unethical conduct?  For example, the global financial crisis we saw bank’s taking disproportionate risk which was being underwritten (unwittingly) by Joe Public. Large bonuses were paid out to individuals who weren’t necessarily risking any capital…

Alison:  Risk and return may move out of kilter for a number of reasons, and disconnects may be clearer in retrospect than at the time. More generally, however, where a business area is generating unusually high returns on a sustained basis, leaders and boards may wish to keep a stronger focus on organisational culture and group dynamics. Of particular interest in this context may be aspects such as speaking up, diversity, promotion and reward, employee wellbeing, and openness to external scrutiny and challenge. 

In an environment where profit maximisation is considered as the main reason for business. How do you suggest board members should tailor their message to executives in order to promote a healthy balance between profit maximisation and ethical culture?

Alison:  An ethical culture is the foundation of a sustainable business and serves the interests of the firm’s shareholders and other stakeholders. Different stakeholders may, however, have different priorities, perspectives and time horizons. The board needs to be clear as to the purpose and values of the firm; that it expects the executive team to promote and maintain those values and an ethical culture in all parts of the business; that the executives have its full support in this; and that it is ready to listen to and talk with the senior team when ethical dilemmas do arise. And board members need to convey this not only in what they say, but also of course by example – putting values into action.

Oonagh: “Profit is no more the purpose of business than breathing is the purpose of life” John Kay, economist. I agree with Alison. Boards could do more to be clear about the purpose and values of an organisation and their culture ambition for delivering the organisation’s strategy. All board members need to promote and embody the culture that they espouse. This “tone from the top” is one of the most powerful influencers of behaviour and culture. Clear examples of decisions, that are made often every day by employees, showing how the shared interests of people, planet and profit have all been considered will help everyone understand what the culture and purpose mean in practice and where the lines in the sand are. It is often too easy to justify a decision by saying it was all about the money when in fact the decision that was reached was also about what was good for people and the planet but it is not always “safe” to say this.

After measuring the ethical culture and sharing the results with colleagues, how to materialise these changes in the different objectives of the organisation? It is often a challenge to demonstrate that organisations know how to focus the results on tangible changes, as results are often purely subjective (perception).

Alison:  Comparison with other firms or business areas can be helpful in gauging whether changes seen in a firm over time are specific to that firm or reflect shared external factors. Comparative results can also highlight where firms can learn from the experience of other organisations in managing aspects of their culture, or share their own.  

Muel:  An option to conduct the survey again one or two years later (and maybe pulse surveys in between) and define in advance what the desirable results are. These targets are tangible and a source of inspiration to improve the ethical culture of the organization. 

Oonagh: When proposing any strategy it should include measures for outcomes that the strategy aims to address including how the organisation’s purpose and values will be affected. These need to answer the question the Board should be asking “How will be know if this strategy is achieving its goals consistent with our purpose and values?” Often boards only ask for the financial metrics. With the rise of ESG that will need to change.