What steps can be taken to create and maintain an ethical culture in the business organization?

Organizations Jan 5, 2022

An annual training session isn’t going to cut it.

Riley Mann

For most of us, work has a central but circumscribed role in our lives: it’s how we earn a living and where we learn new skills. We don’t usually think of the office as a place where we can grow ethically.

That’s a mistake, according to Maryam Kouchaki, a professor of management and organizations at the Kellogg School who studies moral decision-making. After all, “a lot of our time is spent at work,” Kouchaki says. “Especially in the U.S., we have created a culture where work is a significant part of our identity. It’s naïve to assume that who you are at work and who you are at home can be separate.”

In fact, work is one of the areas where we are most likely to encounter moral dilemmas and temptations to behave unethically: Should you overstate your role in a successful project when performance-review time rolls around? Stretch the truth to make an important sale? Fudge an expense report?

While there’s been lots of research—some of it by Kouchaki herself—on how individuals can navigate moral issues on the job, she believes ethical conduct is not just an individual responsibility. Organizations also have an important role to play.

In a new paper, she and Isaac H. Smith of Brigham Young University argue that workplaces can and should be the site of ongoing and structured ethical learning. They propose that companies take a broad and holistic view of ethics training that goes far beyond a single annual session. “It’s important to think about how to do things more systematically, such that it really helps organizations and societies,” Kouchaki says.

They write that companies should seek to become “moral laboratories”—a phrase they chose very deliberately, Kouchaki explains. “With laboratories and experiments, you have to be patient and persistent and test different things,” she says. “It comes with an assumption that it’s acceptable to fail and learn from that.”

So how can organizations successfully transform into the engines of moral growth Kouchaki and Smith envision? After reviewing studies in psychology and organizational behavior, they developed several recommendations.

1. Integrate ethics into your corporate culture.

Rather than treating ethics as a discrete topic, companies should strive to integrate it into every aspect of their culture, both formal and informal. Drawing on the work of business ethics scholars, Kouchaki and Smith suggest including ethics-related questions in job interviews, outlining the company’s values during onboarding, offering job-specific ethics training, and making ethical conduct a regular part of performance reviews.

Building an ethical culture doesn’t just mean telling employees what not to do. Companies can offer awards for employees who demonstrate integrity, or create gratitude boards where employees can anonymously praise and thank one another. These measures can foster an environment where positive, prosocial behavior, rather than cutthroat competition, predominates.

All of this requires the full-throated endorsement of the C-suite, Kouchaki and Smith point out. Research shows that leaders are essential in creating and maintaining an ethical culture. Ethical leadership—that is, leaders who behave ethically and promote ethical behavior on their teams—has been shown to decrease deviance and increase helping behavior among employees.

2. Cultivate an environment where learning from failure is allowed.

In order for employees to grow morally, they must feel they can admit mistakes. That requires a psychologically safe environment where risk-taking and asking for help aren’t taboo. Leaders, Kouchaki and Smith write, can cultivate psychological safety by admitting their own missteps, regularly soliciting feedback from across the organization, and proactively reminding employees that ethics is a learning process.

Companies must also respond to small ethical lapses in ways that promote learning rather than embarrassment. Research shows that transgressors are more likely to avoid unethical behavior in the future if they feel guilt (a sense of having caused harm to others) rather than shame (a sense that one will be negatively viewed by others). This means encouraging employees who have made mistakes to focus on who was harmed and how they might have behaved differently—but not criticizing who they are as people.

These measures allow the entire organization to grow together. “When you create a psychologically safe environment, people are going to be willing to ask questions and reflect and learn as a group—so you learn not just from your own judgment but from other people’s,” Kouchaki says.

3. Promote humility.

Most of us assume we would do the right thing in an ethically challenging situation. But that belief is often the problem: moral overconfidence is associated with an inability to admit one’s own mistakes.

Simply raising employees’ awareness of the natural human tendency toward hubris can help. “It is important to help workers understand that unethical workplace behavior is not simply the result of a few bad apples, but that all of us are susceptible to moral failures,” Kouchaki and Smith write.

Ethics training, often narrowly focused on the dos and don’ts, can be broadened to include information on the types of situations where people are most likely to go astray and the types of justifications that are commonly used when committing infractions.

Trainings can also provide employees with clear, practical heuristics to guide them through tempting situations, such as the publicity test (“Would I feel comfortable if my reason for this decision appeared on the front page of the newspaper?”), the generalizability test (“What would happen if everyone behaved this way?”), and the mirror test (“When I look in the mirror, will I be proud of myself after making this decision?”).

4. Encourage reflection, early and often.

Reflection—the process of thinking back on a project or experience—has been shown to improve learning, especially when combined with regular feedback. Kouchaki and Smith suggest that organizations create as many opportunities as possible for ethical reflection. “This gives an opportunity to learn from successes as well as failures,” Kouchaki says.

For example, many companies already have regular “postmortem” meetings when important projects end. Organizations can add a standard set of ethics questions to these meetings: Was this project and process consistent with our values? Did we cross any lines? Was anyone harmed? Some companies also have project “premortems”—an ideal opportunity to discuss ethical challenges in advance.

5. Give back.

Organizations should give employees opportunities to engage in concrete opportunities for moral growth, such as volunteer work. Research
shows that giving workers the chance to serve others, whether inside or outside of the organization, has many positive effects, such as overcoming selfishness, developing greater social responsibility, and promoting an outward focus.

Kouchaki and Smith cite the example of Salesforce, where employees are given seven paid days each year to engage in volunteer work and are encouraged to donate their expertise to nonprofits on their own time. Such experiences and opportunities don’t just help with ethical learning—they can even promote psychological flourishing.

Doing Right and Doing Good

Why should companies bother to expend so much time and energy on ethics? There’s a pragmatic case—“there’s evidence that more-ethical companies have happier employees and do better in the market,” Kouchaki points out—but she also believes it’s just the right thing to do. “Companies have ethical responsibilities toward their stakeholders, which includes employees and society,” she says.

Fortunately, organizations don’t have to figure it out alone. “This paper is our attempt to think through what we know from the research literature and apply it to organizations,” Kouchaki says. And theirs is far from the only paper. “There’s lots of work that can guide companies in their attempts to become more ethical.”

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