Return on integrity

Written by
Chris Hitch

02 Sep 2016

02 Sep 2016 • by Chris Hitch

Lack of integrity is behind almost every corporate scandal. There are, unfortunately, far too many examples that make this case. Earlier this year, Toshiba Corporation made headlines when it admitted to accounting errors dating back to 2010 that caused the company to overstate financial results by approximately $1.2 million dollars. The scandal resulted in the ousting of Toshiba’s then CEO and several other corporate leaders. In February, Brazilian oil giant, Petrobras announced the resignation of its CEO and five other executives after the arrest of more than 80 executives and managers on charges of bribery and money laundering. 

Ethical lapses big and small regularly occur in the in the workplace. A 2014 report released by the Ethics Resource Center found that 41% of the 6,400 employees surveyed said they had observed misconduct on the job. The survey also found that much of the misconduct observed by employees involves continuous, ongoing behavior, not one-time occurrences.

The relationship between integrity and sucess

Regardless of its cause, unethical behavior is usually rooted in a win-at-all costs mentality—an employer’s push to increase sales, for example, or an employee’s need to pad his pockets. Yet study after study has shown that organisations with high levels of integrity actually perform better than organsations with low levels of integrity.

Organisations found to lack integrity report that this absence also:

  • Erodes shareholder confidence;
  • Damages the organisation’s reputation in the marketplace;
  • Lowers brand equity;
  • Decreases consumer support, and;
  • Often results in costly attorney’s fees and government fines (Schoeman, 2012).

All of these factors can place an organisation’s future at risk. These costs, however, occur after the lack of integrity has gone public. Studies involving organisations that operate with high levels of integrity show that there is a considerable bottom-line return to acting ethically.

  • A 2000 study by Tony Simons, an associate professor at Cornell University’s School of Hotel Administration, found that hotel employees who believed their managers could be counted on to keep their word were more loyal to the hotel which led to lower employee turnover and better customer service, and ultimately, to a $250,000 profit increase per hotel per year (Simons, 2008).
  • In a study titled “Determinants of the Stock Price Reaction to Allegations of Corporate Misconduct,” authors Murphy, Shrieves, and Tibbs found that allegations of misconduct led to statistically significant declines in reported earnings and more stock price volatility (Kimmel, 2015).

Other studies have found that organisations with high trust levels are 2.5 times more likely than those with low trust levels to have superior revenue growth. Overall, high trust organisations outperform other organisations in achieving business goals, offering excellent customer service, and retaining employees.

How to reinforce integrity in an organisation

Employers can reinforce the tenets of integrity just like they focus on other tenets of their organisational values, such as safety. Many organisations have a safety-first culture and have a “safety minute” during each meeting to reinforce the value of safety. The same framework can be used with integrity.  

To improve integrity at their organisations, HR professionals should consider the following recommendations:

  1. Unethical conduct tends to occur when groups make decisions together. To avoid this tendency, HR and talent management professionals should assign lower-ranking employees (devil’s advocates, so to speak) who are not part of the group or who do not identify strongly with that group to review the groups’ decisions. These advocates should be rotated among the group. 
  2. HR and talent management professionals should strive to create an organizational culture that encourages lower-ranking employees to speak up which promotes some key elements of integrity. These include:
    • Be honest.
    • Be consistent in words, actions, and values.
    • Show respect to everyone.
    • Be selfless.
  3. HR and talent management professionals should develop processes that ensure senior leaders are held accountable for ethical standards such as ethics training.

Organisations that invest in fostering ethical conduct and integrity reap the financial and nonfinancial rewards, including improved employee loyalty and retention and more satisfied customers and stakeholders. They can also avoid the negative outcomes that occur when there is a lack of integrity, including financial losses, fines, decreased customer and employee support, and a damaged reputation.