Creating an Ethical Culture: A CEO’s Checklist

“How do I make sure my business operates ethically, even when nobody is watching?” This is one of the questions that keep a CEO up at night. Life sciences companies must meet a high ethical standard: not only because of the complexities of adhering to federally-mandated compliance regulations, but also because of the moral obligations inherent in the industry’s mission to improve health and well-being. It’s also the right thing to do. Yet examples of misconduct continue to hit the news, as with GSK’s recent $3 billion settlement.  Clearly, many companies struggle to ensure ethical behavior at the most critical junction: the decisions made by employees on the ground.

In order to increase ethical behavior, the messages employees receive about compliance must be consistent and aligned, yet Hay Group finds that these messages are often incomplete and/or conflicting. Individuals are therefore defaulting (consciously or unconsciously) to behavior that drives short-term results at great long-term costs to the business.

Culture change about compliance – which is what the industry needs – is driven by multiple factors. Companies cannot change deep-seated behavioral norms overnight or via a series of training sessions that “teach” employees how to do things differently. Rather, such behavior must be addressed at a level that reaches the core of how leaders and employees think about the business, feel about their work, and act toward each other. This requires a cross-disciplinary approach focused on meeting the following conditions:

  • A clearly communicated and compelling sense of urgency for the changes and a vision for the desired behaviors that is aligned with the business strategy (i.e., a clear picture of what is expected and why these changes are necessary for the business)
  • Systems and processes that are aligned to drive and reinforce the desired behaviors (e.g. financial, information, compensation, and recognition systems)
  • Leaders who have the mindset, capabilities and skills to consistently demonstrate and model the desired behaviors

The key to creating wide-spread behavior change is to ensure that these three levers are aligned to send clear and consistent messages to employees. It is this consistent clarity on ethics that enable employees to make the right decisions…even when nobody is watching.

So where is a CEO to begin?

First, Clarify the Business Case

This sounds obvious, especially given the publicity generated by multi-billion dollar settlements in the industry: a life sciences company must adhere to compliance regulations because otherwise it will be sued!  Most companies have clearly outlined the negative impact of non-compliance, which is an appeal that resonates for senior executives and shareholders, but it doesn’t do much for the great bulk of managers and employees making daily decisions about how to behave.

To appeal to a wider audience, CEOs need to speak to the positive impact of compliance and of ethics in general.  If the company were known for doing the right thing, how would it help the organization?  If R&D were known for acting ethically during clinical trials, even when doing so was hard, how would it speed up enrollment?  If sales reps in China adhered to the rigorous PhRMA code of conduct, how would it impact sales?   In short, company leaders need to make the business case in positive ways that matter to a much broader audience: different departments, teams, and individual roles.

CEOs also need to clarify what “doing the right thing” actually looks like.  The topic is far too complex to be prescriptive about (“do x, y, and z”); the situations employees face are infinite in their variety and CEOs need to be able to trust that employees will make the right call. As Ronald Reagan said, however, “trust but verify.”  Organizations can identify the behaviors of individuals who get outstanding results and act ethically (as differentiated from those who get results but don’t behave ethically). Once those behavioral characteristics are singled out, organizations must communicate them and incorporate them into selection and development. This process enables companies to build in a “verify” step before they have to depend solely on “trust”!

Second, Create Alignment

Often, the messages that leaders send through their formal and informal communications are not “received” by employees.  In order for compliance processes and SOPs to work, for example, they need to be accessible, minimal in number, and readily understood (both the policy itself and the rationale for the policy).   Reward and recognition programs send especially loud messages to employees about what the organization values and what it does not – they therefore act as significant enablers or barriers in a CEO’s ability to shape and reinforce a culture of ethics and compliance.

Let’s come back to the sales rep in China.  Imagine that they’ve been trained in compliance, management has been instructed to hold them accountable, and offenders to industry policies have been quickly removed.  Yet the issue persists – and indeed, concerns arise that sales reps have simply become more sophisticated in how they evade the spirit of the policy!  (Sound familiar?)   The root of this problem may lie in performance metrics and incentive policies.  It’s highly likely that sales metrics are being set primarily on year-over-year growth rather than taking changing market dynamics into account – and that an individual sales rep’s desire to get the incentive can drive some potentially damaging behavior. While sales reps provide the easiest example, the same issue can apply in other parts of the business as well.

Third, Listen as Much as You Talk 

Especially in global organizations, where different cultures have different understandings of what ”compliance” is, undesired resistance is often created because employees in non-U.S. geographies feel like they’re being preached at by people who don’t understand “what it’s like there.” China provides a good illustration here as well. A rising real estate market has made the purchase of an apartment nearly impossible for young men in Chinese cities at the same time that demographics (i.e., far fewer young women than men) have made home ownership a pre-requisite for marriage. This cultural reality – often unknown to western headquarters – underlies some of the drive to hit those metrics and get that incentive, no matter what.  If CEOs are not looking for the underlying issues driving behavior, they’ll never know how to solve the real problem.

This comes to the core of culture change: good leadership. Leaders at all levels of an organization need to model the behaviors seen in ethical people and organizations. Hay Group’s research indicates that a fundamental capability is the ability to listen well – not only for the content that the other person is communicating directly, but also for the concern behind whatever issue or challenge is being communicated. This ability to accurately identify another individual’s underlying issue allows leaders to acknowledge it while honestly sharing their own perspective, even when it may conflict. Time and again, these types of conversations result in the ability to move forward in mutually beneficial ways. When they occur repeatedly at all levels of the organization, culture begins to shift (and results improve).

In summary, CEOs can’t mandate compliance with regulations alone.  They have to create a culture where employees independently behave in ethical ways – and a good place to start is with this checklist.