Want a Company With More Integrity? Leaders Set the Tone

COVID-19 made compliance a more urgent leadership imperative than ever. Keeping employees and customers safe requires "doing the right thing" all the time, which requires intrinsic motivation.

Another word for that is integrity. And integrity has a closer relationship with trust in leaders than many recognize. As Peter Drucker wrote in his 1992 classic Managing for the Future. "Trust is the conviction that the leader means what he says. It is a belief in something very old-fashioned, called 'integrity.' A leader's actions and a leader's professed beliefs must be congruent, or at least compatible."

If Drucker is right -- and you'll be hard-pressed to catch Drucker in an error -- a recent Gallup surveys in Europe and the U.S. give leaders reason to worry: Only about 40% of employees in France, Germany, Spain and the UK and 36% in the U.S. think their employer "would do what is right" if they raised a concern about ethics and integrity.

Those data points indicate a lack of trust in leaders -- but they also suggest that employees don't understand their leaders' "professed beliefs" very well.

That's fair. Ethics, integrity and compliance are abstract concepts. They're related but distinct and in need of explanation. Typically, behaving ethically means voluntary adherence to certain rules and values as expressed by leaders and the law. Integrity can be defined as behaving ethically even when no one is watching -- i.e., do the right thing for the right thing's sake. Employees who willingly act ethically and with integrity naturally comply with defined values and rules. Hence, a culture of compliance.

So, when fewer than half of all workers think their leaders comply with the culture they themselves created, there's a problem. Leaders need their employees' trust. And employees tend to emulate their leaders. So if leaders aren't trusted and employees don't emulate "doing the right thing," where does that leave the company?

Without a culture of compliance. And with serious risk exposure. Lack of accountability for the company's own organizational, legal and ethical values can damage brands and harm profitability. Sometimes the harm is fatal -- remember Enron? This is why a culture of compliance isn't just a risk-management strategy, it's an operational necessity.

It's up to leaders to sustain operations. And, in many ways, that depends on employees' trust in their leaders' integrity.

Cultures of compliance contribute to business success.

But make no mistake: Drucker didn't think leaders had to be paragons of morality to lead a successful business. He did, however, believe that the function of an organization is to do what it sets out to do, and a lack of values is a real obstacle to getting things done. "By themselves character and integrity do not accomplish anything," he wrote in his legendary 1966 book The Effective Executive. "But their absence faults everything else."

Volkswagen brought that premise to life, painfully and memorably, in 2014. To avoid the expense of engineering a low-emissions diesel engine, VW rigged the software that tests emissions. The company's unethical behavior was discovered when two West Virginia University students and two professors found higher levels of pollutants in three VW cars than the company had ever reported. VW wound up recalling 11 million automobiles, and Gallup polling showed that four in 10 U.S. consumers were less likely to buy a VW as a result.

People don't act with ethics or integrity because they're told to, though, and compliance doesn't cascade from a command. Leaders have to act with integrity, not just profess it, to make "beliefs congruent, or at least compatible" with a culture of compliance. In The Effective Executive, Drucker wrote that the "four basic requirements of effective human relations [are] communications, teamwork, self-development, and development of others." Those elements are the platform on which leaders demonstrate integrity in the day to day, where it counts.

But most of an organization's employees will rarely see their senior leaders, much less converse with them. That may help explain an interesting data point from the Gallup survey: European employees have a lot more trust in their managers (46%) and colleagues (44%) than their company's leadership (33%). Perhaps that's because managers have more access to that platform -- "the basics of human relations" just occur more often on the local level. Frequent conversations enable trusting relationships between managers and their employees too, Gallup research shows.

How leaders can increase the visibility of integrity.

But leaders do have a platform of their own. And they should use it intentionally to demonstrate integrity where employees can see it. The tone from the top drives employees' perception of compliance and their confidence that leadership acts with integrity and is ethical. How leaders act -- not just what they say -- gives workers faith in leadership and builds a brand that communicates "doing the right thing."

For that reason, Gallup recommends that leaders:

• Reinforce values with clear messages and signals to the organization. Most workers -- 56% in Europe and 66% in the U.S -- think corruption is widespread within businesses in their country. Leaders need to put integrity, ethics, and compliance on the agenda, and emphasize the importance of them in their formal and informal communication.
• Highlight positive examples of integrity, ethics, and compliance in every level of the company. Most stories about compliance are cautionary tales -- positive messages may gain widespread attention if only for their novelty -- though recognition is an effective and underutilized means of reinforcing behavior,
• Detail how goals are achieved through acting with integrity and ethical behavior and alternately undermined by bad behavior.
• Establish a reporting system for issues related to integrity, ethics and compliance. One that both supports employees' faith in corporate integrity and identifies maladministration before it erupts in scandal. But people have to believe their companies act in good faith for the system to succeed, so companies should work hard on building and strengthening trust in their systems.
• Communicate the behaviors that won't be tolerated and the consequences for misconduct. Zero tolerance has to start at the top because leaders' behavior is the template and the ultimate arbiter of what's OK and what's not OK for everyone else.

It's on that last point that the leadership rubber meets the accountability road.

People need to know that something will happen when the red line is crossed. In point of fact, they need to know that the right thing will be done. Making that call can be tough -- but cultures that give bad behavior a pass undermine belief in leadership, imply that wrongdoing poses no risk, and nurture carelessness. That will not benefit a culture of compliance.

Integrity will -- and it builds trust. For example, a 2019 study in Germany shows that 65% of those who strongly agreed that they're confident their employer would do what is right about an ethics and integrity issue also trust the leadership of their organization a great deal. Compare that with those who doubt their company will do the right thing -- only 29% of them trust the leadership of their organization a great deal.

Leaders of the trusting 65% have an advantage: Most of their employees have "the conviction that the leader means what he says" about doing the right thing. At worst, those workers are confident in leader. At best, they're deeply engaged. Either way, their leaders are earning a culture of integrity, ethics and compliance -- and a far greater ability to do what they set out to do.