Reputational Risk: Communicating the Importance of Principled Behavior
By Chuck Saia

In their oversight role, boards of directors can take several steps to ensure management is communicating and practicing its core values.

[This is part three in a three-part series.  See the other two articles:  Reputational Risk: Using (Un)common Sense to Gain a Competitive Edge and Reputational Risk: With Ownership Comes Great Responsibility.]

Corporate culture is under a microscope. The scrutiny focused in the past on compliance and whistleblower activity has extended to the behavior of all employees in an organization. Regulators are upping their efforts to determine if organizations are communicating and practicing ethical behavior.

Organizations that don’t communicate and practice ethical behavior are often cast in a negative light in traditional and social media, which threatens one of their most valuable assets—their reputation.

Organizations that make ethical behavior a top priority are typically better positioned to gain a competitive edge: they are able to focus more on strategic issues, including disrupting through innovation to drive growth or leveraging their brand for distinct advantage in the marketplace.

As a result, many organizations are taking a hard look at their own approaches to culture risk and enhancing them as needed. They’re getting away from viewing their ethics and compliance programs as a check-the-box activity or, worse, a roadblock to achieving business objectives.

They are finding ways to address the questions effective boards are asking:

• Are employees adhering to our organization’s core values?

• Is employee behavior in line with what the organization advocates for?

• Are there pockets of employees or teams in the organization that don’t adhere to our cultural values? If so, why?

Savvy boards are not simply asking for an update on whistleblower activity or ethics and compliance check-boxed analytics. They understand that cognitive technologies can help organizations better understand corporate culture and can be used to prevent a reputational breakdown before it occurs.

Getting On Board with Culture Risk

In their oversight role, boards of directors can take several steps to ensure management is communicating and practicing its core values. They can:

• Understand that cognitive technologies can measure cultural risk and assess whether those technologies are being used.

• Pressure management to invest in technologies that can prevent a negative reputational outcome before it occurs.

• Ensure that incentives and performance systems are aligned with effective risk management, compliance, and controls—as well as value creation. It’s human nature to act in a way that’s praised and rewarded. It’s up to senior leaders to establish a performance system, follow through with it, and reinforce it with consistent communication.

• Establish an environment in which professionals are comfortable challenging their colleagues and senior leaders about risk-taking. Employees need the ability to come forward with legal, compliance, and ethics questions and concerns without fear of retaliation.

• Encourage transparency, ownership, and accountability around risk. I believe senior leaders should hold themselves and those reporting to them accountable for complying with the law and organizational policy, as well as adhering to a common set of shared values.

• Help ensure that management has the resources for training courses, risk culture surveys, and communication to enhance a positive risk culture. At Deloitte, we have dedicated communication and training campaigns related to culture. They describe real-life scenarios, such as not complying with expense report policies and sending a presentation with confidential information to a personal email address. These campaigns aim to educate and remind our professionals what is and isn’t expected behavior and to empower them with guidance on what to do if they witness misconduct.

Room for Improvement

The good news is that more boards are increasing their focus on the steps organizations can take to create a culture that encourages employees to follow ethical practices. That’s what I’m hearing in my conversations with board members and C-suite leaders. And according to the 2015 Global Risk Management Survey1, 60 percent of respondents said their boards of directors work to establish and embed the risk culture of the enterprise and promote open discussions regarding risk. That’s an increase from 51 percent in 2012.

While an increase is encouraging, there’s still clearly room for some organizations to enhance their board oversight. The goal, in my view, should be to have fewer instances of organizational leaders being surprised to find employees not adhering to core values. When the board asks the right questions, the organization should know who or what departments may present the most behavioral risk and work to address the risk.

Let’s face it. If one employee steps outside of the value bubble—intentionally or unintentionally—crisis may be around the corner, threatening an organization’s reputation resiliency—the ability to mitigate and capitalize on various risks that an organization faces.

When boards and management work together to ensure that employees know an organization’s reputation rests with them, success is more likely to follow. Professionals with a shared core values can focus on the job at hand and on safeguarding their organization’s reputation. 

 


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