Around the globe, thousands of compliance staff wrestle daily with the challenge of monitoring, and hopefully shaping employee behaviour. Citi Bank alone claims to have 30,000.
Yet there’s an obvious Achilles heel undermining all their efforts—-lack of employee trust.
In virtually all ethical scandals, apart from undermining trust at the customer end, its absence among employees means full-hearted compliance simply didn’t happen.
To be effective, compliance relies on employees speaking up, giving early warning of something going wrong. Yet this assumes employees behave as if they really care about their company and its ethical performance.
This is “ethical engagement” and so far it’s almost non-existent in most organisations. A survey by LRN for example found a mere 3% of all employees feel any sense of personal responsibility or “self-governance” concerning ethical performance in their company.
One of the worst places for trust is the finance industry. According to various surveys it’s right at the bottom of the industry league table. As Andrew Haldane, Chief Economist at the Bank of Englans put it somewhat brutally:
These results are hardly a revelation. In far too many situations speaking up about an ethically dubious practice means losing your job, facing retaliation from those around you, including the management, or simply being ignored—until of course the nasties hit the fan.
Scores, possibly hundreds of people must have known what was going on, especially since the fiddles went on over years and software was regularly updated. Even if they were not managerially accountable for the behaviour, the big question for the company is therefore:
Why did absolutely no one speak up?
People who don’t trust their company or their leaders to treat them well if they do speak up will naturally be reluctant to put their heads above the parapet. Speaking up tends to be personally costly, in terms of career and relationships with peers
Without detailed data on local trust levels in VW we cannot know how far lack of trust played a part in concealing the cheating until too late. However most research in companies continues to confirm low trust levels.
More broadly there is a general trust deficit as the Chair of Lloyds of London recently told a group of investors:
”There is lack of trust in business, big business in particular and indeed in capitalism.”
Ft 20 Oct 2015
In the UK for example, according to a 2013 CIPD study, over one in three employees (34%) say their level of trust in senior managers is “weak.”
So naturally leaders are worried about all this, right? Wrong!
Although trust often appears on company agendas, many leaders are out of touch with feelings on the front line. Senior managers are likely to confidently, and wrongly report strong trust between themselves and their employees.
Trust then is more often spoken about than delivered. Yet the evidence is mounting of both a business case and a financial case for companies to seek to create trust.
The reverse is also true. When a company is caught cheating, the financial and reputational damage takes years, even decades to dissipate.
With the VW share price plummeting nearly 20% in a day and recently by 40%, the final cost to the company will possibly surpass, the recent GM saga over its ignition switch.
It’s all too reminiscent of events in another German company, previously having a high degree of public trust. Back in 2006 a regulatory investigation at Siemens revealed hundreds of employees had been siphoning off millions of Euros into “phoney consultants’ contracts, false bills and shell firms” to pay massive bribes to win contracts.
As a trial judge put it starkly, this was a system:
“…of organised irresponsibility, implicitly condoned by senior managers”
In the eyes of furious shareholders, investors, and the German public. It brought humiliation to its employees and the company’s entire trustworthiness was thrown into doubt.
A 2012 study by the Institute of Business Ethics rightly argued that for any successful organisation:
Yet this building block remains at a premium.
“Trust me and speak up”
Leaders often fondly believe that to encourage employees to speak up about compliance breaches and other bad practices they merely need to reassure them they’ll be properly cared for if they do. In essence they say “Trust me and speak up”
For example, in response to a negative NY Times story on working practices at Amazon the CEO wrote to all his staff:
“Tell me any stories of bad treatment of employees.”
This was hardly credible as a reassurance. It suggested he did not fully grasp what it takes to build employee trust.
Another place where leaders tend to encourage employees to speak up about ethical lapses is in performance reviews. Yet countless research studies confirm employees don’t trust these experiences. What’s worse, the managers conducting them don’t trust them either!
This is currently the single most effective method of uncovering or discovering seriously inappropriate behaviour.
For example, a US study by the American Association of Fraud Examiners found over 43% of the frauds discovered in corporate America were the result of someone raising the issue to a person of higher authority or “whistleblowing”.
To be effective as a compliance tool, employees must trust the environment in which they might speak up. Yet with the exception of special regulator payments for telling the government about some company scam, whistle-blowers are badly treated.
Most (80%) whistle-blowers for example, have faced some sort of reprisal at work. Half those who speak up are forced to resign or are dismissed following their disclosures.
Although whistle-blowers are technically protected by law, those considering this route to exposing failures of compliance, are surely right not to trust their employer to protect rather than support them.
A UK survey of more than 2,000 working adults, found that only 33 per cent of employees who identified themselves as whistle-blowers said they had received a positive reaction when they raised concerns.
The Achilles heel and what to do about it
Lack of trust remains the Achilles heel of compliance systems. It will take more than yet more compliance officers or extra regulations to tackle the issue.
Trustworthy companies have a remarkable record of achievement. For example, TAA-TAW has been tracking the performance of America’s most trusted companies and the results are revealing.
These trustable companies have produced an 82.9% return against the S&Ps 42.2% since 2012.
Some companies do recognise the power of trust to help build their position in the market. For example, GSK the pharmaceutical giant features trust as one of the five key pillars in its code of conduct for doing business.
Even so, GSK failed to disseminate this core message to its branch in China, where bribery proved endemic and the company collided damagingly with local regulators.
When it comes to getting employees to speak up about wrong doing, as happened in VW and other companies, there’s still a long way to go in generating the right levels of confidence in the organisation.
“Trust me I’m a compliance officer” seems unlikely to be enough to build the right culture. Something more is needed.
That “something is an enabling culture, rather than a controlling one. A culture in which employees feel ethically committed to supporting the company avoid risks to its reputation.
Here are the top 10 requirements for re-building trust in organisations, and therefore underpinning the investment in traditional compliance efforts.
[symple_toggle title=”SOURCES” state=”closed”] Various, including: Return on Trust, Spring 2015, www.returnontrust.com
Trust: The behavioural challenge, PWC 2010
Blanchard, Building Trust, 2010
R. Wright, VW’s claim cheating was limited to a few engineers is queried, FT Oct 1, 2015[/symple_toggle]