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HR Round Table

The ROI on Ethical Employee Behavior

Alexandra Guadagno
Contributor: Alexandra Guadagno
Posted: 06/15/2011

Ethics: we know we’re supposed to have them. We all assume that ours are up to par, and we only want to hire people who have a good set of them, too. But "ethics" are a vague concept, which research suggests is almost impossible to measure as a personal characteristic.

Harvard Business School organizational behavior professors Joshua Margolis and Francesca Gino have extensive research on promoting ethical employee behavior in the workplace. Their research has the not-so-shocking implication that environment and the way in which task directives are given can have a profound impact on employee behavior. But what is surprising is the subtext of this research: does this mean that all people are created equally when it comes to ethics, thus making them equally susceptible to chicanery, given the right situation?

According to the research by Gino and Margolis, this may be the case.

"This is different from saying that every individual is likely to behave dishonestly if put into a given situation, but it’s very likely that most people will—even if they have good ethical goals and standards," Gino tells HRiQ. "This research points to thinking carefully about organizational policies and also behavior at the top, because those behaviors and policies can really influence the behaviors of their employees at work."

HriQ readers weigh in on the question: How do you measure the ROI on ethical employee behavior in your organization? What are the other benefits to promoting ethics & compliance?

Robert Bragaw, Sr. Director of Contracts at Liquidity Services, Inc.


"One good way to address this is to measure the cost of non-compliance. It's not always easy to measure the benefits of compliance, but usually the costs associated with non-compliance jumps right out at you.

A good example is a Code of Business Conduct and Ethics. The benefits are somewhat amorphous. But, the costs of not having one and of not enforcing it...well, just look to the U.S. Federal Sentencing Guidelines for a starter. It can mean substantially more in penalties if there is a violation.

Bader Al Dhaheri, HR SNR Specialist at ADNOC Oil & Energy

It is obvious how to show ethical attitude, but it is so complicated to rate it directly into ROI. It requires direct link to case by case while for example an employ initiate a negotiation with supplier to reduce their price this could show us clearly link to ROI within the organization. It has to be within clearly embedded policy with high recognition and appreciation to such required behavior and professional attitude amongst employees.

Francisco Laborde, Quality and Process Improvement Professional


Ask yourself: Why would I want employees to behave ethically? If you can answer this question, then you can measure the benefits.

Look for improvements in:
- engagement
- morale
- absenteeism
- productivity
- health (body and mind)
- and of course, customer satisfaction.

One fair warning: Employees will not behave ethically if managers don't.

As for compliance ... it depends, but it may keep you out of jail. Measure that!

Marcel Rietkerk, Production Development Manager at Dutron BV

First Question: How many customers or turnover have you lost in, let's say, the last 5 years because of unintentionally unethical employee behavior? Form yourself a clear picture about that and question yourself if you want to reduce those losses.

Second Question: What initiatives do you want to employ for reducing the unethical behavior and what kind of budget do you need for that? Create your "ethics-improvement-plan."

Third Question: What is your target or forecast of the reduction in client-loss or turnover specifically caused by unethical employee behavior as a result of your improvement plans? Measure this, as well during implementation of your plan.

The project costs compared to your results in terms of improved turnover are the base for your ROI.

It is for sure a challenging project. Ethics has a rather vague definition; therefore it’s hard to measure. On top of that, people are not exactly proud of their unethical behavior, so finding it, measuring it and improving it will be hard in order to form a concrete "KPI-style" project out of this. Also, changing ethics are a long-term process: Be aware that you will have to wait for results and not give up. Take care that you build in some short-term successes to keep motivation in your project.

It’s clear that promoting ethics will have a huge benefit for everybody. You will have a reliable culture which is attractive for all stakeholders: Customers; suppliers; shareholders; and last but not least, your own employees!

Eric Kline,
Public Administration Professional

It would be wonderful if we could say that ethics isn't about keeping score. I suppose that for a company which had not previously focused on ethics in its behavior, it might be possible to poll employees (looking at, perhaps, morale and attitudes toward the workplace) and customers/clients for satisfaction with various aspects of the organization's output to see hoped for improvements over time.

I think that among the greatest benefits any organization should see when it promotes ethics and excellence (in this case: going beyond compliance) would be increased levels of respect in the marketplace. Many different aspects of word-of-mouth improve. Depending upon the nature of the organization's field of endeavor, this could result in the ability to raise prices for a superior product—or it might result in more customers choosing it over less ethical competitors.

Conclusion

There’s an obvious need to promote a culture of ethics measure the impact your initiatives are having in promoting the moral rectitude of your employees.

Warren Buffett was quoted in the Daily Mail recently saying: 'We can afford to lose money - even a lot of money. But we can't afford to lose reputation - even a shred of reputation.'

What are you doing in your organization to promote ethical employee behavior? And can you demonstrate that your efforts have a positive impact on your bottom line?

Alexandra Guadagno
Contributor: Alexandra Guadagno
Posted: 06/15/2011