4 days ago
Building an ethical culture: Leadership's role in corporate integrity
Much of the time, a single moment or lapse in judgment does not precipitate a crisis. Instead, corporate scandals tend to spring from systemic failures in corporate culture, specifically around ethics.
However, within many organisations, ethics are often discussed in theoretical terms — lofty yet nebulous aspirations or nice-to-haves. This opaque approach to principled behaviour belies the clear consequences of its absence: diminished stock prices, dinged reputations, scrutiny from regulators, and in extreme cases, criminal judgments.
Given its potential for harm, organisations may not be giving ethical risk the attention it deserves, particularly from the top down. In a 2024 survey from the Society for Corporate Governance and Deloitte, 48 per cent of respondents reported that their boards of directors provide no dedicated oversight of corporate culture. Of those that do watch culture, many monitor whistleblower complaints or hotline reports, meaning they might step in after an ethics issue has already emerged. Only about one-third of the subset are more proactive, whether analysing employee surveys around ethics programs or benchmarking their organisation's ethics efforts against their peers.
The prevalence of social media and the rapid adoption of AI, particularly generative AI, exacerbates ethical risk, since harm from a lapse can hit harder and spread faster than ever. It is no longer enough to respond wisely to an adverse event. Organisations need to be proactive, sense risks before they emerge, and move quickly to head off potential crises. The capabilities needed to effect and enforce ethical behaviour cannot be developed overnight; they must be modelled by leaders and embedded into the fabric of the organisation.
Instilling an Ethical Culture
Employees make many choices every day that have ripple effects. Whether they respond ethically when pressured to achieve a sales goal, satisfy an unhappy customer, or meet investor expectations largely depends upon how tightly ethics are woven into the broader corporate culture and cascaded throughout the organisation. In ethical leadership, the CEO —perhaps with board input — sets the tone. The rest of the C-suite amplifies it. Then business unit leaders, supervisors, and managers instil it in employees. The result: an ethical culture.
To help build an ethical culture, leaders can adopt practices in four primary areas:
Ethics Expression. Ethical standards should be communicated clearly, along with what is expected of employees. Messaging should express how the organisation upholds its values and how it will respond when rules are broken. Set from the top down, the tone should foster an environment where ethical behaviour is the norm and unethical actions are discouraged. Cadence matters, too. Consistent and frequent messaging not only aids retention but also demonstrates the organisation's commitment to prioritising integrity. Executives, starting with the CEO, should lead the way in communicating that integrity matters above all else and it is everyone's responsibility. Messaging vehicles may include all-hands meetings, town halls, and enterprise-wide announcements as well as more targeted discussions and presentations.
Ethics Engagement. Employees need to understand the implications of their actions, how to navigate complex situations, and how to make choices that are in the best interest of the organisation and its stakeholders. They also need to understand how to comply with laws and regulations. This comprehension is rarely innate. Training programs and learning opportunities should be made available at all levels. Leaders should set expectations immediately with new hires and reinforce them periodically. Workers being promoted or transferred to new business units may need additional development. Training should cover realistic ethical dilemmas, bringing timely and relevant scenarios to life while also highlighting emerging risks. Learning can be reinforced by incorporating ethical considerations into project design, implementation, and debriefs.
Ethics Empowerment. It is not enough to centre on the code of conduct to instil confidence in employees to speak up. Employees need an environment in which they can report violations and get help with ethical dilemmas without fear of retaliation. Organisations should establish multiple safe channels for surfacing concerns so they can be addressed early. These channels may include speaking with a supervisor, manager, or other leader; consulting with HR or talent functions, or ethics team members; or calling a helpline that allows for anonymous reporting. Offering multiple options makes it easier for people to find the approach that is most comfortable for them and most appropriate for the situation.
Ethics Evaluation. The ethics landscape is constantly changing. To keep pace, organisations should periodically assess their ethics programs to identify trends, evaluate new risks, and make sure the messaging still resonates. Assessment activities may include interviewing stakeholders, conducting internal focus groups, and benchmarking ethics initiatives with leading practices. Formalising leadership performance goals can also help to gauge program effectiveness and promote positive outcomes. Holding leaders accountable for communicating and modelling ethical behaviour engenders trust and influences the tone at the top, which feeds back into ethics expression. Also, the CEO and other leaders may wish to recognise employees who have taken personal risks to uphold the organisation's values and consider ways to reward ethical behaviour by embedding it into performance criteria.
Sending the Right Signals
When pressed, employees often reach for what feels familiar — for what has been modelled and normalised. What have employees observed about how their peers, managers, and leaders handle conflicts or ethical dilemmas: Are there negative consequences for delays or extra expenses in the name of safety, or are those actions accepted, even applauded? Are suggestions for cutting corners indulged, or is there zero tolerance? Do people massage reports to meet targets, or do they report transparently, look for root causes, and find ways to improve?
Such cues guide decisions. Strong ethical leadership can help the organisation send the right signals. By creating a value-centred culture, leaders can help equip the organisation to head off ethical breaches before they happen and to respond swiftly and effectively — and yes, ethically — when they do.
Lori Pressler is chief ethics officer, and Michael Rossen and Miira Velia, are both managing directors, all with the US Ethics Office, Deloitte LLP.
As published by the Deloitte US Chief Financial Officer Program in the 30 April 2025 edition of The CFO Journal in WSJ.
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