Leadership Integrity

Weighing nonprofit workplace ethics.
Dr. Patricia J. Harned

You are halfway to the office, lost in traffic and thought. Several office conversations of the past week echo in your head. Your membership coordinator's face flashes before you: "We're starting to see a decline in registrations," she says. "I'm worried about cash flow," your accountant admits nervously in another meeting. "It's time for a contingency plan," the board chair advises on a call, "just in case we don't make our numbers in the next few months."

You glance over at the driver beside you in traffic, and are reminded of the employee who raised his hand during the staff meeting yesterday, boldly asking if he and his colleagues should be worried about their jobs. You hope that in all these conversations, your answers were good enough. Suddenly, the honking horns bring you back to the present, and you realize that you've been gripping your steering wheel so tightly that your knuckles are white.

Many serious issues demand senior leaders' attention right now. Even in the most stable organizations, pressure is mounting for executives to quickly secure revenue, reduce expenses, and assure employees and stakeholders of their ministries' security and impact. According to "Giving during Recessions and Economic Slowdowns," a 2008 report from the Giving USA Foundation, the nonprofit sector tends to remain stable during economic downturns. Nonetheless, the reality for an individual organization can be quite different. What's worse, it's not just membership, contributions, and financial projections that are declining. Unfortunately, workplace integrity often mirrors the economic downturn, starting at an organization's highest levels.

Red Flags

While executives are bracing for the worst and adjusting their organizations' financial and operational strategies, the indicators from an ethics perspective are equally daunting:

• A MoodysEconomy.com weekly survey of business confidence published in January 2009 found that business confidence had reached record lows.

• According to a December 11, 2008, Wall Street Journal article by Sarah A. Needleman, "Businesses Say Theft by Their Workers Is Up," nearly one in five employers surveyed said theft by trusted employees had become a problem since the economic downturn.

• According to a December 2, 2008, survey by the IT security firm Cyber-Ark Software, 58 percent of U.S. workers admitted to having downloaded confidential organizational data they plan to use personally if needed to find a new job.

• In a December 2, 2008, Compliance Week article by Melissa Klein Aguilar, "Many Fearful of Fraud Spike," 91 percent of compliance, legal, finance, and risk executives surveyed said they expect fraudulent activity to remain steady or increase in the next year.

Taken together, these and similar findings point to troubling possibilities. Even at the highest levels, leaders view the future negatively. That almost inevitably translates into a changed tone from the top. After all, it's difficult to continue talking about the value of high ethical standards and the importance of individual action when the overall outlook for the ministry is grim.

Sadly, we are beginning to see how that shift in tone translates at lower levels. Employees are nervous. They don't always trust the information coming from the top, and are willing to do what it takes to protect their livelihoods. This increases the likelihood of fraudulent activity, and experts indicate that such misconduct can be expected.

Even in Your Organization

No organization is immune to misconduct, even though leaders often assume that serious infractions "wouldn't happen here." In 2007, the Ethics Resource Center's (ERC) National Nonprofit Ethics Survey (available at ethics.org) revealed that the nonprofit sector experienced the highest levels of misconduct in seven years of study. More than half (55 percent) of U.S. employees indicated they had observed either a workplace violation of the law or of their organization's standards. Overall, employees in nonprofit ministries are now as likely as corporate employees to witness wrongdoing at work [see Figure 1]. Even in small nonprofits of fewer than 100 employees, 48 percent of the workforce indicated they had observed a violation in the past year.

ERC's 2007 survey indicated that during times of transition—particularly the change that comes with economic downturns (restructurings, mergers, and layoffs)—misconduct rises by as much as 11 percent in a single institution. On average, 38 percent of employees will not report wrongdoing they witness to anyone in their organization, leaving leaders clueless about the misconduct.

Leadership Matters

Despite gloomy trends, there is good news: Your organization doesn't have to experience a downturn in integrity. Misconduct can be dramatically reduced and employee commitment to integrity strengthened if an organization takes steps now to build a strong ethical culture. Such a culture begins with leadership's strong example [see Figure 2].

Setting a tone of integrity at the top is not easy. The truth is that setting a tone is not a strategy; it's an expectation that is made credible through a relationship. Leaders who set the standard do so by consistently reinforcing their commitment to right conduct, knowing what employees around them are doing, and encouraging their direct reports to do the same. The cascading effect yields the right tone from the top. Research has begun to uncover some essential truths about the mystery of such leadership integrity.

Truth #1: Few leaders actually get through to employees with the right tone.

In the summer 2000 edition of California Management Review, Linda Trevino's research indicated that most executives acknowledge the importance of the tone they set, and many believe they are perceived as accomplishing the task. Unfortunately, employee interviews just one level down revealed that even the most committed leaders were considered to be neutral at best on the importance of right conduct. Some were even viewed as altogether unethical. The reason? Executives weren't explicit enough, and employees concluded they just didn't care.

Truth #2: Leadership integrity makes a difference.

Where it is being established, the proper tone from the top has a substantially positive effect. According to ERC's 2007 National Business Ethics Survey, in organizations with the right tone from the top, the prevalence of misconduct was 57 percent lower than in organizations where these actions were not displayed. Similarly, employee willingness to report misconduct was 33 percent higher, and exposure to risk was 66 percent lower.

Truth #3: Big change results from very small actions.

The things leaders do to transform their cultures and reduce misconduct are not broad, sweeping initiatives. The recipe for success is manifest in small, everyday activities. Five stand out in particular:

• Talk about the importance of ethics. Periodically referencing the organization's mission is a start, but what really matters is continual reference to the organization's values and the way you employ them to make business decisions.

• Model ethical conduct. Most organizations have a set of core values, even if implicit in their missions. Leaders should set the tone actively and consistently display those values to the people around them.

• Keep promises and commitments. The key here is earning the trust of employees that you will keep your promises, based on the fact that you've done so before. Avoid saying one thing and doing another.

• Keep employees informed. Sharing information about the well-being of the organization, strategic directions, and other activities results in employees who feel valued and invested in for accomplishing the company's best interests. Employees trust leaders who give them information.

• Hold employees accountable. When wrongdoing occurs, leaders who set the right tone back it up by enforcing their standards. If not, they will not be believed.

Truth #4: Some efforts matter more than others.

Together, these ethics-related actions result in employees' perception that the organization prizes ethics. That said, it's not enough to just "talk the talk." To set the right, credible tone, one must lead by example.

Truth #5: Organizations have many "tops."

The tone from the top doesn't involve just a handful of people at the highest levels. Direct supervisors who engage in these ethics-related actions have been shown to impact levels of misconduct by as much as 37 percent, according to ERC's 2007 National Business Ethics Survey. To an employee in a large organization, "the top" might be a direct supervisor, a department head, and/or a CEO or president. The tone must be advanced by all of them.

Wall Street analysts, financial advisers, economists, and pundits have differing perspectives on the economic future. They almost universally agree, however, that we are in uncharted waters. While the future is uncertain for both the economy and individual nonprofits, it remains true that leadership integrity matters. Ethics starts at the top.

Dr. Patricia J. Harned, president of ERC, recently directed research for the center's National Business Ethics Survey, National Gov-ernment Ethics Survey, and National Nonprofit Ethics Survey. Harned has served as an ethics consultant to the New York Stock Exchange, and speaks on ethics to organizations such as the World Bank. She also testifies before Congress and advises Capitol Hill committees and staff.

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