The Institute of Risk Management (IRM)

2nd floor Sackville House 143 - 149 Fenchurch Street London, EC3M 6BN
+44 (0)20 7709 9808
http://www.theirm.org
  • About IRM

    The Institute of Risk Management (IRM) is the world’s leading enterprise-wide risk education Institute. We are independent, well-respected advocates of the risk profession, owned by practising risk professionals. IRM passionately believes in the importance of risk management and that investment in education and continuing professional development leads to more effective risk management.  

    We provide qualifications, short courses and events at a range of levels from introductory to expert. IRM supports risk professionals by providing the skills and tools needed to put theory into practice in order to deal with the demands of a constantly changing, sophisticated and challenging business environment. We operate internationally, with members and students in over 90 countries, drawn from a variety of risk-related disciplines and a wide range of industries. 

    As a not-for-profit organisation, IRM reinvests any surplus from its activities in the development of international qualifications, membership, short courses and events. 

Building an ethical culture

Company Culture

Nearly one in three employees has been aware of misconduct at work and one in six has felt some form of pressure to compromise their organisation’s ethical standards, according to Ethics at work: survey of employees 2018, Europe, published in July by the Institute of Business Ethics (IBE).

More than 6,000 employees across Europe were asked about whether they had witnessed misconduct, whether they reported it, and if not, why not. For those who had witnessed misconduct, the most common form was people being treated inappropriately or unethically (46 per cent), followed by misreporting hours worked (35 per cent) and safety violations (30 per cent).

The good news in this year’s survey is that more than half of employees who were aware of misconduct spoke up about it (54 per cent), which is an improvement on when the survey was last run in 2015. However, the number of employees experiencing pressure to compromise their organisation’s ethical standards has risen, which Philippa Foster Back CBE, director of the IBE, says is a worrying development. “Employees are under more stress to deliver than ever before, and this is increasing the pressure to then cut ethical corners. These figures should be seen as a warning sign to organisations that they need to be more supportive of their employees when it comes to making ethical decisions,” she said.

A quote from the Ethics Institute’s Ethics Risk Handbook included in the report explains: “Ethics risk is a dimension of risk in the same way that legal, operational, IT, finance and HR risks are. As the non-management of ethics risks could give rise to as many, if not more, reputational and financial costs for an organisation as any other type of risk, it warrants equal attention. As such, ethics risk is a component of the broader organisational risk framework. The risk management processes of an organisation are also highly dependent on the ethical culture of the organisation to enable effective risk management.”

What can cause these ethical problems?

The most common reasons for acting unethically, for example cutting corners, were shown to be time pressure and following the boss’s orders, reflecting the importance of managers in promoting and supporting an ethical culture.

There is also evidence of employees learning by example – those seeing unethical behaviour within their organisation come to think it must be an acceptable part of the culture, and they themselves become more tolerant of a wider range of ethically questionable workplace practices.

For example, 22 per cent of those aware of misconduct in their organisation said that favouring family or friends when recruiting or awarding contracts was acceptable, compared to 18 per cent of respondents who weren’t aware of any misconduct. Also 34 per cent said they had felt pressured to compromise on their organisation’s ethical standards, compared to just seven per cent of those not aware of misconduct.

Practical ways to reduce ethical risk

The survey showed that in organisations with a supportive environment for ethics, employees are less likely to have been aware of misconduct, are more likely to speak up about misconduct and say line managers set a better example. Organisations can take a number of practical measures to support ethical behaviour and reduce the risks of corporate irresponsibility, and risk managers can play a key role in this process.

The IBE describes the process of building an ethical culture in business as a journey that starts with identifying an organisation’s core ethical values. These are then embedded and implemented within the organisation through a comprehensive ethics programme made up of four building blocks – written standards of ethical business conduct; a means of reporting misconduct confidentially; advice or an information helpline about behaving ethically; and training on ethical conduct.

Key elements for delivering an ethics programme also include communication and engagement; leadership, a supportive environment and speaking up; and risk assessment, monitoring and accountability.

Identifying ethical risks is important in order to understand which issues should be the focus for an organisation’s ethics programme, to help ensure that employees do not feel pressured to compromise ethical standards.

Another practical measure organisations can take is to incentivise ethical behaviour. The most common incentives revealed in the survey are including ethics in annual appraisals or performance reviews (45 per cent) and taking ethics into account when assessing bonus payments (29 per cent).

Leadership in promoting good ethics and embedding core values is crucial, as managers can often be seen as role models by their teams – who pick up the tone from the top.

The freedom to raise concerns is also essential to an open and supportive ethical business culture – and for risk managers in particular this can act as a valuable early warning system for any potential risks. Good ethics not only reduce risks from inappropriate behaviour at work, they also support a culture of effective risk management through openness and honesty, something that many risk managers would like to see more of.