Eugene Soltes, a professor at Harvard Business School and an expert in why people commit fraud, gave a keynote speech at our recent Ethics by Design conference on how to engineer integrity in organizations. Part of that effort involves crafting effective codes of business conduct. Harvard Business School’s Working Knowledge recently discussed Soltes’ new research on the role ethics bots might play in improving the impact codes of conduct have in the workplace:
So do company ethics codes have any value? In a recent case study on a novel “ethics bot” created by consulting company Accenture, Soltes argues that such codes can be worth quite a lot to companies—but only if they go beyond generic platitudes to create a tool that employees can actually use.
Author of the book Why They Do It: Inside the Mind of the White-Collar Criminal, Soltes has spent his career examining how and why individuals commit fraud. In research forthcoming in Harvard Business Review, he has found that many employees see misconduct by co-workers, but only 30 to 50 percent admit to reporting that misconduct.
“Codes of conduct that employees sign typically require employees to report violations when they observe them, so they are actually violating their ethics code by not reporting violations,” Soltes says.
Companies have good reason to try and change that. For starters, firms that have an effective compliance program to prevent fraud and abuse can receive substantial benefits from regulatory and enforcement agencies if something goes amiss. For example, showing that a firm took pains to educate employees on legal regulations can potentially reduce fines by up to 95 percent.
Ideally, the code of ethics goes beyond just checking legal boxes for regulatory reasons to mitigate sanctions. “Perhaps even more important in today’s environment, you are also limiting reputational risk,” Soltes says, pointing to negative news stories or error-filled posts on social media that can undermine a company’s brand. “There are many actions that employees can undertake that may not be illegal, but can cause enormous amounts of reputational damage.”
A good code can also help workers do their jobs better. Most employees want to follow the rules and do the right thing, but may not understand how to comply with rules. “It’s not just about the legal exercise, it’s about impacting people’s behavior and underlying firm culture,” he says.
You also might find our Research Page on corporate culture valuable.
Brian Gallagher is Ethical Systems’ Communications Director. Follow him on Twitter @brianga11agher.