Do As I Say: Leaders Seen Grappling with Ethical Tone from the Top

While leaders articulate a company's ethical values, they are not measured and are often undermined by their own leadership teams' behaviors, PwC survey finds

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New York — July 26, 2010 — Setting the right ethical tone from the top is viewed as an increasingly important leadership skill that can make or break relationships with shareholders, employees, customers and business partners, according to a new report from PricewaterhouseCoopers.

The report, "Tone from the Top," suggests that while leaders are articulating the ethical values and principles they want others to work by, these are not regularly measured or evaluated and are often undermined by their own leadership teams' behaviors.

More than 40 percent of the 145 respondents from the PwC Fraud Academy said that, on occasions where tone from the top had been undermined, it was due to leadership actions not matching the ethical message being delivered.

"Today, almost all companies articulate sets of ethical values and principles, though many are still struggling to walk the proverbial walk at senior levels," said Tracey Groves, a director with PwC. Groves suggested that more stringent regulation and new legislation with a wider net are two reasons this issue is moving up the corporate agenda. "A further motivating factor is that organizations will gain competitive advantage by strengthening the organization's value and goodwill with investors and customers through the building of integrity and trust."

The report questions whether organizations are paying only lip service to ethical behaviors or whether they are effectively measuring and reporting on the ability of the organization and employees to act with integrity.

The issue is all the more relevant in the United Kingdom, where the PwC report was released and where the Ministry of Justice is soon to issue the "adequate procedures" that companies will need to demonstrate if they are not to be caught by the U.K.'s new Bribery Act. The act provides for holding management liable for abuses within their own businesses, sales channels or supply chains.

Elsewhere, the report finds that the CEO is seen as the primary custodian of culture in a business, followed by heads of finance, chairmen and heads of human resources. It also ranks the relative importance of elements that make for and ethical business culture. "Consistent and frequent messaging" and "oversight and monitoring of decision making" are seen as two of the most important areas, yet both these see the biggest perceived shortfall in management performance.

Companies are responding to ethical breaches on different levels, though performance here is still uneven. Some 65 percent of respondents said their organizations had issued warnings or reprimands when unethical behavior had come to light; 57 percent had dismissed individuals, and 27 percent had terminated a business relationship.

The report covers 10 key areas, including measurement of ethical risk, availability and effectiveness of training and development and internal help mechanisms. It was launched at a recent panel discussion event for PwC Fraud Academy members in London.

The report can be found here.