Over this five-part series I, visit with Caterina Bulgarella on the recently released white paper by SAI Global, entitled “Predicting Risk: A Strategic Culture Framework for the C-Suite” (the “White Paper”). Bulgarella is a cultural architect and ethics collaborator with SAI Global and the author of the white paper. In this white paper, she introduces a strategic culture framework which compliance professionals and companies can use to not only help them assess their ethical culture but provides a framework to map ethics to their business process in a manner which improves ethics and compliance and improves overall business processes leading to more robust efficiencies and greater profitability. In this Part II, we discuss what the Board of Directors and C-Suite needs to know about ethical risks.

Bulgarella began by noting that the strategic culture framework is really a model for maximum impact for organizations to manage risk and ethical performance practically. It is based on two dimensions of culture. The first is whether your organization is delegating dilemmas, so when the cultural dilemmas after left unaddressed, employees are more likely to face difficult tradeoffs and make poor decisions. This translates that delegation of ethical dilemmas creates unwanted risk. The second dimension is whether an organization is creating an ethical capacity, which are the resources, practices and built-in resilience that helps employees to deal with ethical challenges successfully.

Companies can use the strategic culture framework to create a realistic risk profile. It lays out six determinants, three each within the dimensions listed above. The framework forces organizations to look at the ethical tradeoffs people are dealing with day in and day out and the implications of those trade-offs. The framework evaluates the capacity that your organization has internally; as that will help you predict how people respond to ethical challenges. I asked Bulgarella if she could provide an example.

She responded with the following example. Assume we both work for Acme and one of our values is safety. Acme trains its employees on safety procedures and that tells us that safety matters now but Acme also puts a great deal of emphasis on cost effectiveness. This means Acme prides itself on running things lean and fast. Safety and cost effectiveness do not have to butt heads all the time, but if there is too much emphasis on cost effectiveness; safety will eventually suffer if Acme has never looked at the relationship between safety and cost effectiveness. If the company does not understand the norms and expectations around safety and cost effectiveness, it may well face a tangible risk, that people may downplay safety to save the company money. This is where the framework comes into play as it can be the lens through which Acme can garner all the insights it needs to fully understand these dynamics and to recalibrate them to mitigate risk and increase the organization’s ethical performance.

We then turned to the three determinants of each dimension. For the dimensions of delegation of ethical dilemmas the determinants are: (1) What are your organization’s Principals of conduct? Under this determinant you need to know if your Principals of Conduct are clearly set out, is there a conflict between these standards and your organization’s values and are potential conflicts being addressed? (2) What is your organization’s leadership behavior and how does management exercise power? Here you need to know what the criteria is for promotion to or hiring of senior management; are senior management both talking the talk and walking the walk and, finally, do senior leadership view their roles as one of responsibility or entitlement? (3) What are both the incentives and discipline within your company? Under this determinant, you need to assess what are both the rewards and sanctions used by your organization, how are top performers treated when they act unethically and are employees rewarded for doing business ethically and in compliance?

For the dimension of ethical capacity the determinants are: (1) What is the ethical ownership? Under this determinant, you assess if your ethics and compliance responsibility is shared with the business units or siloed in compliance, is your company leadership being held accountable through ethical goals and are ethics framed as a chore or opportunity within the company? (2) What is the ethical reasoning? Here you need to consider whether you provide effective, targeted training with follow up communications, what company factors or experiences may hamper ethical reasoning in your organization and whether managers promote an open dialogue around ethical issues. (3) What is the ethical voice? This determinant deals with the channels through which information on ethical lapses are raised in the company; do they exist, is there a cost to sharing bad news or being an internal whistleblower and how has the company used such employee feedback?

Tomorrow we consider the gap between an organization’s espoused ethics and its actual values.

For a full copy of “Predicting Risk: A Strategic Culture Framework for the C-Suite” click here. For more information on SAI Global, click here.