Over this five part series I am visiting 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 the white paper, she introduces a strategic cultural framework which compliance professionals and companies can use to not only help them assess their ethical culture but, equally important, 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 Part III, we discuss the gap between an organization’s espoused ethics and its actual values, how this can lead to tension and the risks that arise from conflicting priorities and goals.

We began with a review of culture and how it can be viewed through the lens of the framework. Bulgarella emphasized that the architecture of culture is complex. It is not just about behaviors, not just about Codes of Conduct and/or policies and procedures. It is about key beliefs and the manner in which systems and processes are designed. Moreover, it also consists of the norms and expectations. In looking at each culture determinant, the framework addresses the specific systems addresses norms and mindsets that should be managed. The framework tells us that if we want to manage delegation of ethical dilemmas, we should look at principles of conduct. If we want to look into principles of conduct that we should not just stop at corporate values but also consider the implicit norms when it comes to leadership and power in an organization.

So in addition to making ethical factors a consideration in the hiring of and promotion to senior management, you need to consider senior leadership’s behavior and what they believe their power is based upon. When it comes to values, do companies put their money where the mouth is and financially reward employees who do business ethically and in compliance and not simply those who make their numbers every quarter? The framework allows you to consider not only whether employees receive training but also is it targeted training and is the training effective? The bottom line is that the framework helps an organization understand the contradictions that define culture. It highlights the different directions in which people are pulled, the gap between what is said and what is done. Finally, it addresses the way in which people are likely to respond to these inconsistencies.

The two cultural dimensions in the framework, ethical capacity and delegation of ethical dilemmas, are helpful in considering both the different types and different levels of risk. The more dilemmas present in an organization, the more pressure will be forced upon employees and the greater likelihood they will make poor ethical decisions. The key is to have both dilemmas working in concert so that when culture is mature in your organization, the company works hard to address and contain dilemmas, while creating ethical capacity. Conversely, if your organization has an immature culture, your dilemmas are widespread and the ethical capacity is a law between the two. In addition to being overly focused on profit, these organizations do not help people address the ethical tradeoffs they are likely to encounter.

In addition to the immature and ambivalent organizations, Bulgarella identified two other types of organizations, the righteous organizations and mature organizations. Righteous organizations avoid delegated dilemmas but lack ethical capacity, thereby experiencing lower risk than immature organizations. However, their risk is higher than mature organizations since people don’t have much ethical capacity. These organizations create high risk when they impose their ethical principles on people in a cult-like manner, disabling the muscle of independent reasoning.

Ambivalent organizations experience less risk than immature organizations due to their higher ethical capacity, but Bulgarella believes they can pose greater risk than mature organizations due to their tendency to delegate dilemmas. By forcing its employees to make difficult ethical choices, an ambivalent organization’s exposure to systemic risk is still high. Employees may blow the whistle or resist the internal pressure, but ethical dilemmas are so widespread that employees do not have the trust to feel their company will stand behind them when they make a difficult, yet ethically correct decision. This means that an ambivalent organization remains exposed to considerable risk and should be monitored closely.

Bulgarella concluded with some thoughts on how risk changes across these four types of organizations. In mature organizations, ethical dilemmas are addressed at the top and the ethical capacity is consistently matured. This makes its business model low risk and growth is ethical. In righteous companies, there are clear ethical standards but little is done to build ethical capacity. This creates moderate business risk and such inflexible principles may inhibit ethical capacity. In ambivalent organizations ethical trade-offs are pushed on employees, even as the company takes steps to build ethical capacity. This creates high business risk, as there is intense pressure, which, in turn, creates widespread misalignment between stated and actual goals. Finally, there is the immature organization where there is a high delegation of dilemmas combined with low ethical capacity. This makes for very high risk and the business’ growth is generally not sustainable.

Tomorrow we apply the culture framework to a real-life case study, Wells Fargo.

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.