1. Building and Sustaining Strong Ethical Cultures American Society for Quality April 9, 2014 Jim Nortz jimnortz@builtonethics.com 585-260-8960 1

2. Helping organizations thrive by building sound internal controls and strong ethical cultures. Built on Ethics Advisory Services

3. 1.What is a strong ethical culture? 2.Why should I want a strong ethical culture? 3.How can I build and sustain a strong ethical culture? 3 Today’s Agenda

4. 1. I am an ethical person. A.Agree B.Disagree 4

5. 2. It is very important to me that the organization I work for is ethical. A.Agree B.Disagree 5

6. 3. There have been times in my career when I felt pressure to compromise my ethical standards. A.True B.False 6

7. 4. There have been times at work when I saw things going wrong and even though I spoke up, I was unable to get the organization to change course. A.True B.False 7

8. 5. Our organization has an accurate gauge to measure the strength of our ethical culture. A.True B.False 8

9. What is a strong ethical culture? 9

10. A strong ethical culture is one in which the dominant social dynamics consistently encourage/reward ethical behavior. 10 Strong Ethical Culture

11. A strong ethical culture is one in which the dominant social dynamics consistently encourage/reward ethical behavior. A culture in which it’s “cool” to be good – where the odd person out is the one who breaks the rules. 11 Strong Ethical Culture

12. Why should I want a strong ethical culture? 12

13. 2006 LRN National Survey “A majority of workers – 94 percent – say it is “critical” or “important” that the company they work for is ethical.” 13

14. Reduced Misconduct Rates 2013 National Business Ethics Survey

15. A Strong Ethical Culture it Good for Business

16. Organizations with strong ethical cultures: 1.Minimize risks. 2.Maximize teamwork. 3.Recruit, retain and motivate the best in the industry. 4.Earn and sustain the trust of key stakeholders (customers, shareholders, suppliers and communities) 5.Maximize opportunities for superior financial performance. 16 Benefits of a Strong Ethical Culture

17. 17 2013 National Business Ethics Survey

18. How can I build and sustain a strong ethical culture? 18 The Big Question

19. 19 Organizational Behavior Distribution Curve Acceptable Behavior Zone Unacceptable Behavior Zone Organizational Behavioral Boundary Catastrophic Behavioral Boundary Catastrophic Behavior Zone Industry Behavioral Boundary Legal Behavioral Boundary Ideal Behavior Number of People

20. 20 Organizational Behavior Distribution Curve Acceptable Behavior Zone Unacceptable Behavior Zone Organizational Behavioral Boundary Catastrophic Behavioral Boundary Catastrophic Behavior Zone Industry Behavioral Boundary Legal Behavioral Boundary Ideal Behavior Pressure to Cheat Number of People

21. Pressure to Cheat External to Organization  Shareholders  Government Officials  Customers Inside the Organization  Leaders  Peers  Job Demands Inside Self  Desire to win  Desire to get job done  Desire to save time  Desire to look good 21

22. 22 Organizational Behavior Distribution Curve Acceptable Behavior Zone Unacceptable Behavior Zone Organizational Behavioral Boundary Catastrophic Behavioral Boundary Catastrophic Behavior Zone Industry Behavioral Boundary Legal Behavioral Boundary Ideal Behavior Pressure to Cheat Number of People

23. 23 Organizational Behavior Distribution Curve Acceptable Behavior Zone Unacceptable Behavior Zone Organizational Behavioral Boundary Catastrophic Behavioral Boundary Catastrophic Behavior Zone Industry Behavioral Boundary Legal Behavioral Boundary Ideal Behavior Pressure to Cheat Purpose Structures Systems Number of People

24. A Live Demonstration 24

25. 25 Organizational Behavior Distribution Curve Acceptable Behavior Zone Unacceptable Behavior Zone Organizational Behavioral Boundary Catastrophic Behavioral Boundary Catastrophic Behavior Zone Industry Behavioral Boundary Legal Behavioral Boundary Ideal Behavior Pressure to Cheat Purpose Structures Systems Number of People

26. 26 Organizational Behavior Distribution Curve Acceptable Behavior Zone Unacceptable Behavior Zone Organizational Behavioral Boundary Catastrophic Behavioral Boundary Catastrophic Behavior Zone Industry Behavioral Boundary Legal Behavioral Boundary Ideal Behavior Pressure to Cheat Purpose Structures Systems Individual Attributes (Knowledge, Attitudes, Choices & Habits) Number of People

27. 27 Organizational Behavior Distribution Curve Acceptable Behavior Zone Unacceptable Behavior Zone Organizational Behavioral Boundary Catastrophic Behavioral Boundary Catastrophic Behavior Zone Industry Behavioral Boundary Legal Behavioral Boundary Ideal Behavior Pressure to Cheat Purpose Structures Systems Individual Attributes (Knowledge, Attitudes, Choices & Habits) Social Dynamics (Obedience to Authority Conformity to Social Norms) Number of People

28. 28 Obedience to Authority

29. 29 Conformity to Social Norms

30. 30 Organizational Behavior Distribution Curve Acceptable Behavior Zone Unacceptable Behavior Zone Organizational Behavioral Boundary Catastrophic Behavioral Boundary Catastrophic Behavior Zone Industry Behavioral Boundary Legal Behavioral Boundary Ideal Behavior Pressure to Cheat Purpose Structures Systems Individual Attributes (Knowledge, Attitudes, Choices & Habits) Social Dynamics (Obedience to Authority Conformity to Social Norms) Number of People

31. 31 Organizational Behavior Distribution Curve Acceptable Behavior Zone Unacceptable Behavior Zone Organizational Behavioral Boundary Catastrophic Behavioral Boundary Catastrophic Behavior Zone Industry Behavioral Boundary Legal Behavioral Boundary Ideal Behavior Pressure to Cheat Purpose Structures Systems Individual Attributes (Knowledge, Attitudes, Choices & Habits) Social Dynamics (Obedience to Authority Conformity to Social Norms) Number of People Leadership

32. A Failure of Leadership

33. A Tale of Two Leaders 33

34. I wish my leaders were here to listen to this talk because they need to change for our organization to improve its culture. A.Agree B.Disagree 34

35. Avoid the Blame and Change Game Trap 35

36. 1.Focus on yourself - Take personal responsibility for modeling and promoting ethical behavior. 2.Reflect on a significant failure of leadership and re-write the story. 3.Look for and emulate role models. 36 A Path to Ethical Leadership

37. Two Leadership Challenges 1.Good intentions alone are insufficient to secure the “good” in organizations. 2.The primary behavioral drivers are invisible. 37

38. Two Leadership Challenges 1.Good intentions alone are insufficient to secure the “good” in organizations. 2.The primary behavioral drivers leaders seek to influence are invisible. 38

39. 39 Important Leadership Tools Acceptable Behavior Zone Unacceptable Behavior Zone Organizational Behavioral Boundary Catastrophic Behavioral Boundary Catastrophic Behavior Zone Industry Behavioral Boundary Legal Behavioral Boundary Ideal Behavior Pressure to Cheat Purpose Structures Systems Individual Attributes (Knowledge, Attitudes, Choices & Habits) Social Dynamics (Obedience to Authority Conformity to Social Norms) Number of People Leadership

40. Leadership Tools 1.Purpose – Define the “why,” “what” and “how” of your organization in ethical terms and integrate it into all aspects of your operations. 2.Structure – Ensure spans of control and accountability are designed to promote ethical behavior. 3.Systems – Evaluate your key systems to ensure their reliability. 40

41. Two Leadership Challenges 1.Good intentions alone are insufficient to secure the “good” in large/complex organizations. 2.The primary behavioral drivers leaders seek to influence are invisible. 41

42. 42 The Key Behavioral Drivers Are Invisible Acceptable Behavior Zone Unacceptable Behavior Zone Organizational Behavioral Boundary Catastrophic Behavioral Boundary Catastrophic Behavior Zone Industry Behavioral Boundary Legal Behavioral Boundary Ideal Behavior Pressure to Cheat Purpose Structures Systems Number of People Leadership Individual Attributes (Knowledge, Attitudes, Choices & Habits) Social Dynamics (Obedience to Authority Conformity to Social Norms)

43. The Primary Behavioral Drivers are Between Our Ears 43 Perceived pressure to cheat Perceived leadership Knowledge Attitudes Choices Habits Perceived pressure to do wrong. Perceived encouragement to do right

44. 44 Measuring the Invisible

45. Revealing the Invisible Anonymous Polling 45

46. 1.Do employees know the rules associated with their jobs? 2.What are employees’ attitudes toward the rules? 3.Are employees pressured to violate the rules or encouraged to follow them? 4.How frequently do employees see misconduct in the workplace? 5.What kind of misconduct are they seeing? 6.When they see misconduct, do they report it? If so, to whom? If not, why not? 46 Essential Information

47. Key Takeaways 1.Focus on yourself - Take personal responsibility for modeling and promoting ethical behavior. 2.Reflect on a significant failure of leadership and re-write the story. 3.Look for and emulate role models. 4.Optimize your chances of building and sustaining a strong ethical culture by: a.Periodically evaluating and improving your organization’s purpose, structures and systems; and b.Measuring the direction and magnitude of the invisible key behavioral drivers using anonymous polling. 47

48. Thank You 48

49. Building and Sustaining Strong Ethical Cultures American Society for Quality April 9, 2014 Jim Nortz jimnortz@builtonethics.com 585-260-8960 49