New research finds that organizations that take values, ESG, and DEI into account when building culture will be more successful in attracting and retaining employees.
By Margaret Sweeney
A record 4.4 million employees in the United States quit their jobs in September 2021. That accounts for 3% of the workforce. And the crazy thing is that number isn’t a one-month anomaly.
Tens of millions of employees have sought greener pastures over the past year in what has been collectively dubbed The Great Resignation. That—coupled with labor shortages—is a real cause for concern for companies seeking to retain talent.
Resignations and labor challenges bring culture to the forefront of hiring conversations. Far more than ping pong tables and conference room snacks–which are useless in a remote work setting anyway–culture is something the organizations can now practically measure. Having a strong, ethical culture keeps employees engaged and satisfied. It’s literally good for business across a variety of important metrics.
That’s exactly what LRN discovered in the recently released LRN Benchmark of Ethical Culture report. In an era of stakeholder capitalism—where employees and companies care more than ever before about expansive topics like environmental, social, and corporate governance (ESG) and diversity, equity, and inclusion (DEI)—culture informs and conveys how a company shows its commitment to values, its employees, society, and the planet.
The study tracked dimensions of ethical culture and how they shape team member conduct and impact company success. The report reveals organizations with the strongest ethical cultures outperform others by a significant margin—about 40%—across various measures of performance: from customer satisfaction and employee loyalty, to adaptability, innovation, and business growth. There is also greater transparency around reporting worker misconduct.
Knowing when problems happen right away helps HR leaders handle crises in real time, working alongside the company’s compliance or legal counsel as needed. It’s better to be working out problems as they happen, rather than witnessing misconduct fester, recur, and become a tentacled nightmare.
Data shows that over time, companies with a stronger ethical culture perform significantly better than their peers across industries worldwide. But how do organizations realize this type of culture? And what are the consequences of not doing so?
Here are six best practices to consider.
1. Organizations with a stronger culture focus on trust, ethics, and commitment to DEI. The Great Resignation is a major opportunity for individual professionals—but can pose major challenges to companies looking to find or keep talent. Fortunately, strong ethical cultures can help keep workforces intact. Regression analysis on the study’s data finds that the top predictors of an employee’s desire to stay with their company are environments characterized by high trust, a sense that one’s company is ethical and purpose-driven, and a clear company commitment to DEI. In today’s challenging employment market, focusing on these cultural dimensions will help not only recruit but also retain talent.
Companies with the strongest company cultures experience the highest levels of employee loyalty. The survey data demonstrates these companies see 40% higher levels of employee loyalty in comparison to those with the weakest company cultures.
2. Promoting and practicing ethical culture reduces misconduct risk. Organizations can only manage misconduct that is apparent. This often comes when another employee witnesses and reports an issue. While the study’s data shows relatively consistent rates of observed misconduct across respondents, those with the strongest ethical cultures have a significant edge when it comes to reporting: 93% of employees in the ‘most principled’ organizations–those in the top quartile–speak up about what they see, compared to 67% of employees in the bottom quartile.
This underscores an important reality for HR professionals: It’s important for employees to feel safe in speaking up and feel heard when doing so. A failure to listen and respond appropriately—with an honest investigation and review—can drive someone to act externally on issues that could have been resolved internally with proper attention.
Employees in organizations with the strongest ethical cultures are not only more likely to report misconduct, they tend to report it to their immediate manager (66% compared to 37% of those in the bottom quartile), demonstrating a high level of trust and confidence in the management structure. Similarly, employees in the bottom quartile are more likely to cite that they didn’t think their company would do anything about their concern and didn’t trust the confidentiality of the process as a reason they did not report their observation.
3. Ethical behavior stems from trust and organizational justice. Telling employees to do the right thing in an employee handbook or during a training session is straightforward. But what about when they are rushed—perhaps they are feeling the pains of the supply chain crunch or needing to meet an important deadline before the holidays. Simply put, it is far harder to follow all the rules when under pressure to meet production timelines, sales quotas, and other business targets.
Regression analysis on the study’s data finds that the top two predictors of ethical behavior—and ethical decision-making when under such pressure—are environments characterized by high trust and a sense of organizational justice.
4. There is a lot more work to be done in DEI. While companies have made commitments to DEI, the study reveals there is a wide gap in the perception of equality at an organization. Black Americans and people who identify as female still observe unequal treatment in the workplace more often than their peers. African, Black, Afro-Caribbean, and African Americans report a less positive experience of cultural dimensions, while people identifying as female report less than those identifying as male.
Employees, particularly at the Gen Z end of the spectrum, not only find DEI valuable, they actively seek out companies that make it a core component of their cultural identity. Companies with a greater commitment to DEI tend to have stronger ethical cultures—and, as the study reveals, stronger cultures translate into stronger business metrics across the board.
5. There is a disconnect between leadership and workers. There is a divide in the reported experience of senior leaders, middle management, and those on the frontlines. The study’s data reinforces the long-studied “leadership disconnect.” Across all dimensions of culture, senior leadership reports scores that are about 11 percentage points higher than those of individual contributors. Leaders who paint a rosier picture than their staff will do so on corporate ethics, organizational justice, program resonance, transparency, leadership modeling, recognition, rewards, and trust. Given leadership’s large role in shaping organizational culture, establishing mechanisms to gain feedback from employees at all levels is a crucial component of understanding how these dimensions play out at every level of the organization.
6. A new phenomenon, the “Pandemic Paradox,” must be considered. Even though frontline workers were described publicly as heroes for keeping the economy running early on during the pandemic, they gave their organization the lowest scores across the various dimensions of culture. Like the leadership disconnect, there is also a disconnect between what a company says its values are and the real-life experience of employees. This “Pandemic Paradox” occurred across multiple industries, particularly in healthcare and manufacturing, where frontline workers did not have the luxury of working remotely during the pandemic.
As HR looks ahead to 2022 and considers the shifting landscape of work, those companies that create and embrace a strong ethical culture—one that is authentic and speaks to their organizations’ value and identity—will position their teams to be more productive, more engaged, and more effective in the year ahead and for years to come.
Margaret Sweeney is chief human resources officer at LRN
